Strategies to help you win with financial institutions


If you’re a parent or were once a child, you’re familiar with these heartfelt words: “It’s not fair.”

I recall the injustices of being denied bell-bottomed jeans and having to wear runners with the wrong number of stripes.

The rules in our house were clear: When you make your own money, you can make your own decisions. Until then, you’ll live with ours.

It was my parents’ version of the golden rule. Not the classic “do unto others as you would have them do unto you,” but the modern variation: “She who has the gold makes the rules.”

There’s definitely something to be said for arguing from a position of strength, which is why we should be particularly careful when dealing with banks.

Beside their vast superiority in resources, banks have an additional weapon in a dispute with an investor: the right of offset.

Imagine a dispute with your bank about a credit card charge. You know you are right, so you don’t pay the balance. You feel they’ll listen more closely to your complaints if they are seeking payment than if you are asking for a refund.

Next thing you know, your credit card balance is paid in full and your savings account is depleted. Turns out, when you signed up for your credit card, the fine print gave the bank the right of offset; they have the right to take payment from your other accounts with the bank, even when you dispute the charge.

To protect your assets, you may wish to keep your savings with one institution and hold credit cards and debt with another.

The bank’s actions are perfectly legal, which bring to mind the words of Vanguard funds’ founder John Bogle. The scandal’s not what’s illegal. It’s what’s legal.

Here are two other perfectly legal practices to watch out for:

1. High Fees for Scholarship Plans

Contributing to a grandchild’s post-secondary education can be a great idea, but use extreme caution if dealing with a scholarship plan dealer rather than a bank, credit union or investment firm as these are complex investments.

Make sure you read and fully understand the fine print: a two-page double sided document called the plan summary.

Scholarship plan dealers often use high-pressure sales to sell their investments to modest-income Canadians.

Here’s what one such dealer says in the fine print of their Family Group Education Savings Plan:

“If your plan is cancelled more than 60 days after signing your contract, you’ll lose part or potentially all of your contributions to the sales charges and fees.”

Because these plans typically require regular payments over a decade or more, the risk of cancellation is high.

The same scholarship plan dealer quoted above notes that of all their group education family savings plans that would have matured over the last five years, 39 per cent had been cancelled.

According to media reports, one family that had deposited $2,730 into their daughter’s account with a scholarship plan dealer experienced this first-hand.

When their daughter died from a rare form of cancer at the age of one, her parents closed the account and received a cheque — for $287, just over 10 per cent of the balance. The rest had gone not to their daughter’s account, but to fees and commissions.

One group that, like CARP, is fighting for changes to scholarship plan dealers is the charitable organization, the Canadian Foundation for the Advancement of Investor Rights, or FAIR Canada.

2. Paying for advice you don’t receive

Many knowledgeable investors, concerned about the fees they pay for investment advice, have turned to do-it-yourself platforms instead. Many don’t realize that, although they’re not getting advice, they’re still paying for it!

According to a paper released last January by the Canadian Securities Administrators, about 83 per cent of mutual funds sold through discount or do-it-yourself brokerages in Canada include trailing fees.

These fees, typically 1 per cent or more of all assets invested, are charged every year, supposedly to pay for advice. But discount brokerages don’t — and aren’t allowed to — provide advice.

Until regulators force online platform providers to clean up their act, investors should seek to invest in Series D funds — which have advice fees stripped out.

With increased longevity, disappearing pension plans and historically low interest rates, more and more Canadians will struggle to ensure they don’t outlive their savings.

Knowing these practices and their pitfalls can help you make your savings last.

Grey Matters is a weekly column by Wanda Morris, the VP of Advocacy for CARP, a 300,000 member national, non-partisan, non-profit organization that advocates for financial security, improved health-care for Canadians as we age. Missed a week? Past columns by Wanda and other key CARP contributors can be found at