My bank told me I could not invest the way I wanted

[accountingsucks]

I just started another topic about where I should be investing my monthly investment. One of the options is investing through my banks Mutual Funds that have performed fairly well over the years. I have always made my RRSP contributions with them up to this point.

A few months ago I made my 2005 RRSP contribution and told them i wanted to invest in their stock index fund - this fund mirrors the return of the TSX and has a very low fee. Sure no problem was the answer and I made the transfer that day from my savings account.

A few days later I get a call from a senior associate who informs me that my investment portfolio is "too high risk" according to their "Invester risk profile" since I was 100% in equities. I proceeded to tell her that my investment profile was aggressive and that the amount I currently had invested was minimal in relation to what my future monthly contributions would be. I also mentioned that my mortgage was nearly paid off as the balance was almost covered by what I had in my savings account so surely this would offset my aggressive profile. She told me she would call me back after she got approval from her manager regarding my investment decision. Ultimately I was allowed to make the investment into that fund after signing a form.

Is this standard? I do not see how a bank can tell me what I should invest in.

 

[smooch]

Do you know if that bank is also charging you a fee for "investment advice"?

 

[Gone4Good]

Investment professionals are required to ascertain whether an investment is "suitable" for the specific investor.  My guess is that they probably botched the initial review of your financial situation, failed to ask the appropriate questions when you made the investment decision, and then decided, after the fact, that they needed to fill a file with paperwork saying they did their due diligence.

 

[d]

brokers have an obligation to advise on the suitability of clients investments (know thy client) ... but this notwithstanding i doubt most operate in their clients best interests

 

[Rich_by_the_Bay]

I have a advisory firm for my value stock portfolio. That's all they do for me. He asked me whether I would assure that the balance of my assets not invested with him would place my overall allocation at a level that I was comfortable with given broad advice about my age, plans, risk tolerance, etc. I confirmed it in writing.

Seemed reasonable enough. He did not want to appear to be condoning an all-stock, all-value portfolio for someone in my situation. CYA, I guess.

 

[NinjaPigeon]

I've never had them do that, but the application I have to fill out for Fidelity BrokerageLink requires me to fill in similar information.

 

[justin]

They probably wanted to "help" you out by getting you into a less risky high expense actively managed bond fund.

 

[Gumby]

I'd get a new bank.

 

[MasterBlaster]

This is all driven by lawsuits and lawyers  !

The banks lawyers are worried that during a market dowturn people with investments such as yours will turn to the courts for help getting back your lost account balances.

There are too many cases where people won't accept responsibility for their actions and sue.

The bank is just protecting itself. This is what we have become

Whhooo I just spilled coffee on myself - Guess I'll sue !

 

[Sheryl]

I'm sure the bank was just protecting itself, but I would have been annoyed as well.

If you take your money to Vanguard or Fidelity you can do whatever you want with it without being questioned by someone who most likely knows less about investment than you do.

 

[justin]

fidelity does ask about your total net worth, income, risk profile, and financial holdings when you first get an account with them. I sort of took liberties with the truth to a certain extent. Oops.

 

[d]

take your money to Vanguard or Fidelity you can do whatever you want with it without being questioned

i believe this is true for mutual fund accounts, but if you establish a brokerage account they too will be subject to the "know thy client" rule.

 

[AltaRed]

I cannot comment on OP's original question as he referred to the 'bank' refusing to fill the order. I doubt it was the bank itself -- must of been one of their advisory services (all major Cdn banks have several divisions including in-bank investment services, discount brokerage via online/telephone, and full service brokerage).

A licensed broker, planner, etc providing active advice and pushing products to clients in Canada adhere to an IPS (Investment Policy Statement) signed by both client and advisor to determine risk profile. They have an obligation to advise a client when proposing to invest outside the signed IPS and to even refuse to place an order the client wants if it is outside the profile. I believe IPS quality and depth vary all over the map.

There is obviously a lot of grey area left to interpretation. But there have been some successful challenges made by investors when a rogue advisor went well beyond the IPS against the client's wishes.

Quality and depth probably vary even more with discount brokers and online/telephone trading. They are just order takers and typically just insist that the client do their own risk profile and sign off that they are investing at their own risk when the account is opened. I don't know if discount brokers have ever intervened in such accounts. It would be more appropriate to ask that question of the professionals in that business.

 

[cute fuzzy bunny]

Never heard of it.

If it was my account, and the market had moved upwards since I placed the order, the bank had best provide me with the investment I bought at the time I bought it.

Now, if it had gone down, this bureacracy, while an awful thing, I guess must be accepted

 

[Sheryl]

i believe this is true for mutual fund accounts, but if you establish a brokerage account they too will be subject to the "know thy client" rule.

Hmm. I opened a brokerage account, and no one asked me anything. I have had my fidelity mutual fund accounts since - I think - the late 80's so they probably started doing this later.

 

[AltaRed]

An Investment Policy Statement (IPS) is part of the 'know thy client' process that in Canada, at least, any and all "financial advisors" would have in place with their clients to minimize misunderstandings and potential liabilities. It is actually good for the client to help him/her sort out his/her financial goals and to provide some legal protection from rogue traders. I would have thought these would be in common usage in USA.

This link http://toolsformoney.com/investment_policy_statements.htm provides background.

These documents can run several pages with full service brokers ( for cya purposes), to online questionaires for DIY discount brokers who are essentially only order takers.

 

[Gumby]

All I want is someone to do precisely, exactly what I tell them to do. If they won't, I will take my money somewhere else.

 

[AltaRed]

That is fine for the DIY investor who is knowledgeable.. probably a majority of people on this forum. But how about the 80% of people out there who are potential fodder for the sharks?

I thought one great value of this forum is to provide financial and investing information for everyone from the novice to the sophisticated. If anything, this thread could have stimulated some debate about the value (or not) of investor protection for the public at large, not some cavalier dismissive reaction. But then again, the OP was asking from a Canadian perspective anyway -- and the rules appear to be different.

 

[Gumby]

Isn't it just the slightest bit condescending to say to people, in effect, "we know better than you what to do with your money"? That is what the bank did in the original post on this thread.

I am all for regulations requiring full disclosure so that people can make informed decisions, but generally, unless it harms someone else, people should be free to do as they please with their lives and their money. It is not my place, the government's or the bank's to dictate their investments.

Once you start down that path, where do you stop? Do we make car dealers refuse to sell cars to people because the purchase would raise the buyer's debt levels to unhealthy levels? Do we prohibit people from entering a casino unless they show financial statements proving how much they can lose? How about precluding people from buying that jet ski or ATV if they haven't contributed to a 401(k).

 

[Scrooge]

I am all for regulations requiring full disclosure so that people can make informed decisions, but generally, unless it harms someone else, people should be free to do as they please with their lives and their money.  It is not my place, the government's or the bank's to dictate their investments. 

Ah yes, the old US-Canadian "care bear vs. rugged individualism" debate It should be noted, however, that there is already a mechanism in place that limits the ability of US citizens to control their retirement investments. It's called "Social Security"  8)

Once you start down that path, where do you stop?  Do we make car dealers refuse to sell cars to people because the purchase would raise the buyer's debt levels to unhealthy levels?

Well, that's pretty much what happens now with many types of loans, but the reason is not to protect the buyer but rather to protect the lending institution in case you are so deep in debt that you can't pay them back.

 

[saluki9]

Isn't it just the slightest bit condescending to say to people, in effect, "we know better than you what to do with your money"? That is what the bank did in the original post on this thread.

I am all for regulations requiring full disclosure so that people can make informed decisions, but generally, unless it harms someone else, people should be free to do as they please with their lives and their money. It is not my place, the government's or the bank's to dictate their investments.

Once you start down that path, where do you stop? Do we make car dealers refuse to sell cars to people because the purchase would raise the buyer's debt levels to unhealthy levels? Do we prohibit people from entering a casino unless they show financial statements proving how much they can lose? How about precluding people from buying that jet ski or ATV if they haven't contributed to a 401(k).

That will be just fine with me right after congress passes legislation prohibiting people from taking legal action against financial institutions for suitability violations .

These checks are the financial equivalent of the mattress tag for most brokerage houses. It's a minor inconvienience for you, I wouldn't make a big deal out of it.

 

[Gumby]

That will be just fine with me right after congress passes legislation prohibiting people from taking legal action against financial institutions for suitability violations .

I agree on that topic as well. Along with the freedom to choose as you wish comes the responsibility to suffer the consequences if you choose poorly.