March 30, 2008
Some people play it safe with their long-term savings.
This may be a sensible decision, given the swooning stock markets.
But even a conservative strategy can get you into trouble, as Brian Iler
A commercial lawyer in Toronto, he was getting nervous about stock
markets in the last couple of years. He wanted to get away from his Bay
"I work in the co-op sector a lot and wanted someone more attuned to my
He moved his money to Alterna Savings, a large Ontario credit union, and
sold his mutual funds in favour of deposits covered by the Canada
Deposit Insurance Corp.
Then last summer, he got a cheque for $229,000 from his ex-wife for his
share of the family home.
His financial adviser at Alterna offered several savings products where
he could park his money temporarily. He chose one that offered a
slightly higher rate.
"I went on holiday and read about all the people who were in a mess with
asset-backed commercial paper.
"Then I came back and found I was in it," he says.
Alterna deals with Credential Securities Inc., which offers services to
credit unions and has a number of clients who hold ABCP.
Iler doesn't blame Credential Securities for selling packaged debt that
included U.S. subprime mortgage loans.
It wasn't until the ABCP market seized up last August that the financial
industry realized the promised liquidity backup wasn't there.
"Even last September, my Alterna adviser said to me, `Don't worry. Your
money is secure.' He was going by the DBRS rating," Iler says.
Dominion Bond Rating Service was the only rating service in Canada that
graded ABCP and said that it was suitable for retail investors.
Luckily, Iler can live without the $229,000 house sale proceeds that has
been frozen for eight months.
"But I may be working a lot longer than I thought I'd be," he says.
"I've been leaning heavily on Alterna to take me out."
As a community activist, Iler has thought long and hard about the latest
He blames Canadian securities regulators for allowing ABCP to be sold to
retail investors without the usual requirement for prospectus
All he knew about the product he purchased was the name – SIT III, which
stands for Structured Investment Product #3.
"It didn't have a significantly better return than GICs. If it did, it
would have been a red flag for me."
He trusted his adviser to recommend good products. And he trusted his
credit union to make him whole again (as some financial institutions
have done for their clients).
Kimberley Ney, an Alterna spokesperson, said she couldn't comment on an
individual's banking business.
I often hear from readers who follow financial advice that later proves
to be unsuitable, inappropriate or disastrously wrong.
They're fed up and ready for a change. Some want to dump their financial
advisers and look after their own investments without using
If you've ever wondered about what it takes to invest on your own,
you'll want to check out the new Money 911 series that starts next
Yes, you can succeed as a do-it-yourself investor without doing hours of
homework each day.
Yes, you can manage your own money without turning into a hyperactive
Tune in next week, when we'll look at what works and what doesn't work
when investing on your own.