Is your Financial Advisor looking after your best interests?

Not according to the highest industry standard, the CFAs.

The Canadian financial system and capital markets are in fine shape, according to a survey of Canadian CFA charterholders. The confidence of these professionals is the highest it's been in the past three years, according to the 2010 Financial Market Integrity Index (FMI).

Canadian charterholders said they have seen significant improvements in accounting standards, corporate governance, transparency, legal protections and shareholder rights.

But they expressed some concern about the ethics of financial advisors.

On a scale of one to five, the perceived integrity of financial advisors to private individuals scored 3.1, just slightly above hedge fund managers, the lowest rated professionals at 2.8. By comparison, pension fund managers were seen to have the best ethics, with a score of 3.9, followed by buy-side analysts, at 3.6.

Unattributed comments point to a perceived misalignment of client and advisor interests.

"In my career the thing that stands out the most is that most advisers are not out for the client’s best interest; instead they are out for their own interests ahead of the client," said one portfolio manager/investment consultant.

"Clients often don’t understand the risks for themselves compared with the gains for the adviser," said a vice president of investments.

One assistant treasurer said: "Most advisers are interested in their own bottom lines, which usually coincides with their firm’s bottom line. The individual investor’s bottom line is the last consideration, if a consideration at all."

The call for a single regulator has been consistent since 2008. This year almost 40% of survey respondents commented on fragmented securities regulation regime and indicated support for a single regulator which could coordinate regulation and strengthen regulatory enforcement mechanisms.

More than 2,700 CFA charterholders (including more than 570 in Canada) participated in the research for the 2010 FMI by taking the survey either online or by scripted telephone interview between February 1, 2010 and March 9, 2010.

Steven Lamb, published on Advisor.ca

Saverio Manzo
www.saveriomanzo.com