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Mind Over Money

There's an old saying that you should never take investment advice from a cab driver, because by the time he gets a stock tip, oodles of other people have already invested and got in on the big returns.
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There's an old saying that you should never take investment advice from a cab driver, because by the time he gets a stock tip, oodles of other people have already invested and got in on the big returns.

As for your barber, such as the one in the books The Wealthy Barber and The Wealthy Barber Returns did provide much sage personal finance advice, but that barber was a fictional creation. So how should you get your financial advice? A recent poll by Leger for the Financial Planning Standards Council reported that 42 per cent of Canadians rank money as their greatest stress, with Canadian women reporting higher levels of financial stress than men, which is particularly worrisome given that the majority of women outlive their spouses or partners.

The best way to make sound personal finance decisions is to educate yourself. A number of educational institutions and organizations, such as Metro Continuing Education in Edmonton and Calgary Continuing Education, offer inexpensive short-term courses in the basics of investing and business.

Magazines like MoneySense and national newspaper sections like the Financial Post and Report on Business offer a good variety of news, analysis and financial advice. The Pension Puzzle, updated every few years by Bruce Cohen and Brian Fitzgerald, does a fine job explaining how to prepare for retirement and how various sources of retirement income work. As for television, the Business News Network channel offers current news and advice amid changing economies.

Many people look to friends, family and co-workers for advice, but much of that information is inappropriate. Common ties is something many investment scam artists prey on, promising to turn thousands of dollars into millions. Moshe Milevsky, finance professor at York University in Toronto, says if anyone suggests they can give you an annual return of 10 per cent or more, run away.

Getting financial advice from professionals is very confusing, in terms of titles and designations of advisers, plus they might not disclose their commissions charges for products and fees for advice that may or may not be provided. The 2007 financial crisis increased awareness that fees and commissions can erode investment profits and can increase losses when stock markets are flat or fall. That has caused a boom in Exchange Traded Funds, which often hold the biggest stocks in an index and aren't usually traded by a manager, thus charging lower fees.

The financial industry in Canada has been debating whether financial advisers should be sworn to a "fiduciary duty," as is the case in some countries, where they must place the good of the client ahead of the adviser or investment firm. Canada would serve investors well if it regulated advisers from making numerous stock or fund trades to boost their own fees or commissions or from putting clients into costly and unsuitable products.

Investors are easily confused by an alphabet soup of adviser designations such as CFA, CFP, CIM, FMA, FSCI, and PFP. Chartered Financial Analyst and Certified Financial Planner are generally well-regarded. Be aware that most investment and financial advisers are paid commission to sell you stocks, mutual funds, investment certificates and insurance products and possibly "trailer fees" charged by some mutual funds for ongoing advice that you may or may not be given. There also are fee-based advisers, who annually charge one or two per cent of the value of a client's portfolio and may also get fees and commissions. There are also fee-only advisers, who charge a flat fee for certain projects or an hourly fee for advice. Which type of adviser is best for you depends on how often you trade investments, how much investment management is appropriate and how much counselling you want. Products such as shares in public companies incur commissions when you buy or sell them. Mutual funds may have front-load fees paid upon purchase, back-load fees paid upon sale, or a deferred sales charge that usually disappear if you keep the investment for at least six years. You're often better off with no-load products offered by many banks.

One step towards improving the transparency of the Canadian investment industry will occur in July of 2016, when investors will have to be informed of fees and commissions they are paying on their portfolios. Generally, some types of investments are worth paying fees to get active professional management, but others can be held passively in index funds or Exchange Traded Funds at a lower cost. If you educate yourself, you might manage your own investments in self-directed accounts through a discount brokerage, and reduce your expenses.