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Financial advice not always the best asset

March 30, 2008

Ellen Roseman


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 discovered.

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 St. broker.

"I work in the co-op sector a lot and wanted someone more attuned to my values."

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 investment scandal.

He blames Canadian securities regulators for allowing ABCP to be sold to retail investors without the usual requirement for prospectus disclosure.

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 "professional" help.

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 Sunday.

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 day trader.

Tune in next week, when we'll look at what works and what doesn't work when investing on your own.
 

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