That may sound harsh, but the majority of people have ceded their investment decisions to the army of financial advisers employed by big banks.
Employees in Canada’s big banks “are pressured to up-sell, trick and lie to customers to meet unrealistic sales targets and ultimately keep their jobs,” according to recent press reports.
The decisions investors face can be overwhelming:
- The money industry is very complex. There are legal, tax, estate and insurance issues. And there are an extraordinary number of investment products to choose from.
- The industry jargon and terms are unfamiliar to most people.
- The advertising is very powerful.
- Most people are very busy and have little time to learn about this complex subject.
- Most of the sources of information about this complex subject are very biased toward the status quo.
So it’s time to consider an alternative. But how does the average person find a better way to invest and protect themselves?
You may need to spend some time doing your own research.
A growing number of people want alternatives to the status quo, so a growing number of boutique businesses offer advice and investment vehicles that differ from the mainstream products developed by the big banks.
There are few shortcuts, based on the concept of ‘communities of practice.’
A community of practice (CoP) is a group of people sharing a common interest, a craft and/or a profession. A CoP can evolve naturally because of the members’ common interests or it can be created with the goal of gaining knowledge related to a specific field. By sharing information and experiences, members learn, and develop personally and professionally.
CoPs can exist in physical settings – a lunchroom, a field setting, a factory floor or elsewhere – but members don’t have to be co-located. They form a ‘virtual community of practice’ (VcoP) or a ‘mobile community of practice’ when they collaborate remotely, online or by phone, for example.
A more primitive form of CoP is an investment club, in which funds are pooled and the pool is invested. The objectives are to learn more about how investment products work and to create some wealth. But today, basic investment clubs are rare.
Now, CoPs are created regularly, for all sorts of causes, thanks to social media.
So how does the average person find a better way to invest?
- Use a search engine to find a CoP that focuses on investments and investment strategy. You may need to sift through several to find one that doesn’t have a bias toward the status quo.
- Be active in the CoP by sharing information and experiences so the members learn from each other, and have an opportunity to develop your understanding and skills.
- Diligently look for unbiased advice from outside sources. Screen any advice and filter the traditional investment community’s messaging.
- Get your CoP to find one or two of boutique businesses that offer advice and investment products that differ from mainstream products.
- Once you’ve found a boutique business, encourage their people to join your CoP.
And here are some guidelines for you and a CoP:
- If you’re using an RRSP or TFSA to accumulate savings, you must run these accounts through a licensed business.
- You can self-administer your RRSP or TFSA. You only need to use the licensed business for clerical purposes.
- You can use your RRSP or TFSA to invest in privately-held companies. If you find a new technology company with an interesting and dynamic product or service, you can invest in that company using these funds. If you do invest in a company like this, you’ll be helping the new economy grow. And if the investment is made from your TFSA, any profits are tax free.
Do your homework – spending more time than you would mowing your lawn. After all, it is your money.
Joe Batty is an accountant with a specialty in new asset management. Joe has more than 40 years of experience in finance and accounting.