Monday, September 12, 2011

It’s starting to look more and more like Greece will default on its debt. A sovereign default like this one would likely throw the financial markets into turmoil and erase trillions of dollars of wealth worldwide. If you haven’t already taken measures to defend your wealth, the time has come to do so.

You might remember that Greece needed a bailout several months ago. The bailout package it received from other European nations included a series of payments made to Greece over time.  To get the bailout payments, Greece must meet certain requirements including reducing government spending and increasing taxes – neither of which have been popular with the Greek people. As a result, Greece hasn’t kept its end of the bargain and has failed to implement all of its agreed upon austerity measures.

Greece has a big chunk of debt coming due soon and is relying on the cash from the next bailout payment to pay back those lenders. The question now is whether they’ll get the next bailout payment or whether Europe will finally cut Greece loose and let them sink … something Germany is now threatening to do. The German government has started coming up with a plan to shore up their own banks in the event Greece defaults.

All of this has caused the European bank credit risk to surge to an all-time high last week.

- according to the Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers.

Without the payment, Greece will surely default. If this happens, look out! Things will get ugly in a hurry. The fear is that a Greek default will cause more weakness in the global financial system and a renewed round of fear about another global meltdown.

Banks in Europe and in the U.S. have begun sounding the alarm bells that the risks to the system are extremely high. Many banks are looking for additional cash to help them weather the coming storm. The $5 billion that Bank of America just got from Warren Buffett is just one example.

The yield of 2 year Greek bonds is over 100%. Anyone looking for a high yield on their investments might consider this until they realize that they’ll likely never see their money again.

The latest developments in Europe should act as your wake up call to build a wall around your wealth soon.

How can you prepare your portfolio from the risks in Europe?

There are some simple yet prudent steps to take to defend your wealth from what’s happening in Europe. Here’s what you should do:

• examine your portfolio and sell any European stocks or mutual funds
• sell all European bonds you own and mutual funds that hold European bonds
• get out of the Euro
• sell any North American bank stocks you own that have significant exposure to European debt
• raise the level of cash in your investment portfolio to at least 20%
• add gold (or silver) to your investment portfolios

Hopefully, Greece won’t default on the latest round of debt re-payments. And hopefully, the financial system dodges another bullet …. but I’m betting otherwise.

Friday, September 10, 2011

I just got off the telephone with a client who asked me several questions about investing in gold. While I’ve been preaching the importance of including gold in your investment plan for a few years now, I’ve received more question about gold in the last few weeks than I ever have – likely because the price of gold recently broke $1,900/oz. The higher prices go, the more attention gold seems to get.

If you’ve ever heard me speak publicly or read my book, you know I’ve been urging people to add some gold to their nest-egg since March 2008. Hopefully you’re already defending your wealth with a position in gold. If you still need to take a position or even add to an existing one, you’ll learn a lot from this post.

Is buying gold today a smart move?
In our opinion: YES. The reason to own gold isn’t to make a lot of money – but unfortunately you probably will. The reason to own gold is to defend your wealth from inflation, a government debt crisis and economic uncertainty. The price of gold is rising because economic conditions are deteriorating. Let’s look at where we’re at today.

Inflation: Ask yourself: ‘are prices higher today than they were a year ago?’ You better believe they are … and they’re going higher. As governments continue to weaken their currencies, the purchasing power will continue to fall. As long as governments have printing presses, you’re going to see inflation.

Debt Crisis: Government debts have (and are continuing) to skyrocket in North America and Europe. The US national debt is above $14.5 trillion and counting. It is being increased by about $1.5 trillion annually. The United States government has no hope of paying back its obligations, short of printing the money – which I believe they will do. If you think inflation is bad now, just wait until then. The US debt crisis is already here.

Economic Uncertainty: The economy is extremely weak and many analysts including me, think we are already back in recession. Clearly, the economy has been on life support with the incredible stimulus spending over the last 2 years. The trouble is that stimulus spending is unsustainable and is now drying up as governments are being forced to cut back. The real problems have been covered up for a while and now the economic indicators are beginning to show how bad things really are.

For all these reasons, gold is essential to protect yourself.

How do I buy gold?

There are two types of gold: Paper gold and Physical gold.

Paper Gold
Paper gold is any paper investment that tracks the price of gold or any other document that promises you gold in the future. Paper gold comes in many forms. Here’s a quick explanation of each of them:

Gold Bullion Exchange Traded Funds (ETF) – A gold bullion ETF is a pool of money that buys large amounts of gold and then sells units of the fund to investors. The price of each unit of the fund will track the price of the gold closely.

Gold Mining Stocks – buying shares of gold miners isn’t actually investing in gold, rather it is buying equity in a company that produces gold. Typically, mining stocks lag the price of gold and carry much more risk.

Gold Stock ETFs & Gold Stock Mutual Funds – with both of these investments, investors own units of a fund of mining stocks rather than a store of gold. Like with individual mining stocks, gold mutual funds and gold stock ETFs carry more risk and typically lower returns than the underlying metal does.

Gold Certificates -  A gold certificate is a certificate of ownership of gold. It is simply a promise, usually made by a bank, to deliver gold to you when you redeem the certificate and request the gold. The certificates aren’t actually backed by any gold, rather they are backed by other assets of the bank. Like any promise, they are only as strong as the entity making the promise.

Physical Gold
There are two ways to own physical gold. You can either buy gold bullion or coins and hold the metal directly in your home safe or your bank safety deposit box, or buy the physical gold and pay a third party to physically store your gold for you – in exchange for a fee of course. Typically, when an institution sells you gold and then charges you a fee for storage and safekeeping, it is called an ‘allocated gold account’.

What’s the difference between buying gold coins & gold bullion?

While both bullion and coins are the same gold (99.9999% pure gold), coins are fancier, often with beautiful artwork and involve higher costs to manufacture. Bullion is typically a bar of gold with minimal or no polish and costs less to make. While the cost of both depends on the spot price of gold, there can be a considerable premium to pay when buying coins. Typically, bullion is what investors are after and collectors want the fancy coins.

Who has gold for sale?

Physical gold is available from major banks and several gold dealers. Paper gold and allocated gold accounts are available through brokerage firms and investment dealers.

When the time is right, how do I sell gold?

Paper gold can be sold through your investment dealer or your broker with a phone call, similar to selling any other investment.

Physical gold can easily be sold back to the gold dealer or bank that originally sold it to you.

I prefer owning physical gold over paper gold because of the additional security it has. I don’t need to worry about the institution that sold me paper gold not making good on their promise. However, owning gold today in whatever form, is critically important to defending your wealth from the economic chaos we’re living through.

Would you rather have $100 USD or $100 CDN?

If you are trying to think of the exchange rate today, you’re on the right track. At the time of this writing, the exchange rate is 1 CAD = .9345 USD. That means that one U.S. dollar will buy $1.07 Canadian dollars.

So today, U.S. dollars are worth a little more.

Here are a couple more questions for you.

Which currency is stronger, and which one will provide you more safety?

If a country has adopted a gold standard, it means that its currency is freely convertible to a fixed amount of gold. Anyone who holds the currency can exchange it for a set amount in gold. If the country has a full gold standard, the government holds enough gold to redeem every dollar printed.

The benefit of a gold standard is that it protects the value of the currency. Politicians can’t just print new money unless there is a deposit into the gold reserve of an equal amount of gold. This prevents politicians from expanding the money supply and debasing the value of the dollar. With a gold standard, there is no inflation.

If there is no gold backing up the currency, it becomes fiat currency. Fiat currency is money that is declared to be legal tender by the government, but it has no intrinsic value because there is no gold backing it up. Fiat currency can be printed at any time. With a fiat currency system, the citizens must trust the government not to print more money and, therefore, cause inflation.

Another question:

Which currency uses the gold standard – Canadian or United States?

Answer:

Neither, both are fiat currencies. In fact, every major currency in the world is now fiat money. We have to trust our governments to avoid the temptation and not print more of it. We have to trust our governments not to reduce the value of our money. So far, they haven’t been very trustworthy. The supply of every major currency has expanded in the past two decades – and every country has experienced inflation. Some have even experienced hyperinflation.

Why own gold (and silver)?

In periods of high government deficits and inflation, commodities tend to perform very well. Monetary assets like gold and silver are the best example. You can think of it as retirement insurance. If there is a crisis of the dollar, it becomes the only way to prevent a collapse of your retirement plan. Gold is a hedge against inflation; they aren’t printing more of it.

Gold is also a safe haven for stock market declines, real estate collapses, wars, and political turmoil.

Gold stocks.

Owning gold company stock is no different from owning stock of any company and should be evaluated the same way. Don’t buy gold stocks hoping to get the benefit that gold gives you.

Several gold stocks trade on the TSX. Barrick and Goldcorp Inc. are among the biggest and form part of the S&P/TSX 60 Index.

The value of these shares is influenced by the spot price of gold, but it isn’t the only influence. Gold companies are subject to the same risks as every business. Many gold companies hedge their production to reduce their own risks by selling futures contracts. This reduces the effect changing gold prices has on their own share price.

It should also be noted that there have been several investment scams involving gold stocks, including the largest scam in Canadian history: Bre-X Minerals Ltd.

Gold certificates.

A gold certificate is a document that represents ownership of physical gold. These are issued by Canadian banks and are typically sold through brokerage firms. The advantage of certificates is that they are easy to buy and easy to sell; you don’t have to take possession and store the gold.

The problem with gold certificates is that they are too easy to print. They are just a promise of gold. They are paper gold. A gold certificate is like a bank account statement. Your statement says that you have money; a gold certificate says that you have gold. The fact that own a certificate stating that you are the proud owner of 1 ounce, doesn’t mean there is actually an ounce set aside somewhere for you.

Look at it this way.

What happens if all the depositors show up at the bank on the same day to withdraw their money? Answer: a run on the bank. The bank closes its doors and goes broke. There are several examples of this in history.

So, what happens if there is a severe financial crisis, a really big one – the reason you bought gold in the first place – and all the certificate holders show up to get their gold? Answer: see above paragraph.

Gold in any form other than the actual metal, such as gold certificates, gold trusts, and ETFs, is just paper gold.

Physical gold.

You can buy actual gold in either coins or bars. Both are better than every form of paper gold. Yes, buying physical gold is more of a hassle than calling your advisor and buying a gold certificate, but the extra effort is well worth the time.

I’ve bought gold at Scotiabank and the Royal Bank. While there are other vendors, Scotiabank is in the business of precious metals full time and, in my opinion, they are better equipped and stocked than their competitors.

With any piece of physical gold, there is a cost above the value of the gold (the melt value). When buying gold bars, you pay a bar charge. The charge is generally about $10 per ounce. The larger the gold bar, the smaller the per ounce charge.

The biggest premium is on gold coins. There is an extra cost to have nicely minted gold coins. Generally, the prettier the piece of gold, the higher the premium you pay to own it. The most cost-effective way to buy gold is to buy gold bars – the larger the better.

What about silver?

Silver is a monetary asset just like gold and acts as a hedge the same way that gold does. It does this job at least as well as gold, and it can be bought in bars, coins, and certificates, just as gold can. Silver just takes up more space.

Both silver and gold are used in the manufacture of jewelry, but silver is used in the manufacturing of all sorts of other goods. Electronic equipment, medicines, and batteries are all products and services through which we consume silver. Unlike gold, silver has significant demand as an industrial metal, and some believe that because of this, silver is actually a better way than gold to hedge your money.

If you are buying silver, buy silver bullion, bars, or coins. Avoid paper silver.

Gold for Canadian investors.

There is something very important to remember about gold: it’s priced in U.S. dollars. When Canadians buy gold, there’s an extra layer of complexity because we must deal with the currency conversion. The price of gold is important, but the price of gold in Canadian dollars is more important.

Typically, the price of gold and the U.S. dollar move in opposite directions. When the U.S. dollar drops, the price of gold often increases. The past six months are a good example. The price of gold has increased from $900 USD per ounce to $1045 USD per ounce. However, in terms of Canadian dollars, it is about the same price today as it was six months ago. If you own gold and it soars at the same time the U.S. dollar declines, you might win with the gold and lose on the exchange.

If you want to remove this currency risk, you should hedge the U.S. dollar. Currency hedging can be very complicated and is best left to the pros, but there is a simple way by which anyone can hedge the dollar. It involves using exchange-traded funds (ETF) that move in the direction opposite to a particular market, index, or currency. You can buy an ETF that moves opposite to the U.S. dollar. It seeks daily investment results equal to 200% of the daily inverse performance of the U.S. dollar. That means it’s structured to provide twice the movement of the greenback against the Canadian dollar.

If the U.S. dollar drops by 5%, you would expect this ETF to increase by 10%. This makes it an effective way to hedge your gold against the decline in the U.S. dollar. If you own $10,000 in gold, you can hedge the dollar with a $5,000 investment into the ETF (see “Inverse ETFs”).

An RRIF (Registered Retirement Income Fund) is like an oak barrel that has a tap attached to it – a leaky tap. Every year, some of the money that’s in your RRIF leaks out and is taxed. You get some control over how much flows out, but you can’t shut the tap completely. You get some control over when you open up the tap, but you can wait only so long.

The end of the RRSP party.

Over the years, when you contributed to your RRSP the government let you deduct the contributions from your income and reduce your taxes accordingly. It’s possible to save thousands of dollars in tax over your working lifetime. The other big benefit to RRSPs is that all the income that’s earned over the years is sheltered from tax. But all good things eventually come to an end.

A Registered Retirement Income Fund is the government’s way of ending the RRSP party. It’s like turning the lights on at the end of the dance. The government wants you to start paying back some of the taxes you’ve saved. If you thought your tax savings were permanent, you’re wrong. You just deferred paying the tax for a while.

At some point, all the money in your RRSP gets taxed as income, either when you draw it out during retirement or when you (or your spouse) pass away.

My RRIF is leaking! What can I do?

The whole point of an RRIF, is to force you to withdraw money and pay the tax. Like everything else in retirement planning, there are rules. The government makes the rules and changes the rules; that’s why there are two sets of RRIF rules.

The RRIFs that were set up after December 31, 1992, which is the majority of RRIF plans today, are governed by one schedule; older RRIFs are governed by another schedule. The schedule below shows the minimum-percentage-required withdrawal for both types of RRIFs.

The best time to buy an RRIF

The government says that you must convert your RRSP into an RRIF by the end of the year in which you turn 71. You don’t need to make your first withdrawal until the following year. Keep in mind that it often makes sense to convert to an RRIF earlier than the mandatory minimum age. There are two things to consider:

1 – Your need for the money.

Jenny is 65 and retiring today. Her pensions and investment income aren’t enough to maintain her planned lifestyle. Jenny needs the money. She decides to voluntarily convert to an RRIF today to fill the gap in her income.

2 – Your marginal tax rate.

John is 60 and has been comfortably retired for a few years. His total taxable income is $25,000, which puts him in the lowest marginal tax bracket (see “Understanding your marginal tax rate”). Although he doesn’t need the additional income, John decides to convert his RRSP to an RRIF today. He knows that when he turns 65, his company pension will kick in, and he will be pushed into the highest tax bracket.

John calculates that he can withdraw about $10,000 per year from an RRIF for the next 5 years without being pushed into a higher tax bracket in any of those years. So he decides to convert his RRSP today and withdraw from his RRIF $10,000 per year for the next 5 years. That way, he gets out $50,000 over the next 5 years in the low bracket. If he waits until age 65 (or later) to start making withdrawals, those withdrawals will all be taxed at the highest tax rate.

If your withdrawals will be taxed in a lower tax bracket today than in the future, consider starting the withdrawals today, even if you don’t need the money today. Deferring tax makes sense only if it doesn’t cause higher taxes later.

John saves on his lifetime tax bill by withdrawing money and paying the taxes today, as opposed to deferring the taxes to the future.

How much can you withdraw?

Unlike with a locked-in RRSP or a LIRA , there is no rule that prevents you from withdrawing everything from your RRIF on any day. Canada Revenue would be thrilled if you did. You’d pay more tax.

How often do you get your money?

You can take it as often as your plan holder lets you. Most plans allow you to choose monthly, quarterly, semiannual, or annual withdrawals without charging administration fees. Set up your withdrawals on a schedule that suits your cash-flow needs.

Five-star tip: Many plan administrators charge a withdrawal fee for unscheduled withdrawals from RRSPs and RRIFs but don’t charge a fee for starting, stopping, or changing withdrawal schedules. Schedule your withdrawals with your advisor. You can always change when and how much you withdraw.

The frequency of your withdrawals doesn’t affect how much tax you ultimately pay. It might, however, affect how much tax is withheld.

Handling withholding tax properly: What are your options?

Tax might be withheld from your RRIF withdrawals by your plan holder and sent to the tax department on your behalf. Canada Revenue Agency doesn’t want to wait until your next tax return to get the cash. The withholding tax does not apply to the minimum amount, so if you are taking only the minimum, be sure to plan ahead for your next tax filing, and make sure you have the cash to pay the bill.

If you end up owing more than $3,000 in tax at tax time, Canada Revenue will require you to make quarterly installment payments (see “The secret to handling tax installments properly”).

If you end up owing less tax than is withheld, the difference will be refunded to you.

Withholding tax is a matter of when tax gets paid, not the overall amount of tax you pay.

How much will be withheld?

On amounts withdrawn that exceed the minimum, tax will be withheld. The rate depends on the size of the withdrawal.

Can I do a partial RRIF?

The answer is yes, as long as you are not yet 71.

Wendy, like everybody 65 and older, is entitled to the pension tax credit if she has the right income.

Note: The pension income credit is a $2,000 tax credit that applies against qualified pension income. It makes the first $2,000 of qualified pension income-tax free. No, unfortunately, Canada Pension Plan [CPP] income doesn’t count as qualified income.)

If Wendy had a company pension, she would be using this credit. Since CCP income doesn’t qualify and Wendy has no company pension, Wendy is losing this valuable credit. She realizes that RRIF income qualifies for the pension income credit for people 65 and over, so she decides to “create” the pension income.

Wendy converts only $20,000 of her $250,000 RRSP to an RRIF. If she converts the entire amount today, her minimum withdrawal is expected be about $10,000 each year, and climbing. She can offset only $2,000 with the tax credit; the extra amount ($8,000 or more) would be fully taxable each year.

By converting only $20,000 and leaving the rest in her RRSP for the next few years, Wendy’s minimum withdrawal is only $800, but she chooses to withdraw $2,000, just enough to get the full tax credit.

What about when I die?

If you leave your RRIF to your spouse, either through a beneficiary designation or via your will, it can be transferred tax-free. If you leave it to anyone other than your spouse, it becomes taxable income to your estate.

By definition, marginal tax rate is the amount of tax you will pay on your next dollar of income earned. If your marginal tax rate is 32%, you will pay $.32 tax on your next dollar earned. Let’s say you live in British Columbia and you made $70,000 in 2009, and your marginal tax rate is 29.70%. That means you will pay $.29 of tax for each dollar earned.

Your marginal tax rate depends on three factors:

The province you live in. Each province has its own tax rates.

The type of income you’re talking about. Dividends, capital gains, interest, regular income.

The amount you make. Your level of income.

Go to www.taxtips.ca for the current marginal tax rates by province and find yours.

To calculate your after-tax rate of return on your investments, you need to know your marginal rate. Your after-tax return is the only return that you should focus on. It’s not what you earn that matters, it’s what you keep.

The other reason to understand your own marginal tax rate is to help evaluate the benefit of a tax strategy, such as contributing to RRSPs. Your marginal rate tells you how much tax you will save. If you are considering contributing to your RRSP, you need to understand if it’s worth it. The higher your marginal tax rate, the more attractive RRSPs are to you.

It seems that every lawyer will prepare a will if you pay them their going rate. However, not every lawyer knows estate law inside out. You wouldn’t want an optometrist to fill a cavity in your tooth. Find a lawyer who practices estate law to draw up your estate documents, such as wills, powers of attorney, and living wills.

2 – Buy only as much life insurance as you need today.

Don’t be talked into buying today, what you might need tomorrow. If you need more insurance in the future, buy it then. Chances are you’ll need less insurance in the future, not more.

3 – Don’t name out-of-province executors in your will.

Naming an executor who resides outside your province can needlessly increase the costs and hassle in your estate. Talk to your lawyer and estate planner about avoiding indemnity bonds for your executor.

4 – Don’t name your minor grandchildren as beneficiaries of your estate.

Save your family from the cost and pain of this mistake. Minors can’t inherit assets. Direct their inheritance into a testamentary trust. You decide how old is enough to inherit money, not the government.

5 – Couples: Set up your estate so that you can still income split after the first of you passes away.

A spousal testamentary trust can allow a couple to continue to file two tax returns even after there’s only one spouse. Two tax returns means less overall tax. If done right, it can save thousands of dollars.

6 – Never buy insurance on your kids.

Insure assets, not liabilities. Sorry, but your kids are liabilities. Beware of anyone who tells you to insure your kids. The insurance industry finds very creative ways to sell insurance. Don’t believe the sales pitch. If someone tells you to buy insurance on your kids, he’s thinking more about his own kids than he is about yours.

7 – Never insure your mortgage.

Mortgage life insurance is a policy that the bank owns, and it declines every month. Rather than letting your bank control the proceeds, give the benefits to your family – they’ll need it more. Buy personal insurance instead.

8 – Always be careful when putting your children’s names on investment accounts or real estate.

There are many reasons you might want to put your kids’ names on your investment account or your real estate, but be careful. Recent Supreme Court cases have changed the rules concerning these “joint” assets. Talk to your lawyer and financial planner before putting your children’s name on anything. What you might think is smart could actually hurt you and your kids.

9 – Even though you’ll likely never need it, have a power of attorney just in case.

Many people don’t realize it, but your family has no authority to handle your financial affairs if you become seriously ill. Without a power of attorney, not even your spouse can step in without a court order. Prevent a huge problem by naming your spouse or trusted ally as your power of attorney. This “just in case” document is critical in every financial plan.

10 – Don’t believe the story that life insurance is an investment.

The only reason to buy life insurance is to protect you against a financial loss. Period. Never believe the guy who tells you to “invest” in life insurance. There are several creative ways to make insurance seem like an investment. It never is.

Life expectancy for Canadians has increased steadily; this is a good thing. A Canadian male born in 1930 had a life expectancy at birth of 60 years; a female, 62 years. (The source of the data provided here is the Statistics Canada publication Perspectives on Labour and Income, Summer 2002, Vol. 14, no. 20.) The life expectancy of a baby boy born today is 79. We are living longer than ever before; this is a good thing. We are also retiring earlier than ever before; this is also a good thing.

However, retiring earlier and living longer means we have far less time to prepare for a much longer retirement than our parents had. All of this puts incredible stress on our retirement plans – and on our nest eggs.

Retiring in the past was easier than it is today. Most families were single-income families because they could be. Prices were lower and taxes were lower. Saving money and investing it safely was easier.

Company pension plans were more plentiful and better funded. A person could expect to contribute to a pension plan at work that would provide guaranteed retirement income for life.

Private pensions used to be defined-benefit (DB) plans. The income one got out of the plan in retirement was defined by a formula. People knew exactly what to expect. The pension benefit was based on one’s earnings, age at retirement, and years in the plan. People knew ahead of time how much they were going to get, when they were going to get it, and how long it would last. The best part was that it was enough to retire on and guaranteed for as long as you and your spouse lived. Retirement planning was easy.

Today, company pensions are only a shell of what they once were. Pensions now are defined-contribution (DC) plans. You have no idea what you’ll eventually get. The only part that is defined is how much you put in. Your hopes and retirement dreams bob up and down with the stock market. Most pensions have performed exactly as the market has performed, which has been terrible the past 10 years. You take all the risk with pensions today, and you suffer the consequences. Despite that, if you even have a pension today (as poor as it might be), consider yourself lucky.

Many baby boomers have done exactly what their parents did by contributing faithfully to their company pension their entire careers. But unlike Mom and Dad, their pension isn’t going to be big enough to retire on. Other boomers who don’t have a pension to fall back on, have been building up their Registered Retirement Savings Plan (RRSP) in the hope that it will be enough to retire on. Many baby boomers are learning today that it won’t even be close to enough.

A mutual fund is a classic example of a financial product.  Like other products, mutual funds are manufactured and then distributed. They aren’t made in factories like automobiles, instead they are manufactured in office buildings.  You can think of a mutual fund company as a manufacturer of mutual funds.

After a mutual fund is built, it needs to be distributed (sold).  Mutual funds are distributed through a network of investment dealers.  You should think of the company that your financial advisor works for as the distributor of mutual funds and other financial products.

Here’s why this is important.

While manufacturing and distribution can both be profitable, manufacturing is where the real money is.  Every firm in the financial industry wants in on the manufacturing side of the business.  Almost all investment dealers also manufacture their own products and make far more money selling them than on other products.  Some companies are honest and upfront about the connection, other companies aren’t so upfront.  They simply manufacture and sell their own in-house products under a different brand name and hope you don’t figure it out.

Almost all investment dealers have some form of in-house products for sale and many dealers force their advisors to sell them.  They simply mandate their financial advisors to sell the company line up.  These in-house products aren’t pushed on you because they are superior, in fact, they often under-perform and have higher than average fees.  Investment dealers push in-house products because their margins are higher.  They can make more money selling them than selling you a better investment.  The amount of money you make is secondary to the money they make.

Choose a financial planner that works for a firm that doesn’t have its’ own products, or at least, doesn’t require you to buy them.  The more independent and unbiased your advisor is; the better off you are.