Investment Advisers and the Pitfalls

Watch for Bad Investment Advisers - News
Contributory mortgages, property bonds and syndicates have all been actively promoted by advisers. "Our adviser said no clients had ever lost money on mortgages with that company," a couple were once told about an investment which subsequently ran into trouble.

What to Do If You Have a Problem
If you believe you have been wronged or see a mistake in your account, act quickly. Immediately question any transaction or entry that you do not understand or did not authorize.

" Don't be timid or ashamed to complain ..."

Don't be timid or ashamed to complain. The securities industry needs your help so it can operate successfully.

Here are the steps you should take:

  • If you think it's a minor mistake, talk to your broker. This may be the fastest way to resolve the problem.

  • If you can't resolve the problem with your broker or you believe your broker engaged in unauthorized transactions or other serious misconduct, report the matter to the firm's management or compliance department in writing.

  • If you and your firm still can't resolve the problem file a complaint with your country's Securities Regulator. If you are seeking to recover money, you may want to consider arbitration or mediation.

Check all Paperwork with your Lawyer
Before committing yourself to a particular investment, ask your financial adviser to read and understand the relevant documents pertaining to the proposed investment.

The following outline examples of the documents and information that you could consider

a) Managed Funds

One advantage of investing through managed funds is the protection afforded to investors. Legislation dictates, among other things, the documentation that must be made available to prospective investors.

b) Investment Statement

This is the most important of these documents, setting out in plain English the essentials of the investment. Most investment options are required to issue an investment statement. The contents are pre-determined, including information on charges, risks, and the other information available. The regulation and standardisation of these documents makes it easier to compare various investment options.

The investment statement must be given to you before you sign up for the investment.
It's important to notice that when you sign up for an investment, you'll sign a clause stating that you've read the investment statement. Please ensure that you do read it, and ask for assistance with anything you don't fully understand.

c) Other

For investments you make directly, the following documentation may be useful:

  • For bonds - investment statements for new issues, annual reports, and the most recently audited financial statements,
  • For shares - prospectuses for new issues, annual reports, and the most recently audited financial statements, and
  • For property investments - any contracts you're required to sign in selling, buying, leasing or renting the property, as well as valuation and building reports.

Common Pitfalls to Avoid
Before you race off through the rest of Investing Basics, there are some cautionary points to consider before you proceed.

These are common mistakes many people make when considering what to do about investing.

  1. Doing Nothing. There is no guarantee that the market will go up the first day, month, or even year that you invest in it. But there is one guarantee: Doing nothing at all will not provide for a comfortable retirement.

  2. Starting Late. Postponing your investing career is second only to not investing at all on the list of investment sins. You already know that the earlier you start the better off you are. (Take another look at the compound return example within this site) 

  3. Investing Before Paying Down Credit Card Debt. If you have money in your savings account and you have revolving debt on your credit card, pay it off. Many credit cards have an annual interest rate of 15% to 26%. Let's say you have $5000 to invest, but you also have $5000 debt on your credit cards with an average annual interest rate of 18%. It doesn't take an astrophysicist to figure out that you're going to have to get an 18% return after you pay taxes just to break even on that $5000. Pay the debt off first, then think about investing.

  4. Investing for the Short Term. Only invest money for the short term that you're actually going to need in the short term. Invest money in the stock market that you won't need for at least three years, and preferably five years or longer. If you'll need your cash next year for a down payment on a house or for that Alaskan cruise, use one of the shorter term and safer havens for your cash, such as money market funds.

  5. Turning Down Free Money. You'd never turn down a dollar if it was offered with no strings attached. That's what you're doing if your company offers a retirement savings plan with an employer match and you're not participating. Take advantage of all tax-advantaged, employer-matched savings programs.

  6. Playing Safe. If you're young, most of your investing dollars should be in the stock market. You have enough time to weather any dips in the market and to reap the rewards of long-term gains. Although you may want to transition into bonds later in life as you depend on your investments for income, stocks should make up a large portion of the portfolio of every investor.

  7. Playing Scary. Not every investment is for everyone. Even if you're a daredevil, you shouldn't pour all of your money into something that could end up going down the drain.

  8. Viewing Collectibles as Investments. If old comic books, Barbie dolls, and abandoned exercise equipment could be used to fund retirements, do you think the stock market would exist? Probably not. Don't make the mistake of thinking your jewellery, those Beanie Babies, or the lottery will provide for you in your latter years.

  9. Trading In and Out of the Market. We believe the best approach to investing is the long-term one. Pick your investments well and you'll reap rewards over the long term that you had ever dreamed possible. Trade in and out of the market and you'll be saddled with fees that chip away at your returns, and you'll potentially miss out on gains that long-term investors enjoy with much less effort