Imagine hiring a financial planner you thought you could trust. Then imagine losing nearly $50,000 after listening to their advice.
This nightmare situation was a reality for a retired couple who, in 2014, sought advice from a BMO financial planner on how to transfer their retirement savings from an American account to a Canadian RRSP, CBC Go Public reports.
Tom and Gloria Ratcliffe first approached two other big banks (CIBC and RBC) both of which told the retirees that the transfer of funds would result in a huge tax hit for them. At BMO, however, financial planner Karen Gill assured them the transfer was possible. When the the couple asked Gill why the transaction wouldn’t be an issue, she reportedly told them “‘Because BMO is such a big organization, we can do things other people can’t do.'”
As it turned out, BMO couldn’t do the $198,000 transfer after all, at least, not without slamming the couple with a $47,000 tax bill from both the U.S. and Canadian governments. What was left went into BMO mutual funds (Gill is a licensed mutual fund dealer).
But all was not lost: The couple approached eventually CBC Go Public, and BMO offered the Ratcliffes a cheque of $50,000 (up from their previous offer of $19,000).
While it’s great that the Ratcliffes recovered their savings, not everyone is so lucky.
Here at MoneySense, readers regularly contact us to share their tales of financial mismanagement. We’ve shared some of their tales here before. Advisors are meant to work with you to grow your money, or help you navigate difficult financial situations, but if you’re not aware of their credentials or aren’t aware of the regulations they should be following, you may be at risk, too.
Here are a few things to watch out for when you approach an advisor to make sure they don’t tank your savings:
1. What are their credentials?
Take a few moments to check the registration of your financial planner before deciding to work with them and learn what they’re licensed to sell you. Most investment advisors are awarded credentials by two organizations: the Mutual Funds Dealers Association (MFDA) or the Investment Industry Regulatory Organization of Canada (IIROC). MFDA-licensed advisors can only sell mutual funds whereas IIROC advisors can also deal in ETFs and individual stocks. Search for your advisor on aretheyregistered.ca to make sure they have the credentials they say they do. There are also independent financial planners, who cannot recommend any financial products and usually charge a flat fee or hourly rate and aren’t regulated by anyone.
2. Are they meeting the ‘suitability standard’?
Most advisors in Canada are held to what is called the “suitability standard.” This means they must be able to demonstrate that an investment is appropriate based on the client’s goals, experience, income and risk tolerance. Unfortunately, this standard has a lot of wiggle room—advisors may try justifying even the most unsuitable investments in your portfolio. If your advisor recommends products to you within the first five minutes of your very first meeting with them, beware! It’s highly unlikely that their advice is as carefully catered to your goals and needs as you’d like for it to be.
3. Read the fine print
Avoid signing blank forms thrust into your hands by your advisor before you even open any accounts. One of the oldest tricks in the book is getting clients to hurriedly sign forms without reading them closely so that the advisor can then fill out the rest and misrepresent your risk profile. This tactic leaves you in the lurch if you ever decide to disagree with the way your advisor is running the show. Investment strategy turning out to be riskier than you agreed to? Well, your signature says otherwise. While a tall stack of paperwork may be daunting, take it home and review it carefully. And make sure to ask your advisor for copies of all documents!