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Free ‘advice’ is sometimes not worth the price (biased advice from banks)
March 10, 2016
6:31 pm
Norman1
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Interesting article from the Hamilton Spectator: Free 'advice' is sometimes not worth the price

Author discovered her daughter had a TFSA and that the daughter didn't know she had one!

March 10, 2016
6:59 pm
Saver-Mom
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True, TFSAs are quite useless for low-income earners like students who pay no tax on the minimal interest income they earn. Lately I have been irritated by the whole concept of TFSAs and RRSPs. All this paperwork, keeping track of the specifics of each (Is it a spousal? Are we over our cdic limit? Did I put it in yet this year? Where is the tax slip? You want to charge me how much to transfer a registered account elsewhere?!) is sucking up my time and energy. The government could easily do away with all this with a simple tax credit: allow everyone to earn X amount of interest tax free. I am FOR saving, most assuredly, but I am AGAINST the complexity of the system.

The best advice I have seen on this website was from Loonie who noted that the best way to ensure savings in the future is to reduce spending in the present.

March 10, 2016
8:10 pm
kanaka
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I sort of agree with Saver-Mom. Put a limit on income tax for interest....ie no tax on the first 3000.

On the other hand some have done very well within the TFSA and have far exceeded making 3%. So there is a benefit to TFSA.

On another hand.....something the younger folks should consider. Is to consider ALL registered accounts as being for retirement planning. The RRSP windfall isn't really accruing interest with in the RRSP while everyone takes their share no matter how will it is doing and to draw at a lower tax rate......the tax refund from the RRSP deposit is the windfall......put it into the TFSA. It is a no brainer in my mind.

We can track on our own......a PITA band can confirm on "My Account" only if it was updated monthly and not annually but still your responsibility for not over depositing.

It is unfortunate this young lady trusted the Fiancial institution!

While I have multiple TFSA accounts and multiple FIs the most annoying is Coast Capitsl as when I have to write a cheque, I have to transfer from savings to chequing then write the cheque. Here is my issue....my TFSA account pops up as well, to transfer funds into. So far have been too over zealous in "clicking the mouse". I must go to the branch and cancel the TFSA account.

March 11, 2016
7:08 am
Koogie
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Saver-Mom said
True, TFSAs are quite useless for low-income earners like students who pay no tax on the minimal interest income they earn.

But still a better concept and vehicle for them than RRSPs.

Saver-Mom said The government could easily do away with all this with a simple tax credit: allow everyone to earn X amount of interest tax free. I am FOR saving, most assuredly, but I am AGAINST the complexity of the system.

Canada used to do this in the 1980s and prior. The first 1000$ of interest income was tax free. Not overly generous in my view and unlike the TFSA, it wasn't indexed.

March 11, 2016
7:11 am
Loonie
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Thanks for posting, Norman. This article, or at least a note about the risk, should go into every first year post-secondary student's Orientation Kit.

I can just imagine how this conversation went:

Student: I want to keep this money in a savings account.
Bank: I think you would be best with this Tax-Free Savings Account. You won't have to pay tax on it.
Student: OK, that sounds good.
Bank: Sign here.sf-smile

The student is young, naïve in the ways of the banking industry, and a sitting duck for this kind of scam. And scam it is, particularly with institutions that charge a fee for every withdrawal. Keeping track of how much you put in and how much you took out is also a nightmare for someone who only wanted, and only needed, a plain vanilla savings account. Further, it would have been better if the government had called this thing what it is, a Tax-Free REGISTERED Account, so there would be no confusion with a regular savings account.

Ontario is supposed to be putting in new rules about fiduciary responsibility (i.e. the necessity of giving advice that is in the client's best interests), but I don't have any details on that and don't know if it could apply to bank employees, but this needs to become the norm and would shut down a lot of these kinds of nefarious plans.

Nonetheless, if I were this parent, I would be complaining through the bank's complaint hierarchy, expecting them to close this TFSA with no fee, immediately. How many other students got dinged the same way?, I wonder. At least it doesn't appear that they tried to sell her linked GICs or some other foolishness where she might have lost money, so it should be possible to start over again with a clean slate when it is appropriate for her to do so.

Thanks for the compliment, Saver-Mom, but I did not make up this advice. It has
been given by others. The second best way to increase your wealth, they say, is to earn more money, sometimes easier said than done.

My vote would be to only tax interest income which is above the rate of inflation. My bottom-line goal is to hang on to what I've got in retirement except for what I choose to spend. Seeing your capital eaten away by inflation AND paying tax on what has been eaten away makes no sense to me.

But I doubt they will ever do that because they want to push us into the stock market. How many times have we read in advice columns that so-and-so, whose ability to thrive in retirement is clearly threatened by the potential for poverty after inflation takes its 10 to 20 year bite over the retirement years, "must" invest in the stock market to save themselves? This response is commonplace.

I find it unconscionable that someone who is already at risk should be pushed into even riskier investments. In the majority of cases that I have read, they would not have to consider this if the tax structure exempted interest income to cover inflation. The government sets an inflation GOAL of something around 2%, I believe. Since they think this is fine, they should allow retirees at least to keep up with it without penalizing them further. If they did this, then I would be OK with getting rid of TFSAs. There are other tax breaks for stock market gains through the provisions for capital gains/losses and eligible Canadian dividends, so I don't see a need for them to be sheltered in TFSAs. In fact, they may be a bad idea for TFSAs since you lose the contribution room taken up by any losses.

If they made these changes, then the people who can truly afford the risk would still invest in the stock market, but the people who could not would not be pressured into it. The latter would be better off and would be at less risk of being a burden to the state. The former would be better off because they could make a rational decision about how much of their capital to invest in the markets, knowing that their "cash" portion in GICs was protected from inflation, so they would not have to worry so much about their investments and could truly invest for the long term if they wanted to.

March 11, 2016
7:34 am
Koogie
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Norman1 said
Interesting article from the Hamilton Spectator: Free 'advice' is sometimes not worth the price
Author discovered her daughter had a TFSA and that the daughter didn't know she had one!

Hmmm... I've read the article now. The author is listed as: "".. a mortgage agent and money coach living and working in Hamilton."" Yet, she claims her university age daughter didn't know that she had been sold a TFSA account and that the daughter "didn't really understand what she had" Maybe she needs to start that "money coaching" a little closer to home !.... sf-embarassed

March 11, 2016
12:18 pm
Bill
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Koogie, I agree. And to get into university you're supposed to be somewhat smart and hardworking, the "best and brightest", etc, etc. Plus they're of age, no longer children. Instead of blaming the seller, they would benefit more by being taught to take responsibility for their own purchasing decisions and thus doing whatever "homework" is necessary ahead of time.
Also, despite the name ("saving account") there are many people who use TFSAs just like any other discount brokerage account. In particular, young people, those with decades of investing and saving ahead of them, might benefit from realizing TFSAs are a completely different animal than just a tax-sheltered savings account at the bank. Many of us on this site are inclined towards saving in "high" interest savings accounts but it's also important to educate our kids about the wide range of investment possibilities so they can make the choices that feel right for them.

March 11, 2016
1:24 pm
xxxx
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Absolutely correct Bill - parents should educate their children re finances - my parents did that - they were not "university educated" - but they took responsibility, did their prep before taking action and I got the message. I think some people on this blog should stop bashing all financial advisors, all banks etc. etc. We all need to take responsibility for our own actions in life.
More information is available today with internet etc. so one can be informed and make an independent decision.

Amazing the ranting and raving by certain members here - when Peoples or Tangerine dropped their interest rates on savings accts - too bad, so sad - if you are angry at Peoples and Tangerine and TD Bank and their staff - then go elsewhere - no one is forced to deal with any particular bank or credit union.

March 11, 2016
5:07 pm
kanaka
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I set an example for our children...but they didn't all marry to "bright" partners.

March 11, 2016
11:30 pm
Loonie
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If I ever find a financial advisor, anywhere, who meets the oft-repeated criterion of someone whom I feel I can trust completely, you'll all be the first to know - after I sign up and secure my place in his or her book.

As for young kids going off to university, they all have much to learn, some of it in the classroom. This ought not to make them sitting ducks for manipulative banking practices. Indeed, none of us should have to put up with such shenanigans.

Funny how there is a lot of emphasis here on "buyer beware" (always good advice) but none on the ethics of the FI in question. A reasonable dose of regulated fiduciary responsibility would cure that inequity lickety split. Coming soon to a bank near you, I hope.

We are fond of proclaiming how sound and dependable our banking system is. Let's make it ethical as well.
Or would you really prefer that young adults who have only just reached the age of majority and whose parents might never have imagined that anyone would try to sell them a TFSA that they don't need and can't really use, continue to be subjected to this sort of behaviour?

March 12, 2016
5:44 am
Bill
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Loonie, re your last paragraph, I answer "yes". That's what keeps us sharp for next time. Five year-olds selling lemonade in front of their homes know that sales people are in the business of selling us stuff we don't need, that's what they do! And "ethics" is a VERY vague term and we would all endlessly disagree. I think there's absolutely nothing wrong with a salesperson selling high-fee mutual funds to consenting adults even if there might be far better investments for said adults. Many would disagree. Just like I think it's fine for a business to sell high-margin sugar-laced drinks to consenting adults who would be better off buying healthy stuff. Others would disagree. And on and on, it's never-ending, we'd never all agree. Plus we'd have to hire a personal nanny for each adult to make sure they are protected from their own negligence in every interaction with another human or business. So it won't work, thus the real answer is to arm yourself to engage in life's competition. You'll win some, you'll lose some. University kids can vote, they have sex, they drink, they can enter into contracts, they are legally adults and they supposed to be smart. Not a big regulatory priority for me.

March 12, 2016
7:11 am
SavingIsGood
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Surprise: I did find fin adviser I trust fully. He recommended one mutual fund who performs steadily year after year and I never looked back. Of course, that fund is not getting impossible and fake 10% or more. That is for suckers, same one who buy a new car if big breasted woman offer it.
My only regret is that I met a guy after 20 or so years after starting investing...

March 12, 2016
5:27 pm
xxxx
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I agree with Bill. We have enough govt regs already.

I see drivers still using cell phones despite regs and heavy fines. Hard to regulate every aspect of human behaviour.

March 12, 2016
10:11 pm
Norman1
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It doesn't take much regulation to make "financial advisor" a protected title, restricted to only those who have a fiduciary duty. There are people in the investment industry who are fiduciaries. I think those who are registered as investment counselors and portfolio managers are.

That way, mutual fund salespeople and insurance salespeople cannot hold themselves out as "financial advisors".

In Quebec, something similar has already been done. This is from the Public Interest Advocacy Centre's 2009 report Holding The Purse Strings: Regulating Financial Planners:

“Financial planning” therefore is a loosely used term in many provinces and may designate a financial advisor who largely sells investment in a large financial institution, but may either perform only some of the financial planner six steps or alternatively, create a financial plan largely as a method to convince the clients of the need to invest in securities, especially mutual funds. [sf-frownCan't be! Who would do such a thing?]

This is not so in Quebec, where financial planners are regulated under a comprehensive provincial financial services framework that requires financial planners to meet standards set by the Institut québecois de planification financière (IQPF), be subject to fines and discipline for malpractice and fraud, to follow continuing education, to disclose conflicts of interest and prohibits most self-dealing. The Quebec regime also prohibits operating financial businesses under confusingly similar titles to financial planner, such as financial advisor, personal finance planner, private wealth advisor, etc. In doing so, the Quebec regime has also effectively curtailed the self-regulatory financial planners from operating as such in Quebec, unless an agreement with the IQPF is reached.

March 12, 2016
11:47 pm
Loonie
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Perhaps I should move my money to Quebec after all! - or at least get my advice there.sf-smile

Brian, you may not be fond of regulation, but you are fond of telling us that Canadian bank stocks are very reliable and that Canadian banks are very sound in part because they are well regulated, which regulation, you have noted, has tightened since the last series of bank failures in the '80s and '90s. I will grant you that this appears to have met with some success so far.
Let's make more improvements, throughout the financial sector, in the public interest.

There will always be those who misbehave, some in a most flagrant manner.
What is needed are clear expectations, education that prepares practitioners to meet them, consequences, and enforcement. Every disciplinary process has these characteristics, but some do it better than others.

March 13, 2016
5:49 am
xxxx
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Agree - a few more you may want to include in your proposal for more regulation might be politicians, producers /sellers of unhealthy foods/drugs , and Catholic priests

March 14, 2016
4:31 am
Loonie
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SavingIsGood said

Surprise: I did find fin adviser I trust fully. He recommended one mutual fund who performs steadily year after year and I never looked back. Of course, that fund is not getting impossible and fake 10% or more. That is for suckers, same one who buy a new car if big breasted woman offer it.
My only regret is that I met a guy after 20 or so years after starting investing...

I think it is highly unusual for any advisor to recommend only one fund, and to leave it at that. They usually can't resist tinkering.
Do you feel inclined to tell us which fund this is?

I was just looking at the FundLibrary listings and was hard-pressed to find funds that had given any positive return in the last year.

March 14, 2016
12:46 pm
dentgal
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Saver-mom (great name!):
i keep a spread sheet for my investments so i can watch them go down!! but on the spread sheet i have a column for RRSP contribution and TFSA contribution, along with the date down the vertical axis (can't believe i remember that term!!).

Moving my RRSP cash out of ScotiaMcLeod--even though i just moved most of my portfolio into them; they cannot come near 2.5% Zag @ 2 yrs. The best they could offer is 1.8%. AND they are dinging me with a $125 transfer fee. The good news: i'll more than make up the $125 at Zag. p.s ZAG claims that they do not have a transfer fee at the end of the 2 years. Let's see what happens!

March 14, 2016
6:04 pm
Saver-Mom
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Dentgal, I have recently started a similar sheet for myself and my less organised spouse.

Koogie, yes I remember the era of the 1000$ tax-free interest, but was too young to benefit from it!

Bill, having two university-aged sitting ducks myself, I can attest to the fact that while they are allowed to vote and have fully functional body parts, the organ between their ears is not fully developed or able to grasp the subtleties of high finance, nor do they have the interest.

To have University educated people present themselves as expert advisors when they are really only salesmen is, IMO, fraudulent. My nephew has worked as such an advisor at a big green-hued bank for several years and is now planning a career move, perhaps to pharmaceutical sales. He wants to get into something that is more honest...

March 15, 2016
4:04 pm
SavingIsGood
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Loonie said
I think it is highly unusual for any advisor to recommend only one fund, and to leave it at that. They usually can't resist tinkering.

I was just looking at the FundLibrary listings and was hard-pressed to find funds that had given any positive return in the last year.

You are right; that was strange. But he recommended fund he is investing in for his children education and for his retirement.

Maybe you did not look hard enough. How and where did you look? http://www.fundlibrary.com?
What I can see in terms of performance is: 2015 - 10.54, 2014 - 12.11, etc. maybe I am looking at wrong measurement? But if you look at 'simple return', you are right; they are all in red.

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