Saturday, June 28, 2008
Its Not A Lie If My Fingers Are Crossed
I can remember playing around as kids with my brother and sisters. Our general rule was "it's not a lie if your fingers were crossed when you said it". Of course, as kids our little white lies did not have the power to destroy wealth or mislead strangers. It was more likely to involve who took the last cookie or who left the milk out.
As we read through the tangle of information and dis-information from those selling securities, the little errors of ommission or implied information becomes a much bigger risk to investors.
A great example was exposed in the recent article by Rudy Luuko in the Toronto Star this week. For those that follow Mutual Funds, Mawer has been a great company that delivers on its promise of quality investing at a reasonable price. While many firms have partnership agreements, one of the Mawer partners sells what is basically the same fund as Mawer sells, but at a much higher MER. That higher management expense ratio funds a bigger trail of commissions back to the advisor. So once more the advisor has a choice: I can sell you the Mawer funds directly from Mawer at a low investor cost, or I can make a big commission by having my client buy the same fund through a partner firm. Hmmmm, I wonder how the disclosure works on this sale.
My guess is that the advisor crosses her fingers and says this is a great company with a great track record and maybe just forgets to mention the investor can buy the fund a lot cheaper if the agent looked past self interest and focused on wealth building for clients. For those who think maybe this is an isolated situation, please refer back to the sale of DSC style funds. The concept is the same. WHAT THE INVESTOR DOESN"T KNOW DOES HURT THEM!