2013-05-18T13:51:58-04:00 Tim Paziuk http://www.huffingtonpost.ca/author/index.php?author=tim-paziuk Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Tim Paziuk Good old fashioned elbow grease. tag:www.huffingtonpost.com,2013:/theblog//3.3284239 2013-05-16T12:05:29-04:00 2013-05-16T12:05:36-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
When it comes to people, the theory is that everybody on this planet is separated by only six other people. This is referred to as "Six Degrees of Separation," popularized by John Guare, who wrote a play in 1990 and later a film in 1993 by the same title.

Notwithstanding the popularity of this theory, I don't know whether it's true or not. What I do know is that the more degrees of separation that exists between you and your money, the more it's going to cost you and the less you're going to get.

Let's start with zero degrees of separation. An example would be an investment in you, like education or skills training. If you're a business person, making an investment in your own business results in zero degrees of separation. You, and you alone, benefit from the investment you make.

The first degree of separation is when you hand your money over to someone else to make an investment on your behalf. Perhaps it's a stock broker or a real estate company. They are going to buy something on your behalf and in both cases they are going to charge you either a one-time fee or an ongoing fee. When the transaction is completed, your name is attached to that investment. When you pay someone to invest your money, you give up some of the benefits and assume all the risk.

The second degree of separation is when you give your money to someone else to invest, and they in turn hand it over to another person to invest. This is what happens with mutual funds and managed accounts. You hand the money over to your mutual fund broker or your bank branch and they in turn hand it over to a fund manager. The costs here are increased because there are more people involved. Everyone along the chain has to be paid so yet again you're giving up even more benefits and still assuming all the risk.

The third degree of separation can actually count as the fourth, fifth and sixth degree as well. At this level you have no idea who's actually managing your money and there's so much skimming going on, you're lucky if you can make any money (or get your money back). In this category I'd put in mutual funds made up of other mutual funds, some real estate trusts and a whole lot of tax sheltered investments. It only stands to reason that if you have to go through multiple people or companies to get to your money, then you're probably going lose more than you're going to gain.

Before you make any investment you should have a clear idea of how many degrees of separation are between you and your money. Your objective should be to try and keep it down to zero or one whenever possible. Remember, it's your money and the more of it you keep the better.

Now, can anyone introduce me to Kevin Bacon?

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3245089 2013-05-10T08:03:20-04:00 2013-05-10T08:03:27-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
At war is the Government of Canada, represented by the Canadian Securities Administrators (CSA) and the entire financial services industry including investment firms, mutual fund companies, banks, insurance companies and just about everyone else who handles your money.

What's the war over? Whether or not the person you're trusting to invest your money is legally required to act in your best interest. Right now, they only have to make sure the investments they're selling you are "suitable."

Just to be fair, no shots have been fired and no one has lost his or her life. As a matter of fact, all the CSA has done so far is asked for people's (organizations') opinions, but wow, has this ever stirred up the industry. Every major financial organization has taken up the battle cry: from Mutual Fund Dealers Association, The Financial Advisors Association of Canada, and Investors Group, to TD Bank.

The industry has further balked at the idea of being held legally accountable by asking to study further into the matter, asking people to sign a petition against it, asking them to spread the word against it, and finally, asking people to contact their local provincial advocacy committee to tell them "NO." On the other hand, there are groups like the Canadian Foundation for Advancement of Investors Rights (FAIR Canada) and The Investor Advisory Panel (IAP) who want it.

I would like to see legislation for fiduciary duty and I'll tell you why. The financial services industry has become extremely complex. The vast majority of Canadians are totally dependent on financial advice givers. It's because of this dependency that those giving advice should be held to a higher standard.

My stance (as described in my book The Financial Navigator: Managing Your Success) is that if you're going to give people the best possible advice, you can't be restricted by a product line. In other words, if you're selling mutual funds and the person you're talking to shouldn't own mutual funds, then don't sell them. You shouldn't be allowed to hide behind a rule that says, "what I sold you was suitable." Suitable in what context? The only explanation could be "suitable" in the context of your product line.

One of the arguments against "in your best interest" legislation is that it could increase costs for the investor. In Royal Banks'
response letter to CSA's Consultation Paper, they caution, [it]...may lead to unintended negative consequences from retail investors perspective including increased service pricing to offset increased registrant's liability and supervision obligations....

Why is that? I think the industry makes enough money to cover off any additional costs. When you look at what the industry spends on advertising they could easily pay for any additional administrative costs.

I guess it shouldn't surprise me that the industry is generally against it, whereas the people (and organizations) that represent the investors want it. Too many people today don't want to take responsibility. They want to earn a living, many want to make a fortune, but at whose expense?

I have no problem if someone wants to go out and buy a $150,000 car. That's their right and I'm happy for them. What I object to, is when someone asks an advisor they trust to help them buy a $150,000 car and they're sold a $60,000 car and charged $150,000 by that "trusted" advisor. That's just wrong.

In my opinion, it's too easy for people to get into the financial services industry, call themselves an advisor and start selling financial products. People can be trained in weeks to sell certain products. Right now, there's not much investors can do if what they bought was considered "suitable." Personally I don't think that's "acceptable."]]> tag:www.huffingtonpost.com,2013:/theblog//3.3197926 2013-05-02T17:25:05-04:00 2013-05-02T17:25:10-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/ tax filing, this one is actually in accordance with Canadian law.

If a relative of yours were to die owing money, you have no obligation to pay their debts. It doesn't matter who they are, parents, siblings, aunts or uncles. If they have spent all their money, and die having nothing but debts, you're in the clear. However, unlike people whose debts die with them, a government's debt is carried forward forever (or until it's paid off). As we move through time, we're getting closer and closer to the point where it will be impossible to "clear our tab."

Debt numbers are always reflected as a percentage of GDP (Gross Domestic Product). GDP is representative of the overall economy. The idea is that if the economy is growing it will result in more government revenue (through taxes), thereby allowing the government to service "our" debt.

It sounds great in theory, but what if it doesn't grow? What if the cost of borrowing increases beyond our ability to pay? These are frightening considerations.

Whenever we're financial planning with clients, we take into consideration not just the servicing of interest on a debt, but also the repayment of the principal. We also have to look at the current situation and examine worst-case scenarios. I rarely, if ever, see governments doing the same thing. They tell us that if they spend more money now it will stimulate the economy and we'll all be okay. That may be true, but what happens when interest rates rise and our cost of borrowing increases?

I am not worried about my financial future, but I am worried about my children and my grandchildren. From the way things are going, we will not be able to leave our children with at least the same financial standard of living that we have enjoyed. Why should they have to do what we're not willing to do? And worse, in my opinion, is that future generations don't even have a say. Running a family budget is a little easier than running a government budget: but at the end of the day, it's still income and expenses. You either raise revenue (taxes) or reduce spending.

Last month, the former Premier of Alberta, Ralph Klein passed away. Under his leadership, Alberta became the only debt-free province in Canada. His mantra was that "debt is a spending issue." Maybe this is not 100 per cent true, but I hope that current and future politicians get the message. You can't keep spending and spending and hope your revenue catches up with it. It just doesn't work.

British Columbia had the HST pushed through legislature and the people pushed back. Regardless if you think it was the right thing to do or not, what's important is that the "people" can direct their own destiny if there is the will to do so. It's time for governments both provincially and federally to stop this mass accumulation of debt and set future generations free.]]> tag:www.huffingtonpost.com,2013:/theblog//3.3152089 2013-04-25T12:23:37-04:00 2013-04-25T12:43:49-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
The point is that I wish we could call a "time out" for politicians. Wouldn't it be great if we could send them to some dark room in Parliament and make them think about what they're doing? Case in point is the constant barrage of reports and media articles telling us that Canadians are not saving enough for retirement.

A typical reaction of the government is to commission a study, hire consultants and overall spend more money so they can figure out how to "help" Canadians save more for retirement. But here's my idea: stop taxing people for saving.

Now most of you may think I'm talking about the taxes paid on investment income like interest, dividends or capital gains, but I'm not talking about that. I'm talking about the tax you pay on your RRSP and all other types of investment accounts. Tax on TFSAs, RESPs and RDSPs. Yes, you're reading this correctly.

Didn't you know that both federal and provincial governments are taxing all of these accounts on an annual basis? You thought that they were tax sheltered and that you didn't pay tax on them until you took the money out or, with a TFSA, that they weren't taxable at all. Surprise! You were wrong.

How is this possible, you ask? Well, it's really quite simple. The federal and provincial governments charge GST/HST on investment management fees and trustee fees. That tax is collected by withdrawing money from your investments.

The other thing you probably didn't know is that it doesn't matter where you live in Canada; this affects everyone.

If you're from British Columbia, for example, you were paying GST (5 per cent) on investment management and trustee fees before the 12 per cent HST was brought in; however, as of April 1 2013, you're back to paying 5 per cent. That's good, right? Yes, it is if you are paying investment management fees and trustee fees, but not so great if you own mutual funds.

Those of you who live in Alberta, Yukon, North West Territories, Nunavut, Saskatchewan, or Manitoba also get to pay HST (or a portion thereof) on your mutual funds. That's right, a pro-rated share of your money is being extracted each month from your investments. This comes out of the funds so everybody gets hit. As a matter of fact, when you include the GST-QST harmonization in Quebec and the introduction of HST in PEI, your tax bill in 2013 should increase (but that shouldn't really bother you because it's hidden).

I find it interesting that it's this same type of misdirection that pick-pockets use to steal from people. They get the "mark" looking at something else. In this case, that something else includes reports, studies and inquiries telling you that you're not saving enough.

Well, maybe now that some of you are more informed, you'll be more careful about what type of investments you'll own. Better yet, contact your local provincial and federal politician and ask them to stop stealing from you.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3104439 2013-04-19T08:56:41-04:00 2013-04-19T08:29:36-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/ "Why Canadians Are Being Set Up to Fail for Retirement." When it comes to dealing with money, there are two simple ways to break it down: things you can control and things you can't. Once you understand the things that you can control, the next thing is to "try" not to worry about the things you can't. Here are my top five ways to take control.

1. Investment Choices

If you're involved with a company defined contribution plan (DCPP) or group RRSP, you may only have control of the investment choices. If that's all you have control over, then make sure you understand what costs are associated with each investment and how to get the best results from your choices.

The contributions to these plans should be monthly so dollar cost averaging and market volatility can work in your favour.

2. Dollar Cost Averaging

Dollar cost averaging is a basic investment strategy where you buy a fixed dollar amount of a particular investment on a periodic schedule. When values are down, you end up buying more shares or units. When values are up, you buy less. Over time, you should be able to accumulate more shares as you buy through the down markets.

If you're in a DCPP or group RRSP, you should be looking for investments that are more volatile like small and mid-cap equity funds, international equity funds, large cap equity funds and long term bond funds (I'm only suggesting long-term bond funds now because when interest rates start to rise, these investments are going to get hammered -- remember that volatility in this case is good).

You want to invest like this until you're about five years away from retirement, then you want to start preparing to get your money out of these things.

If, under the terms of your plan, you have the opportunity to transfer your money out on a regular basis, then I suggest you don't follow the advice above and instead accumulate your money in a money market fund and move it out ASAP.

3. Reduce Your Investment Costs

Your investments on the outside should be a combination of individual securities and, where applicable, exchange traded funds. This can be done using a discount brokerage account. The purpose behind going this route is to reduce your costs -- this, in my opinion, is the most important, controllable thing you can do: reduce your investment costs.

If you're not involved with a DCPP or group RRSP and you're accumulating your retirement funds in a personal RRSP, then the same strategy applies. Do whatever you can to reduce your investment management costs.

If you don't know how much you're paying for investment management, then there's a 98 per cent chance you're paying too much. Why did I pick such a high percentage? Because most people own mutual funds and most mutual funds are charging way too much. I know this because I used to sell them. If you must own mutual funds, then own the lowest cost index funds you can find (Vanguard is a good place to start looking).

When you're dealing with your retirement investments, the costs are going to be with you as long as you have money invested. A 1 per cent reduction in cost can save you tens maybe hundreds of thousands of dollars over your lifetime.

4. Amount of Contribution

Another thing you may have control over is your contribution amounts. If you have the opportunity to make more frequent deposits than monthly, then take the opportunity to do so. The more frequently you can make deposits, the better dollar cost averaging can work.

If you're involved with a DCPP or group RRSP that has an employer matching program, take full advantage of it. Don't leave any free money "on the table."

5. The Taxes Your Employer Remits on Your Behalf

Another thing you have control over is the amount of taxes your employer remits on your behalf. If you're making regular RRSP contributions, you can request a reduction in your source deductions which means that you don't have to wait for a tax refund.

For example, if you're in a 30 per cent tax bracket, your employer is going to send $300 to Ottawa for every $1,000 you earn. If you're making RRSP contributions with after tax dollars you may only be able to afford to make a $2,000 RRSP contribution. This in turn will give you a $600 tax refund. If instead you were to make arrangements with your employer to reduce the amount of taxes they remit you could then afford make a $2,900 RRSP contribution because you're making the contribution with pre-tax dollars ($2,900 x 30% = $870 which is the same as net $2,030).

In order to do this, you have to be making periodic payments to an RRSP, you have to complete a new TD1 form and you have to also complete and submit a T1213 form to CRA. You should be able to do this with the help of your employer. If you want more information, you can go to the CRA website www.cra.gc.ca/tso or call their office at 1-800-959-8181.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3056572 2013-04-11T17:41:53-04:00 2013-04-11T17:10:27-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/ backlash surrounding RBC this week, and in particular, against RBC CEO Gordon Nixon, let's look at how CEOs are compensated. Last year, RBC posted record earnings of $7.5 Billion and CEO Nixon received a pay hike of $2.5 million -- with millions in stock and option-based awards, incentives, and bonuses -- for meeting or exceeding expectations set out by the board of directors.

I thought that was pretty shocking until I read that Canadian Pacific Railway Ltd. Chief Executive, Hunter Harrison "earned" $49.2 million in 2012. Comparatively, Dean Connor, the Chief Executive of Sun Life Financial Inc., only "earned" $8 million. What makes these people so valuable and worth so much to a company? Someone tell me please.

If you've been following me on Twitter or my blogs you know that I'm extremely concerned about how the average Canadian has now become responsible for their own retirement savings. For most, this involves investing in the stock market, either directly or through mutual funds. The bottom line is that this type of financial abuse affects everyone.

One has to question how these compensation decisions are made and who's making them. There are so many excellent books out there that deal with this issue but one I particularly like is The Battle for the Soul of Capitalism, by John C. Bogle. Although the book references the United States, the results are the same in Canada. Too many companies are now being run for the benefit of first management (including their respective board of directors), then the employees and finally the shareholders.

We're told that the main reasons companies sell shares to the public are to raise money and spread the risk of ownership. Sounds reasonable, but raise money for whom and for what?

One would hope that the money would be used to help the company to grow and prosper, but what if that doesn't happen? What if the shares issued extracted value to shareholders and didn't add value -- not one cent? How can that be you ask?

A lot of compensation "earned" by management, board members and employees is in the form of stock options and employee stock purchase plans. In Mr. Connor's case he was "awarded" Sun Life shares worth about $2.375 million and a similar amount in options. So where do these shares come from? Usually they come out of treasury. If this is the case the number of shares outstanding is increased and the value of the existing shares is reduced.

If the company isn't issuing new shares from treasury they would be using profits to buy back shares on the open market. Neither way is good for existing shareholders.

We're also told that by making stock option plans and employee share purchase plans available to managers, board members and employees better aligns their interest with those of shareholders (owners). Once again it sounds reasonable; however, most stock options exercised are immediately sold for cash. If you think about it, stock options are a no loss proposition for those who get them and a no win situation for existing shareholders. If the option price is below current market value they are allowed to expire. If, however, they are trading for above the option price they are, without exception, exercised. Does this sound reasonable?

So how much is enough? I guess that depends on who you talk to. Last year Warren Buffet was paid $100,000 in salary as chairman and CEO of Berkshire Hathaway. His total compensation last year was $423,923. Why so low? Because most of his wealth is tied up in Berkshire Hathaway, his interests truly are aligned with his fellow shareholders. No one can argue that he doesn't add value to Berkshire.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.3014959 2013-04-04T17:32:12-04:00 2013-04-04T17:21:05-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
A few decades ago, most working Canadians had access to a Defined Benefit Pension Plan. This meant that when you retired you would receive some form of regular income for the rest of your life. To make sure that all working Canadians had access to this kind of security, the government established the Canada Pension Plan (CPP) in 1966.

For most retired Canadians, the combination of an employer's Defined Benefit Pension Plan, CPP and Old Age Security (OAS) provided them with a secure retirement lifestyle. Back in the "good old days," people didn't have to worry about how their money was being managed. They could work the required number of years, (usually 30 - 35), retire at 65, and live out the rest of their lives without concern about the source of their money.

This is not the case in 2013. Why?

• Increasing changes to old age pensions
• Fewer companies are offering attractive pension plans (or any at all)
• Job-hopping is the new normal

Today, most of you do not have access to employer sponsored Defined Benefit Pension Plans (DBPP). If you're lucky, your employer may contribute to a company Defined Contribution Pension Plan (DCPP) or group RRSP, but even with that, you, as the employee assume the investment risk of that money.

Let's start by outlining some Key Differences between a Defined Benefit VERSUS a Defined Contribution or Group RRSP:

1. Responsibility

A DBPP means you have no responsibility for the investments of the pension plan and your employer takes on all the risks.

A DCPP or Group RRSP means you assume all of the investment risk and your retirement depends on the choices you make.

2. Time Period of the Investments

With a DBPP, money is coming in and going out at the same time. Any surplus contributions (the difference between what's collected and what's paid out) are invested. It's this surplus amount that's the key. By design, the plans are meant to go on forever, so the investment horizon for the investment managers is extremely long.

With a DCPP or Group RRSP you are managing your own money and most have to be more conservative with their investments, especially in retirement.

3. Pension Plan Management Costs

With a DBPP the investment management costs are calculated into the contributions and stop for the individual when they stop making contributions. If the employer is paying 100 per cent of the pension plan contributions, the investment management cost is totally borne by the employer.

This is not the case with a DCPP or group RRSP. With these plans, the employee pays 100 per cent of the investment management costs. Which leads me to the most important reason I think most of you are set up to fail.

4. Where Your Money is Invested

When employers set up DCPP and group RRSPs they usually make arrangements with a life insurance or a mutual fund company or some other type of "pooled" product, but it's all the same. The costs can be excessive and hidden, and sadly, often chosen by the employer because it seemed like the simplest to administer and the reporting looked pretty.

It has little or nothing to do with what's best for the employees!

If your employer is dumping the investment management risk to you, you would think they would want to give you the best possible chance to succeed. Unfortunately, in most cases it's the exact opposite: they make inferior products and opportunities available to you.

This is a set-up, plain and simple. There are, however, some things you can do about this, and that's a topic I'll cover in my next blog. Stay tuned.

]]> tag:www.huffingtonpost.com,2013:/theblog//3.2946394 2013-03-25T16:40:19-04:00 2013-03-25T17:43:37-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
Over the last year, for example, there has been an increase in the number of firms that are offering Private Investment Council or Private Investment Pools. Why? Because people are foolish enough to believe that these things are special. What a load of crap!

When I started in the life insurance business, I remember a trainer saying that if you packaged it right you could sell 'sh#!'. I had forgotten about that until the day I was driving down a rural road and saw bags of the stuff for sale. Of course it was horse manure, but I had to smile when I recalled the lesson I had been taught two decades before. You really can sell anything if you package it the right way. Nobody knows this better than the financial services industry.

How do you feel when someone tells you you're special or important? Most people feel happy and privileged. Have you ever gone to a private party? Do you feel a little different when you walk past the sign that reads "Closed for Private Party"? I think most people do. So how does this relate to investing money? Well, it doesn't, and that's the point. Just because a company promotes something as "Private" doesn't mean it's special or better.

Earlier this year, I was sent a promotional brochure for Manulife's Private Investment Pools. A week before that, I received some information about MD Private Investment Council, soon after I received information on Fidelity's Private Investment Pools and before that, RBC Private Investment Management. Shall I go on?

Every major financial institution has a "Private" something. The only thing that makes them different from all the other stuff they have to peddle is the entry level. Most require a minimum deposit of $150,000. That's it, nothing more -- nothing less. What makes them private is that not everyone can come to the party because they can't afford the minimum buy in.

Most people are likely to equate private with better, so I went through one of these "Private Investment" packages to see what was so special. Here are the different fees that were listed:

• Management Fees
• Derivative Expenses
• Operating Expenses
• Sales Charges
• Switch Fees
• Redemption Fees
• Registered Tax Plan Fees
• Short Term Trading Fee
• Frequent Transaction Fee
• Expenses for Special Services
• Taxes

Funny, it doesn't look any better than most other crap being sold. As a matter of fact, in many cases, it costs more. Maybe that's what makes it special.

After looking at all these "Private" opportunities, I've concluded that this is one party you don't what to attend.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2879880 2013-03-18T17:12:36-04:00 2013-05-18T05:12:01-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
A basic truth in finance is that when you give your money to someone else they get to use it, not you.

As a 20-year-old, if you convinced yourself not to buy the shoes, and invested it instead -- with an assumed rate of return of 6 per cent -- you'd have $1,376.46 by the time you were 65 years old.

Now, some of you are going to start thinking about taxes and inflation and those are valid considerations but there are ways around that. The important thing here is that every decision you make with money has a current effect and a future effect.

No one has a limitless amount of money. The money you earn either works for you, or it works for someone else.

If you earn $60,000 per year, your net income after taxes, CPP & EI contributions is about $48,000. Your effective tax rate is 20 per cent so that $100 you're spending on shoes required you to earn $125 ($125 - 20 per cent = $100). If you live in Ontario you would also need to pay HST of 13 per cent and since that tax is paid with after tax dollars, that means it actually costs you another $17.50. So now those shoes have cost you $142.50 of earnings.

If you took the $142.50 of earnings, and put it into an RRSP for 45 years at 6 per cent you're now at $1,961.46!

Albert Einstein said, "Compound interest is the eighth wonder of the world. He who understands it, earns it...he who doesn't ...pays it."

Now, I just want to say that I'm not against buying shoes, and I don't want you to stop living and horde all your money, but I do want you to think about all those things that you may not need but buy anyway.

When we start to look at all the ways people mishandle money or have money taken from them, we can start to see why being aware of how things work is so important.

I'll leave you with this thought. If you're paying $25 per month in bank fees, assuming 6 per cent growth over 45 years, that's equivalent to $73,678. Using our very conservative 20 per cent tax rate, that means that you have to earn over $90,000 just to pay your bank fees.

I wonder if those shoes ever go on sale?]]> tag:www.huffingtonpost.com,2013:/theblog//3.2782619 2013-03-01T15:47:35-05:00 2013-05-01T05:12:01-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
As a professional in the financial services industry for over three decades, I've been directly involved in the life insurance business, mutual fund business and investment industry as a salesman, and frankly, I'm upset with all of it.

This series of blogs is a behind-the-scenes look into the financial services industry in Canada, giving you helpful tips on how to save money and get better value for the money you spend. Along the way I'll show you how to navigate what I call the "money maze" in today's financial world.

It's Just Retail without the Price Tag!

The first thing that everyone has to understand is that the financial services industry is just like any other retail store. By design, it is a business that exists to make money from you, not for you, by selling financial products.

Unlike all other retail businesses however, the financial services industry (as represented primarily by banks, mutual fund companies, insurance companies and investment firms) doesn't have to disclose how much they're actually selling things for. Think about it. If you walk into any store and want to buy something, you look at the price and decide. You know exactly what you're getting and how much you're paying for it. Now, when you walk into a financial firm and purchase a financial product, I'll bet my house (if my wife will let me) that you have no idea of what the actual cost of that product is.

A simple example is a mutual fund. When you buy a mutual fund you have no idea what the total cost is going to be to you. You may believe that the cost is in some way tied to what they refer to as the Management Expense Ratio (MER), but that isn't the entire cost. Hidden fees can include taxes and transaction costs to name just a few. So when you get an investment statement, does it ever show you what the cost was for that particular purchase? Never! Now look at your VISA statement. I bet that pair of shoes you bought last month is listed there. Listed at exactly the same price you agreed to pay.

The same situation occurs when you buy insurance, bonds, Exchange Traded Funds (ETFs) and most other financial products. So, when you don't know how much things are costing you, how can you possibly know if it's the best fit for you? It's not like that pair of shoes you got to try on. Your Visa statement never lies, but financial products are another story!

It's important to know how the financial services industry makes money off of its financial products. Most people don't have the time to read the 100+ page prospectus that comes most investment portfolios. But once you are aware of hidden costs and underlying fees, that's when you can start to ask questions and make steps to improving your financial wellbeing.]]> tag:www.huffingtonpost.com,2013:/theblog//3.2782632 2013-03-01T12:35:12-05:00 2013-05-01T05:12:01-04:00

Tim Paziuk http://www.huffingtonpost.com/tim-paziuk/
#1 It's just business.

The first thing you have to realize is that all banks exist to make money. That's why you are referred to as a customer the same as any other retail business. By design, they are really not there to help you; they are there to take money from you. For example, did you know that some banks use a points system for their employees, whereby employees are awarded points based on the business they achieve? The more points they accumulate the bigger the bonuses, raises or awards. I have been told by people in the industry that employees who are working with a points system often look at their clients not as people, but as numbers. As in, "How many points does this relationship represent?"

Different people within a bank or between branches can end up giving different rates on the same product for no other reason than the person you're dealing with needs a few more points for a bigger bonus. When it comes to bank fees, not all of them are negotiable but they can certainly be discussed. Bottom line: customers should look out for application fees, administration fees and my personal pet peeve, annual review fees.

#2 Misplaced Loyalty

People are often under the impression that loyalty is important to their bank. Wrong! The best rates and services are often reserved for attracting new customers, not for rewarding long time ones. There are often ads offering higher rates on deposits or lower rates on loans when opening a new account. But as a long-term customer, has your bank ever called you to say they are charging you too much interest or charging you too many fees and they are going to drop them for you? Drawing a blank, right?

When you go to a new bank, it is like a courtship. They want you to feel good about the relationship. They want to impress you so they make concessions like offering lower rates on loans or reducing fees. Once they have you as a customer, it can often turn into a one-sided relationship. You have to watch out for the signs: they can increase your rates or add new fees and in extreme cases they can reduce or take away your credit. So don't be afraid to switch banks, branches and managers. Each person has their own unique set of circumstances and deserves bank advisors who take these into account. Ask your advisor how many other clients he has like you. Ask for referrals. Which brings me to my last point.

#3 Competitor Shopping

Most people don't shop around when considering their banking options. It may seem overwhelming to think about changing banks, but here's the catch -- the banks know that too!

Everyone should be reviewing their bank statements monthly. Check all the fees and service charges. If you have a line of credit or loan, pay attention to the rates. If you have a lot of financial affairs have your accountant or financial planner review them with you. If you notice something has changed, speak to your bank about it and don't be afraid to check with another bank.

Earlier this year I asked my staff to see how many different fees and service charges they could find on our clients bank statements. To my amazement they found 34 different fees, charges, etc. I have seen interest rates below prime and as high as prime + 8 per cent, so pay attention.

Success for anyone is dependent on profitability. Profitability is a function of income and expenses. There are a lot of things you have no control of, but banking doesn't have to be one of them. Take the time to review your relationship with your bank. Speak with your branch manager if you discover you are in a one-sided relationship. If they are not able to improve your banking situation, then tell them it's just not working for you any more and get out!

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