As I look through the massive reams of media commentary on Investor Education and the flurry of activity from so-called SRO’s and other industry shills, two questions come to mind?
1- How did Canada, a well educated, conservative, rational nation of mostly honest people end up with such poor consumer protection and awareness in the area of investing?
2- Who is going to be the white knight that will expose the flaws in a multi-billion dollar industry that does not want to change?
The questions are quite simple; the answers a lot more vague than I would have thought. To set the scene lets first acknowledge that much of what is wrong is the result of entrenched financial interests. Things do not just happen....people have agendas and set out to make things the way they are.
So, on to question number one; How did we get here?
The Canadian Securities Institute makes more money by attracting more people to the industry and thus providing more courses. They also make more money if the mutual fund firms are happy with the process and send all the new recruits to the courses. Thus the courses are “mutual fund friendly”.
Sample from a wealth management course: “An investor is looking to invest money for two years and is offered a 10% return by a mutual fund....” . Let’s stop right there! This is a course for wealth managers (Wealth Management Techniques) and it uses an example of a 10% mutual fund return over a 2 year investment horizon! That might seem like a moderate return to a hedge fund like the one that financed the privatization of the CSI, but a couple planning on using the money in 2 years should never be in a hedge fund. The assumptions are clear; mutual funds offer options such as guaranteed 10% returns and clients with a 2 year time horizon before a major purchase should look at mutual funds. The course does not clarify what type of fund offers such a deal of course! It is little wonder new advisors think funds are a bullet proof way to get rich when the advanced planning courses they take teach them just that!
As stated, nothing in the industry is ever all bad or all good. .The CSI does teach ethics and does a good job of teaching the benefits of diversification and of explaining the workings of many securities The main challenge is that the educational industry is intricately tied to the fund industry and is not in an independent position to expose the issues and challenges that come with funds. In many subtle ways (as in the above example) the institute has given in to the fund industry and abdicated the educational independence required to provide critical comparisons of competing strategies. That's why our education system has public funding and not corporate ownership; otherwise Coca Cola would be taught to be health food!
Question 2: Who will be the white knight!
Independent consumer advocates are our only current hope! Amazingly, it is refugees from the fund companies who are its biggest critics and who are opening the doors on the industry’s activities. Warren MacKenzie, an ex-insider, wrote the Unbiased Advisor which is an expose on how advisors exploit investors. (Disclaimer; I work with Warren)
Are we winning? No.
Tilting at windmills.....sois mike