Sad intros to investing: what I – and my adviser – did wrong

It was an ad in the subway that inspired me to start contributing to an RRSP at the hot young age of 21; the ad featured a simple but colourful graph that showed how investing in your 20s would get you that much further ahead than starting in your 30s or 40s. At the time, I was interning at an agency and earning pennies, but there’s nothing quite like being the lowest of the low at a PR puppy mill to make one dream of retiring as quickly as possible.

I asked around and just one (older) friend had started investing. He gave me the name of his adviser and I was off to the races. The person my friend recommended seemed nice enough and worked for an established financial institution, so one meeting and several bits of paperwork later, I had my very first investment portfolio that I would contribute to automatically on a monthly basis.

When I called my folks to let them know that I had opened an RRSP, I fully expected to be praised and given a cookie. Look at how responsible I was being! Look at how I spoke about my risk profile as if I knew what I was talking about! Look at how I was using the term “mutual funds” in a sentence! Cookie me, please!

“How much are you paying in fees?” my dad asked.

To which I replied, “Derp?”

The discussion of “what’s in it for them” with my new financial adviser had been non-existent. I had no idea how much I was paying in fees. I just knew that whatever was written on my statement was mine and that I wouldn’t be charged anything “extra” when it was time to eventually withdraw the funds.

“I assure you, you’re paying them something. And you should find out what that is,” said my dad.

I hung up the phone, tragically cookieless, and dug up my fancy new financial adviser’s business card. I then asked the question I should have asked from the beginning:

“How much are the fees?”

The only correct answer to this question is a numerical one. It could be high, sure, but it’s an answer.

That is not what I got. I may have been only 21 and quite green, but I instantly knew that I had trusted the wrong person with my finances.

Her reply?

“Why do you want to know?”

My reaction? Take it away, Miss J:

Take it away, Miss J

Image Source: and America’s Next Top Model

Ladies and gentlemen, you have every right to know the full costs of your investment. Why? It’s YOUR money! It’s money that you’re giving someone which is NOT being invested for you – instead, it’s going into the pocket of your adviser and the financial institution he or she works for. I’m not suggesting they haven’t earned it, but you need to know the amount they’re getting for a very important reason: Fees and costs decrease your return – knowing your total costs allow you to compare your investment choices.

And please don’t let anyone try to convince that these fees are “just like commission.” They’re not. If you walked into an electronics store, you know the price of an item and, more importantly, you know what you’re walking out with (in my case, it would be a sweet, sweet boombox). The one-time commission paid to the salesperson on your purchase will likely only have a one-time impact on the product you leave the store with. That’s not the case with investment fees where whatever is left after fees is what gets invested – and some of these fees are paid every year. In other words, if the fees are high, you may be paying boombox prices but winding up with just a Walkman in your hands. (Excuse the 80s technology references; I was watching The Goonies and Ghostbusters this weekend.)

It is not embarrassing, impolite or unprofessional to ask about fees and costs. Many people receive statements that don’t list the fee that’s been extracted – just the amount of shares or units you’ve purchased. And some people feel bad about asking what that fee is because their adviser seems nice and sends them a Christmas card every year. That doesn’t matter – ask! If you have a financial adviser who can’t be upfront with you about what’s happening with your money, I suggest you start squawking. And maybe start walking.

Thankfully, this whole “vague-fee’ing” thing is soon going to change: the Canadian Securities Administrators have laid down some new regulations that require portfolio managers to spell out the cost and performance of your investments. They’re being phased in, the first of which just occurred in July 2014, but don’t let that stop you from asking questions in the meantime.

I have a different financial adviser now; one who’s upfront and who I’ve sent a fair amount of business to. As for what became of my original one, I heard she’s had a career change. Smart move.

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