Jerry White is standing at the podium, a microphone in one hammy hand, looking for all the world like a Catskills comedian past his prime. The navy-blue shirt. The tired eyes. The unfashionable wire-rimmed glasses. Pasty skin.
But White is by no means on his uppers. He is instead one of the hottest draws on the financial speakers circuit this season. As interest rates have plunged to 40-year lows, as an estimated $60 billion in guaranteed investment certificates come due in the next six months, as the stock markets set a blistering pace, Canadians are searching for personal financial redemption. They seek Brian Costello. They seek Garth Turner. They seek Gordon Pape, who says that with interest rates so low, “people are scrambling for yield.”
They come in droves. At a Pape seminar in Saskatoon, 1,600 people lined up in a midtown conference centre, through the foyer, down the street and around the corner of Eaton’s. It was -40° C. But then, it was free, as are all such seminars. The speakers are compensated from the back end, as it were. For example, Pape is sponsored by a wide roster of companies hungry for new customers, from brokerages to financial planning firms to mutual-fund companies. He gets paid $5,000 a pop in the offseason, $7,500 in the two-month countdown to the RRSP deadline.
White says he gets more than that. He will not say how much more. Unlike Pape,
White is pretty much tied to a single sponsor, Fortune Financial Corp., a highvolume mutual-fund seller. On behalf of Fortune, White this season is giving seminars from coast to coast. One a day, sometimes more, helping “Mr. and Mrs. Canada,” as he likes to say, “maximize their wealth creation.”
Sounds irresistible. And White has a simple, if aggressive, schtick: that banks are absolutely the wrong place for your money; that stockbrokers are tipsters and nothing more; that the only sensible route for wealth-creating Canadians is the team financial planning advice offered, of course, by Fortune. But there is a problem. Seminar speakers are unregulated and unsupervised. They may offer objective, independent information. Or they may not.
On this day, White gives the crowd a working over. “In the Seventies,” he says, “people were seduced, defrauded, misled into believing that somehow or another a GIC at 12 per cent, despite a rate of inflation being 14, was a better investment, and of course it wasn’t.” It was, instead, “the destruction of your capital! A total fraud and misrepresentation!” He turns sarcastic about “the magic
of GICs and savings bonds,” of the “12year compound interest bond sold by Revenue Canada until Nov. 1 that says we will not pay you any money for 12 years, but you must report interest income not received on your tax return each and every year for those 12 years, and pay income tax each and every year as an interest-free loan to the government of Canada for 12 consecutive years for an effective yield of minus 2.6 per cent per annum,” and about daily interest accounts that pay 0.1 per cent, “doubling your net worth in 189 years.” People, he says, “have not got the message.” Who among them will not nod their heads, acknowledging the sheer horror of it all?
Like a preacher to his flock, White offers financial redemption. It can be found, he says, at Fortune Financial, which offers “complete independence from product vendors. We have no vested interest in the products we recommend.”
For a short time, White did have a vested interest. Last summer, he became chairman of Fortune Financial and, he says, anted up an undisclosed sum to buy 20 per cent of the company, 13 per cent of the voting shares. It was a big deal for White, who has had his troubles, including the ultimately disastrous leveraged buyout of the Toronto-based, and now defunct, Mother’s pizza chain. Fortune was meant to be White’s way of getting a piece of the rock. But the Fortune gambit did not turn out well. “I was chairman for about 90
Investors are flocking to financial planning seminars—but are they getting the right advice?
days,” he says. “I got so much flak from my media, I said, This isn’t worth it.’ ” I felt my independence was the single most important dimension. I didn’t want anything clouding it. I said, ‘Here are your shares back, give me back my dough.’ ”
Unburdened of this suggestion of compromise, White barrelled through a recent presentation at a hotel in suburban Toronto to a
group of more than 100 seeking estateplanning advice. He talked of self-directed registered education savings plans with the investor as the beneficiary. He talked of in-trust accounts. He moved on to royalty trust units, which provide income streams from a range of resource assets, primarily oil and gas, and which are now a hot commodity. “They’re being purchased in enormous quantities by major pension funds and by major mutual-fund companies for their own portfolio,” said White.
It is here that the White spiel takes an interesting turn. He asks himself a question. “Is it appropriate for people in this room?” And he provides the answer: “Only for those who are still breathing.” At the head office of Fortune Financial in Scarborough, Ont., executive vicepresident Patrick Wong says he has no control over what White says. It was Wong who sponsored this particular White seminar, who sat at the dais throughout, and who stands to benefit from any business that comes Fortune’s way as a result. Fortune’s seminars, he says, “are meant to give people a little bit of a feel for some of the things that are available other than GICs.” They are meant to be “educational.” Are they?
A small reality check. On the subject of such trusts, White said that the monthly income stream is “tax protected.” Not so. The income is, in fact, tax deferred. White further addressed socalled trusts of trusts, “a royalty trust ^ that buys the shares of already listed E royalty trusts.” There was one in DecemI ber, he says. “That lasted 4 V2 minutes — j± $380 million went out the door, once again to institutional investors, because that structure represented the lowest risk way of buying them.” Not quite. In fact, not by a long shot. Canadian Resources Income Trust (CaRIT) was a $200-million issue led by ScotiaMcLeod Inc. The first allocations were made in early November. The trust closed on Dec. 6. Points of little consequence, perhaps. What is key is that the entire issue went retail, that is, to individual investors. None of it sold, as White said, institutional. Which is not to say that there is anything amiss about CaRIT, but rather about White’s characterization.
Once setting the scene for the appeal of royalty trusts, White baits the hook. “I understand there’s going to be a new one coming out some time in the next two weeks.” This new trust will invest partly in oil and gas, he says. “You might have heard of oil and gas? Perhaps you’ve used it? How much is oil today? $26.30, you said? How much was it last year on this day? $19.04, you said? Does that mean it went up? No, of course not. You wouldn’t want to own it because if you did you’d be rich. It’s gold lying there on the streets. So if you are at all interested in it, Patrick Wong has a large allocation of it. But unfortunately, it is first come, first served. If you call him up in March, he will say, ‘Nice to hear from you.’ But you will not be able to get it. It will disappear in about two days.”
White recommends that interested investors read the prospectus carefully. The product in question is NCE Diversified Income Trust, which intends to invest in royalty trusts, income trusts and real estate investment trusts. There are two offering agents listed in the prospectus. One is Fortune Financial. The agents’
Commission is 6.5 per cent of the gross proceeds.
Which begs the obvious question. Is not White merely pitching a product on Fortune’s behalf?
And did he not overstate its appeal while neglecting such key elements as the trust’s risk exposure to commodity prices? “I don’t think there was a body in that room stupid enough to believe that it’s gold in the streets,” says Wong. No one, he says, would take what he calls White’s “hyperbole” literally. And anyway, he adds, “investors are not going to buy anything on the basis of what Jerry White says.” White’s presentation, he says, is just “food for thought.”
White had another seminar idea, specifically mutualfund limited partnerships, squashed by the finance department last November. “The good news is that on Dec. 23, the government grandfathered a couple of applications and said, That’s it forever.’ They will never be available again in history. They are too good, too rich, too safe, make too much money for too few people.
There’s $30 million available coming up in a week’s time and that’s what’s available to the entire nation. All $30 million has been allocated to Fortune Financial. If you’re at all interested, Patrick can get you more information about it, but you will have about three seconds to make up your mind because there’s probably about three million people in the queue who want to get it.”
White tells his audience that in the industry a mutual-fund limited partnership is an “NBR”—no brains required.
In an interview a few days later, White says his remarks should not have been interpreted as a sales pitch. “No one was told to buy it,” he says. “They were told to educate themselves.” And what of his seminar comment that when he heard the limited partnership was “coming down,” he asked Wong “if he would let me have $250,000 for myself because it’s the end of this thing for history forever”? Is that not a personal endorsement? “I certainly hope you don’t print that,” says Wong. “It was a joke.” He adds that he “kind of bit my lip” when White said it.
It is the defence of financial planners such as Wong that speakers such as White are entertainers, carnies to pull in the crowds.
But financial planners themselves are largely an unregulated and unlicensed lot. Outside of Quebec, says Garry Duncan, president of the Canadian Association of Financial Planners and a tax partner with BDO Dunwoody in Toronto, “anyone and anybody can put a sign up and say we do financial planning.” While the CAFP and the Financial Planning Standards Council have attempted to bring some discipline to the industry, including professional accreditation, seeking that accreditation is voluntary. Until the provinces legislate, the financial planning arena will remain a free-for-all. So, too, it appears, the inspirational speakers who front it.
Twenty-six years ago, Brian Costello started it all. An erstwhile stockbroker, Costello gave his first money-management speeches
to Rotary and Kiwanis clubs, long before the terms RRSP and mutual fund became commonplace. The subsequent explosion of interest in personal investing brought personal good fortune. Many millions. Then in 1992, Costello founded THE (The Height of Excellence) Financial Planning Group Inc., in which he has a 47-per-cent interest. The group has a roster of 350 financial planners fanned out across the country who are compensated on a commission basis by selling in-
vestments to clients. “I have a perception of having a bias because I am the chairman of THE Financial Planning Group,” says Costello, making a pit stop on his way to yet another speech. As chairman and major shareholder, Costello ultimately benefits from all product sales in the firm. He says he keeps his distance. “I don’t want at any time even to have the perception of being on both sides,” he says.
That is precisely the issue. Perception. Take, by example, an investment called SportFund, a so-called labor-sponsored fund
launched two years ago that Costello actively promoted. In fact, he sat on SportFund’s advisory board. Does that not suggest compromised investment advice? “If there was [that perception],” says Costello, “it would be a misconception because the reason I wanted to be on the advisory board was so I could make sure the investors were represented by somebody, meaning me. [It was] a protectionary thing for investors.”
The tortured rationale is awkwardly out of sync with Costello’s smooth self. Seated in a hotel bar on Toronto’s airport strip, his vibrating cell phone at his side, Costello is a vision of fine tailoring, set off by a wafer-thin gold watch with micro diamonds. He says he never got anything more from SportFund than a puck and a pair of socks. Then, he’s off to a golf and country club speech. Jerry White is off to Oshawa. There are so many more Mr. and Mrs. Canadas to address. □
As chairman and major shareholder, Costello benefits from all product sales in the firm
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