Program shows value of network

Letter to the editor - Dear Editor:

If you watched CBC Sunday Report a few days ago, you may have become generally disillusioned with the large banks and their in-house brokers who invest your money for your retirement years. This has little reflection on your personal bank broker but moreso on the system and your failure to get the facts up front.

Firstly, the TV program dispels the myth that brokers are independent who will put your money in the best available fund or product. In truth, most brokers are not independent but are in-house brokers or in fact just salesmen who sell you what the bank tells them to sell - that bank's own offerings.

Secondly, it dispels the myth that brokers only make money when the investor makes money. Not true at all, a broker gets a commission fee every time he buys or sells a product for a mutual fund. This process of buying and selling when done to excess just to make that fee is called "churning" and if left unchecked unscrupulous brokers, through regular churning for fee acquisition, can churn you into the hole. Other recent TV programs have shown how a person's investment portfolio can go from millions to zilch in a very short time.

Thirdly, contrary to popular belief, mutual funds are not a better source of investment for retirement than a regular company pension plan. In order to get a monthly pension comparable to what your company pension plan may pay out, you may have to put $2 in a mutual fund versus $1 in that company pension plan. It is those fees that skim off your potential pension gravy and they tend to be twice as high in Canada as compared to the USA.

Fourthly, we assume brokers are well-educated with commerce degrees, etc. when in fact one may become a broker with a 90-day correspondence (course). That's comparable to those medical degrees you can earn from Shangri-la on a long weekend of study. No degree is actually required though industry defenders say the course of study today is "rather robust". I wonder if that phrase appears on the diploma.

The fifth myth broken was that brokers understand the complicated intricacies of the funds and the market place. The CBC experts claimed most brokers have the time, education, skill, ability or inclination to read the market. In any case, if they are just selling in-house banking funds by royal decree from above, those personal assets are neither necessary nor desirable if the broker's main interest is make maximum fees for himself. Yet, the program suggests you ask the broker to work for you for a flat fee rather than the bank itself and many brokers will do that. I wonder.

The last myth is that if the investor is ripped off, he is covered off and the bank or financial institution will rush to your defense. Not true, one investor lost $1.5 million through actual fraud on the part of his broker but the broker's institute actually refused to reimburse that investor even though the broker admitted to his brokerage house that he defrauded the man. The investor only got his money back by taking the brokerage firm to court.

Now, see how valuable the CBC can be to your general happiness in your twilight years? So let's get out there and stop the big bosses from slashing the CBC programming to the extent that future viewers and listeners are unable to distinguish its offerings from those of Outer Mongolia.

Aubrey Smith

Grand Falls-Windsor