The Truth of Professional Financial Advice

1. The Truth of Professional Financial Advice John J. De Goey, CFP Senior Financial Advisor Burgeonvest Securities Limited STANDUP for Professionalism

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3. S.T.A.N.D.U.P.Scientific Testing andNecessary Disclosure Underpin Professionalism STANDUP for Professionalism

4. “Yellow is my Favourite Colour” • Fact or opinion? • Disclaim or disclose? • Both? • Neither? STANDUP for Professionalism

5. “Yellow is the Best Colour” Fact or Opinion? Disclaimer or Disclosure? Does it matter (i.e. is it material?) STANDUP for Professionalism

6. “The great enemy of the truth is not the lie - deliberate, contrived and dishonest - but the myth - persistent, persuasive and unrealistic.” -John Fitzgerald Kennedy STANDUP for Professionalism

7. Speaking of “Truth”… • The subtitle of my book is “How the Financial Services Industry Hides the Ugly Truth” • Believe there are parallels to Al Gore’s book and movie “An Inconvenient Truth” • Evidence and (lack of) disclosure go hand in hand- global warming, cigarettes, active management… STANDUP for Professionalism

8. Becoming a Profession • Change has been slow • Everyone has a role to play • Consumers can help by rewarding STANDUP Advisors with their business • Think of the more established professions STANDUP for Professionalism

9. Disclaim and Disclose All major facts should be disclosed so clients can make an informed decision. All personal opinions should be disclaimed so that clients are sure to recognize them as opinions. What if it is less than obvious whether or not the matter being questioned is a fact or an opinion? Take the debate between evolution and creation…. Educators have chosen to teach both and advocate neither. STANDUP for Professionalism

10. Scientific Testing • Every single study I have ever seen on the subject says that cost and performance are negatively correlated. The correlation is material. Do you disclose it? Think about big tobacco and big oil… • How professional is it to willfully choose not to disclose material facts that will assist clients in making an informed decision? STANDUP for Professionalism

11. “Active Management Adds Value” • Better performance is often realized by taking more risk- there’s no “free lunch” • Most active managers lag their benchmarks in the long run- and those that don’t can’t be reliably identified in advance • Is it prudent and professional to advise consumers to frequent casinos? STANDUP for Professionalism

12. What does Paul Samuelson say? “Ten thousand money managers all look equally good or bad. Each expects to do 3% better than the mob. Each has put together a convincing story. After the fact, hardly 10 out of 10,000 perform in a way that convinces an experienced student of inductive evidence that a long-term edge over indexing is likely.” Samuelson won the Nobel Prize in Economics in 1970 STANDUP for Professionalism

13. What does William F. Sharpe say? “Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.” Sharpe won the Nobel Prize in Economics in 1990 STANDUP for Professionalism

14. What did Ben Graham say? Shortly before his death in 1976, Mr. Graham said: “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago when the (Security Analysis by) Graham and Dodd was first published; but the situation has changed… (Today) I doubt whether such extensive efforts will generate sufficiently superior selections to justify their cost…. I’m on the side of the ‘efficient’ school of thought”. STANDUP for Professionalism

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16. Embedded Compensation Causes Bias • Aim for no conflict caused by compensation, so that recommendations align the interests of advisors and clients. Even if there is no actual bias, bias would likely still be perceived. • Unbundling compensation pays the advisor to do nothing when nothing is the right thing to do (!) • Consistent with the paradigm of professionalism • Transparent and “up front” STANDUP for Professionalism

17. Professionalism is Enhanced By: • Using both Passive and Active Products (client choice) • Getting sign off on an IPS based on a purposeful questionnaire • Charging the client a direct fee - and disclosing it in writing beforehand • Documenting the terms of the engagement STANDUP for Professionalism

18. “It is difficult to get a man to understand something when his salary depends on his NOT understanding it.” -Upton Sinclair STANDUP for Professionalism

19. Necessary Disclosure • Letter of Engagement is expected of all CFPs • Compensation Disclosure • Investment Philosophy Disclosure (with choice) • Investment Policy Statement usage STANDUP for Professionalism

20. Letter of Engagement • The obligations of both the client and the advisor • What will be done - services, meeting frequency, etc. • Some advisors also use a binder to promote process and comprehensiveness and to improve organization, record keeping and accountability • Confidentiality STANDUP for Professionalism

21. Compensation Disclosure • What are fees if using fees? • What are commissions if earning commissions? • Trailers are commissions • Discount brokers make a mockery of consumer interests • Financial Advice is not free STANDUP for Professionalism

22. Investment Philosophy • Value or growth; small or large? • Percentage of equity vs. income • Active trading or buy and hold? • Security selection or asset class investing? • Degree of (in)efficiency • Choice or obligation? STANDUP for Professionalism

23. Investment Policy Statement • Based on a questionnaire • Asset classes to be used • Asset allocation (normal weightings) • KYC objectives- time horizon, growth or income • Sign off with annual review STANDUP for Professionalism

24. What do Clients want? • A relationship with a qualified professional • Meaningful Plans - not “hot tips” • Reasonable Costs • Potential Deductibility - 20 (1) (bb) of ITA • Real Customization - not boilerplate solutions • To be rid of Conflicts - True Independence • Greater Tax Efficiency • Process; not Product STANDUP for Professionalism

25. It’s never the wrong time… to do the right thing! • Accountability is a two way street – be open with clients • Ask more questions - help your clients to help you do a professional job; but give them real choices, too • If you are compelled by a professional paradigm, ask your clients how you can work together more effectively • www.burgeonvest.com; www.johndegoey.com • STANDUP for Professionalism! STANDUP for Professionalism

26. Disclaimer The views expressed are those of John J. De Goey and are not necessarily shared by BURGEONVEST SECURITIES LIMITED. Debate regarding market efficiency, the usefulness of fundamental and technical analysis, active vs. passive management and the efficiency of fee payments is ongoing. To date, neither side of these debates has been able to claim unchallenged victory. STANDUP for Professionalism