Who Is Managing Your Money? Are They Looking Out For Your Best Interest?

At a recent dinner seminar I held in Toronto, I presented a slide that highlighted the difference between an “Investment Counsellor Portfolio Manager (ICPM) and investment advisors/ brokers/ financial advisors,” and the positive feedback that I received was overwhelming. The medical professionals in the audience had no idea that an ICPM was the highest level of investment certification in Canada. All of the members in the audience freely admitted that they had investment advisors or brokers looking after their money. After hearing the difference in certification level between where their money was currently being managed versus an ICPM, they all wanted more information on the ICPM. One of the key distinctions is that an ICPM has a fiduciary duty to the client and all the other advisors have a suitability duty. There is a drastic difference between fiduciary duty and suitability duty as well as a conflict of interest.

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 his or her 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 do his or her best to make sure that the 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 a fiduciary standard, an ICPM 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.

Please be aware that with any bank you deal with, their number one responsibility is to their stockholders and not you. You are a customer just like anyone else, and their prime objective is to make money off of you. Some banks have a point system in place for their employees. Employees are awarded points based upon the business that they close. The more points they accumulate, the bigger their raises, bonuses, or additional monetary incentives.

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.

I have a number of ICPM companies that I refer to my doctor clients. Each ICPM has at least five to six Chartered Financial Analysts (CFAs) working at the firm. It takes four years on average for a person to complete the CFA program, and they only become a CFA Charter after they have completed an additional four years of qualified investment work experience. To maintain their status, they must pay an annual fee and sign and submit the Professional Conduct Statement.


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