Stocks - The Best Buys 2

[Enoch Root]

Originally Posted by Cecil Terwilliger

When you’re at a high enough level the difference between banks and wealth management firms is a myth. There’s no advantage to using a private advisor.

It’s the advisor who has a good reputation. There are good firms with crappy advisors everywhere.


If we’re talking someone who is just starting investing then yeah low level bankers at the big five suck but that’s more a reflection of buying power than it is of banks. It’s like saying you shouldn’t buy a Toyota because Ferrari dealerships have better customer service. Well duh but they aren’t exactly after the same clientele.

Strongly disagree with this.

Of course there are lousy advisors at any firm (well, not mine, but we are pretty small), but there is so much more to it than that.

Large firms like banks offer internal products that are more profitable for them, but not better for you, and no matter what anyone tries to tell you, the advisors are motivated to sell some of those products.

Also, your suggestion that at the higher levels, there is no difference, has it entirely backwards, IMO, and the truth is actually the opposite. At higher levels, where private firms excel, the difference is the most significant.

Most people deal with the banks because when they are just starting out, they don't know any better, and they usually don't have much in the way of assets, so they don't have a lot of options. However, it is often the case that they move on from the banks as their portfolio grows. And there are lots of good reasons for this.

It is also the case that many of the better advisors at the banks move on at some point, for the same reasons.

[Cecil Terwilliger]

Originally Posted by Enoch Root

Large firms like banks offer internal products that are more profitable for them, but not better for you, and no matter what anyone tries to tell you, the advisors are motivated to sell some of those products.

Umm isn’t that what I said? Bank or firm makes no difference. Bad advisors give bad advice.

Also, your suggestion that at the higher levels, there is no difference, has it entirely backwards, IMO, and the truth is actually the opposite. At higher levels, where private firms excel, the difference is the most significant.

I didn’t say that at all. I said all other things being equal, money talks. Small firms have no advantage.

You clearly have never dealt with a high level private banking outfit at the big five. They put most small firms to shame.

Smaller firms can excel at certain things that give them advantages over big investment firms or the big five. But if what you say is true then those small firms are automatically bad when they get big because profits? Not sure what conclusion you’re trying to draw here.

Most people deal with the banks because when they are just starting out, they don't know any better, and they usually don't have much in the way of assets, so they don't have a lot of options. However, it is often the case that they move on from the banks as their portfolio grows. And there are lots of good reasons for this.

It is also the case that many of the better advisors at the banks move on at some point, for the same reasons.

And? This is common in any industry and usually is because successful people don’t want their commissions going to their employer when they could keep it for themselves, so they open up their own shop. Usually it involves years of experience, capital and an established client base. Does that mean they were bad advisors with the banks but good advisors when they went private? Your reasoning makes no sense.


It appears your argument is that your small firm is better than big banks. Sure. But that means nothing in the bigger picture. Some of the worst advisors I’ve met were from the big five and others ran their own shop. You’re drawing conclusions not found in evidence.

Your suggestion small firms are less likely to do it for the money or are less likely to push more profitable products has no real supporting evidence.


With so much bias and misinformation it is no surprise people want to do it themselves and companies like questrade are making a killing. It’s an industry fraught with advisors who overvalue their services and less than honest business practices.

[Slava]

Originally Posted by Cecil Terwilliger

Umm isn’t that what I said? Bank or firm makes no difference. Bad advisors give bad advice.



I didn’t say that at all. I said all other things being equal, money talks. Small firms have no advantage.

You clearly have never dealt with a high level private banking outfit at the big five. They put most small firms to shame.

Smaller firms can excel at certain things that give them advantages over big investment firms or the big five. But if what you say is true then those small firms are automatically bad when they get big because profits? Not sure what conclusion you’re trying to draw here.



And? This is common in any industry and usually is because successful people don’t want their commissions going to their employer when they could keep it for themselves, so they open up their own shop. Usually it involves years of experience, capital and an established client base. Does that mean they were bad advisors with the banks but good advisors when they went private? Your reasoning makes no sense.


It appears your argument is that your small firm is better than big banks. Sure. But that means nothing in the bigger picture. Some of the worst advisors I’ve met were from the big five and others ran their own shop. You’re drawing conclusions not found in evidence.

Your suggestion small firms are less likely to do it for the money or are less likely to push more profitable products has no real supporting evidence.


With so much bias and misinformation it is no surprise people want to do it themselves and companies like questrade are making a killing. It’s an industry fraught with advisors who overvalue their services and less than honest business practices.

What advantage is there to the bank? All I see coming from there is a slate of proprietary funds. Independence is so critical. It's not a knock against the bank advisors, but they have a limited slate of investment funds they can offer, and that's that. Most of them are MFDA advisors and they can't even discuss stocks or single securities.

[flamesfever]

Originally Posted by Enoch Root

Strongly disagree with this.

Of course there are lousy advisors at any firm (well, not mine, but we are pretty small), but there is so much more to it than that.

Large firms like banks offer internal products that are more profitable for them, but not better for you, and no matter what anyone tries to tell you, the advisors are motivated to sell some of those products.

Also, your suggestion that at the higher levels, there is no difference, has it entirely backwards, IMO, and the truth is actually the opposite. At higher levels, where private firms excel, the difference is the most significant.

Most people deal with the banks because when they are just starting out, they don't know any better, and they usually don't have much in the way of assets, so they don't have a lot of options. However, it is often the case that they move on from the banks as their portfolio grows. And there are lots of good reasons for this.

It is also the case that many of the better advisors at the banks move on at some point, for the same reasons.

What are these products?

[Cecil Terwilliger]

Originally Posted by Slava

What advantage is there to the bank? All I see coming from there is a slate of proprietary funds. Independence is so critical. It's not a knock against the bank advisors, but they have a limited slate of investment funds they can offer, and that's that. Most of them are MFDA advisors and they can't even discuss stocks or single securities.

Apples and oranges. If all you think banks offer are proprietary funds you’re either not knowledgeable about what they do or are intentionally misleading the conversation.


By the way another red flag. Any advisor that deals in absolutes and tells you option a is better than option b for everyone in every scenario 100% of the time is probably lying. Or delusional. Either way, it’s a bad sign.

I’ll reiterate, there are good advisors everywhere and bad advisors everywhere. Do your research, find someone you trust and doesn’t over promise. If their only argument I’m support of themselves is to lie about their competition, instead of speaking to their own accomplishments, it’s a bad sign.

Not pointing fingers at anyone here of course. I’m speaking generally.

[Cecil Terwilliger]

Originally Posted by flamesfever

What are these products?

Mutual funds usually but that’s misleading if we don’t know how much money your friend has, plus some other factors.

Ask any successful advisor if his/her firm will open an account for an 18 year old with no prior family relationship with $1000 to his name who saves $25 a month.

The answer is no. Why? Not profitable for the advisor.

[RichieRich]

Is it ok to ask here for opinions on a few specific investments firms within Calgary? I am ok with private replies or subsequent conversations. I am contemplating moving from a bank-centered investment account to a few for service style. Although we have done well with our investments I’ve also felt we’ve left too much on the table the last few years through selected investments and conservatism.

[Slava]

Originally Posted by Cecil Terwilliger

Apples and oranges. If all you think banks offer are proprietary funds you’re either not knowledgeable about what they do or are intentionally misleading the conversation.


By the way another red flag. Any advisor that deals in absolutes and tells you option a is better than option b for everyone in every scenario 100% of the time is probably lying. Or delusional. Either way, it’s a bad sign.

I’ll reiterate, there are good advisors everywhere and bad advisors everywhere. Do your research, find someone you trust and doesn’t over promise. If their only argument I’m support of themselves is to lie about their competition, instead of speaking to their own accomplishments, it’s a bad sign.

Not pointing fingers at anyone here of course. I’m speaking generally.

I'm also speaking generally, but thanks for the shot. The banks offer a lot of proprietary funds and frankly its unrealistic to assume that one bank is going to invest you in the other banks mandate or vice-versa. It's ridiculous to even think that they would. I'm sure that is because they're not biased at all and it's in the clients best interest? There's no impartiality at all, and yet the truth is some financial institutions are good for some things and not as good as others. When you walk into a bank branch though, you get what you get; they're not looking at the other guys investment funds.

Originally Posted by Cecil Terwilliger

Mutual funds usually but that’s misleading if we don’t know how much money your friend has, plus some other factors.

Ask any successful advisor if his/her firm will open an account for an 18 year old with no prior family relationship with $1000 to his name who saves $25 a month.

The answer is no. Why? Not profitable for the advisor.

Patently false.

So, whats the advantage of the bank again? Their lineup of funds? Their GICs? Hardly anything to get excited about.

[Enoch Root]

Originally Posted by Cecil Terwilliger

Umm isn’t that what I said? Bank or firm makes no difference. Bad advisors give bad advice.



I didn’t say that at all. I said all other things being equal, money talks. Small firms have no advantage.

You clearly have never dealt with a high level private banking outfit at the big five. They put most small firms to shame.

Smaller firms can excel at certain things that give them advantages over big investment firms or the big five. But if what you say is true then those small firms are automatically bad when they get big because profits? Not sure what conclusion you’re trying to draw here.



And? This is common in any industry and usually is because successful people don’t want their commissions going to their employer when they could keep it for themselves, so they open up their own shop. Usually it involves years of experience, capital and an established client base. Does that mean they were bad advisors with the banks but good advisors when they went private? Your reasoning makes no sense.


It appears your argument is that your small firm is better than big banks. Sure. But that means nothing in the bigger picture. Some of the worst advisors I’ve met were from the big five and others ran their own shop. You’re drawing conclusions not found in evidence.

Your suggestion small firms are less likely to do it for the money or are less likely to push more profitable products has no real supporting evidence.


With so much bias and misinformation it is no surprise people want to do it themselves and companies like questrade are making a killing. It’s an industry fraught with advisors who overvalue their services and less than honest business practices.

Wow. There is so much wrong with this post, I don't know where to begin. Every single conclusion you drew from my post was wrong.

To the bold, lol. I have been in the industry for over 30 years, with every type of firm, large and small. I own a wealth management firm now, and I am more than a little familiar with 'high level private banking at the big 5', thank you.

I rarely get into discussions here about wealth management because it's just pointless. You have proven that again.

I will say one thing for others reading this: the difference between banks and other firms (not all firms, you have to do your research) comes down to proprietary products vs pure independence. Ideally, you want a pure fiduciary (someone who is not paid for what they sell, and works for a single fee). Some of the better advisors at the banks will tell you that they don't sell proprietary products, but they are highly motivated to, and are judged by their superiors to do so, so it will always creep into the equation for them.

[Enoch Root]

Originally Posted by RichieRich

Is it ok to ask here for opinions on a few specific investments firms within Calgary? I am ok with private replies or subsequent conversations. I am contemplating moving from a bank-centered investment account to a few for service style. Although we have done well with our investments I’ve also felt we’ve left too much on the table the last few years through selected investments and conservatism.

Maybe if you outline - generically, without giving any personal details - what you are looking for / in need of, and people can help advise on the types of things you should look for.

[Enoch Root]

Originally Posted by flamesfever

What are these products?

The most obvious are proprietary mutual funds. For example, if you are dealing with TD, they are going to offer you TD funds first, and you can rest assured that they will never offer you RBC funds (or vice versa).

But it goes much deeper than that. There are relationships behind the scenes that aren't as obvious to the end purchaser. For instance, BMO might enter into an agreement with CI Funds to sell their products. The advisor might tell you that it isn't proprietary because it isn't a BMO fund, but the truth is that the firm is compensated, and the advisor is compensated for selling it (even if the compensation is simply soft dollars).

The easiest way to avoid these issues is to deal with a fiduciary-type advisor (purely fee based). To be clear and fair though, this is also a bit of a muddied issue. There are firms that claim to be purely fee-based, but aren't really.

It is not an industry that I am particularly proud of, frankly.

[bizaro86]

Originally Posted by Johnny199r

Some advisors absolutely can add value. Some advisors pile clients into funds with high MER with DSC kickbacks and are terrible human beings only looking after themselves.

There's no denying that if someone feels comfortable with a couch potato portfolio or putting their assets into a Mawer balanced fund, they can find significant savings as a DIY investor over their lifetime. Not everyone has that knowledge or comfort, though.

This was the best post in this conversation, and maybe the best post in the thread.

Advice isn't free, and a good advisor can add value. For those who can do a good job without an advisor, there are definite and obvious savings (which can become meaningful with compounding).

[Krovikan]

I've only had experiences outside of this forum with banking institution financial advisors, I have to say my experiences outside of one was mostly horrible. I had one from TD when I banked with them that if I didn't pay interest on my credit card it would harm my credit rating. My mom had some serious estate issues due to an incompetent financial advisor at her credit union. I had a CIBC advisor tell me that I didn't need a bank account to open up an RESP for my son with them, then when I went to transfer money in after doing all the paperwork told me I needed an account with them.

But I also had one bend over backwards, getting the CMHC to ignore a stupid rule that almost prevents me from buying a house.

I have four savings accounts RESP, RRSP, TSFA and cash. RESP is with QTrade's advisor, service, I haven't been too impressed with returns or reporting. RRSP, I'm locked in with GWL (or whoever my work goes with). TSFA I self trade and up until this year this was probably a bad idea but was soo little money I felt it was good to learn. And well cash is just a savings account lol.

Eventually, I think I'll move my son's RESP to a financial advisor as I really want this money to be secure, and well managed. Question though, is there a minimum non-bank financial advisors would take on?

[Enoch Root]

Originally Posted by Krovikan

I've only had experiences outside of this forum with banking institution financial advisors, I have to say my experiences outside of one was mostly horrible. I had one from TD when I banked with them that if I didn't pay interest on my credit card it would harm my credit rating. My mom had some serious estate issues due to an incompetent financial advisor at her credit union. I had a CIBC advisor tell me that I didn't need a bank account to open up an RESP for my son with them, then when I went to transfer money in after doing all the paperwork told me I needed an account with them.

But I also had one bend over backwards, getting the CMHC to ignore a stupid rule that almost prevents me from buying a house.

I have four savings accounts RESP, RRSP, TSFA and cash. RESP is with QTrade's advisor, service, I haven't been too impressed with returns or reporting. RRSP, I'm locked in with GWL (or whoever my work goes with). TSFA I self trade and up until this year this was probably a bad idea but was soo little money I felt it was good to learn. And well cash is just a savings account lol.

Eventually, I think I'll move my son's RESP to a financial advisor as I really want this money to be secure, and well managed. Question though, is there a minimum non-bank financial advisors would take on?

Some advisors have minimums, some don't. However, it is simple math. If you have $10,000, 1% of that is $100 (which doesn't even cover their administration costs), so it is simply impossible for them to take you as a client. (The reason that the banks will deal with you, and not charge you a direct fee, is that the products will make more than 1% for them, and require little to no human input. They simply sell you a mutual fund and you go on your way. That isn't advice.

Until you have more assets, the best thing to do is buy inexpensive, whole-market ETFs. For example, Vanguard has a series of funds that give you broad access like VCN (Canadian equity), VUN (US equities) and VIU (international equities), that cost basis points (0.1 - 0.2%). Just keep buying products like these until your portfolio is large enough that it is worth your time and the advisor's time for you to work together.

[flamesfever]

Originally Posted by Enoch Root

The most obvious are proprietary mutual funds. For example, if you are dealing with TD, they are going to offer you TD funds first, and you can rest assured that they will never offer you RBC funds (or vice versa).

But it goes much deeper than that. There are relationships behind the scenes that aren't as obvious to the end purchaser. For instance, BMO might enter into an agreement with CI Funds to sell their products. The advisor might tell you that it isn't proprietary because it isn't a BMO fund, but the truth is that the firm is compensated, and the advisor is compensated for selling it (even if the compensation is simply soft dollars).

The easiest way to avoid these issues is to deal with a fiduciary-type advisor (purely fee based). To be clear and fair though, this is also a bit of a muddied issue. There are firms that claim to be purely fee-based, but aren't really.

It is not an industry that I am particularly proud of, frankly.

Yes, but these products or mutual funds, that the bank sells, have invested a significant portion back into the bank, so in effect when the bank makes money on the products, by pushing them, then a portion flows back to the person purchasing the product. Is that not correct?.

Also the mutual funds are managed by competent investors, backed by analysts, either with the bank or by a third party. Is that not correct?

[Slava]

Originally Posted by flamesfever

Yes, but these products or mutual funds, that the bank sells, have invested a significant portion back into the bank, so in effect when the bank makes money on the products, by pushing them, then a portion flows back to the person purchasing the product. Is that not correct?.

Also the mutual funds are managed by competent investors, backed by analysts, either with the bank or by a third party. Is that not correct?

Well if you want the benefits of the profits from the products, you should just hold bank stock. The funds themselves don’t necessarily hold that, and it will depend on the mandate, so it doesn’t end up in the untiholders hands.

But yeah, the mutual fund is professionally managed and there are analysts that work on those funds and in the investment teams for sure. That’s not specific to the banks though, and there are a lot of options for managed money.

[Enoch Root]

Originally Posted by flamesfever

Yes, but these products or mutual funds, that the bank sells, have invested a significant portion back into the bank, so in effect when the bank makes money on the products, by pushing them, then a portion flows back to the person purchasing the product. Is that not correct?.

Also the mutual funds are managed by competent investors, backed by analysts, either with the bank or by a third party. Is that not correct?

As Slava said, the profits from the fund sales are not going to have any kind of material impact on the performance of the fund. The drag from the fees is significant (2% for example), while the 'profit' from said funds will not move the needle on the stock significantly, and the stock is only one of many in the fund (less than 5% in a concentrated fund, and less than 1% in a whole-market fund). SO no, the profit from the fund for the managing company is not a positive for you. As Slava said, if the funds are so popular for the company, simply buy their stock.

"Mutual funds are managed by competent investors' is a huge can of worms. Even though I am a portfolio manager, I do not believe that funds can outperform enough to cover their fees - especially larger funds (targeted funds with very specific niches are a different story, however, they face dramatically higher fees - often between 5 and 10%, so the argument remains).

There is a massive amount of research and evidence that is pretty decisively damning for the managers - passive funds usually outperform over 80-90% of active funds over larger time periods. And the real killer is that the funds that do manage to outperform, changes from period to period (i.e. it isn't the same funds outperforming). So, the smart decision is low-cost, passive whole-market funds.

[Enoch Root]

That brings me to an important issue with respect to advisors - if you are paying them fees to build you a portfolio, you are wasting your money. They are not going to be able to consistently outperform a simple, well-constructed portfolio consisting of well-diversified whole-market funds.

Where advisors can and do add value is with what I call wealth management: financial planning, tax planning, estate planning, etc. I don't know how many times I have seen someone say "I have this huge tax bill, what can I do about it?" The answer is 'pay it' because once you owe the taxes, you owe them. The planning and management has to happen in advance. These types of things can become hugely important as your wealth grows, and their value (or cost , if done incorrectly) can vastly outweigh the differences were are talking about with respect to portfolio management.

[bizaro86]

Originally Posted by Enoch Root

That brings me to an important issue with respect to advisors - if you are paying them fees to build you a portfolio, you are wasting your money. They are not going to be able to consistently outperform a simple, well-constructed portfolio consisting of well-diversified whole-market funds.

Where advisors can and do add value is with what I call wealth management: financial planning, tax planning, estate planning, etc. I don't know how many times I have seen someone say "I have this huge tax bill, what can I do about it?" The answer is 'pay it' because once you owe the taxes, you owe them. The planning and management has to happen in advance. These types of things can become hugely important as your wealth grows, and their value (or cost , if done incorrectly) can vastly outweigh the differences were are talking about with respect to portfolio management.

I think its unfortunate that these services are generally bundled with portfolio management.

[Enoch Root]

Originally Posted by bizaro86

I think its unfortunate that these services are generally bundled with portfolio management.

Are you saying you want those services but not the portfolio management?

I see where you're going, but I don't agree. While it is very difficult to 'cover' the fees from good portfolio management alone, the fact remains that professionals are going to (or should) do a better job of it than a non-professional. They have more tools at their disposal.

But more importantly, it is the combination of all of it together that makes sense. The portfolio should be managed in a way that is complimentary to, and consistent with, the wealth management strategies and goals.

Also, if you separate them, people won't pay for wealth management until they think they need it, which is usually too late.

The best approach is a consistent plan that remains on track over the long term. The best way to achieve that is a fully bundled set of services.