Letters

Working in investors' best interests

REGARDING GET SMART WITH YOUR money" (by Ian Davidson, CAmagazine, January / February 1999, p. 26): I am an investment adviser with Nesbitt Burns in Winnipeg, and I take offense to your article. I assume part of my annual CA fees go to covering the cost of this magazine, and that the information in it would be objective and unbiassed.

The author makes some very good points. Asset allocation and time not timing - in the market are key investment decisions. Also, his recommendation to hold equities as an inflation hedge, and because they are tax efficient, is right on the money (though I still come across clients whose CAs have recommended they invest in GICs and / or bonds).

However, I question the author's objectivity, since the company for which he works, the Equion Group, is part of the Assante Group. Assante does investment counselling; is there no conflict of interest here? Optima is also mentioned; that company manages Equion's money, and it is also under the Assante umbrella, yet there is no mention of this in the article. The author implies Optima manages his own money; is he required to use them? This article appears to be a great piece of advertising for his best interest.

As for a broker's best interest, while it is true they sometimes ask their clients to make quick investment decisions, the author implies that advisers have not taken into account their clients' objectives and that a decision has to be made there and then. I do not believe this to be correct.

The author states that a "broker cares about declines and gains; he or she makes money when markets rise or decline." This implies that brokers have no concern for their clients, that they just want to make money for themselves. Yet I find the best way to make money is by serving my clients' interests; brokers are well remunerated by a long relationship with their clients and many referrals. How long does the author think brokers would be in business if his statement were true?

He says the securities commission is encouraging fee-based business because "the investment adviser is not encouraged to make unnecessary trades." This again implies we are not working in our clients' best interests. Though this sort of behaviour should not be tolerated in any profession, unfortunately, it does occur in all professions. But it is the exception, not the rule.

The author concludes that managed money is the solution. But shouldn't such conclusions be made based on what's best for individual clients? Shouldn't investors seek advice from a professional who isn't limited to the products he sells?

The article seems to imply that CAs cannot - and do not have the time to - make good decisions themselves. It is articles like this that give our profession a bad name; how can we expect others to respect what we do if we do not even respect ourselves?

Before this, I had never written to the magazine in response to an article (these are my personal opinions, not necessarily those of my company); I hope never to again. But ever since I joined this business, people have asked me why I would leave such a well-respected profession for this one. Now I know where those people get their information: from our own industry.

It appears this article is nothing more than a piece of advertising and that the author is in conflict of interest. Since he is a CA, shouldn't there have been more disclosure?

I hope that no more of my funds go toward others' advertising.

Joe Fiorentino, CA Winnipeg

BUY-AND-HOLD WORKS

INTERESTING ARTICLE IN THE JANUARY / February issue of CAmagazine ("Get smart with your money," p. 26). 1 guess you paint all brokers / investment advisers with the same brush. I did not see any mention of the innovative fee-based products that are being offered by many of the major investment dealers, nor did I see any mention of costly, restrictive, underperforming DSC mutual funds. On a positive note, you will be happy to learn that many investment advisers like me offer - and prefer - to work on a fee basis. Clearly, the trend in our industry is toward (low) fee-based products.

One final thing. The reason for the lack of "sell" recommendations by analysts is that stocks are meant to be bought and held, not bought and sold. An investor should not sell a stock every time the company has a bad quarter, nor would it be prudent for an analyst to recommend such a strategy. Businesses do not operate in an environment that supports straight-line growth. Stocks are volatile, as are business conditions. While aggressive trading has become popular with on-line traders and many institutions (as demonstrated by portfolio turnover figures and trading volume reports), clearly, individuals should strive to buy good companies and hold for the long-term. Buying and holding excellent businesses has certainly worked out well for Warren Buffet, and it also works well for the individual investor.

Rick Smerchinski, CFA, CA Kitchener, Ontario

CA EMPLOYABILITY

HAVING READ MICHAEL KWEK S LETTER IN November's CAmagazine ("CA employability," p. 6), I recall the struggle that I, too, had in going through the CA program. In 1986, in Concordia University's undergraduate business program, I applied to more than 25 CA firms. The result? Zero interviews. I realized that my marks, experience and resume were not up to standard, so I pounded the pavement and landed a part-time job in the accounting department of a major multinational food company. The following year - still with average marks, but with some good work experience and a revamped resume - I landed a summer position with a medium-sized CA firm in Montreal. I then did some networking, and was offered a position in the smallbusiness department of one of the Big Six accounting firms in Toronto. Four years later, after internal transfers and working with the human resources department as well as with the partners, I passed the UFE on my first attempt.

Hard work and marketing yourself is just as important as getting good grades. Take another look at what you have to offer. Get yourself involved in university organizations, volunteer at tax clinics, speak to a career counsellor about your resume and job interview skills. I have seen the big CA firms hire non-business students over business students because they have something positive to offer. If you are still not able to land a position with a CA firm, then so be it. Someone out there will recognize your efforts and employ you. Good luck.

Sam Chan, CA Toronto

REALITY CHECK

SURELY GERARD BERUBE'S COLUMN, "REmove RRSP limitation?" (Off the Record, CAmagazine, December 1998, p. 9), is in jest. Perhaps the author has spent too much time with government economists and is, therefore, out of touch with reality.

The crisis in the value of the Canadian dollar is exactly why a prudent investor wants to get his assets into non-Canadian dollar securities. It is not the cause of the fall of our dollar but, rather, a reaction to it. The author seems to imply throughout the piece that a relaxation of the 20% limit for RRSP foreign investments would bring the Canadian dollar down. Perhaps that's where the value of the Canadian dollar should be, based on our economy, tax structure and productivity.

Berube's statement that some people are "waiting for proof that foreign investment means increased returns" is ludicrous in view of what has happened over the past few years. Does he not read the newspaper?

Those who hold market investments in their RRSPs would have loved to have had the freedom of choice to invest wherever they desired over the past few years. If the author himself follows the ideas that are expressed in his article, it is unlikely that his retirement income will be as good as it could be.

The tax issue is a red herring. If a taxpayer contributes $100,000 to an RRSP over his working career and it grows to $1,000,000 over that period, where is the loss of tax dollars to Canada? The investor may have deferred $50,000 on the contributions and $450,000 on the growth during that period, but he'll pay the $500,000 back on the withdrawals.

But tax is really the issue. It is the profligate spending by successive Canadian governments that has raised Canadian taxes to the highest level in all of the world's developed nations. Why should we taxpayers not do as well as we can with our investments? To what level will the confiscatory taxes rise?

If the bureaucratic and political waste in government were to stop, our dollar would recover to a more reasonable level. The investors cannot be blamed for the fall of the Canadian dollar. Investments in today's world are global, and Canadians should be allowed to invest in a global strategy. After all, Canada expects the rest of the world to invest in us and trade with us - hopefully to everyone's benefit.

Let's stop looking at this issue in a parochial manner and get on with the new century.

David W.R. Stevenson, FCA St. Catharines, Ontario