December 21, 2020

From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It.  HARDCOVER NOW ON AMAZON.  Click here:


Does Your Financial Planner Have a Conflict Of Interest?

 One of the reasons why I left the previous company that I worked for was that in order for me to get paid on the asset management side, I had to sell you very expensive mutual funds with hidden management fees. This made me feel uncomfortable and I knew that I had a conflict of interest when it came to recommendations on managing your investments.


In my humble opinion, the mutual fund industry is full of conflicts of interest. Most investors do not know the difference between Front End Load, Back End Load (which is sometimes referred to as a Deferred Sales Charge or DSC), Low Load, or No Load mutual funds. Each mutual fund comes with its own unique schedule of fees. Predominantly, what are sold in the industry are DSC mutual funds. What the investor doesn’t realize is that DSC mutual funds lock you into a five to seven-year commitment, and this may not be in your best interest. Although some DSC mutual funds may come with lower management fees initially, if you ever need to take all of your money out at once, you could be subjected to a 5.5% penalty to gain access to your own money. This practice is unfair, and to remedy this, the Mutual Fund Dealers Association or MFDA is coming out with the Client Relationship Model, phase 2 or CRM2 in 2016. CRM2 will force all mutual fund dealers to print the dollar amounts of the hidden fees they have been charging clients on the clients’ quarterly statements. Once clients are able to see the fees they have been paying on their mutual funds, I am anticipating a run on the bank, so to speak. The average portfolio for a doctor client comes with a hidden management fee of greater than 2.4%. This is why doctors should never invest in mutual funds or in what some consultants call “managed money”.


Suitability vs. Fiduciary Duty

There are two primary groups of individuals who are able to offer investment advice to the investing public. These two groups are Investment Counsellor Portfolio Managers (ICPMs) and Investment Advisors/Investment Brokers/Financial Advisors, with the latter group sometimes being referred to as broker-dealers. Many doctors may consider the investment advice they receive from each party to be similar, but there are some key differences that may not be understood by the average investor. The key difference pertains to two competing standards that ICPMs and broker-dealers must adhere to, and the distinction has important implications for the doctors who hire these individuals.


An ICPM must attend and pass rigorous educational and ethical standards programs. In the investing industry, an ICPM is recognized as the highest level of certification in Canada. ICPMs charge fees based upon a percentage of assets under management. Typically, as your assets grow in value, as certain milestones are hit, the percentage charged decreases. ICPMs are bound to a “fiduciary standard” which is regulated by each provincial securities commission dating back to 1912. ICPMs are held to a fiduciary standard that stipulates that they must place their interests below those of the client. This standard consists of a duty of loyalty and care, and simply means that, by law, the ICPM must act in the best interest of his or her client, and to do his or her best to make sure that any investment advice is given using accurate and complete information. Avoiding conflicts of interest is important, and this standard means that the ICPM must not have any conflicts of interest.


A broker is someone who acts as an agent for someone else, and a dealer is someone who acts as a principal for their own account. Therefore a broker-dealer may carry out the purchasing or selling of his or her firm’s inventory of fixed income as well as equity securities or mutual funds. The primary income for a broker-dealer is the commission they earn from making transactions on behalf of the underlying client. Broker-dealers who work for the banks or for mutual fund companies only have to fulfil a “suitability obligation,” which is defined as making recommendations that are consistent with the best interests of the underlying client. Broker-dealers do not have to place their interests below those of the client. The suitability standard only requires that a broker-dealer has to reasonably believe that any recommendations made are suitable for their client. A key difference in terms of loyalty is also important, in that a broker’s duty is to that of the bank or mutual fund company that he or she works for, not necessarily to the client served. Additionally, the need to disclose potential conflicts of interest is not as strict a requirement for a broker. An investment only has to be suitable; it doesn’t necessarily have to be consistent with the investors’ financial objectives.


The suitability standard can end up causing many conflicts between a broker-dealer and a client. The most obvious conflict has to do with fees. Under the ICPM, an investment advisor would be strictly prohibited from buying a mutual fund or other investments because it could garner him or her a higher fee or commission. Under the suitability standard, as long as the investment could be considered suitable for the client, it can be purchased for the client. This can present many situations in which a broker has the incentive to sell their own products ahead of a potential competing product that may be at a lower cost.


You can now hire money managers who have a fiduciary duty to the client, who are professionally trained and educated and who have earned the ICPM certification. There are a number of high quality boutique companies across North America managing billions of dollars in assets who will provide “private wealth management services” at a fraction of what these services cost just five years ago.


From Chapter 1 of Heal Thy Wealth: How Doctors Are Misdiagnosing Their Own Financial Health And What They Can Do About It.  HARDCOVER NOW ON AMAZON.  Click here:


By John Moakler, BMath, CFP, CLU
President and Senior Executive Financial Planner
Moakler Wealth Management
1 416 840 8544