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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials, with your hosts, Josh Schallick and Colin White, portfolio managers with VariCam Capital Management Inc.
Colin White:Welcome to the next exciting edition of Bare Naked Money. The, OG, Josh and Colin here with you today. And we are gonna talk about conflict. Now it's a big word, Josh. Do you wanna narrow down what kind of conflicts we're gonna talk?
Colin White:Is this gonna be, like, marital advice, you know, that you're gonna be giving as a new dad and how your your relationship has changed with your your baby mama?
Josh Sheluk:Well, when you said conflict, I was thinking conflict in the Middle East. Is that what we're talking about? Nope. It's much less exciting than that. Conflicts of interest and financial advice.
Colin White:Sorry if I misled people and kept them here longer than they wanted to be here, but, yes, it's probably not as exciting as you're hoping.
Josh Sheluk:Yeah. But there's a lot of that, and it's, I don't know. It's it's a tough topic for me to really get excited about because I'm kind of bashing the industry that we're a part of and talking about all the the warts on what's out there financially. Yep. It's kinda sad.
Colin White:Well, no. I but I I think this is extraordinarily valuable conversation now as much as we make fun of it and call it boring, is crucial. You know, you you have to understand the business model of the financial world in order to really, you know, increase your chances of getting the outcome you're looking for. And there's been lots of different press, but there's lots of different types of conflicts that are out there. And, you know, so we're gonna make an effort today to go through some recent examples and some things we've observed and point out where conflicts happen, how to notice them, and maybe how to protect yourself against them a little bit.
Colin White:Because at the end of the day, we do try to be educational. And I'm sorry if we for a second made made it sound like this is boring. We're gonna save your life today. Give us 30 minutes. We'll save your life.
Colin White:Yep. Just maybe build it up like that. Get people to stay.
Josh Sheluk:Yeah. That's that's right. Could be life changing. That's for sure.
Colin White:Well, which one did you wanna start with? I'm not sure which is your favorite. As usual, you've spent a bit of time reading over these things. Do you have a do you wanna end with a bang, or do you wanna start with a bang? Which which which bang would you like?
Josh Sheluk:Well, I wanna I wanna start with a bang. I'd like to I'd like to start end to end with a bang, but you can only have so many bangers in one conversation. So but let's let's start with one that's very topical. And I think this was kind of the impetus of us doing this conversation as it was reported in The Globe, yesterday, I think it was, that this was released that fairly prominent financial institution, independent financial wealth management company here in Canada, known as Wellington Altus. One of the the senior people at that firm had a large stake in an ETF provider, and that ETF provider's products was being, sounds like, fairly heavily promoted by the company themselves.
Josh Sheluk:So it's all hearsay at the moment, and there seems to be a few things that are left to be uncovered. But according to that article, seem to be pretty damning.
Colin White:So why did this come to light, Josh? What what why are we noticing this? Why is this not just another piece of Flotsammer jets still floating down the river of of conflict that never gets called out?
Josh Sheluk:It's interesting. I I don't know why it came to light right now, but this ETF company is effectively defunct at this point, at least the Canadian contingent of the CTF company. And, it seems like there's a lot of investors, in the CTF company that are gonna be short on money. Seems like there was can we call this fraud? I think it was it was almost like outright fraud.
Josh Sheluk:Right? Or, like, very close to it, the way that the money was kinda shuffled around?
Colin White:Yeah. They were shut down by the OSC effectively because there was money being moved around inappropriately. And as it turned out at the end of the day, when all of the music stopped, there was money missing. So, I mean, again, the reason this became a story that ended up in the globe was, you know, you have a firm that is defunct where there is allegations of malfeasance. And, what was the figure?
Colin White:It was over 30% of the assets in Canada were held through Wellentin Altis. So
Josh Sheluk:Yeah. From this this ETF company. Yeah.
Colin White:Yeah. Almost 1 third of the money in that ETF company came from a wealth management firm whose senior leader was a major shareholder in. Yeah. So the reason that this is being noticed is that there has been this failure. So we've there's there's been much more of a lens put to it going, you know, exactly how did this work.
Colin White:And the the reporting
Josh Sheluk:failure happened a few months ago, so that's why I was kinda surprised that, oh, we're just finding this out now about the, maybe conflict of interest or or stake that was was there.
Colin White:Yeah. No. Absolutely. It took a while for that to to to to to figure out. Now the reporting on its surface on a read actually seems pretty good.
Colin White:I mean, they got right into quoting the relationship disclosure document to the firm, and, you know, it seemed to be a rather thorough piece that was written. So I think at the end of the day, the magnitude of what happened is uncertain. Yep. But there's there's there's certainly something don't look right. You know, the old expression may be legal, but it ain't right.
Colin White:Mhmm. Because, again, when you have ownership between companies and one individual is profiting from a client a number of different ways, then and that and that's fairly common. Like, you see a lot of institutions that are manufacturing product that they're then selling for a fee. And, you know, there's there's these layers that are going into it. And, you know, the the industry says as long as we disclose it because a a part of that that piece was, well, hey, it was disclosed.
Colin White:Now the disclosure in the relationship document was something to the effect that an employee of the firm is a minority shareholder.
Josh Sheluk:Massive minority shareholder, I think, was the exact answer.
Colin White:Massive minority. So again, you could they so they'll point at that and say, well, we disclosed it and that may satisfy the rule of some regulation. But I think society is going to look at that and go, that's no disclosure. Will you stop it? I mean, that does not rise to the magnitude of passing the what's expected test between 2 human beings.
Colin White:You know? So but I think it's the failure that caused people to go digging to uncover this. Because I think honestly, Josh, if you really dig into a lot of the relationships in Canada, this is this is not uncommon. It's not uncommon for a somebody who's sitting in a position of of power, who's giving advice, who's influencing others is profiting from that a number of different ways. And we you know, I can I can speak from my own perspective in that I have been approached many, many times in my career about investing in various companies that provide products into the industry?
Colin White:That's not an uncommon conversation. And, you know, that that's that's a conflict. Whether you you know, with the magnitude of that conflict and does it really cause the the the level of problems that it causes? Oh, it's hard to say. I mean, if I buy shares in in in a made like, a publicly traded share in a company, you know, you you you can argue that I'm being true like any other investor.
Colin White:And I don't necessarily have any inside knowledge. If I'm if I'm offered a private placement from a firm where there's limited opportunities to invest in something, And then I'm put in a position where I can, you know, drive business to that company. That that that doesn't that doesn't sound right, does it?
Josh Sheluk:Well, no. It doesn't. I I what we talked about prior to to starting the hitting the record button here was there's a magnitude or degree with which a conflict becomes a problem and other scenarios where it doesn't. Like, you or I sitting here and talking about shares of just to use one company that Vericant actually owns, Shopify. It's like, we don't quite have enough followers yet where we're gonna make any, impact or create any impact on the value of the shares of Shopify by being you sitting here talking about it.
Josh Sheluk:So that's one where there's maybe if you dig deep enough, yeah, you could say that there's a conflict. But practically speaking, there's there's nothing that we're going to do to affect that. Whereas if you're right. If it's, you know, company x y zed that's, selling software out of the back of the truck and all of a sudden you're promoting that and the sales increase by 50%, then and you're a shareholder of that company, then, it's it's a lot more direct.
Colin White:Yeah. I mean, if you take this down to this, this was an individual adviser who was running individual client accounts and was found that they were funneling money towards a company that they had a stake in. You know, there there's more clear rules around that. You know? There's that that would be that would impact the licensing of that individual.
Colin White:Now, again, the firm where it occurred is likely just gonna get a slap on the wrist. I mean, again, the way the regulations work is the adviser is held accountable, and the firm goes, oh, I didn't know they were doing that. So, you know, the firm gets to keep their share of commissions that they earned off of those transactions. The advisor has to give back their share and his career is over and the firm moves on, you know, by hiring a new upstart advisor to replace the advisor that just got caught doing something. You know?
Colin White:So, you know, that's also the reality of how these things get treated. You know, this case here where you have, like, a senior executive who ostensibly I don't think is actually registered as an adviser, but he's got influence over a large number of advisers and therefore able to exert influence that way. That's one step removed, I think, from what the regulations were intended to to be able to notice.
Josh Sheluk:Yeah. Well, just see what the effect is or the outcome is in this situation where Wellington Altus, as we said, owned over 30% of the assets for Emerge Canada, which is the ETF provider that's now effectively defunct. And these ETFs were part of some of the managed portfolios that they ran, firm wide for the advisers and their clients. And let's just say Emerge is not a very prominent player in the ETF or asset management market. So for that to start making its way into portfolios or into promotional content or whatever, you have to raise an eyebrow or 2.
Colin White:Well, yeah. Then there's others in Canada that haven't they haven't failed, so they haven't made the news. But there are other instances in Canada where you have independent shops who have manufactured private products, whether they're private equity or private debt, and they are promoting those products through their distribution channels and using various means to to to gather assets into them. And again, to me, as soon as you become you know, if you wanna call yourself an independent adviser and you really are advising, if you start making more money off of one product than another, that's a material conflict. That reaches the magnitude where it shouldn't be.
Colin White:And just because you disclose it saying, hey, by the way, our firm actually owns the company that we're investing in, that doesn't make it better because, you know, a a true adviser is is counted on by the public to advise in their best interest. And by pointing out, it's like, hey. I've got this conflict, but we're gonna do this anyway. I had to that doesn't make the world and that unfortunately, that's the standard a lot of this comes to. As soon as you have a company that is is profiting on more than one way from a client, then I think you gotta just drop the word independent.
Colin White:You're no longer independent. You're now a salesman.
Josh Sheluk:Yeah. Well, you we could extend this a little bit past the independent network as well. And Yep. It's a bit more of a watered down version of this. But if you walk into a bank branch, for example, and open an investment account, guess what you're going to get?
Josh Sheluk:You're going to get a product that's offered by that bank. And and even though I think, technically, there might be more options available to you, You've seen basically every bank that I'm aware of strip down their offering to if you walk in, you're gonna get if you walk into TD, you're getting a TD Mutual Fund. If you walk into Royal, you're getting a Royal Mutual Fund. And I think it went even so far as, most of these these companies, these banks were basically outlawing any purchases of non bank funds. And that got the regulators back up a little bit.
Josh Sheluk:I don't know. Did did was there a resolution to that? Did they backtrack from that at all, or did the regulators just say they don't like this, and the bank said, I don't care.
Colin White:Well, no. The the the fight was that the the regulators came forth with the know your product because, again, they they wanted to hold advisers to a standard that there's a certain amount of diligence being done on any product that was being sold because they were fighting against advisors selling stuff that they just didn't understand. Yeah. Which was happening all the time. So they brought forward a rule saying, you have to know your product, and here are all the rules about knowing your product.
Colin White:And if you can't know your product, it can't be on your shelf. And the bank said, well, thank you. We can't know all of these other products. We know our product really well. Ergo, ipso facto, we are fully compliant.
Colin White:Yeah. So then the the argument start, well, wait. That's not what we meant. Oh, yes. It is.
Colin White:You know? And Yeah. Yes. There's still a conversation going on about that. But at the end of the day, there's you can't require an institution to offer third party products.
Colin White:I don't I don't think you can do that in a free market system. And you hope that there's a market reaction to that. But I think, Josh, I think this is a good time for us to to jump in. We don't have to do this. Let's talk about VeriCann for a second because we have the VeriCann funds that we use.
Colin White:And Yeah. I think that so people don't call us hypocritical in the comments. Yeah. We have 2 pools that we use for most of our client assets, but we've designed those 2 pools where there's no fee coming back to us. So BaraCann does not make more money by using BaraCann product.
Colin White:Those are stripped down to just the costs, which is uncommon. And in fact, I've had a few people ask me. I was like, well, why not? Well, it's it's just how we decided to do things. We're getting paid to manage money at the client account level and it's visible client sees it.
Colin White:We're not gonna hide a fee inside of something else. That's not what we are. So anybody who looks at this podcast and says, well, you guys are hypocrites. No easy, big shooter. Know, the the ones we're talking about is when you go and buy at a bank branch and you take a look at the MER inside those mutual funds, there is a management fee being paid for the management of that money.
Colin White:So they're getting paid to manage the money and the fee at the account level. So ostensibly they're double dipping, and they're calling in advice. You're you're going to an adviser to get advised. They're really sales people. You're going to a sales person to be sold.
Colin White:But I guess the reason to circle back where I started with the independence was that I think it's easier to see when you walk into a bank branch, you're not talking to an independent. You know, it's not assumed. More understood, right? Yeah. Exactly.
Colin White:When somebody says I'm independent, but yet behind the scenes this is what's going on, that's more disingenuous to me. And there's more examples of that. And there's regulatory scrutiny going on with A couple of firms in Canada already have that exact issue. So I bristle a little bit more at the idea that people are calling themselves independent And the client goes, well, thank god you're independent, but you end up in you're basically in the same soup. And, maybe even worse off because it's even the the opacity of it.
Colin White:But, yeah, it's it's it's a real thing.
Josh Sheluk:Yeah. A lot of this comes back to, as sad as it is, like, how do you get paid? Yeah. Explain to me how do you get paid? And it's not maybe that easy because the industry has made a lot of these things quite opaque.
Josh Sheluk:But understanding how the individual and the company, is paid and compensated is going to go a long way to try to identify those conflict conflicts of interest. Now when the relationship disclosure says that there's a past minority interest for a shareholder, you can probably ask a 1000000 questions and never quite arrive at what you need to understand.
Colin White:Yeah. No. No. Absolutely. And the the the challenge is is, you know, where do you go asking the questions and and and what are all the alternatives.
Colin White:Right? But the the bigger question I ask, and I've asked this in previous podcast, is not necessarily where the compensation is, but what's the business model? How is this institution profiting off you? So you have the the person you're sitting in front of and the advice that they're giving. They're being compensated for the advice, and that compensation is gonna drive the advice that they give.
Colin White:But then even to sit back further and say, you know, what's the whole business model of this organization? Like, where's the organization making money? Okay. Well, they're taking a piece of the money that's being generated by this adviser in front of me, the salesperson. They're they're making it off of the product that they're selling me, and then they're selling my data to a third party so Facebook can market to me, you know, and then try to get me to buy sunglasses or something.
Colin White:You know, just understanding the business model of what you're getting involved in. Like we've had the conversation about the zero commission trading on on some of the platforms and how they, you know, they sell the order flow, and then you get front run on all of your orders and everything's not quite as efficient as it could be. And then they provide you with, here's the top 10 traded stocks today, and, you know, here's the top 5 tech stocks.
Josh Sheluk:And you get a gold star the more trades that you do.
Colin White:And then there's confetti, and then there's the dancing pig. I always like it when you get to the dancing pig. You know? So they but you're just like, oh my god. They make this so fun.
Colin White:What's their business model? Yeah. What's their business model? Always always what is their business model? Oh, wait.
Colin White:I'm the product. I didn't pay to be here. I'm the product. Oh, okay. Well, how are they milking me?
Colin White:Like, where exactly is the milking machine attached? Once you understand that, you're at least a little equipped to exist in that world.
Josh Sheluk:Well, you mentioned Facebook. Like, a lot of this stuff is it's interesting because you get so much stuff for free, quote, unquote, free these days. Right? Google search, free. Facebook, free.
Josh Sheluk:Twitter, free news. All this stuff. But as you to your point, what's the business model? Like, how how am I how am I losing? It's like that thing.
Josh Sheluk:It's like, I know I'm getting screwed here, but how how are you screwing me? Like, just just explain to me because I know something's going on. So, yeah, like, they're they're the these are advertising businesses, really, at the end of the day. And they're making a tremendous amount of money advertising things to you that you may or may not want or need. And Yeah.
Josh Sheluk:I guess since the advertising is valuable to them, people are are buying stuff, so it's working.
Colin White:Oh, yeah. Just so you remember, that's a Seinfeld episode you're quoting. You know?
Josh Sheluk:Okay.
Colin White:And there was there was, like, a so we tried to give Kramer a point scarred. He goes, well, why not? It's like, you know, I don't know how I'm losing, but I know I'm losing.
Josh Sheluk:That's that's right. That's right. Yeah. Loyalty rewards. Same thing.
Josh Sheluk:Yeah.
Colin White:Yeah. No. No. Absolutely. But, I mean, it's it's good to see these conflicts hit the news like this.
Colin White:Now hopefully, this hits at a level of the magnitude that oh, Josh. You're you're you're smirking at me. You think nothing's gonna happen. I choose to be optimistic and say that this is so egregious. This is so visible.
Colin White:This is such a travesty on the Canadian investing public that there will be change. You you think not?
Josh Sheluk:No. I I think the regulators are always responding to these things when they come up. But the the thing is, it's always a response. It's and it's hard to be proactive for creative conflicts of interest that haven't even been thought of yet. So I don't blame them entirely.
Josh Sheluk:So I I imagine that they'll come in and do something if all of the facts here are shown to be true.
Colin White:Yep. Well, that's an absolute
Josh Sheluk:Is it is it gonna be as severe as it needs to be? I I don't know. Like, it it some sometimes they're too light handed. Other times, they're too heavy handed. It's it's it's tough to strike the right balance and to ensure that this type of thing doesn't happen again.
Colin White:Well, the other challenge we have in Canada is that the Canadian financial sector is quite underinvested in and is quite underfunded, and there there's a lot of room for improvement. So, you know, it's almost as if well, if we in the financial industry wanted to do better, we're gonna have to invest more in it in order to to get, you know, the the better fintech in Canada. You know? So it there's a little bit of a you could say that there through one light, it's it's kind of an altruistic, yes, we need to invest in our industry to make it better. You know, that's the better angels.
Colin White:You know, the more evil angels is, like, excellent. We're gonna own the whole thing. We're gonna be in great shape. And and you're right. It's evolving so quickly.
Colin White:And and again, the the regulators have a tough job to kinda figure out, alright, how far can we go? They do with the bathwater kind of thing. And there's always unintended rules. And I I go back to the know your product thing, which on its face, that was a really, really big improvement. And that Right.
Colin White:That was a really, really good idea. The unintended consequence that the banks were gonna shut their shelf, it's like, well, shit. Right? Alright. Fine.
Colin White:I guess we're not done. You know, there's more work to do here. Yeah. And I don't know if that could have been completely foreseen. Part of me says, yes.
Colin White:Somebody in the room had to say this is what was gonna happen. And maybe it was just decided this was gonna be a hill they have to climb another day. Or, you know, maybe they're waiting for the market to adjust and have people say, you know what? Screw it. I'm not gonna go into, you know, any bank branch and have just one fund offered to me.
Colin White:That's gonna hopefully drive all these people to independent advice all across Canada. Yeah. I mean, maybe maybe that's the outcome.
Josh Sheluk:Yeah. It's a bit of a whack a mole thing, for sure. Yeah.
Colin White:That's a really nice visual. Thank you.
Josh Sheluk:No problem. Can can I throw a couple more randomly selected conflicts that exist out there at you?
Colin White:I would be disappointed if you didn't.
Josh Sheluk:Yeah. Because because I was I was thinking about this. And, again, it all comes down to the same thing. Like, what's the business model? How are you compensated?
Josh Sheluk:Things like that. But there's been a quite a proliferation of private investment products that are out there over really, it's it's been proliferating, I'd say, probably over the last 5 years. But, especially, over the last couple years, I've heard more and more of this stuff promoted. And so these private when we say private investment, it means it's not traded on an exchange. The the the investment itself.
Josh Sheluk:So there's no day to day pricing on these these investments that underlie these products. Most of these products, you accrue as as the product provider, you are paid a management fee, which is a percentage of the value of the products that you're looking after or sometimes a performance fee, which is how well these things perform over time, a percentage of those profits. So you have an incentive to ensure that the value of those investments that you manage are as high as possible. And when you don't have an active market for these products, when there's no exchange or no buying and selling that takes place on a regular basis, there's some discretion that is used into the pricing of these underlying investments. And if not properly structured, there could be a little bit too much influence that the manager has on the value of the investments that they're looking after.
Colin White:And so this is the one you're gonna name. Right?
Josh Sheluk:No. There there's lots of there's lots of different product providers that are out there. Mhmm. So there's no one specific to name. And
Colin White:Okay. No. Sorry. I thought you were building to want that one specific example we talked about. No.
Josh Sheluk:I'll get I'll get there. This is just on private products in general. So generally speaking, there's a disincentive to maybe have full true price discovery on the underlying investments, which, again, you hope just to take a step back. These conflicts don't necessarily mean that something nefarious is happening. A lot of these companies are doing very, very strong work, and being very, very fair with the way that they approach these things.
Josh Sheluk:But there's an opportunity for misdoings, if you wanna call it that.
Colin White:Mhmm. Yep. No. Look. Absolutely.
Colin White:Absolutely. In order for a system to function well, not only the things have to be done properly, they have be seen to be doing be done properly. You know? So the both of those things because it's a confidence game. Listen.
Colin White:Giving financial advice is a confidence game. And if people don't have confidence in the system, then its system stops working. But the problem with this discretion is just that the bad actors get attracted there. It's like you turn on a light. It's gonna attract a certain kind of person.
Colin White:That doesn't mean the person turned on the lights, the bad person. But if a whole bunch of people said, hey. This this corner of Bitcoin. You know? Hey.
Colin White:This is the so the the Bitcoin has got all this anonymity attached to it. Great. So anybody who wants anonymity is gonna go to Bitcoin. Now does Bitcoin start unnecessarily a bad thing? No.
Colin White:But it attracted a bunch of bad actors. And we've really seen a Porsche. It's been the theme. And it's funny how these investment cycles go. You know?
Colin White:You should invest like the Canada Pension Plan. You should invest like the Yale endowment. You know? You need private equity. You need private debt.
Colin White:That's really become the cycle, but these cycles don't last forever. And one of the reasons they don't is that they end up developing a a a track record that doesn't live up to expectations. You know? So as more and more of these things fail to live up to expectations and we deal with the gating, so we deal with the other issues that come with them, That will signal the end of this cycle and the beginning of the next thing. But the challenge is is that when you create something that has more discretion to it, it doesn't mean the people in there are bad actors, but it is a space that attracts bad actors.
Colin White:And, you know, so they end up pushing out the light a little bit. And as I said, then performance ends up not being what it's gonna be, and then you end up with a bunch of gated products or products that takes 7 years to get your money back out of. And everybody goes, well, those products all suck, and they walk away. And there's a couple good providers that are going, but but but but yeah. Well, I guess my business is over.
Colin White:Right? And we'll be on to the next idea.
Josh Sheluk:And that and that's it is a sad thing because a lot of times the good's gonna get thrown out with the bad just because people are gonna say, well, you know, I I walked across that street and I got mugged, so I'm never going down that street ever again. Yeah. Because that whole street, I just can't trust any of it. So that that does happen.
Colin White:Well well and we've been spending a lot of time recently digging into some of this. And, I don't wanna flex, but, you know, we we have a lot of really smart people who are going at this really hard trying to figure out what's real and what isn't. And I I won't say we're struggling, but, you know, it's not easy. It's not as if we spent 10 minutes on it and go, oh, we got this figured out. These are the good guys.
Colin White:These are the bad guys. This is what we're gonna do. I don't know how many dozens or hundreds of hours we're into this, and we're kinda like slow going, well, there's some stuff here maybe. You know? So it's it's difficult.
Colin White:It is a very difficult landscape to to have some success in. But whenever you see opacity, whenever you see somebody who gets discretion on whether setting the the the value of of an investment. And again, they will they will show you a whole list of rules and regulations they have to follow. You know? And that's tends to be we we we engineer something that has a conflict in it, then we come up with a bunch of rules and regulations to manage the conflict.
Colin White:And the person who's looks at the rules and comes up with, like, oh, they don't have a rule about this, so this is what I can do. Right? You know? And then you just end up with this constant evolving rule book trying to catch up to what the perpetrators have gone and done next. Right?
Colin White:So it's it's it's it's difficult to watch.
Josh Sheluk:Yep. Another one that we've done quite a bit of due diligence on and and dug into quite deeply is the the Brookfields, all of these entities, that are associated with it when we're looking at potential additions to our stock portfolio. And it's so you start reading through some of the prospectuses, and you start to notice things that don't sit quite right. And Brookfield, like, I would say, you think it's fair to say that they've made lots and lots and lots of money for many, Canadian global investors over the years. Right?
Josh Sheluk:They've been very, very successful at at delivering value for shareholders. I think that's fair.
Colin White:Well, that's more than fair, and then and they're can seen they're seen as good good operators. Like, they're they're seen as somebody who, is a quality shop for sure. Mhmm. And but you start digging into some of the prospectuses as we have, and then you start to go, really? Yeah.
Colin White:Really?
Josh Sheluk:Yeah. Like, they they are very good, solid financial company that, again, has done really great things, I think, for the most part. A lot of what they do is taking various entities in their business and spinning it out of the business as a separate publicly traded entity. But to some extent, they're maintaining an interest either financially or control controlling interest in these entities that they spin out. And it seems like at times, they are spinning these things out and maybe retracting these things to the advantage of of Brookfield itself and maybe not the sub entity that it spins out.
Josh Sheluk:And so we mentioned reading through prospectuses. And and one of the recent prospectuses, they do maintain a controlling interest in these things. And Brookfield is telling you explicitly in this document that it can use its controlling interest for its own benefit and not the benefit of its other unitholders. And it says very, very specifically in here, this is a conflict of interest. So, again, not to say that they're definitely going to do that, but they can if they want to.
Josh Sheluk:And that is potentially problematic and makes us a little bit uncomfortable as an investor in those those so called other units.
Colin White:So how many pages was the prospectus you had to read through to get to that?
Josh Sheluk:I'm glad you asked that, Colin, because that was on page 19 of the 300 page prospectus. So
Colin White:K. Okay. I have a follow-up question, if I may.
Josh Sheluk:It's not a light read, if you want. Go
Colin White:for it. I have a follow-up. What size font was it? 6 point or 8 point?
Josh Sheluk:Well, I'm sitting here looking at my computer screen, and it's a little bit hard for me to read. So it's like Okay. I don't know. 8.5 maybe? 9.10.
Josh Sheluk:Something in there.
Colin White:Yeah. This is when I run up to the cheap seats and pull a bag over my head and start throwing peanuts. I mean, come on. To put product out there And again, we've been at those presentations where they're launching. It's a new idea.
Colin White:Like there's a new there's a new sector of something that is really hot, whether it's, you know, providing real estate for data centers or it's, you know, green energy or something that's very, very topical that there's a big market for and it's gonna be very, very sellable. They put something out into the marketplace where they still maintain control and they can charge that underlying unit for management fees. They can charge it for doing assessments. They can charge it for doing evaluations. They can charge it for additional management costs.
Colin White:And they build all these things into it, and it's like again and the line that Josh read kinda over overarches all of that saying, you know, we may behave in in a manner that conflicts with the other unitholders on page 19.
Josh Sheluk:Yeah. Well, yeah, I'm glad you brought it up because I I do think and it's a little bit opaque to me still after reading through some of this, but it does seem like they can charge the underlying entity for services, of some sort as well. Whether whether it's any of those things specifically, I don't know. So you then you go, okay. There's conflict number 2.
Josh Sheluk:Now here, let me read this for you. Unlike unit holders yeah. No. There's more. Unlike unit hold oh, sorry.
Josh Sheluk:Unlike holders of common stock of a corporation, our unitholders are not able to influence the direction of our company, including its policies and procedures, etcetera, etcetera, etcetera. Consequently, our unit holders may be deprived of an opportunity to receive a premium for the units for, in the future through a sale of our company and the trading price, so etcetera, etcetera. So, basically, they're saying not only might we do something that conflicts, with your interests or our interests. But if you don't like it, you can't do anything about it. You can't change the directors of our firm.
Josh Sheluk:You can't change the policies or procedures of a firm. You can't change the management of the firm. So even if you're here, quote. Even if they are unsatisfied with the performance of our company.
Colin White:Yep. Please sign me up. How much of it can I have?
Josh Sheluk:Well, that and these are the things that lead us to move away from these types of investments when we're really digging into it. You don't I'm not comfortable personally putting my money, your money, any of our clients' money in something where a potential conflict of interests, exists that's that egregious potentially.
Colin White:Well and and to to that to kinda hit with a hammer the point I made earlier, what they're doing is they're selling you a new green energy project or they're selling you a new carbon capture project. They're finding something that's super, super sexy where they ostensibly do have an expertise in actually, you know, understanding of a particular market, and they do have a good investment thesis. And it looks and walks and talks like an actual investment opportunity. So based on the strength of those stories, and I made all of those stories up. I'm not don't know if they conflict with any particular book real product.
Colin White:But, you know, the story is what they sell. And then people say, I love that story, and then they'll do, you know, hey. Here's what that sector has done for the last 5 years. Here's the projected usage for the next 5 years, and here's the potential growth. That's the the basis on which people will make investment decisions here.
Colin White:So by people, I'm I'm putting advisors in that boat too. Advisors will listen to those stories and go, yeah. That's you know? And then they'll go they'll regurgitate the story to their client. You know?
Colin White:The the the need for electricity in Canada is gonna grow in a factor of 4, and it's gonna be this 1,000,000,000 and that million and, you know, green energy is gonna be the thing and there's all this government money coming into it and yada yada yada. You know, don't wouldn't you like to invest in under the strength of our our management? Oh my god. Yes, please. Let me invest under your management because you guys have been around for so long and done so well for yourself or sorry, have done so well The for yourself is assumed.
Colin White:Right?
Josh Sheluk:Yeah.
Colin White:But you you never get to page 19 in the 6 point front of a a 300 page prospectus to go, oh, wait a second. This is counter to the story you just told me a little bit. Maybe I'm a little less comfortable. Now so this continues to happen and the industry still says, hey, we disclosed it and that's what suffices for a defense. And I I sorry, I don't buy that.
Colin White:I'm gonna go back out of the cheat seats and and start throwing peanuts. No. That's not good enough. Just disclosing it's not good enough.
Josh Sheluk:Yeah. This is something we need to fix as an industry, in my view, is putting together a 300 page legal document. And, like, the documentation that we have to have clients go through to open an account is is just as onerous. Right? It's like nobody can understand this stuff.
Josh Sheluk:So we call it a legal document or that it was documented or signed or whatever and say that it was disclosed or reported or whatever it was. But it just we can't expect people to try to understand every nuance of these documents or try to read every nuance of these documents. It's it's become overly litigated, in my opinion.
Colin White:Yep. Oh, absolutely. But, again, the the strength of the stories that can be put out there are are substantial, and that's gonna continue to garner interest from the public who who want these stories, who want this hope. And so there's gonna be a demand for this kind of stuff, and it's very profitable to provide to to fill that demand. You know?
Colin White:So there's always gonna be organizations that are trying to put forth products that that can take advantage of it. Listen. It's much harder to stand in front of a room and make fun of investing in marijuana like I did back when marijuana was going legal. You know, that doesn't pay as well. Telling people not to do something is not as profitable as con as letting them do something they already wanna do.
Colin White:And that's very much a cornerstone of the industry, unfortunately. Yep.
Josh Sheluk:I have a couple more quick hitters here for you. We Oh, there's more conflicts.
Colin White:There's more I'm conflict drunk.
Josh Sheluk:I've narrowed it down as much as I can. There's so many out there. It's so easy to find. But, one of the other ones, I think, is again, like, I have a hard time saying this is is negative at all times, but anytime that there's it's more of a transactional type relationship and there's a commission earned, and the commission is a percentage of the value of the product. And a big part of this is, mortgage brokers or life insurance agents or something along those lines.
Josh Sheluk:It's like the incentive is to get you to borrow as much money as you possibly can or to get you to buy as much life insurance as you possibly can because then your commission checks higher. And that's again, it doesn't necessarily mean a big mortgage or a big insurance policy is wrong for you, but we you better make sure as a consumer that the individual suggesting this is doing a really good job of understanding what your needs and priorities are.
Colin White:Yeah. No. I I I think you raise a good point. Anytime you're entering into a a transactional relationship with somebody, like, I'm gonna go to you and you're going to sell me something and that's the end of our relationship, That's when your radar is gonna be, you know, whipping around as fast as it can go because that person demonstrably doesn't have much interest beyond that meeting with you, beyond that transaction. Now it's a little different if you're dealing with somebody, an adviser who you meet with every year.
Colin White:They're gonna have to Yeah. The idea is they're gonna have to face you a year from now if this doesn't work out. So you kinda hope or you you you ought to have more hope a reasonable to have more hope, that you're a little bit better protected there. But if you're just going to get a mortgage, like you said, they're getting paid on their mortgage volume. Yeah.
Colin White:Most of them are. And, you know, again, we've worst financial advice ever given. That's a story told by our team member.
Josh Sheluk:Yeah.
Colin White:Now you need to buy the biggest possible house you could possibly buy and get the biggest possible mortgage. And, you know, hey, real estate always goes up in prices. Houses are tax free. It's the best investment you could possibly make. Why wouldn't you buy the biggest possible house?
Colin White:Now the first victim of every great fraud is is the perpetrator. You know? So that person may actually believe what they're saying. You know? That But the reason that they that room, that echo chamber believes that is that that's for the best interest of that industry.
Colin White:And so it's reasonable to argue with it. But it's that's absolutely true. Transactional relationships are way more fraught with this kind of thing than longer term relationships.
Josh Sheluk:Yeah. There's one more I have to mention just because it's so near and dear to our hearts. It's maybe ending more with a whimper than a bang, but, sell side research. So when we talk about sell side research, it's more, investment banks, around really, probably is is a global thing. But this is where you read the paper and say, analysts, Bank of America have cut their price target to $53 on shares of Apple.
Josh Sheluk:Almost always, they have buy recommendations, these analysts, on every stock that they follow.
Colin White:This is my question. What percentage are sell?
Josh Sheluk:I the last I think it depends on which dataset you're looking at, but it's, like, 2%. It's like we're in the single digits percentages. Right? So how can you want to invest in 98% of the potential stocks that are out there or whatever the number is? Right?
Josh Sheluk:90, 95, 98. It's still egregious. So that is a very clear and obvious conflict of interest, so somewhere along the way. And we know what it is, is because these investment banks are trying to promote the stocks of companies that might come to them to sell their shares to the open public.
Colin White:Or banking or other whatever services. Right? If they're getting good coverage from one institution, then that institution's gonna go to that company and go, hey. We've been real nice to you guys. And, you know, again, it's but it gets printed as news.
Colin White:Like, it gets printed as a news item. Like, so when you see it, it's like, oh my god. This analyst has downgraded or upgraded this particular company. Everybody's like, that that's big it's it looks like news. It's not news.
Colin White:It's selling. Like, it it it the sales department just put out a news release, and it's getting covered as if it's actually meaningful. Now to their credit, they're all CFAs, and they put all kinds of fancy words and calculations around it that are very, very useful. You know? But that whole thing again, my number is 3 years is 2.
Colin White:There's not many times that they stand up and say this is a bad company. Like, that's just not what they do because it's doesn't work.
Josh Sheluk:Yeah. These people are really smart, and often they have really good insights to business. But they're not good at telling you when to buy and sell stocks. They're just not. And they've they're these these, institutions, organizations have launched products based off of their sell side analysts in the past, and they've been a complete and utter failure because there is some inherent thing in we we won't even call it a conflict.
Josh Sheluk:Some inherent thing in what they do that prevents them from making good recommendations and when to buy and when to sell.
Colin White:So was that your last point?
Josh Sheluk:Yeah. I'm kinda sad now. I need to go
Colin White:cheer myself up. I need to go pat a puppy or something. And but we we have to leave our our our listening audience with a lesson here, Josh. I don't know how we wanna frame the lesson. Be careful.
Colin White:Understand the business model of who you're talking to. Come talk to us, and we can tell you more stories about the conflicts. If you don't think there's a conflict in your world, show it to us, and we'll find the conflict for you. Hey. We should have a conflict finding service.
Josh Sheluk:What I don't wanna do is discourage people from seeking out professionals because that could be problematic as well. The conflicts potentially exist in everything that you do. Like, we just did our our roof on our house. Like, there could be conflicts there with sourcing proper roofing companies as well. Like, it's going to be there for you.
Josh Sheluk:And it doesn't mean you totally, like, just turn around and go the other way and head home and forget about it all. It just means you need to be a little bit more aware.
Colin White:Question I think if you understand the conflict that's in front of you, then you're more more apt to have a reasonable expectation as to the outcome. And, you know, you're not gonna be able to understand. And it's funny. I I will foreshadow an upcoming podcast because some people have turned to AI to get financial advice now, which I'm quite interested in, to be quite honest. You know, so people are trying different things, but it's still worth trying.
Colin White:Understand the conflict that's in front of you. And if you pay attention to the motivations of the people you're getting advice from, you're better off as to how sad you get because I I too am very sad right now, Josh. You know, we're sorry about that. But it's it's it's better to be aware than than happy and unaware. Right?
Colin White:Maybe. Say yes, Josh. Say Josh. Okay. Fine.
Colin White:Maybe it's better to be happy and unaware. You should erase the entire podcast. Let's not even publish it.
Josh Sheluk:Well, you got me thinking about next podcast now because does AI have a conflict? Stay tuned for next time.
Colin White:We'll tell you. There you go. Great ending, Josh. If you're breaking a sweat trying to figure out what your financial advisor is talking about, you're not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache.
Colin White:And it might be. But working with Dontrocktheboatwealthplanning.comor.ru isn't exactly stress free, is it? Call us. We will demystify the world for you.
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