Hot Off the Web- January 26, 2015

Contents: Assets adequate for retirement? 1% adviser fee- next pin to fall? RRSP traps, Canada’s house bubble? Bank of Canada rate surprise-adding more air to the housing bubble? UK pensions: mandatory annuitization stopped- is annuity cash-in option next? will pension fund managers come clean on charges? Lieber: don’t buy Tony Robbins’s annuity pitch, Canada’s health system on the precipice, forecasting is difficult.

Personal Finance and Investments

In the WSJ’s “How to tell if your retirement nest egg is big enough” William Bernstein suggests that “when you’ve won the game, stop playing” and defines winning as having accumulated “enough assets to provide your basic expenses for the rest of your life”. His formula is: gross up your annual expenses for taxes, then subtract Social Security and other pension income, (This number he call residual living expenses or RLE) and then multiply RLE by a factor of 25/20/17 at ages 60/65/70, respectively. If you achieved this asset target, then he advises a reduction in portfolio risk; i.e. don’t take more risk than you need to. He then argues further that historical data suggests that a 65 year old with assets just 20xRLE should limit portfolio allocation to 50% stock, whereas one with 35x and 50x RLE can go as high as 70% and 100% stocks, respectively. (I come at the stock allocation question from another direction, and test whether I can tolerate a 50% drop in my risky assets and still meet my annual (fixed) expenses after tax and net of pensions (RLE) using a safe sustainable withdrawal rate. It comes to a stock allocation in the same ballpark, but of course still doesn’t guarantee that it is bulletproof. While Bernstein doesn’t explicitly state what safe withdrawal rate he’d recommend, he seems to be using 5% in his examples which I would consider overly aggressive for a 65 year old couple who has 75th percentile joint life expectancy of close to30 years.  )

In the WSJ’s “It’s time to end financial advisers’ 1% fees” Jonathan Clements opines that just as the shift from portfolio’s being constructed based on passive vs. active components has dropped investment management costs dramatically, is it time to end “the standard 1% of assets charges each year by many financial advisers”? Clements figures that advisers will resist cutting their fees; instead they’ll beef up the included services like ”detailed advice on estate planning and tax issues, as well as full blown financial plans”. (The business models for advisers are about to be revolutionized. Those who will provide real value for fees and do so with the peace of mind that comes with a fiduciary level of care will be the winners; let’s hope so. Of course, those who will educate themselves financially sufficiently to be mostly DIYs will have the opportunity to reap even greater benefits.)

In the Globe and Mail’s “Don’t fall into the RRSP ‘tax-trap’” Simon Avery discusses the impact of taxes on accumulated RRSP assets due to the corrosive impact of the Old Age Security clawback. The best time to start managing this is before age 71 after which one loses flexibility due to the minimum withdrawal requirements from RRIFs; the effect is the same when a retiree needs additional income from a RRIF to meet larger than usual expenses. Individuals should consider diversifying their retirement savings to include TFSAs and taxable accounts, as well as possibly start withdrawing from RRSP/RRIFs before age 71 especially in years when their marginal tax rates are lower. (After all the whole point of RRSPs was to save/invest pre-tax dollars during working years when marginal tax rates are high, and withdraw during retirement when marginal tax rates might be lower; if the assumption of lower tax rate in retirement is invalid (including the impact of OAS clawback) then you would have been better off to do your retirement saving with after-tax dollars. By the way, you can get trapped with OAS clawback rules even when you are careful; when trying to reduce size of your RRSP/RRIF before age 71 by making non-mandatory withdrawals, if you simultaneously trigger capital gains which would otherwise be offset by earlier capital losses, you might be in for a surprise since the capital losses appear to be disallowed for clawback calculation.)


Real Estate

In’s “Overvalued housing prices and how to read them” Don Pittis discusses whether Canada’s house prices (using a collectible card analogy), are in bubble or no-bubble territory, how supply is gobbled-up, speculation as an expectation of sufficiently rapidly rising prices for buyers to conclude that it is rational to make a bet that they can’t otherwise afford. Historically, property prices were 3-3.5x income, compared to current 10x in Vancouver and 7x in Toronto. (This is probably from the latest 11th Annual Demographia International Housing Affordability Survey” (which)  “covers 378 metropolitan markets in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States)”)  Another exceeded indicator mentioned in the article is average shelter-cost-to-income ratio (ASTIR) which compares carrying cost (including taxes heat, electrical, insurance, and  presumably mortgage, etc) which is supposed to be below 30% of gross income; should 5-year mortgage interest rates increase by 1-2% from current levels, this would push people into potentially unsustainable levels. (Another bubble signal is the growing volume of popular-press stories on the subject.)

But Canadian interest rate increases don’t seem to be imminent. In fact  Bank of Canada’s 0.25% rate cut to 0.75% is reported in the Globe and Mail’s “Oil’s threat vs. household debt: Poloz’s delicate balancing act”  to be ““unambiguously good” for the Canadian housing market, particularly outside Alberta, said Toronto-Dominion Bank economist Diana Petramala. Consumers seemed to echo that sentiment yesterday, with real estate brokerage Zoocasa reporting that traffic to its online listings website jumped 20 per cent after the bank’s announcement.”  Not surprising, since this rate drop is expected to translate into cost savings “for the roughly 30 per cent of home buyers with short-term or variable-rate mortgages.”


Retirement Income and Pensions

In the Financial Times’ “Annuities cash-in idea has ‘potential’, says insurer” Josephine Cumbo writes of a new UK proposal whereby in the interest of fairness, “pensioners would be able to sell their annuity income to a buyer such as an insurance company for a cash lump sum”, after ending recently the long time requirement for mandatory annuitization upon retirement. (I guess insurance companies will have another shot at profiting from asymmetric information in dealing with retirees; all in the interest of fairness.)

In the Financial Times’ “Fund managers must stand up and be counted on charges” David Pitt-Watson discusses the opaque charges associated with pensions and its impact in retirees’ income; the difference between an annual cost of  0.5% and 1.5% over a working lifetime translates into a 38% lower retirement income!. He notes that many of the costs charged are hidden and others are made invisible by using spreads, yet they are all paid from our assets. He challenges the investment industry to insure that all costs are made known to clients. (Good luck with that!)

And Ron Lieber in the NYT’s “Slippery tips on annuities from a life coach? rips into Tony Robbins’s new book and suggests that you should not waste your time or money on it. Tony Robbins appears very high on assorted annuity products which offer “upside without the downside” (I think we’ve heard this before!). Lieber concludes that “the word that people in technology circles use for coming-soon offerings like Mr. Robbins’s best-of-everything annuity is “vaporware.” I hope it will one day emerge from the ether and do all it promises to do. But I don’t know if I would bet on it.”

Things to Ponder

The Globe and Mail’s opinion piece entitled “When a stagnant health system meets an aging population, disaster awaits” reports that a recent CMA survey indicates that 80% of Canadians are worried about access to health services as they age, 75% worry about the cost of services not covered by medicare, and 61% are sceptical that hospitals and LTC facilities will be there to meet the demands of the coming wave of aging population. The problems are already visible, even before the “silver tsunami” has “made landfall”. The CMA is calling for a “national seniors strategy”. The article further notes that “Most Canadians would probably be a little shocked to hear that their country is no longer the international darling of universal health care… Out of 11 countries, ours is ranked 10th by the Commonwealth Fund… The U.S. habitually takes the 11th spot, but we’re right there behind them.” Of the 11 developed countries compared, “Canada has the worst “timeliness of care” and the second-worst overall efficiency… We have the longest wait times in emergency rooms”.  Furthermore “15 per cent of acute-care beds in Canada are filled with aging patients who should be released into the care of family or placed in a long-term-care facility.” This warehousing of the aged, one third of who have dementia, in $1,000/day hospital beds instead of $130/day in a LTC facility or $55/day at home must be addressed before the “silver tsunami” arrives, which we know that it is coming and when it is coming.

And finally, in the Globe and Mail’s “No one can predict the future- not even financial advisers” Tom Bradley writes that “talking about where the market is going is investing’s lowest common denominator. It’s like talking about the weather, except it has less chance of being right.” He argues that “Investment professionals want their clients to believe that they know more than they do; the media want readers to care about the daily news flow; and investors, who naturally want to grow their money, not lose it, are constantly fighting the twin demons of fear and greed.” Bradley recommends that you set your long-term asset allocation and then “stick to it by using contributions and withdrawals to rebalance your portfolio”. (Sounds like good advice. Financial or economic forecasting is just financial pornography. The only possible value in listening to forecasters is that their forecast might be a source of scenario building for your risk management strategy.)


One comment

  1. Fred Petrie · · Reply

    Don’t know if this reply to this week’s post will work Peter.
    Don’t expect many financial advisors talk to you, given your views.
    But as I am “retiring” in April at 70, thought I would share my findings from my three year career in the financial advice business.

    It is the introduction section of my book “The End of Work – financial planning for people with better things to do”.

    I’ll paste it below, in case your server screens out attachments.

    But if you would like to see more, I have self published on Kindle.
    Still looking for a partner to finance the re-write/edit and promotion, if you have any suggestions?

    PS. have aded the section from the investing chapter on fees. Ø Improving your return – guaranteed!
    Might make a blog post?

    Fredrick Petrie
    Navigator Finance


    “Where Are the Customers’ Yachts?”*

    A visitor to New York was admiring the yachts that Wall Street brokers bought with money received for financial advice. He asked: “Where were the customers’ yachts?” Of course, there were none. There is far more money in providing financial advice than there is in receiving financial advice. High fees are justified by the complexity of finance. You could not possibly manage money on your own.

    You know you need to save and invest towards financial independence, to “end work” on your terms. You know you should protect yourself and your loved ones in case your work ends prematurely, whether by death or disability. Both goals require you to spend money on financial products. Up to now, in seeking financial advice, you have had two choices:

    1. You could trust a financial advisor to always have your best interest in his recommendations, and so do your financial planning on blind faith; or

    2. You could become a DIY financial planner, spending enormous effort and energy, and making a lot of mistakes.

    Before choosing, or continuing, with option 1, you may want to watch CBC Marketplace’s

    My friend Don did option 2. He gave up on financial advisors twenty years ago, and started doing it himself, using the early discount brokerages and index funds. He wrote a book about it: “Don’t Sell Yourself Short” in which he explained the rudiments of investing for DIYs. Of course Don had an MBA in Finance and did the Canadian Securities Course just for fun. He really enjoys the stuff. For those interested enough in finance to do-it-yourself, the bookstores and libraries have shelves of books. And “do it yourself financial planning” got 5,930,000 hits on Google in .35 seconds. There is no shortage of information. The only shortage is your precious time.

    Now you have a third choice. You can invest in your financial literacy with this book. This option is for people who are not satisfied with option 1, but do not really want to pursue option 2, because you have better things to do with your precious time. With option 3 you will still need to use the services of financial professionals. But a modest degree of financial literacy will make you a more knowledgeable buyer of financial services. You will be better able to smell a rat, when the greatest thing since sliced bread is being pitched. And you may even be able to tell when you are getting your money’s worth from the fees you pay for money management.

    You are not going to read this book because you want to. You are going to read this book because you need to. You may have been ripped off by today’s financial industry. Or you may just be frustrated because you do not even know if you are being ripped-off. So give me a couple of hours of your time. I am going to tell you what you need to know to ensure your financial security. Then you can get back to your better things to do, or at least to a good book that you do want to read.

    * Used by Fred Schwed Jr. in the title of his 1940 book on investing – la plus ca change …

    Nobody can go back and start a new beginning, but anyone can start today and make a new ending. — Maria Robinson

    What’s it all about? 7

    An Introduction 11

    Ø Financial literacy

    Ø Advisor or salesman?

    Ø What about regulations?

    Ø Only you have the big picture

    1. What I am going to tell you 17

    Ø Making an income

    Ø Managing your income

    Ø Managing the risks to your income

    Ø Insurance is risk management

    Ø The fundamentals of investing

    Ø Risk manage your investments too

    Ø A secure but growing portfolio

    Ø Pay less tax – it’s your money

    2. The secret of success 23

    Ø Cash flow, cash flow, cash flow

    Ø What do you want to be when you grow up?

    Ø Make some money

    Ø Spending it

    3. How to manage 29

    Ø Management in three words

    Ø Where do you want to go?

    Ø Keeping on track

    Ø Measuring is the essence of management

    Ø Welcome to the real world

    Ø Trade-offs

    4. Meet Mr. Murphy 35

    Ø What can go wrong?

    Ø Safety Management Systems

    Ø Emergencies (make a will now)

    5. Insure your most valuable asset 41

    Ø Insurance economics

    Ø How much for how long?

    Ø What kind of insurance?

    Ø Shopping for insurance

    Ø Where to get it

    6. Investment choices 57

    Ø There are only two

    Ø The trade-off is risk

    Ø How much will you need?

    Ø Wither interest rates?

    Ø The eighth wonder of the world

    Ø Improving your return – guaranteed!

    Ø Be wary buying advice

    Ø To lever or not to lever

    7. Insuring your investments 75

    Ø Managing the risk

    Ø Self-insurance through balance

    Ø Risk or hazard?

    Ø Diversify

    Ø Be consistent

    Ø Computers make it worse

    Ø Insure your investments

    Ø Buy term and invest the difference

    Ø Insure your retirement

    8. A model portfolio 89

    Ø Balanced, diversified & consistent

    Ø Similar portfolios

    Ø Build your own

    9. Tax planning 97

    Ø Whose money is it?

    Ø Avoidance or Evasion

    Ø Defer, Deduct, Divide, Dividend

    Ø Tax shelters

    Ø Integration

    Ø Getting Money out

    Ø Don’t delay!

    10. What I told you 109

    Ø A financial plan – for people with better things to do

    Ø Working with a financial advisor

    Ø Put it all into practice

    Ø Keep it in perspective

    Bibliography 118

    Acknowledgements 119

    SHELL GAME: understanding public finance 121

    Never mistake motion for action.

    — Ernest Hemingway, American author

    Space for Making Notes

    It’s better to walk alone than with a crowd going in the wrong direction.

    — Diane Grant, Canadian playwright and screenwriter

    An Introduction

    Financial Literacy

    Financial literacy can ensure that you only buy the protection you need – the least amount of insurance for the shortest time, but enough to cover your real needs that you cannot afford to cover yourself. And the basics of investing are really quite simple when you understand some fundamentals. The essence of financial literacy is in knowing enough, to have confidence enough, to be able to take responsibility for your own financial decisions. This knowledge begins with an understanding of the financial advice business.

    Advisor or salesman?

    If your priorities for your time and energy do not include DIY financial planning, then you will still need to interact with financial advisors to pursue your financial goals. There are many financial planners and advisors who are knowledgeable and dedicated and really do care about their clients. Unfortunately, there are more who are not. There are some 90,000 people in the financial business across Canada. Most are paid on commission. They have to be pushy, and sell you whatever they can. It is a tough business to make a living, resulting in high turnover. A thick skin is required to get past the negative predispositions that resist a call from any salesman. Some financial companies recruit anyone with a pulse, sell them the “opportunity” to get rich, teach them some basic sales pitches, and then let them loose on you. Many have little financial background and may know less than you, but they have bought into the company sales pitch and can make their product sound “so-ooo” good. You may have already met one of these. There is no regulation of the term “financial advisor” or its variations. Anyone can hang out their shingle as a financial planner, once they meet the basic licensing requirements to actually sell financial products.

    Only about one in three “financial advisors” is in financial planning as a vocation, to build a professional practice. These belong to a professional association such as Advocis, subscribe to a code of ethics, carry errors & omissions insurance and are committed to continuing education. When you do get a sales approach, you can screen if they may be worth your time by asking if they meet these basic professional standards. The good ones will also have some extra letters after their name, degrees in commerce or economics, or designations such as CFP for certified financial planner or CLU for chartered life underwriter, certifications that take several years of part-time study and experience. Once you have found a professional, versus a “salesman”, and have developed a relationship, hang on to them, and listen to what they have to say. The Advocis website will even help you find one at:

    Nevertheless, you should never buy a financial product or investment based on your advisor’s recommendation alone. Take an interval to consider the recommendation, do a little research, and make your own decision. Only you can best decide your needs and priorities. Then you use a financial professional to advise you on the best products and companies to match the needs and priorities that you have defined.

    What about regulations?

    You may think the Big Brother of government regulations is going to protect you from unscrupulous salesmen. There are some fifty agencies, federally and in all the provinces and territories, which are “protecting” you as a financial consumer. Each province has their own regulatory agency for each of insurance and securities. A main function is to license sales people. An aspiring financial planner will need to pass the LLQP (Life License Qualification Program) and be supervised by a licensed agent for their first year. Annual license renewal does require continuing education credits that are obtained by attending financial company sales seminars. A similar exam and license is required to sell mutual funds and other investment products.

    These regulatory requirements do ensure the consumer that even the “salesmen” in the business do meet a basic knowledge requirement. These exams are not easy and the study material is comprehensive. At least you will know that when you are oversold inappropriate products, the salesman did know what he was doing! Beyond these basic standards, regulation is a hodge-podge of agencies working in their own narrow silos.

    To take an example, regulations require an advisor to complete your risk profile, to keep it in his file to demonstrate the product he has sold you is appropriate. The trouble is that everyone wants “aggressive” returns with “conservative” risks. This regulation suggests that you can choose to be one or the other. More likely, you will need some of each in a balanced portfolio. A psychological profile would be more useful. If you panic at each dip in the market, so that you always sell low and buy high, conventional wisdom suggests you should avoid equity investments. Instead, you may just need some education about what is “normal” through a business cycle. Since you have better things to do anyway, do not even look at share prices from one annual review to the next.

    Regulators cannot protect you if you choose option one. If you act like a sheep, you are sure to get fleeced, whatever the regulations. Take responsibility for your own choices and it will be a lot harder for the school yard bully to take advantage of you.

    And you may have to do more on your own in any case. In the interest of consumer protection and disclosure, the U.K. and Australia have banned embedded compensation (they mean “commissions”; transparency would be helped by plain English) and have imposed a statutory fiduciary duty obligation. Similar regulatory changes are being proposed in the U.S. and Canada. Under such regulations in the U.K., some 25% of advisors left the business due to the costs of compliance, all the paperwork to prove fiduciary duty. That cost forces the rest to focus on higher net worth clients, where more revenue on larger sales can compensate for the added cost of the regulatory compliance. That leaves the rest of us relying on Google for our financial advice.

    Advocis is advocating for the “professions model” of regulation, where financial advisors would be regulated in the same way as accountants and lawyers. That would be a big help, having a professional body that could impose real sanctions on the “salesmen” of the financial world.

    Only you have the big picture

    The value proposition in using an independent financial advisor is that they can take a holistic view of your needs. However, in practice financial advisors tend to specialize, or gravitate towards, either the protection side (insurance products) or the money side (investment products). The fact is there is more money to be made in the money side. Both sides are complex and require the advisor to invest time and effort in knowing the products, as well as in developing their sales skills to keep eating. The majority will be too busy trying to make a living to really be an expert in all the products available. Your advisor may have been giving good advice on the money side, but has she been neglecting your needs on the protection side? Only you have the truly holistic picture of your own needs.

    This book explains risk management for your income during your earning years and risk management for your investments that will provide your income after your Work Ends. You will be more confident as a buyer of the financial products which will protect you from a premature End of Work, as well as provide your income for the rest of your life after you choose to End Work.

    Having a degree of financial literacy will actually make you a more attractive client to the truly professional financial advisors you will need.

    Each minute we spend worrying about the future and regretting the past is a minute we miss in our appointment with life.

    — Thich Nhat Hanh, Vietnamese monk

    From Chapter 6 on Investing

    Improving your return – guaranteed!

    There is one guaranteed way to improve your investment returns and that is to pay less in fees for financial services. Managing your money does cost money and we should not mind a fair price for service and expertise rendered. The difficulty is in knowing the price. Regulators require some disclosure about fees now, that will get more stringent in July 2016, but even then you may not know the questions to ask.

    With a Commerce major in Marketing, when I took the MBA in Finance, I said my marketing specialty was pricing, one of the four P’s of marketing along with product, place and promotion. Pricing can be a shell game in many respects. One example is the grocery store chain that “sells” you a free membership (that lets them track your habits and target promotions to you). Then they mark special prices on sale items “for member’s only”. Of course you only select the item because the member only price is attractive. But you still feel good at check-out when you swipe the member card and see the 10 to 20% discount taken. And then they take your Air Miles card, and you use your credit card for more points – your groceries feel almost free! But do you have a clue what you really paid for the frozen pizza or pint of raspberries? The people who push financial products are no better than their grocery store counter parts.

    One of my peeves with money-side advisors is that they tell you they are charging a fee for service, not a commission. But if the fee is a percentage, generally one to two per cent depending on the size of the portfolio, that is applied whether their management makes you money or not, then what is the difference from paying a commission on the dollars you invest?

    You see the 1% management fee on your annual investment report (that the regulators require her to give to you). What did she actually do for you for that payment? One per cent of a $500,000 portfolio is still a $5000 fee. Even at a comparable legal fee of $250 an hour, that is 20 hours of work. If you only met with her for an hour, what did she do for the other 19 hours? Do you allocate some of the 1000 hours she spent on continuing education and analyzing markets for your account, as well as amongst her other hundred clients? But wait a minute, professionals justify the $250 an hour fee for all those indirect costs. Can you find a financial planner who will “only” charge a flat $250 an hour? Even if you buy ten hours of her expertise, you will have saved half the fees compared to the other “fees only” advisor at 1%.

    You may think your financial planner takes the high road of being a fees-only advisor, so she must be working for you and not the commission paying supplier. But besides the fees that you pay, what is she getting on the other side of the transaction, from the purveyors of the investment funds where she has allocated your portfolio? Many pay trailer commissions that are hidden in the Management Expense Ratios (MERs). So besides getting one per cent from you, she might be getting one per cent from Investors, Clarington, Franklin Templeton, et cetera.

    Whether it is an airline charging for a checked bag or a grocery store charging a nickel for a plastic bag, don’t expect your financial planner to be far behind, nickel and diming you with every little administrative or transaction service fee.

    The sneaky one is “deferred sales charges”. Investing for the long term, it should not be an issue, but it is good to appreciate what you are really spending on fees to manage your money. When a fund is sold with a DSC, a commission is being paid to the advisor or their firm. It is re-covered by the investment firm in the MER charged annually before you even see the rate of return on your investments. A good test of the honesty of your advisor is when they recommend moving money from a fund you have held several years, so the DSC no longer applies, into a new fund where a new DSC liability will kick in.

    So read your contract with your advisor carefully, and watch for details like service fees to withdraw money or move your account. You are the customer, it is up to you to demand transparency, and then evaluate whether you are getting value for your money in what you are paying to have it managed.

    When it comes to high MER fees on actively managed funds, the net margin achieved rarely exceeds the index over the long term. So some investors go with index funds at minimal fees hoping to at least chase the index. There is a wide selection of Exchange Traded Funds (ETFs) with only nominal fees.

    There is one way to avoid MERs all together and that is to buy stocks directly, with modest trading fees. But we have already established that you do not have the interest or time to pick your own stocks. So just buy one that already owns a diversified portfolio, a conglomerate. The most famous is a share of Berkshire Hathaway where you get Warren Buffet as your portfolio manager. A Canadian example is Prem Watsa’s Fairfax Financial Holdings, with a thirty year track record.

    Be wary buying advice

    While good advisors are invaluable in keeping you on track, and in finding the best track for you to reach your destination, an advisor who may not have your best interests at heart can do a great deal of damage to your financial health – think Bernie Madoff! Here are some tips to avoid an unethical advisor preying on your ignorance and trust. Remember that every dollar you save in fees comes out of his pocket.

    A good test of an honest advisor is how hard it is to get transparency information out of them. If they seem to bend over backwards to be sure you know how much you are paying them, and still justify their value-proposition, you have a good one. Don’t get suckered by one that seems to be costing less. The industry all has similar structures; chances are the “cheaper” advisor is not being as transparent.

    Watch for an advisor who pushes you to take out an investment loan so that you can buy more of what he is selling. The pitch goes: “You be the bank. Borrow at 4% and invest at 8%” (or even more when he only tells you about the fund’s growth in the past year of 20+% and doesn’t show you the ten year 2% average). There is no free lunch. You only get 8% by taking double the risk compared to a 4% return on investment. The investment loan pitch says the investment is the collateral, but somehow when it gets set up the bank wants your house pledged as well. In 2008 when the market dropped 50%, the investment no longer covered the debt and people lost their homes. Conservative advisors will just tell you not to borrow at all to invest. My advice is to only borrow what you have to in order to perhaps reach your defined independence goal, while recognizing the risk that you may not.

    Beware the fortune teller. Nobody knows what the market will do, especially over the short term. Be wary of the advisor who assures you the price of oil (gold, potash) is going up 50% within the next year.

    Complicated products such as “principal protected notes” usually include big up front commissions for advisors. If you do not understand the product, don’t buy it – or that advisor’s advice.

    Finally watch out for an advisor who is always recommending trading, to move out of one fund into another with better recent returns. He may just be looking for a new commission and the new fund will reset the DSC.

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