Alan Acton

Alan Acton

Alan Acton is a financial adviser in Ottawa and can be reached at alanacton@polarisfinancial.ca.

Column: Financial Adviser
Monday, 21 October 2013 08:17

A sea of change

b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgFor more than two decades, I have worked with a select group of clients to help them achieve their financial goals in the most efficient manner possible. I have built my business based on a solid value proposition and service offering. I have applied a transparent compensation structure so clients can understand that I have worked to remove any conflicts of interest — real or perceived — to ensure there is no incentive to do anything but offer the best advice possible.
Monday, 08 July 2013 09:00

CSA removing veil from adviser fees

b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgThe Canadian Security Administrators recently released new amendments to National Instrument 31-303. NI 31-303 will now require registered investment firms to identify each potential and actual conflict of interest. In addition, it requires firms to provide prior written disclosure of a conflict of interest to a client, while dealing with such conflicts in a fair, equitable, and transparent manner. Specifically, the subsection addressing adviser conflicts (i.e. trailer fee commission payments) reads as follows:
b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgHow would you feel if you found out you were charged more for your last car purchase than you thought? Or for your house? Unfortunately this is the case when you invest in actively managed equity mutual funds.
Monday, 14 January 2013 08:00

Investment excuses

Human beings have an incredible knack for fooling ourselves when it comes to our own finances. We have a tendency to justify our own worries. So, instead of acknowledging how we feel and reflecting on our thoughts, we cut out the middle man and construct the façade of a logical-sounding argument over a vague feeling.
Monday, 08 October 2012 09:00

So you wanna invest some money . . .

Would you suggest that a client walk into a courtroom without legal representation? Probably not. The same applies to financial advice. As a financial adviser, I want my clients to use my counsel for any and every financial decision they make. Many people manage their own money, and some even do OK; it depends on the circumstances. I recently came across an interesting article called “The Probability of Success.” In it, the author, William Bernstein, gives an interesting perspective for people who want to manage their own investments. In this article I briefly summarize the four “ingredients” Bernstein suggests the do-it-yourself investor needs to be a successful at managing their own money.

b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgLooking through some old files of mine recently, I came across a white paper I wrote in the summer of 2007 entitled “Insights on Issues Facing Canadian Lawyers,” a 14-page information piece designed to provide some clarity on common financial challenges faced by members of the legal community. The motivation for writing the paper was a report to the Law Society of Upper Canada in 2004 called “The Contemporary Legal Profession in Ontario — A Report to the Law Society of Upper Canada.”
Monday, 09 April 2012 08:58

Be wary of investment advertisements

In February, a client showed me a newspaper ad from an investment firm that showed a 47-per-cent return on their client accounts in 2011. “Let’s buy some!” she declared enthusiastically.
Although it would seem easy to jump on the bandwagon and get a great return just from answering an ad, think again. Professional marketing departments cherry-pick portfolios with great returns hoping to quickly increase firm assets. They know that it is human nature to look at short-term investment returns and that people tend to believe historical returns will continue into the future. However, this is rarely the case.
Usually when a specific investment achieves a drastically different return from the broad market, they are highly concentrated in one specific asset or asset class. The investment fund in the advertisement above was probably invested heavily in gold or risky corporate bonds, and maybe even borrowed money to further juice its performance.
Don’t get me wrong, I don’t think having gold or corporate bonds in your portfolio is a bad strategy, as long as it is not the majority of your assets. Exposing yourself to risky assets in small doses is not a bad plan, however a big mistake that investors make is “putting all of their eggs in one basket” and having the majority of their portfolio focused in one sector of the market.
Most of the time, the hot investment of the previous year turns out to be the dog of the current year. As a rule of thumb, if your retirement account is considering an investment strategy that has an expected return of more than seven per cent, you could be taking too much risk.
Companies publish these ads because they know we are wired to be more sensitive to short-term than long-term gains. The ad executives know this, and that is why you see so many ads touting shorter-term performance. One-, two-, or three-year returns dominate investment firm ads, with the firm selecting the best one or two portfolios to publish that year, sometimes choosing from hundreds of funds to find the few that performed well over that time period. If done well enough, it can result in millions of dollars of new deposits for the firm.
There is one sure thing in investments: low levels of risk are associated with low potential returns. High levels of risk are associated with high potential returns. You cannot break this relationship, not ever. Risk can mean not only loss of capital, but complete loss of your investment.
The truth is that you should not pay any attention to investment industry ads. Prospective investments should be thoroughly vetted before considering putting your money there. And remember there is no “free lunch” in investing. A high return goes hand in hand with high risk, even though sometimes the risk part of the equation shows up later. If you cannot understand a prospective investment, or if your investment adviser cannot explain the investment strategy in plain language, you should probably steer clear.
b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgIn February, a client showed me a newspaper ad from an investment firm that showed a 47-per-cent return on their client accounts in 2011. “Let’s buy some!” she declared enthusiastically.
b_150_0_16777215_00___images_stories_01-CANADIANLawyer_Columnists_alan_acton_2011.jpgHeadlines like: “How Europe is preparing for a debt disaster,” “The coming economic crash,” and “U.S. and U.K. on brink of debt disaster,” have caused financial shock waves felt around the world. The origin of the current crisis, the economic and political mess in Europe, has sent equity markets plunging worldwide. This has left many professional money mangers scratching their heads on how to allocate their clients’ money, and is even forcing some former “stars” right out of the business.
Monday, 10 October 2011 10:07

It’s not all high-level securities fraud

High-profile securities fraud cases like Bernie Madoff often get a lot of media attention, while the examination of financial adviser negligence gets overlooked. According to the Investment Industry Regulatory Organization of Canada, there were a total of 99 enforcement actions against financial advisers in 2010. Twenty-seven per cent of decisions against advisers were classified as due diligence/suitability and misrepresentation violations. In addition, a considerable amount was won in civil suits against advisers in 2010.
There was a time when brokerage commissions were regulated. Until 1983, when you called your stock broker to execute a trade, she charged fixed commission rates. It was obvious to clients how much they were paying for financial counsel. Fees or commissions for financial planning services, such as asset allocation advice or retirement income projections, were uncommon.
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