Costello, fund redemptions stir Talvest Town Hall

(February 21, 2003) Advisors weighed in on both sides of the Ontario Securities Commission’s ruling that prominent financial commentator Brian Costello gave advice without being licenced. While some thought the OSC was overextending its reach, others called for even tighter scrutiny of unlicenced commentators.

“This kind of decision will give them further proof that they need to add more staff, more regulations, more fees,” predicted U. Kerry in Advisor.ca’s Talvest Town Hall Free for All online discussion forum.

“By him not disclosing that he had a financial interest in FPG, that is serious and should be dealt with harshly as with any other type of business. It’s time to clean up a lot of nonsense that people are fed,” said M. Gushnowski.

Costello held a 47.5% interest in Ontario dealer The Financial Planning Group. OSC staff alleged that Costello conducted seminars arranged by FPG between 1994 and 1997 in which he recommended two limited partnerships, Synlan and Enervest, without disclosing he had a financial interest in FPG. Staff also argued that Costello promoted the investments in his newsletter, also without disclosing his personal stake.

“Many of us who attended Mr. Costello’s presentations in the mid ’90s found them informative as well as entertaining,” added R. Davis. “If there was in fact a failure to disclose potential financial gain that could accrue from them, then clearly that is an issue that must be addressed.”

Other advisors congratulated the OSC for cracking down the same way it cracks down on advisors. Some wondered whether financial journalists shouldn’t be hauled before the OSC too, since many are clearly recommending specific products. But Dan H. explained that OSC regulations exempt journalists.

Mutual fund redemptions attracted some attention, too — because advisors aren’t seeing much evidence of them. “We have had very few redemptions except for the clients that need cash. Yes, a few want right out and this is where we have to help them,” wrote Andy Glavac. “The other issue with the redemption number is the amount of retirees that are taking income, several take annual incomes.”

Brad Brain thought headlines about redemptions in the daily press are overblown. “Just think how many people would read the story if the very same article was titled ‘Investors withdraw 0.002% from mutual funds,'” he wrote.

Why are investors who have advisors staying invested? R.Y. Mazerolle had one suggestion: “All clients have an Investment Policy Statement which pre-positions that there will be good and bad years… All clients are also diversified on the efficient frontier based on Modern Portfolio Theory. This has contributed to minimizing the damage of the correction.”

What’s more, some advisors have been pleasantly surprised by investors actually adding to their RRSP contributions, despite wayward financial markets. “No one has stopped their monthly contributions. Some clients have surprised me by topping up their RRSPs this year, e.g., putting an extra $5,000 in on top of their monthly contribution,” said Rob B. “I tell them all it is the best thing to do but I’m still surprised when they do! It’s difficult for them psychologically but they trust me.”

Join the “best thread ever,” voice your opinion on Brian Costello, or start a conversation of your own in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Scot Blythe, Advisor.ca, sblythe@advisor.ca