Investor advocates respond to POS controversy

He says the POS initiative as it stands doesn’t cut the mustard but “if the CAS listen, it could be a real positive for small investors.”

Kivenko says the mutual funds industry treats advisors as their customers instead of investors. He says if this continues it can “ultimately destroy the industry.”

POS is just a small movement to help investors not a looming disaster for manufacturers and sellers of mutual funds, says Mike Macdonald, vice president, consulting, Weigh House Investor Services in Burlington, Ontario. He broadsided the media machinery for “protecting the status quo” while stressing the need for regulators to push forward.

“The industry needs to prove they are adding value…The real estate world is finding out what happens when clients wake up to abusive fees and lack of competitive pricing,” says Macdonald. “Given better regulators the same lessons could occur for the fund firms.”

Educating clients in the language they understand is the way forward, says Ken Hawkins, chief investment strategist at Weigh House, an investor services firm in Toronto.

“It is our contention that financial literacy is important for investors to make informed investment decisions and providing simple, easy-to-understand information would be a step in the right direction,” says Hawkins. It doesn’t much help to rely on the prospectus after the sale is made, he says. “How many advisors after they sell a mutual fund, tell their clients they have a right to back out of the deal within 48 hours after receipt of a prospectus?”

The issue resonated with industry watchers from coast to coast. A slightly different approach to investor education is taken by Richard Knowles, R Knowles & Associates Financial and Wealth Management in Vancouver. He says singling out mutual funds and adding more paper for the client in the name of education is an exercise in futility.

“Educate them into understanding these products in a simple TV commercial and advertisements in the newspapers, paid for by the industry, and not more paperwork that consumers won’t read. Wake up and smell the coffee,” says Knowles.

His recipe for real results: “Commercials telling people not the best fund to buy but what these are from a source they can trust, not a sales organization selling itself.”