advisor fraud, professionals, or salespeople masquerading?

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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Apr 21, 2014 10:50 pm

I have spent quite some time on this issue and yet I do not claim to have it quite figured out.

What I can say with certainty, however is that IF an "advisor" is equivalent to an "adviser", then approximately 150,000 market registrants (in Canada) and 600,000 in the US, are misrepresenting themselves to the public.

Most market registrants do NOT hold the license category (found here http://www.securities-administrators.ca/nrs/nrsearch.aspx?id=850 ) called "advising representative". This is for professional portfolio managers. (like the folks found here http://www.porfoliomanagement.org )

For USA license checks, please see http://brokercheck.finra.org/Search/Search.aspx

My experience in the industry is that "brokers" (salespersons on commission) will do anything to avoid letting the customer think that they are mere commission salespersons, hence the term "advisor" was added to my own business card in 1988, after the crash of 1987. I was at RBC at the time and it was RBC's idea that this "title" would give salespersons a better chance at earning client's trust.

The license held then was called "salesperson" and in 2009 this word was deleted from securities acts in 13 provinces and territories and replaced with a license called a "dealing representative" (aka "salesperson") according to the CSA web site here http://www.securities-administrators.ca/uploadedFiles/General/pdfs/UnderstandingRegistration_EN.pdf .

For 150,000 market registrants to refer to themselves as "advisors", while not having the license, is incorrect, and leads customers into a false sense of trust. They automatically assume that they are dealing with a professional with a fiduciary duty or at least a "do no harm" to the client obligation. This is not true EXCEPT for those small number of professionals who are truly registered as "advisers".

Here is what the editor of American Banker Magazine wrote about it:

Financial Advisor Chicanery: Imagine a two-tiered health care system in which some doctors were legally obligated to do what's right for their patients and others, like snake-oil salesmen of yore, could recommend whatever treatments made them the most money, as long as they didn't kill patients outright. Now imagine that the shysters did all they could to blend in with the real doctors. That's effectively the type of system we have today among the people Americans count on to tell them how to invest their life's savings. Registered investment advisors must, by law, put clients' interests first. Many thousands of other "advisors" at places like Morgan Stanley, Merrill Lynch and smaller shops are held to a much lower "suitability" standard. In essence, even though these people often refer to themselves as "financial advisors" or by some other comfort-inducing title, they're really glorified salesmen. Some do a great job serving their clients. Others don't. It's up to them. Under the law, as long as they avoid putting an 85-year-old widow into an exotic derivative with a 20-year lockup, they're bulletproof. Few clients know this fiduciary-suitability gap exists. The suitability crowd has worked tirelessly to keep the standard low and the distinctions murky. The cost to the public is incalculable but huge. source http://www.americanbanker.com/bankthink ... 940-1.html

Here is how SEC chairman Mary Jo White puts in in just 88 words

http://youtu.be/TqBSiR6VwP4


Gordon, I could go on, but I will stop there, rather than drown you in details. I link a site below where at least three provincial securities commissions disagree with terms as "advisor" and "adviser" being equal terms. An anonymous person at the CSA agrees that they are identical things, as does many a reporter, and I say these people are simply not well informed. Why? Again, if the terms "advisor" and "adviser" are equal under the law, then 150,000 market registrants in Canada, and about 600,000 in the USA are fraudulently misleading clients into a false sense of trust with a license category which they do not possess. Either way, the conversation is coming out, and the size of the issue is huge.

Cheers and best and hoping to hear some rousing discussion, debate and questioning Gordon, and Stan. Lets get to the bottom of this.

Larry Elford

[url]
viewtopic.php?f=1&t=10#p3721[/url]
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat Mar 29, 2014 7:31 pm

"any advisor bringing in more than $375,000 but less $400,000 in gross production now will earn a flat 20% commission; last year's payout grid offered a 30%-44% payout for the same level of productivity."


Car-salesman.jpg



(if you are generating only $2000 per day at TD, you are facing a pay cut of epic proportions.......achieve or leave:)

If you are dealing with one of these unfortunate folks, calling themselves an advisor.......you are being fooled.

Article (source of the quote at top of page) below:


Changes to the payout grid at TD Wealth PIA add to the trend in which firms are looking to reduce their ranks of lower producers
By Clare O'Hara, Geoff Kirbyson | Mid-November 2013
At first glance, it appears that lower producers are being hit by the changes to the payout grid at TD Wealth Private Investment Advice (PIA). But, upon closer inspection, financial advisors across the board are at risk of seeing compensation dollars disappear.
According to a confidential document from TD Wealth PIA entitled Drive to 100, the threshold for earning income on the low end will rise while the payouts for low producers will drop in the bank's 2014 fiscal year, which began Nov. 1. For example, any advisor bringing in more than $375,000 but less $400,000 in gross production now will earn a flat 20% commission; last year's payout grid offered a 30%-44% payout for the same level of productivity.
That change could translate into some brokers seeing their annual income drop to roughly $70,000 from about $150,000.
"All of a sudden, the bus driver is making more than you and you're taking a lot more risk," says Charlie Spiring, chairman of the Investment Industry Association of Canada and senior vice president of Montreal-based National Bank Financial Ltd. (NBF). "You don't have conventional hours and you have the risk of litigation. It's not worth being a broker [at that kind of salary]."
But it's not just the predicament of "lower" producers at TD Wealth PIA that's raising eyebrows. The firm also has introduced new policies relating to the discounting of fees and advisors' stock-option bonuses known as restricted stock units (RSUs). These changes could affect advisors' take-home bonus regardless of their gross production level, as 40% of the bonus amount is based on hitting new targets. (The old RSU award was 100% based on production.)
To qualify for the first 20% of the bonus amount, an advisor now will have to hit a minimum of 16 closed client referrals a year. Previously, advisors were required to complete two referrals a month, regardless of whether they were closed.
A further 20% of the qualification requirement is now based on the advisor reducing the number of non-profitable households in his/her book. This would include households generating less than $1,000 in annual gross revenue. Advisors' books now will have to hold 70% "profitable" households, by either increasing the activity of the lagging accounts or referring the stagnant accounts to another corporate partner firm, such as TD Canada Trust or a wealth partner.
Many TD Wealth PIA advisors have stock options that are deferred for at least three years — meaning their financial ties to the bank are stronger than some may think. Says Spiring: "Unless they have a competitor willing to offset the loss, [these advisors] aren't going to be walking out the door."
TD Wealth PIA is eliminating its registered-plan fee payout for 2014, which will cut $15-$35 per account for brokers. The firm says it has been successful with its RRSP penetration but there have been some "unintended outcomes" as a result. For example, 60% of the firm's 18,000 single-account households are RRSPs and there is a "heavy concentration" of small and stagnant ones.
"You can no longer look at our grid and think that is what you will get paid," says a TD Wealth PIA advisor in Ontario. "You can't compare us to the rest of the banks because now we have so many moving parts that are all behind the scenes."
Adds a TD Wealth PIA advisor in Western Canada: "It's a bit sneaky of the bank because, for me, it is not represented as a reduction in my grid. But my compensation will certainly change because some of these targets are unattainable."
Also on the table is a new fee-based household discount policy that came into effect Nov. 1. Previously, an advisor could discount a client fee without any repercussions. Now, for all new fee-based accounts, advisors who discount commissions below the firm's recommended minimum will see their payout drop by 5%-15%. The confidential document says that the change is to encourage advisors to price their fees based on their value proposition and reduce discounting within their practices.
TD Wealth PIA has also boosted the minimum amount for advisors to discount a client commission for equities trades to $400 from $300 — also in hopes of reducing widespread equities discounting that's happening at the firm.
"What they're doing is punishing the advisor for doing [a] client a favour," says a TD Wealth PIA advisor in Ontario. "At some point, if you have to charge the full price to clients, you are going to end up having a conversation with them about the discount brokerage, where the bank will make $9.99 on the trade. It doesn't make sense."
Dave Kelly, TD Wealth PIA's president and national sales manager, declined to comment on the compensation changes.
Ongoing uncertainty in the investment community is persuading many clients to stay on the sidelines, Spiring says, and the resulting decline in revenue for brokerages conflicts with the need for higher profits.
"Most of the firms aren't making their regular margins on wealth, and one of the ways to achieve that is to lower broker payouts," Spiring says. "Is it fair if you're a smaller broker? Of course not. But shareholders demand firms achieve regular margins. [And cutting payouts to the lower-end brokers] has become the easiest solution.
"Top-end brokers have a lot of loud voices and are desired all over the Street," he adds. "Lower-end and medium-producing brokers are more vulnerable."
Spiring has been advocating for banks to rethink their options for widening their margins. At NBF, he has advised his team to consider dropping the level of gross production to $300,000 and start recruiting advi-sors who fall in the mid-tier category and who bring in "good-quality business."
Spiring is worried that there will be fewer brokers at small and medium-sized firms in the future — and that doesn't bode well in an industry in which the average broker's age is already high: "One day, we're going to need someone to take [the books of retiring brokers] over. I'd like to have a well-trained, medium-sized broker take it over rather than a rookie who [needs] time to learn."
TD Wealth PIA is not alone in addressing lower-end producers. Last year, Toronto-based Canaccord Genuity Group Inc. eliminated 35 advisory teams that it labelled as "underperformers" from its total of 180 such teams. And Toronto-based Raymond James Ltd. cut its grid for advisors making less than $400,000. Still, Raymond James added a number of mid-tier levels for in-house advisors making $175,000-$400,000 to encourage an increase in production. The lowest tier (for $175,000 gross production) dropped to a payout of 15% from 20%.
"I really commend Raymond James on this model," Spiring says, "because I think [it has] done a good job at starting to address the problem."
Three years ago, Toronto-based ScotiaMcLeod Inc. followed a similar strategy, introducing a "developmental" grid for junior advisors to hit specific targets. The firm also changed its bonus compensation structure to move the focus from bank referrals and toward new external asset growth, says Hamish Angus, head of ScotiaMcLeod.
Both ScotiaMcLeod's and NBF's grids have minimum thresholds at the lower end of the scale to escape the lowest commissions — NBF's threshold is $350,000; ScotiaMcLeod's, $350,000-$375,000. In contrast, Toronto-based RBC Dominion Securities Inc.'s threshold is at the top end at $500,000.
TD Wealth PIA's Drive to 100 report lists several key drivers for the investment dealer's future, including evolving to be a "premium price" firm, encouraging productive and profitable behaviour among advi-sors, and attaining industry average pretax profit margin by the end of 2015 and industry-leading pretax profit margin two years later. Says the report: "We want your practices, on average over time, to grow faster and be more productive and more profitable than our competition."
Dan Richards, founder and CEO of Toronto-based Clientinsights, believes increased regulatory oversight for financial advisors is one of the primary causes behind the brokerages' desire to reduce expenses. "These are fixed costs, regardless of book size," he says. "If you're an advisor at a bank-owned firm and you're producing at a threshold that the bank cuts the payouts on, they aren't that interested in having you around."
The commission cuts leave many affected brokers with a trio of options: accept the significant (about 50%) pay cut; move to a smaller firm with a higher payout grid; or become an associate on another advisor's team at your existing firm. (Richards doesn't believe the brokerages would want to move lower-producing advisors into bank branches.)
"You take your book," Richards continues, "meld it onto the book of a bigger advisor and, if the payout is twice as high on that bigger producer, you've doubled the total payout. All firms want advi-sors to focus on bigger clients, and one way to do that is [by] having bigger teams."
Unfortunately for many advi-sors at bank-owned dealers, the option of teaming up to hit targets is not allowed.
"It's a missed opportunity, in my mind," says Spiring, who had several mid-tier producers join forces when he was CEO of Winnipeg-based Wellington West Holdings Inc. "There are ways to make this strategy work. And, at Wellington West, it certainly helped us get the business." [NBF acquired Wellington West in 2011.]
Instead, the new grids also could lead to bad trading decisions, says one bank-owned brokerage executive who asked not to be named. Advisors who may be close to hitting the next pay scale, the executive says, could start to display behaviour that's not in the best interest of clients or the industry in order to reach that target. IE

http://www.investmentexecutive.com/arti ... Mode=print

This video tells of a real game of consumer misrepresentation around "advisor": 2 minutes http://www.youtube.com/watch?v=1fIJ08ST ... AQ&index=3

Screen Shot 2014-03-29 at 9.03.37 PM.png
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Fri Mar 28, 2014 9:26 am

Advisor-adviser?? That is the question.

From my 30 years around the industry (20 years inside) it was observed that we "make things up as we go along". Not that this is a terrible thing, because when times and conditions change, certain things must also change.

The trouble that I observed repeatedly in the investment dealers where I worked (top Canadian bank owned brokers) was that the rules they found most difficult to meet were:
a) ignored at will
b) not enforced by choice
c) altered after the fact to benefit the dealer
d) papered over to benefit the industry, even at harm to the public

One exemple of this that I have found interesting is the use of certain titles by commission investment salespeople, and investment dealers.

These titles began (Investment Advisers Act of 1940) with two simple categories of investment service provider. One was a "broker" who bought and sold securities for a commission, and the other was an "Adviser" who did professional portfolio management, using his or her skill and discretion to make investment moves and decisions on behalf of the customer.

Fast forward to about 1988, and recall Black Monday, the 500 point crash in the Dow Index. I go only from memory but this crash erased 500 points in one day from an index that was standing around the 2200 or 2300 mark back then. It make quite a mark on society and on finance.

A few months after this October crash, all our (investment brokers, stockbrokers, investment salespersons etc) business cards were "recalled" and new ones issued to us by the dealer. The new cards called us by the title "Investment Advisor", and I was informed that this was because the words "stock" and "broker" has lost some of it's status, and "advisor" was seen as far more professional sounding.

This was perhaps my first or second experience in seeing my industry simply "re=paper" things as they went along, to make things better for themselves. Such was the wild west nature of the business back then.

Certainly there were, or are rules and regulations about titles, names, and license categories, but the enforcement of those is entirely left to the industry itself, or to "self" regulators put into place by the industry, so it continues to this day, the ability to magically make "anything happen", that the industry wishes to make happen, even when rules do not allow, and even when it does harm to the public. With that as some background, lets jump ahead to where we stand today with the ADVISER/ADVISER name game.

I made a few videos on Youtube, about this topic, and some of you might wish to visit there and see what has been said already. This "flogg" article is written mostly to summarize some of the new info and research that I have been gathering just in the last few days. It is a place and a way to combine this info into one location for reference. Youtube videos here:

Screen Shot 2014-03-28 at 9.36.42 AM.png

https://www.youtube.com/user/investorad ... ature=mhee

(There are six or seven different videos on this channel about how the industry makes billions by misleading consumers into the belief that their commission salespeople are some version of a professional investment fiduciary (undivided loyalty to the customer).

I make these videos in fun, but obviously with a slight resentment that I was unable to get my own profession to straighten up and be honest. The rules are pretty clear and I found myself able to follow them, but was drowned out by the majority I guess, looking back. Industry requirements of "honesty, fairness and good faith" when dealing with customers is just a series of words, and nothing else. I have yet to see a single case where those exact words were trotted out and used to benefit the public on a specific case of dishonesty.......but I digress.

After taking ten or more years, just to understand how the "behind the scenes game" worked, and how the regulators act more like a "defence mechanism" for the industry, or "damage control" for the industry as one US senator puts it, I became so sick of writing to industry paid sycophants (self regulators etc) and getting run-around answers.....that I gave up for a time. It was just like what I imagine people felt in the 1960's, when writing their concerns and questions to the tobacco industry at that time. They were the most powerful thing going, and they simply "bought the truth" that they wanted to "be" the truth.

In my opinion, the financial industry has perfected that art today, the art of "buying the truth". As you will see from one of my videos, very credible people are beginning to put financial harm estimates together that easily come up with billions in harm to the public from playing games with names, rules and "honesty, fairness and good faith".

One good example how games are costing Canadians $25 billion a year (now might be $38 billion, 2014) in this U of T study by Keith Ambaschteer, Global Pension Studies expert.
Screen Shot 2014-03-28 at 10.15.07 AM.png

https://drive.google.com/file/d/0BzE_LM ... sp=sharing

Recently I found the motivation to, once again, write to investment industry-paid "regulators", to ask them to clarify, if they can, the terms "Advisor", and "Adviser" as they apply to the retail investment selling industry.

Immediately below, I will paste in my correspondence to them, and a few of the replies I received (most do not bother replying).

As you will see, they vary in their answers, and a some refuse to even put their names on their replies. Personally, I discount any reply where the person is unable to sign their name to their "facts".

(Marketwatch columnist Paul B. Farrell, puts the skim number in the USA at $100 billion per year in this article from May 2014, titled "10 ways Wall Street skims $100 billion of your money" )

http://www.marketwatch.com/story/10-way ... 4882413745
========
Emails sent out March 22, 2014

I write to you seeking clarification of any difference and definition of the words "adviser" and "advisor",

Since it is fraud prevention month, and March 19th was "check your adviser" day, can you tell me if there is any official license category that need be held to hold oneself out to be an "advisor"?

Also wondering if there is any official difference or definition between the words "adviser" and "advisor", with the second last letter spelled with an "e" or an "o"?

Thank you for clearing up any confusion, so consumers can be better informed.

Best regards


=============================================

Replies received:

First response:

Thank you for contacting the Alberta Securities Commission (ASC).

While the "check registration" day was a CSA initiative, I can tell you that "adviser" is a defined term in the Alberta Securities Act meaning "a person or company engaging or holding itself out as engaging in the business of advising in securities or exchange contracts." Pursuant to section 7.2(1) of NI 31-103, there are two categories of registration for a firm that is required to be registered as an adviser: (1) portfolio manager; (2) restricted portfolio manager.

Individuals who conduct registerable activities for a firm registered as a "portfolio manager" or "restricted portfolio manager" must be registered as an "advising representative" or an "associate advising representative" pursuant to section 2.1(1) of NI 31-103.

An "advisor" is a generic term with no specific meaning in Alberta securities law.

Kind regards



Information Officer
Alberta Securities Commission
Suite 600, 250-5th Street SW,
Calgary, AB, T2P 0R4

Tel: 403.355.4476
Toll Free: 877-355-4488
Fax: 403.355.4453
Email:
http://www.albertasecurities.com

===================

Response # 2 (from the OSC)


Dear Mr. Elford:

Thank you for your inquiry to the Ontario Securities Commission (OSC) concerning checking registration for your adviser.

When you refer to "check your adviser" day on March 19, 2014, I believe you are referring to "Check Registration Day". Here is the link to information about this day on the OSC's website: http://www.osc.gov.on.ca/en/NewsEvents_ ... eg-day.htm.

"Adviser" is a legal term under securities law that describes a company or individual who is registered to give advice about securities. "Advisor" is not a legal term under securities law.


Investors often refer to the person or firm who provides an investing service to them as their "adviser" or "broker", and this is a common term used in a generic, not legal way. Business titles, designations for courses completed, and professional memberships may be informative, but the important facts for any investor are to know what the person's registration is, what products they are permitted to trade or advise about, and the services they are allowed to provide. It is important to check with the relevant provincial securities regulator to ensure that the individual and company you are dealing with is registered to trade or advise in securities, if that is part of what they are doing.

This link: https://www.securities-administrators.c ... 1128#tools on the Canadian Securities Administrator's (CSA) website provides information about checking registration. You may also find this link to Understanding Registration useful, as it describes the different categories of registration and what they mean: https://www.securities-administrators.c ... ion_EN.pdf.

Since securities law is regulated provincially, if you have specific questions about a company or individual through which you are considering investing, you may wish to check with the securities regulator in your jurisdiction for more information.

Sincerely,


Senior Inquiries Officer
Screen Shot 2014-03-28 at 10.28.49 AM.png


=====================================
Response #3 (another response from another OSC staff member)

Industry Titles
Investors often refer to the person or firm who provides an investing service to them as their "advisor" or "broker", and this is a common term used in a generic way. Business titles, designations for courses completed, and professional memberships may be informative, but the important facts for any investor are to know what the person's registration is, what products they are permitted to trade or advise about, and the services they are allowed to provide. It is important to check with the relevant provincial securities regulator to ensure that the individual and company you are dealing with is registered to trade or advise in securities, if that is part of what they are doing.

The CSA has very useful information on checking registration and what the various categories of registration mean, and other helpful information that I would suggest you look at to see if you want to provide a link to from your web page. http://www.securities-administrators.ca ... px?id=1128

Since securities law is regulated provincially, if you have specific questions about a company or individual through which you are considering investing, you may also wish to check with the securities regulator in your jurisdiction for more information.

The Ontario Government is currently examining the need for more consistent standards for individuals who offer financial advice and planning services. The OSC will work with the government as this initiative evolves.

In addition, IIROC issued guidance on the Use of Business Titles and Financial Designation in March 2014 and in October 2013 IIROC launched an online glossary of common designations to assist investors. The MFDA rule 1.21(d) prohibits MFDA members from using any business name or designation that deceives or misleads as to their proficiency qualifications.

Consultation Paper 33-403
With respect to your question on CSA Consultation Paper 33-403, the consultation was meant to solicit views of the applicability of the standard to all categories of registrants, which would include both advising and dealing representatives

Regards,
Lisa

Lisa Enright | Ontario Securities Commission | Office of the Investor | Advisor
20 Queen Street West, Suite 1903 | Toronto ON M5H 3S8
(416-593-3686 | 7416-593-8252 | *lenright@osc.gov.on.ca
Please consider the environment before printing this e-mail


====================================
Response #4
(some people in the industry do not wish their comments to be in writing, I called her and she was very nice)

Hi Larry,
I received your email inquiry regarding the difference and definition for the words advisor and adviser? I wonder if I could call you to discuss?
Let me know what number I can reach you at and when would be a convenient time to chat.

Thanks!

Michelle Robichaud
Communications and Media Relations Specialist
Spécialiste des communications et des relations avec les médias
Tel / Tél : (506) 643-7045
Michelle.Robichaud@fcnb.ca
Financial and Consumer Services Commission
Commission des services financiers et des services aux consommateurs
=========================


Response #5

Mr. Elford,

Thank you for contacting the CSA Secretariat.

Although we strive for consistency in all of our terminology, there is no difference in the definition of the word adviser, whether it is spelled “adviser” or “advisor”. National Instrument 14-101 Definitions uses the spelling with an “e”:

“adviser registration requirement” means the requirement in securities
legislation that prohibits a person or company from acting as an adviser
unless the person or company is registered in the appropriate category of
registration under securities legislation;

We have also consulted the Public Works and Government Services Canada’s Termium Plus database and both spellings, adviser and advisor, are correct.


Screen Shot 2014-03-28 at 10.37.26 AM.png


(The CSA is the umbrella organization for 13 provincial and territorial securities commissions in Canada)

(advocate comment: The problem we see with this anonymous reply, is simply this: If this person is correct in their answer, namely if "there is no difference in the definition of the word adviser, whether it is spelled “adviser” or “advisor”, then approximately 150,000 persons in Canada who are licensed as "dealing representatives" while calling themselves "advisor" (which they are not licensed as).......these salespersons are effectively misrepresenting themselves to the investing public.)

=======================
Response #6


From: "Tavares, Isilda (FINMSC)" <Isilda.Tavares@gov.mb.ca>
Subject: RE: I write to you seeking clarification of any difference and definition of the words "adviser" and "advisor", MSC
Date: 31 March, 2014 10:51:36 AM MDT
To: "lelford@shaw.ca" <lelford@shaw.ca>
Hello Mr. Elford:

Your e-mails below have been directed to my attention. You have requested clarification on the words "adviser" and "advisor".

The definition of Adviser under the Securities Act:

"adviser" means a person or company that engages in or holds himself, herself or itself out as engaging in the business of advising others with respect to buying, selling or investing in securities or derivatives; (« conseiller »); and

Under The Commodity Futures Act:
"adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in, or being held out by a registrant as engaging in, the business of rendering advice as to trading in contracts, and includes a person or company engaging in the publication of newsletters, analyses or reports or broadcasting analyses or reports advising others respecting trading in contracts; (« conseiller »)

We are aware that under the Manitoba Securities Commission website there is reference to "advisor". This matter will be discussed with our webmaster to request that "advisor" be replaced with "adviser"


Thank you, should you require further information please advise.


Isilda Tavares
Registration Officer, Deputy Director
The Manitoba Securities Commission
500-400 St. Mary Avenue
Winnipeg, MB R3C 4K5

tel : (204) 945-2560
fax: (204) 945-0330
toll free: 1-800-655-5244 (Manitoba only)
email: Isilda.Tavares@gov.mb.ca
web site: http://www.msc.gov.mb.ca


======================================

Response from IIROC
(this man was very helpful)

On 2014-03-27, at 4:45 PM, Joe Yassi <jyassi@iiroc.ca> wrote:

Larry, I'm out of town. This is my second response. In my first, from memory I suggested that all the primarily relevant rules and Nis are cited in the guidance. If there are not links to the rules set up yet there will be soon. In any event you can access the Dealer Member Rules through our public site. There is no requirement to use an RR or IR title on a business card for example. There is a Rule of more general application prohibiting the use of misleading titles. National Instrument 31-103 can give you some insight into the use of the term adviser as a registration category in the CSA jurisdictions. You might also want to research the more historical attempt to deal with financial planning through the regulation of titles...using words like adviser in combination with other words was part of this initiative which ultimately was not adopted. I think this was draft National Instrument 81 or 31 -107. The OSC's Office of the Investor I believe is undertaking a look at titling in the context of registration issues and the "misleading" issue as well.

I hope this helps,

Cheers,

Joe





=================

with apologies for the length of this flogg post (there is a reason I call it a flogg:) I am going to paste in here some rules/laws/cases on "misrepresentation" to help me build my next video chat on this topic. You will find some of my chants/rants at my youtube channel here, I am making a series to highlight how many ways I know of to "steal* a billion dollars", with the word "steal" used to apply to any misrepresentation for money, any fraudulent misrepresentation, negligent, used to cheat, skim, shortchange, or bamboozle trusting and vulnerable people out of some of their money......even when it is not ALL of their money, it is still stealing in my mind.

rules/laws/cases

--Competition Act of Canada
Marginal note: Misrepresentations to public
PART VII.1
DECEPTIVE MARKETING PRACTICES Reviewable Matters
1 74.01 (1) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,
1 (a) makes a representation to the public that is false or misleading in a material respect; 2 http://laws-lois.justice.gc.ca/eng/acts ... ns#s-74.01

===========

--What is a false pretence under the Criminal Code?
Under Section 361., (1), a false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it. Subsection (2) states that exaggerated commendation or depreciation of the quality of anything is not a false pretence unless it is carried to such an extent that it amounts to a fraudulent misrepresentation of fact. For the purposes of subsection (2), it is a question of fact whether commendation or depreciation amounts to a fraudulent misrepresentation of fact.
Under the Criminal Code, every one who commits an offence under paragraph (1)(a) (a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years,
******

=============

IIROC Rule 3100 - Definitions "Misrepresentation", i), ii)
"misrepresentation" means:
i) an untrue statement of fact; or
ii) an omission to state a fact that is required to be stated or that is necessary to make a statement not
misleading in light of the circumstances in which it was made.
=================

From the BCSC Securities Act (link 1) comes this;
Persons who must be registered
34 A person must not
(a) trade in a security or exchange contract,
(b) act as an adviser,
(c) act as an investment fund manager, or
(8) Misleading Trade Name
No Dealer Member or Approved Person shall use any business or trade or style name that is deceptive, misleading or likely to deceive or mislead the public.
13
(d) act as an underwriter,
unless the person is registered in accordance with the regulations and in the category prescribed for the purpose of the activity.

==============

A misrepresentation is defined by the Securities Act as “an untrue statement of a material fact or an omission to state a material fact that is required to be stated or necessary to prevent a statement ... from being false or misleading in the circumstances in which it was made.”7



===========================================


Fraud section 380 of the Criminal Code of Canada
380. Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

========

media quotes about violations of the public by so-called-professionals.

The quotes following, are from respected experts and refer to industry misrepresentation, deceit, false pretense or outright fraud:
1. “.........financial advisors, wealth managers, senior financial planners, financial analysts, and investment managers are just a short list of titles that salespeople like to adopt, in an effort to steer clear of the “salesperson” stigma........”

From “Understanding Misleading Financial Advisor Titles – Your Right to Know” Bryon C. Binkholder

2. "Anything else is fraud, because the seller is delivering a service different from what the consumer thinks he or she is buying. " Edward Waitzer article, Financial Post · Tuesday, Feb. 15, 2011) (Mr. Waitzer is a Bay Street Lawyer and former Securities Commission chair, and this quote ( by another person) appeared in his article.
viewtopic.php?f=1&t=173&p=3438&hilit=waitzer&sid=315213c6fd740f3160d45ff7965fd5de#p3438

3. “The greatest risk the average investor runs is the risk of being misled into thinking that the broker is acting in the best interest of the client, as opposed to acting in the firm’s interest,” Professor Laby said. New York Times (Arthur Laby, a professor at Rutgers School of Law-Camden, and a former assistant general counsel at the S.E.C.) http://www.nytimes.com/2012/07/07/your- ... html?_r=1&

4. This misrepresentation allows persons with a “phony title” to financially violate trusting and vulnerable Canadian investors (and similar across the USA)...............here is one comment from Quebec Superior Court Justice The Honorable Jean-Pierre Senécal, J.S.C., Quebec Superior Court , District of Montreal
The Honorable Jean-Pierre Senécal, J.S.C.

¶ 263 The defendant attributed to Migirdic fake titles, i.e. "vice-president" and "vice-president and director", in addition to letting him use the title "specialist in retirement investments". Those titles were false representations that misled the plaintiffs, hid reality from them, disinformed them, comforted them in their confidence in Migirdic, reduced their distrust, and contributed to Migirdic's fraud. The defendant committed a fault in terms of its obligation to inform and advise, in addition to misleading the plaintiffs.

Further and link to full court documents here: [url]http://www.investoradvocates.ca/viewtopic.php? f=1&t=10&p=3454&hilit=markarian#p3454
5[/url].

========================

Under the new National Instrument 31-103 as of September 28, 2009, mutual fund representatives, formerly called “salespersons”, are now called mutual fund “dealing representatives” and individuals who were an advisor under a portfolio manager are now called an advising representative. See this link for full details: http://www.bcsc.bc.ca/uploadedFiles/sec ... BNI%5D.pdf see appendix C, page 70 for license category changes

(keywords: deceit )


==========================================

FINALLY!
This last communication from 2010, from the BCSC: (found on a posting in another topic in this same forum)
Re: Are advisors professionals, or salespeople masquerading?
by admin » 27 Jan 2010 04:22 pm

Dear Mr Elford,

Thank you for your message.

With regards to your questions and comments, you are quite right in that the term "advisor" on its own and used loosely, would be inappropriate for a dealing representative to use without having the educational requirements and experience to be registered as an advising representative.

If you are certain that an individual is holding themselves out inappropriately, please feel free to contact the appropriate securities commission or self regulatory body (Mutual fund Dealers Association or Investment Industry Regulatory Organization of Canada ) through our related links available on our website at: http://www.bcsc.bc.ca our email is inquiries@bcsc.bc.ca We also have a helpful link on our website called Invest-right , which members of the public can use to assist themselves with their investing.

Thank you,


Kent Waterfield
Senior Registration Administrator
Registration & Compliance Branch
Capital Markets Regulation

British Columbia Securities Commission

Phone: 604 899 6694
Fax: 888 242 9341
800 373 6393 (toll free across Canada)
kwaterfield@bcsc.bc.ca
(advocate comments.........my problem, as I see it is that the securities commissions (BCSC included) are morally blind as evidenced by the fact that NONE of the 130,000 people registered today in the category of "dealing represntative", or yesterday's category of "salesperson" properly identify themselves to the public, and virtually all of them misprepresent themselves as "advisors". It is in every newspaper, every day, on every advertisement, etc., and for the BCSC to ignore this is the ultimate in "see no evil" behavior) Having spent many years of my life already trying to point out rules broken and laws ignored by these very same regulators, what would be the point of letting this person in on the moral blindness? Can anyone tell me the correct solution? Please?)
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Mar 26, 2014 5:12 pm

Screen Shot 2014-03-26 at 6.10.17 PM.png
click to enlarge image, click twice to zoom in

Thank you for contacting the Alberta Securities Commission (ASC).

While the "check registration" day was a CSA initiative, I can tell you that "adviser" is a defined term in the Alberta Securities Act meaning "a person or company engaging or holding itself out as engaging in the business of advising in securities or exchange contracts." Pursuant to section 7.2(1) of NI 31-103, there are two categories of registration for a firm that is required to be registered as an adviser: (1) portfolio manager; (2) restricted portfolio manager.

Individuals who conduct registerable activities for a firm registered as a "portfolio manager" or "restricted portfolio manager" must be registered as an "advising representative" or an "associate advising representative" pursuant to section 2.1(1) of NI 31-103.

An "advisor" is a generic term with no specific meaning in Alberta securities law.

Kind regards



Don Rodgers
Information Officer
Alberta Securities Commission
Suite 600, 250-5th Street SW,
Calgary, AB, T2P 0R4

Tel: 403.355.4476
Toll Free: 877-355-4488
Fax: 403.355.4453
Email: don.rodgers@asc.ca
http://www.albertasecurities.com
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Mar 26, 2014 5:09 pm

further to the consumer misrepresentation of allowing commission investment sellers misrepresent themselves with a title for which no license, no duty of care to the public, exists:

Screen Shot 2014-03-26 at 6.05.30 PM.png
click to enlarge image, click twice to zoom in

Dear Mr. Elford:

Thank you for your inquiry to the Ontario Securities Commission (OSC) concerning checking registration for your adviser.

When you refer to "check your adviser" day on March 19, 2014, I believe you are referring to "Check Registration Day". Here is the link to information about this day on the OSC's website: http://www.osc.gov.on.ca/en/NewsEvents_ ... eg-day.htm.

"Adviser" is a legal term under securities law that describes a company or individual who is registered to give advice about securities. "Advisor" is not a legal term under securities law.

Investors often refer to the person or firm who provides an investing service to them as their "adviser" or "broker", and this is a common term used in a generic, not legal way. Business titles, designations for courses completed, and professional memberships may be informative, but the important facts for any investor are to know what the person's registration is, what products they are permitted to trade or advise about, and the services they are allowed to provide. It is important to check with the relevant provincial securities regulator to ensure that the individual and company you are dealing with is registered to trade or advise in securities, if that is part of what they are doing.

This link: https://www.securities-administrators.c ... 1128#tools on the Canadian Securities Administrator's (CSA) website provides information about checking registration. You may also find this link to Understanding Registration useful, as it describes the different categories of registration and what they mean: https://www.securities-administrators.c ... ion_EN.pdf.

Since securities law is regulated provincially, if you have specific questions about a company or individual through which you are considering investing, you may wish to check with the securities regulator in your jurisdiction for more information.

Sincerely,

Nicole Plotkin
Senior Inquiries Officer
Ontario Securities Commission
inquiries@osc.gov.on.ca
416-593-8314
1-877-785-1555
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Mar 12, 2014 12:03 pm

Screen Shot 2014-03-12 at 12.58.18 PM.png

(important enough to repeat)
“Advisor” spelled with an “O”, verses “adviser” spelled with an “E”

What if it (gaining instant credibility and earning customer’s trust) were as simple as using a title on your business card which looks, sounds and can be confused with a professional license designation?

On this basis, ladies and gentlemen, I am pleased to announce that I am a now a “Docter”. Not very impressive? It seems that most people can spot a miss-spelled Doctor.

OK, how about I am now an “advisor?” Better? Yes. The public does not know that the early laws on the books (Investment Adviser Act of 1940 USA) use the spelling of adviser with an “E”.

Today, you might find most advisor’s using a different spelling, that with an “O”. You may also learn that often this is the telltale sign that they do NOT possess the license, the duty of professional care (buyer beware) nor the proper incentives to precent putting your money in a conflict of interest with their interests. End result is that you lose, while you feel like you are being “helped” by a professional. Welcome to the difference between “fraud” and “theft”. Or as one victim puts at the end of every email she now sends out as a warning to others, “Fraud, is theft committed with a smile, and trust is the weapon used.”

http://blogs.wsj.com/totalreturn/2012/0 ... n-advisor/

(Jason Zweig article) By JASON ZWEIG
CONNECT

Associated Press The New York Stock Exchange
Long ago, investors bought stocks from “customer’s men,” who then became “registered representatives,” who in turn morphed into “investment adviser representatives.” Financial planners, meanwhile, became “financial advisers” and even “wealth managers.”

Much like garbagemen rechristening themselves “sanitation engineers,” the folks who flog investments are tweaking their titles to make what they do seem fancier and more impressive than it is.

Stockbrokers and financial planners alike have been migrating, en masse, from the word “adviser” to the alternative, subtly-more-impressive spelling advisor. (When you type advisor in WordPress, as I just did, the software underlines it with red sawteeth, signaling that the word is misspelled. Most dictionaries say either spelling is acceptable.)

What’s remarkable about this is that the federal law that regulates the provision of financial advice is called the Investment Advisers Act of 1940, with an “E,” not an “O.” Both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which oversee how investments are sold to the public, call someone who gives financial advice an “adviser” – not an “advisor.”

Why, in a regulated industry, would you choose to be called something other than what the law that regulates you calls you?

Lexicographer Barry Popik tells me that a search of the Library of Congress’s site, Chronicling America, for the years 1836 to 1922 shows that the word “advisers” returns 875,830 hits, versus just 21,145 for “advisors.”

And the Corpus of Contemporary English, reports Popik, shows more than 5,200 citations for “advisers” but just under 2,000 for “advisors.”

On the other hand, search now at the U.S. Patent and Trademark Office and you will find more than 3,800 companies with “Advisors” in their name, vs. well under 300 that call themselves “Advisers.”

So, it seems, the written language overall has long appeared to favor “adviser” over “advisor,” but financial companies have a strong preference for calling themselves advisors.

Why?

There may be something about the “-or” suffix that lends it more gravitas than “-er.” A donor seems, somehow, more generous than a giver. An author is more dignified than a writer. An orator is more eloquent than a lecturer or speaker. When real-estate agents invented a moniker for themselves, they chose to become Realtors, not Realters.

Plus, if you are working on a master’s or doctorate, you will have an advisor for your thesis or dissertation, not an adviser. Many financial advisers crave the same kind of intellectual respectability – and marketability – that graduate degrees confer, which helps explain why they often collect professional designations enabling them to festoon their names with sets of initials.

We’ll know the field of financial advice has finally arrived as a profession when its practitioners accept how the law of the land says they should spell what they do – and when they stop trying to gussy it up with a spelling gimmick.

related links: http://www.sec.gov/investor/pubs/invadvisers.htm

Screen Shot 2014-03-12 at 1.02.22 PM.png


In the US, check your "advisor's" true license at http://brokercheck.finra.org/Search/Search.aspx
In Canada, search http://www.securities-administrators.ca ... spx?id=850

(and PLEASE, do not do as the industry apologists "advise". Do not merely "see of your advisor is registered". That is a ruse. Of course they are registered, they have all taken the 30 day correspondence course, and all have gotten over 60% on the multiple choice quiz.......to be come a "seller of financial products offered by their dealer."

If that is all you require, a seller of financial products offered by their dealer, then your search is over. If, however, you seek a financial professional, one whom you feel you can trust (not just one who pretends to like you:) and one who has a professional obligation to forgo his or her loyalty to themselves and their firm, and instead offer an undiluted loyalty to the customer. Read the old definitions of a "fiduciary", "trustee" and the like, if you can, and see what it takes to answer the question every investor asks me, "how do I find someone I can trust to help me manage my money?"

A licensed professional, WITH a written fiduciary duty is an everyday, simple, and lowest cost option in the world of professional money management. Problem is, that 300 million Americans, and 30 million Canadians are stuck in an ocean of "retail" investment "advisor's", which unfortunately for them is like going to a "Docter"........

BAD ADVISOR.jpg
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Tue Mar 04, 2014 9:59 am

Screen Shot 2014-03-04 at 9.45.24 AM.png


Seriously? Your investment seller can fool millions of people out of billions of dollars by changing the "e" in "adviser", to an "o" and get away with fraudulent misrepresentation?? Banks and brokers are playing "GOTCHA" with you http://blogs.wsj.com/totalreturn/2012/0 ... n-advisor/

This video by a recovering broker (me:) tells a story of how 330 million north americans are misrepresented, then cheated and shortchanged.......all by persons who fooled us into a belief that they were the "professionals". Fool me once, shame on...........

http://www.youtube.com/watch?v=KH6XMXlf ... re&index=2

Screen Shot 2013-07-14 at 11.46.37 AM.png
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sun Mar 02, 2014 7:36 pm

Screen Shot 2014-03-02 at 7.08.53 PM.png


some excerpts (all USA based, but similar rules in Canada)
"A broker-dealer is excluded from the IAA's defmition of "investment adviser" only if both (1) his performance of advisory services is "solely incidental to the conduct of his business as a broker or dealer" and (2) he receives "no special compensation" for his services.10" (second para, page 33)


"the SEC acknowledged a further blurring of the distinction between full-service broker-dealers and investment advisers,18 and the attendant investor confusion. It was also aware of abuses by brokerage firms in marketing fee-based accounts.19 SEC Commissioner Cynthia A. Glassman recognized that "investor confusion about the obligations their financial service provider owes to them" was widespread.20" second para, page 34


"outline the salient differences in the legal obligations that brokers, on the one hand, and investment advisers, on the other, owe to their customers." (first line page 35)

"Thus, the core function of a broker- dealer is executing transactions for customers;"
"When making a recommendation to purchase a security, broker- dealers have obligations to make only recommendations that are suitable for the customer, based on the customer's financial situation and financialobjectives.28 In addition, broker-dealers may be liable for fraud or negligence if a customer asks their advice about selling or holding a security, and the information provided is false or misleading.29 A broker-dealer's relationship with his customers is not, however, generally considered a fiduciary one, unless the broker exercises investment discretion over the customer's account.30" page 36

"Courts, however, have not held fIrms liable for failing to disclose that the fIrm's compensation system may give account executives incentives to sell particular securities." page 37

"According to the Supreme Court, the basic function of an investment adviser is "furnishing to clients on a personal basis competent, unbiased and continuous advice regarding the sound management of their investments.,,39 It is well established that the relationship between an investment adviser and his customer is a fiduciary one.40" page 38, first para

"the fiduciary's obligation of undivided loyalty to the client" page 39

""Financial planner" is not defined in the federal secuntIes laws," page 39

"if broker-dealers are allowed to hold themselves out as "fmancial advisers" or "financial consultants" in order to sell their services, their legal obligations should be commensurate with those of investment advisers. Courts and arbitrators131 should deem it misleading for broker-dealers to hold themselves out as being advisers without accepting the legal responsibilities attendant to that title. In disputes between customers and broker-dealers, a customer should be permitted to introduce as evidence the firm's advertising and explain how it affected his understanding of his relationship with his broker. In turn, the firm or registered representative will have an opportunity to demonstrate that they made it clear to the customer that the registered representative was a salesperson and did not owe a fiduciary duty to the customer. The judge or the arbitrator should carefully consider the evidence presented by both sides and make an assessment of the likely impact of the firm's advertising on the customer's understanding and expectations about his relationship with his broker-dealer." Pages 54, 55

"Specifically, if the advertising created a reasonable expectation that the broker-dealer was more than a salesperson, then it should be responsible for monitoring the customers' accounts and providing updated information so that the customer and broker together can reevaluate the customer's financial situation in light o f changing market conditions - j u s t as the advertisements promise." page 55

The author is very well informed and educated about securities regulation, as well as practices in the industry. I agree with her findings and point out my own briefly, that the great danger illustrated here is that the rules become unclear, or behind the times, or simply "not enforced" by regulators captured by industry. This allows the largest consumer "bait and switch" operation in the world (in my experience) to continue, namely the intentional misrepresentation and fooling of consumers that they are agreeing to accept advice from a trusted and trained financial professional, while in fact they are being duped and lured into a relationship with a mere commission broker or salesperson. This is the basis for fraud since the customer is being delivered something entirely different than what they were led to believe.

video illustration of this Investment Industry Bait and Switch from the experience of twenty year broker: http://www.youtube.com/watch?v=KH6XMXlf ... re&index=2
source document here:
http://scholarship.law.uc.edu/cgi/viewc ... t=fac_pubs

or

https://drive.google.com/file/d/0BzE_LM ... sp=sharing

Screen Shot 2013-03-04 at 10.15.27 AM.png
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Jan 08, 2014 3:03 pm

Screen Shot 2014-01-08 at 2.59.04 PM.png



I am just going through this key note address. I will be blogging about this in greater depth, but I thought it would be useful to note some interesting statistics and one key observation:

Use of the word advisor/adviser – 0 times

Use of the word salesperson – 5 times

Use of the word intermediaries – 7 times.

It seems to me that the heart of the matter, as far as this key note address is concerned, is the differing view over the roles of advisors and the representation of that role. Bill Rice views the role as one of salesperson and intermediary. If the role was clearly one of pure intermediation, then I would agree with him, but it is not.

This speech betrays an alarming level of ignorance, within the corridors of our country’s regulators, as to what is happening in the financial services industry.
http://blog.moneymanagedproperly.com/?p=3246

====================================

Screen Shot 2014-01-08 at 3.01.53 PM.png


-1-
Good Morning. Thank you for the introduction.
Balanced Regulation
Acknowledging the obvious tension between regulators and the regulated, I would like to start by repeating the familiar regulators’ message that we are all on the same side, endeavouring to reach the same fundamental goals. Securities regulators are responsible to protect investors and the integrity of the capital markets. Efficient capital markets permit investment on a level playing field and access to capital by business enterprises. Intermediaries between investors and securities issuers have a significant role to play in both protecting investors and protecting the integrity of the capital markets. It is important to securities regulators that intermediaries are as effective as possible and, in that regard, that they be as skilled and experienced as possible, and are motivated by incentives to do as good a job as possible. What is good in the long run for their business ought to be as well good for the capital markets.
The trick behind effective regulation is always balance. We, the regulators, are often criticized for being, by intention, too protective of investors, in which case the regulatory burden risks smothering the activities of issuers and intermediaries. Alternatively, we are accused of being too supportive of the issuer and intermediary industries, in which case investors are subjected to inappropriate risks and possibly dissuaded from participating in the capital markets altogether. There may well be imbalances in our regulation, but they are not by intention. There is little upside to issuers if investors are frightened away, and there is little benefit to investors if issuers leave the capital markets, or the intermediaries they rely on
4695520.2
-2-
abandon their businesses, and there are as a result no investments or no advice to be had.
With an appreciation that all of investors, market participants and regulators have the same fundamental goals in mind and that the rules, compliance with the rules and rigorous enforcement of the rules are essential ingredients for the achievement of those common fundamental goals, how do we get the balance right?
I wish I had the simple answer. I wish I could say when I am invited to speak to a group such as this in Toronto that we in Alberta have it all figured out, you should do things this way or that and you will both find and maintain the desired regulatory balance. In considering this address this morning I did develop and articulate in my own mind some novel ideas to project by way of answers and directions that would be helpful to all of you and for which you would presumably be grateful. I had the good sense to test some of these ideas on our ASC staff who flattered me for my vision but pointed out inconvenient facts and realities that stand in the way of that vision. In the area of market conduct regulation there are not easily identified means to balanced regulation, at least not that is balanced for all issuers, all investors, all market facilities and all intermediaries. And furthermore, if the balance is reached one day it is likely lost the next as a result of changes to economies, businesses, market cycles, new products, new marketplaces, international influences and, in recent years very significantly, new technology.
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-3-
We, the regulators, do hear one message, loud and clear, from many in the investment industry that the regulatory burden is becoming unbearable because of its cost, its resource demands, its complication and its volume. We hear that small and medium-sized dealers cannot continue to bear the regulatory burden and that as a consequence only the major institutions will remain. Those are not satisfying messages to hear and are certainly not consequences intended by securities regulators. Those are not consequences that I would judge best serve investors or the capital markets, never mind the investment community.
So are there ways to lessen the burden of securities regulation on the investment industry without sacrificing or diluting the undertaking of our regulatory mandate to protect investors and the integrity of the capital markets?
It is at this point that I must resort to the common regulator’s disclaimer: my comments are my own and not those of the CSA or the ASC. Some of my own thinking does reflect that of the ASC, but certainly not all of these matters have been thoroughly researched, analyzed and decided upon. Some of the positions of the ASC may influence policy selections by the CSA, but that has yet to be determined. So my comments inform you only as to one individual regulator’s personal and rather high level attitudes and inclinations that may possibly influence changes of approach to national policy making.
4695520.2
-4-
Enforcement over Compliance
One policy re-alignment that could shift some of the burden would be for securities regulators to focus less on rule making and compliance and more on enforcement. If we focused less on exact compliance with detailed rules and more on offensive breaches of important fundamental standards, might everyone be better served and less time devoted to detailed and voluminous analysis of both the rules and related conduct?
The investment industry in Canada has long advocated for a principles- based approach to regulation, and the concept I am discussing is closely related. One concern has been that participants in the industry may lack the experience and judgement to fully understand what the principles are and what conduct supports or contravenes them. Another concern is that our system of due process, adjudication and sanction is based on the clarity of rules and the clarity of evidence of their alleged breach. A number of relevant questions arise. Are regulators prepared to accept that judgements as to compliance with principles can be made fairly by firms and individuals? Are compliance officers prepared to take responsibility for making those judgments in the absence of detailed rules? And would it be acceptable to participants who contravene the principles that they be dealt with severely under regulatory enforcement proceedings?
I do not believe that a principles-based regime can work effectively unless there is the prospect of serious consequences for a breach of the principles. Could participants in the industry accept that a response of “I didn’t know” and “you can’t point to a specific rule and breach” would not be acceptable defences? And just as regulators would have to trust the
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-5-
judgements of firms and individuals to a greater degree in the absence of detailed rules, would firms and individuals be prepared to accept the greater judgement-making that will be required of regulators in selecting the conduct that is deserving of serious sanction and based on the breach of general principles instead of detailed rules? If small and mid-sized dealers struggle to keep up with the flood of changing rules and the related compliance obligations, would they actually be any better equipped to understand, apply and follow principles?
So would less of a focus on specific compliance and more of a focus on serious enforcement shift some of the cost and resource burden from compliance officers to regulatory enforcement officials?
Principles-based regulation was very fashionable during a period leading up to 2008, and was led by the U.K.’s Financial Services Authority. Senior officers of the FSA were touring various western countries explaining and promoting the advantages of principles-based regulation and, in respect of implementation in the U.K., its huge success. That all changed with the collapse of Northern Rock and all that came thereafter. Principles-based regulation fell immediately out of favour and the model of its successful implementation, the U.K. FSA, has been restructured. The British Columbia Securities Commission was a strong proponent of the approach, but has also fell silent on the subject since 2008.
It may be time to look again at the approach in the Canadian context and see if there are features that could help in a practical way better control the regulatory burden.
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-6-
If the regulatory burden is in fact becoming overwhelming because of volume and complexity, could regulation be reduced and simplified through a more principles-based approach? Are both participants and regulators prepared to trust each other to make the judgements required for the successful implementation of this approach? And are participants prepared to accept the tougher enforcement consequences that would be necessary to support the maintenance of the principles?
United States Influence
There is a natural tendency in Canada to replicate the regulatory regimes of the United States. There are good reasons for this, including: the desire to harmonize our regulatory environments to the greatest degree possible with our closest trading and business partner, and the fear that a regulatory regime perceived to be less rigorous than that of the U.S. would be judged to be sub-standard, weak and lacking in integrity.
The downside of following the U.S. lead in regulation is that their habit is to be voluminous, detailed and prescriptive. Even though their economies of size can better accommodate the resources required to respond to their prescriptive regulation, they as well are endeavouring to reduce the negative influences of the U.S. regulatory burden. The JOBS Act presented a good example of efforts by the U.S. Congress to lighten the ever-growing burden of U.S. securities regulation and the negative impacts it may be having on capital raising, business growth and job creation.
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-7-
Irrelevant Problem Fixing
As more time passes since the 2008 financial crisis, there is greater realization that legislators and regulators are spending great amounts of time and energy fixing the prior decade's problems and may be loading up the regulatory burden more for the purpose of optics than for impact. That challenge is compounded in Canada where we may not only be trying to fix yesterday's problems, but we may be trying to fix problems that existed elsewhere, and not in Canada.
Defaults, questionable conduct and other problems observed among the biggest financial institutions in the world have truly shaken the trust that governments, regulators and the public have in the financial system and financial institutions. The revelations of bad investment products being sold to clients, huge trading losses being recorded by relatively junior employees and the alleged manipulation of reference interest rates and foreign exchange conversions has devastated the fundamental sense of trust that is necessary for the efficient working of financial markets.
Nevertheless, we must fully understand the circumstance of that offensive conduct and determine its relevance to the Canadian capital markets before mimicking the regulatory regimes of others. One cannot assume that Canada is immune from the problems that arose in the U.S., the U.K. and Europe and we need to be vigilant; but do we need to replicate every change that is introduced in the U.S. when our financial institutions have not been confronted by the same damaging revelations the Canadian financial system demonstrated comparative integrity?
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Should Canada be now prepared to be different for the reasons that we can be without undertaking undue risk and that we need to be in order to avoid the cost, delay and distraction that regimes developed in the U.S. would impose? Should we all, regulators and the regulated, be spending more time trying to apply an effective but less burdensome regime in order that we would all spend less time dealing with the long term costs of a more burdensome regime? To successfully undertake that approach, we need confidence to make our own choices and a preparedness to defend and explain those choices.
Fiduciary Standard
A debate is ongoing in Canada concerning the imposition of a fiduciary, or as the regulators have preferred to call it, a best-interest standard by which to manage and judge the relationship and conduct between a securities salesperson and a client. Being careful to emphasize that I am speaking personally and not on behalf of others, I will say that I am not certain that this debate would be ongoing in Canada but for the focus given the subject in the United States. This issue is an example, in my view, of what we inherit from our neighbours to the south when we might not have seen the necessity or even purpose to address it on our own.
I cannot argue that the implementation of the fiduciary or best-interest standard does not, on its face, provide for an elevated standard for the benefit of an investor client. I also acknowledge that many investor clients have been under the impression that they were already the beneficiaries of this elevated standard. I further acknowledge that many salespersons already behave in a manner that would demonstrate compliance with this
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elevated standard. The question for me is whether we really need to create, define, implement and enforce an entirely new standard of conduct for the investment industry. I believe that the existing standards of suitability and know-your-client are very good standards. From my post as Chair of the ASC I do not observe that we have problems arising between salesperson and client because of our current standards, but we have problems because in too many cases the existing standards, on the part of the investor, are often not understood and, on the part of the salesperson, are often not abided by.
If we as regulators could be comforted that the suitability and know-your- client standards were being universally and rigorously applied, I do not believe we would need to be canvassing the application of a wholly new standard. The issue cannot only be whether or not a new policy could better protect investors. We must also consider the practical implications of a new policy and its impact on the balance we are attempting to achieve. Might we be saving a lot of time, energy and grief by bettering the compliance with our existing standards rather than trying to adopt an entirely new one. Is it necessary? Will it distort the balance we strive for?
If I were personally to be thoroughly persuaded by industry that a new standard was not required, it would not be through some exhaustive comparison and argument concerning the merits, but rather through evidence that the industry was working hard and effectively to instruct and police the unwavering application of the suitability and know-your-client standards. This evidence must come from an understanding of the communication between the salesperson and the client and the level of
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appreciation had by the client for the communication. It cannot be based on the form, content and execution of forms.
Form over Content
Lengthy, complex, unread forms provide a paper trail of evidence that can be used for the purposes of litigation defence, but it is not likely they serve the purpose of informing the client of the relationship had with the dealer, or of ensuring that the standards of suitability and know-your-client are being satisfied in substance and not simply in form. I think it is encumbant on regulators, compliance officers, dealers and their respective legal counsel to lessen the reliance on forms and find ways to ensure application of the substance of the standards. If the means cannot be found to break out of our collective attachment to the comfort provided by drawers full of executed forms, I do not know that we have any chance at providing for a made in Canada principles-based regulatory regime for the investment industry.
Disclosure
I have suggested that if the standards of suitability and know-your-client would be fully and meticulously followed we would not need to be considering the establishment of an entirely new standard and trying to address all of the complications that would entail. I would make a similar comment, again personally, around the subject of disclosure. Our securities regulatory regime in Canada is fundamentally built around the concepts of full, true and plain disclosure and the consequential ability of an investor to make an informed decision. These informed decisions by
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investors do not relate only to the securities they purchase and sell but also to the roles, expertise, duties and costs of the intermediaries they engage.
I can accept the position that an investor must take significant responsibility for his or her investment decisions, but I cannot accept that there be any lack of understanding on the part of an investor when making those decisions as to the role, expertise, duties and costs of those they are paying to serve as intermediaries in their purchase and sale transactions.
From the standpoint of a regulator, I can say that as confidence in the level of disclosure lessens, the inclination to intervene in the substantive features of the relationship increases. Simply put, if we cannot be comfortable that investors know what they are paying, and what they are paying for, we regulators will be tempted to intervene not only in respect of the disclosure deficiency, but also in respect of the costs themselves. One can be persuaded from a regulatory policy standpoint that investors should be responsible for making their own choices as influenced by the subject of cost, but it is very difficult to take that position when it appears they are not being fully or effectively informed as to what those costs are.
Technology Impact
We as regulators are receiving much comment from the small and medium sized dealer community, in particular, about the negative impact of technological changes in trading mechanics. Removed from the day-to-day and transaction-by-transaction experience, regulators around the globe are struggling to understand the features, mechanics, impact and consequences of matters such as, among other things, high frequency
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trading and dark pools. Regulators around the world are challenged by the same questions as we here in Canada. Is liquidity increased, decreased or affected at all? Are technological changes the result of ever-evolving marketplace mechanics that cannot be stopped, or do they represent an abuse of position and strength by those who can afford to take advantage of that evolution at the expense of those who are necessary players in the market but cannot afford to keep up? Are some of these practices designed to gain informational advantage or do they cross the line into market manipulation.
Regulators are working hard to understand these issues and the facts relevant to them. I believe it will take time to achieve that understanding and more time to react to it, if at all. We all wish there were quick and ready answers, but I am afraid both knowledge accumulation and appropriate responses will take more time than many would like. As in most areas of our regulatory responsibilities, your contribution to better and more quickly informing us will be helpful for all concerned.
Self Regulation
When I interviewed for the position as Chair and CEO of the Alberta Securities Commission now close to nine years ago, I was asked about my views on self-regulation. Being a lawyer and having enjoyed the privilege of the self-regulation of the legal profession for some 32 years, I did not have much difficulty in quickly expressing my support. Not long after taking the job and in speaking publicly in Alberta about the effective enforcement of securities laws, I made a plea to Alberta market participants to do much more of the job themselves. I was being surprised by comments from
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people who had read of our ASC enforcement efforts that it was about time we had cracked down on so-and-so or that they were certainly not surprised to see that so-and-so was now the subject of an allegation, a hearing or a sanction. I took to wondering out loud why these so-and-so’s had not been brought to our attention at the ASC long before or had not been effectively discarded by other legitimate players in our capital market.
I am still a believer in the self-regulatory system, but do worry about some lack of alignment between the “self” in the industry and the “self” in the regulators. I am also of the view that more could be done by peers to clear out bad actors and bad behaviours.
It has been something of an eye opener for me that some of the strongest critics of the investment industry, its practices and its people, come from those who have spent a career in the industry and have moved on or retired. Some of those critics have from time to time, joined the ASC as members of our Commission. Their views come with credibility and can be persuasive.
Another observation is that the vast majority of complaints that come into our organization about market conduct comes from unhappy investors. Very rarely do these complaints or reports originate with industry members. That experience may be different for IIROC or the MFDA, who are more directly engaged with the industry, and it may be that I am overstating the concern, but it occurs to me that a much greater degree of self-policing would go a long way to reducing regulator burden. It is not just that the regulators might have less work to do in the enforcement area if industry
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was doing more of its own culling, but there might be far less need for prescriptive rule making and standard setting if it was observed that problem areas were being dealt with by the peers of those who do not meet standards.
Related to that issue is a sense that there is a “we” and a “them” comprised of the self-regulator and the self-regulated. I would personally prefer to believe that within these groups of “selves” everyone is on the same page, in that everyone will benefit from improved regulations for good service and integrity and from less intrusion by those outside of industry. This is another personal opinion that will not be shared by all of us within the regulatory community, but I am of the view that self-regulation ought to be truly self-regulation and not some hybrid or diluted version. To the degree there is less and less “self” in the model, the argument strengthens for someone wholly independent of industry to do the job, like provincial securities regulators.
In case my comments have raised any questions about the nature of the relationship between IIROC and the provincial securities regulators, it is my own observation that the relationships are good, there is mutual reliance and respect and a sense we are all trying to do our jobs as well as possible for common goals.
Culture
I read the other day in our consolidation of media reports that a senior regulator in the U.S. had commented that recent problems, particularly in the banking industry, had raised serious concerns about the culture of
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behaviour within financial institutions and the general appreciation, or lack of it, for the value of ethical behaviour. This comment struck me as coming rather late in the day. I think these concerns arose pretty soon following the mess created in 2008 and have been repeated often since. It may be that some of the most recent attention to these questions of ethical leadership and tone at the top was spurred by the realization that the most recent episodes of questionable conduct in FX trading had been undertaken after all the alarms had already been sounded about sub-prime mortgages, credit default swaps and rate setting, among other things.
It is to be hoped that the job of compliance officers within financial institutions includes contributing to an atmosphere of compliance, an assumption that ethical behaviour is a fundamental expectation that permits no exceptions and an understanding that there is no place for people who would hold, profess or practice a contrary view. In the end, peer pressure and internal discipline will be more effective than increased regulatory demands. Evidence of significant levels of peer pressure and internal discipline may go some distance to fending off the inclinations of regulators to regulate. To repeat the old saw that “if you are a hammer, every problem is a nail”, it should be acknowledged that regulators have only two basic choices: to regulate or not to regulate.
OBSI
A subject closely related to compliance is dispute resolution. Securities regulators do not want, and are not resourced, to get into the business of dispute resolution and compensation for the clients of registrants. OBSI, the Ombudsman for Banking Services and Investment, provides what has
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been intended as an inexpensive and prompt service for the resolution of disputes between an investment dealer and a client based on the alleged failure of the investment dealer to comply with appropriate standards or practices. It has been a frustration for many that what ought to be an ideal service for all concerned has encountered so many obstacles to full satisfaction. I hope that we can move past them. Investors have much to gain from the process, provided it works as intended; industry has much to gain from a reputational standpoint; and regulators have much to gain from a system that provides remedies we are not responsible for, but are nevertheless demanded of us.
As personal observations, it is to be hoped that investors can accept that OBSI provides a dispute resolution process and is not intended to identify and either correct or report every deficiency observed in the practices of the subject financial institution. It is to be hoped that OBSI can accept the responsibility to address matters within as short a timeframe as possible and recognize that undue delays detract from the value of the process in its entirety. It is to be hoped that investment dealers can appreciate the relatively inexpensive nature of the process and its rewards, and can accept an outsider’s evaluation of fault. I think that if investors want to squeeze every last nickel of potential compensation, they will have to resort to the courts. I do not believe it reasonable to expect an institution to accept an independent dispute resolver if that dispute resolver is also responsible to report on and address systemic issues observed in its process.
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I would also advocate that internal compliance staff and fault evaluators should be a little better prepared to accept the opinion of an outside dispute resolution service, even when their opinion is at odds with the very good and well-intentioned opinion formed internally. Falling back on my experience as a lawyer, I would say that litigation lawyers would become suicidal if they viewed every contrary decision by a judge to be a questioning of their integrity, professional ability or entitlement to be paid by their client.
I am strongly of the belief that we must make OBSI work and that those concerned must be more understanding of the consequences of rigid positions. The recent reports of refusal of a number of investment dealers to comply with the decisions of OBSI are troublesome. I think it in the best interests of the industry to apply such pressure as is available to discourage these responses.
One should not consider it a viable alternative that there not be a dispute resolution process in place for which the investment industry pays the cost. The questions are only as to the degree of independence the investment industry retains in the management of the process and the degree to which securities regulators are forced to take responsibility for a legislated system and mandated awards. The further engagement of regulators and mandated decisions will only add to the cost and length of the process. I believe there are more simple and less costly solutions.
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Industry Input
Closing back on the broad topic of regulatory burden, we regulators hear criticism of a lack of prioritization and of incessant changes. We have in our jurisdiction in Alberta asked industry for something more specific to deal with, such as: what are the regulatory demands that lack utility, and how can we reduce the volume without sacrificing the investor protection impact? I think it a fair question to ask: what specifically are the practical burdens of our regulatory demands and what can we get rid of? It is not helpful to receive an answer that suggests there is no point industry making the effort unless the regulators first agree that recommendations will be accepted. To bore you yet again with my lawyer analogies, would anyone think it a useful position to inform a court that you have a persuasive case but cannot take the time to deliver it unless first assured that it will be successful.
Finally, on the subject of feedback, regulators need the best information possible from those who have to conform to our regulation. In that regard, I would ask that it be as specific as possible. We all know that there are at least two sides to every position and that what benefits one side is likely to be seen as a cost or detriment to others. In picking the balance point, we must be informed of all the facts and all the consequences. I know that takes time and is a distraction from getting on with business, but I also know that it will save costs, time and distraction in the long term.
Conclusion
To summarize, acknowledging that (i) there are grave concerns about the harmful impact of the expanding regulatory burden, and (ii) there are no
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silver bullets, are there a number of incremental changes that can be pursued which, together, might produce positive results?
(1) Can we reduce the reliance on rule making and specific compliance and focus more on principles and their rigorous enforcement? In doing this are both the regulators and the regulated prepared to better accept each other’s exercise of judgment?
(2) Do we have the confidence to develop “in-Canada” policies and be less fearful of being different from the Americans?
(3) Are we prepared to pass by last year’s problems and those exposed in other jurisdictions and focus on what our circumstances are here in Canada?
(4) Do we need to devote time, effort and costs to new standards of conduct when a rigorous adherence to existing standards might get the job done?
(5) Can we dedicate less time to paper compliance, with the belief that some hard work reducing the volume now might save much more down the road?
(6) Might an acceptance and application of the paramouncy of disclosure ward off the regulators from more substantive intrusion into your business?
(7) Can we all work more closely to fully understand and appreciate the influence of technological changes – or as they are referred to, advancements?
(8) Might a greater degree of self policing lessen the inclination of regulators to control with rules?
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(9) Can organizations and compliance officers comfort regulators that we have not lost a culture founded on an unwavering standard of ethical behaviour?
(10) Can we ensure that simple and available solutions are used and improved – like OBSI – instead of forcing the creation of new and more complicated ones?
The current and significant stress on many in the investment industry is attributable to a great degree to the events of 2008 and the state of business and investments cycles. Changes in those cycles will at some point relax much of the stress, but the timing of such changes is impossible to predict. We regulators run the risk of making unnecessary regulatory changes when those cycle changes may overtake us. We also run the risk that without trying new and better approaches soon, avoidable damage may be done. We are back to the balance issue.
I would invite the industry to tell us the severity of the stress, the influence of the regulatory burden and the efforts you, particularly in the compliance business, would like to see us make. And please take the time to give us the specifics.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Jun 10, 2013 9:50 pm

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Securities Commissions are careful to call a salesperson a "salesperson" when charging them, yet they turn a blind eye to salespersons calling themselves "advisor" when they take customers for a misleading ride......... who pays the regulators again? (This securities commission document is a pretty good illustration of how this works)
https://docs.google.com/file/d/0BzE_LMP ... sp=sharing

http://www.msc.gov.mb.ca/legal_docs/ord ... _muzik.pdf
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Tue Mar 19, 2013 10:02 am

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Put investors’ interests first: survey

OSC’s Investor Advisory Panel releases survey findings on adviser/investor relationship By James Langton | March 18, 2013 16:40

An overwhelming majority of investors say that financial advisors should be required to put their interests first, according to a new study released Monday by the Ontario Securities Commission's independent Investor Advisory Panel (IAP).

The study, which was conducted on behalf of both the IAP and the Investor Education Fund (IEF), counters some of the rosier claims of the industry-financed research into the depth of investor trust in the financial industry.

For example, it reports that, while investors generally trust the advice of their financial advisors, only 20% of investors "strongly agree" that they generally trust their advice. And, almost two thirds say they believe that how an advisor is paid impacts the recommendations that they receive (64% overall, comprised of 25% who strongly agree, and 39% who simply agree). Yet, more than 40% admit that they don't know how their advisor is being paid.

The IAP stresses that advisors need to give their clients greater assurance that their best interest is being served. Indeed, it reports that 93% support the imposition of a statutory best interest duty on advisors (with 59% strongly agreeing that it is needed).

It says that investors want other aspects of advisor regulation strengthened too, including clearer professional standards on use of titles, rigorous educational requirements and ethics training, and stricter enforcement.

"This investor research will inform and support our recommendations to the Ontario Securities Commission regarding future statements of priorities," said IAP chair, Paul Bates. "The research will also inform our positions regarding investor protection initiatives, including the introduction of a statutory best interest duty to replace the current inadequate suitability regime and reforms to mutual funds' compensation structures in Canada."

The survey confirms that there is a clear power imbalance between investors and advisors, with only 11% describing themselves as "very confident" in their financial literacy. It also found that confidence is lower among female investors, and younger investors. And, as a result, a majority of investors (58%) rely on their financial advisor as their main source of investment information.

Notwithstanding these vulnerabilities, investors also believe that their financial advisors have a positive impact, the study notes, with over half saying that they believe their investment returns are higher due to their advisor, and 70% reporting that they have remained invested in volatile markets because of their advisor.

In terms of choosing an advisor, the survey says that institutional brands and personal recommendations are the leading factors influencing investors' decisions, but that performance has the greatest influence on whether an investor stays with a particular advisor.
Additionally, the survey finds that investors want more plain language product information and improved content and presentation in investment statements to help boost investor understanding. And, it says that investors also acknowledge the need to educate themselves in order to bolster their confidence.

The research was conducted by Ascentum Inc. and is based on an online survey of 2,030 Ontarians from the Ekos Probit research panel, and 52 participants took part in face-to-face dialogue sessions.

(advocate comment on the intentional misrepresentation of the "advisor" and other titles: http://youtu.be/qqLhMw3y9bI )

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http://www.investmentexecutive.com/-/pu ... -afternoon
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sun Mar 17, 2013 2:58 pm

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http://www.advisor.ca/images/other/aer/ ... leplay.pdf

senior compliance officer writes about how investment sellers play games with their titles to help fool clients

porado
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Fri Mar 08, 2013 8:45 pm

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too funny!

A long list of Canadian sellers/dispensers of investment products/"advice"........all lining up to poke at industry proposals to protect investors better........a mandatory best interest standard...........which used to exist as little as ten years ago, hmmmm. At least all the training manuals in the industry said it existed.

Read up on how your very own financial "advisor" is lobbying in the background to not have to place your interests ahead of their own.........
http://www.osc.gov.on.ca/en/38075.htm

then view this video and learn a bit more of the bait and switch game you are a victim of........ http://youtu.be/qqLhMw3y9bI

Screen Shot 2013-03-04 at 10.15.37 AM.png
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Feb 28, 2013 3:34 pm

see this post in the "fiduciary" topic of this forum

viewtopic.php?f=1&t=187#p3532


for a very well done expose related to the topic of advisors/salespersons

it is well worth it
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat Feb 09, 2013 9:59 am

financial-planners-eat-money-for-breakfast.jpg


As covered in previous posts, the post-GFC world is a tumultuous one, with many long cherished “laws” of investment being turned on their head, and many investors feeling helpless in the face of small, zero or negative returns. Some are abandoning financial advisors in favour of a ”do-it-yourself” approach to their finances and investment. It’s already the case that it is only a minority of Australians who regularly deal with a financial advisor, so i’m wondering if this is the best outcome overall. It’s not a simple question though, so i thought it best to tackle the issue by working through some of the areas in which confusion as to the role of a financial planner can arise. This post looks at some of the limitations as to what a financial advisor can or cannot do for you.

Remember, this is simply my opinion. I’m biased because i am a financial advisor, and i am a part owner of a financial planning business. Feel free to ignore any aspect of what i have to say but regardless, there is a lot of misinformation, bias and distortion out there in that big, wide world and this is my attempt to put some logic into the thinking about financial advisors – what they can and cannot do for you.

You will find quite comprehensive listings of the shortcomings of financial advisors and the financial planning world by trawling through just about any of the “do-it-yourself” websites or organisations. If you don’t have time, i’ve included a couple of links at the base of this post to some articles from the “Motley Fool”, one of the world’s largest such sites. It’s American based (an Australian arm is building its base at the moment) but a lot of the ideas hold true here in Australia. If these articles don’t convince you to abandon your financial advisor then i’d be rather surprised.

Firstly, we need to get a couple of key points very, very clear.

All Financial advice is very limited
And if it isn’t then it is of limited use to you. Let me explain…

There are theoretically two types of advice on offer today:

General Advice
Personal Advice
General Advice is the type that is provided by websites, newsletters, newspapers, magazines, tv, radio and broad mainstream media. It is the type of advice that you expect someone to give when they have no idea of your personal position.

For example, a highly respected newsletter may suggest that you should be paying down mortgage debt as the most appropriate way of investing your spare income to improve your finances. Without pointing fingers, we could suggest a government website that makes exactly such a suggestion – and the website even goes as far as saying that this is “the best option”. While the comment may be generally true in a purely generic sense in a credit constrained, post-GFC world, there are circumstances when it would definitely NOT be the “best option” for an individual. For example

when a person’s job is at risk and they have little reserve cash,
when they do not have sufficient insurance,
when paying down your mortgage is not accompanied by easy access through a draw-down facility in the event of financial stress,
when close to retirement and money could potentially be contributed to super as a concessionally taxed contribution, and withdrawn later to retire debt. This could substantially reduce the total dollars required to reduce the debt, and increase options for maximising the value of a given dollar.
when the person has credit card or other high-interest debt that should be cleared first.
The point being that “general advice” is a dangerous weapon, and like all dangerous weapons, it’s potential for harm should never be understimated. What may be true in a general sense may be completely untrue and damaging in certain circumstances. That is why “general advice” is supposed to be accompanied by a general advice warning – which should point out that this general advice could turn out to be completely and utterly useless to you, and you should take no action on that general advice without seeking personal advice to ensure that the general info is applicable to your circumstances.

That doesn’t stop ”general advice” being helpful in a broader sense but it should serve as a warning about taking too much that you read, see or hear, to heart.

General advice is dead easy to give…
It truly is. The average financial planner in Australia today could write an article for just about any of the major newsletters and it would be up-to-standard as general financial advice. Financial planners are required to keep up-to-date in a wide range of areas that would be standard grist-to-the-mill for financial newsletters. For example, in the recent past, i have attended analyst or investment updates from Westpac’s BT, Advance, Goldman Sachs, Platinum Funds Management, Colonial First State, NAB and others – as well as partaking in webinars, webcasts, telephone hook-up’s and one-on-one meetings with property, venture capital and alternative asset managers or representatives. And i am quite selective of where i go and how my time is spent. And yet i am no Robinson Crusoe in the financial planning world. You will find that financial planners are a reasonably up-to-date bunch.

That is not a brag paragraph but a snapshot of some of the personal time, research and effort that a planner uses just to stay in touch, so they can more prudently build, manage and discuss long term plans in an extremely volatile world.

My point is that a financial advisor does not have the luxury of simply taking a point, waxing lyrical on it, and moving on to the next point – because that is what “general advice” is all about. On a scale of “easy” to “hard”, it’s pretty much at the bottom of the advice pile. That’s because it does not have to cater for anything more than the trend of the day.

This is most easily borne out by looking at any self-help website or newsletter (such as this one), and looking at what is discussed on a particular day. If that site suggests the property market is “high/low/boring” then its’ no big deal to put out a completely opposite statement a little while later. Not so easy for the person who when ahead and bought/sold/jazzed up their investment property following the original article… that investor has to deal day-to-day with the consequences of their actions. They must continue to meet ongoing interest on any loans, negotiate with tenants/agents on maintenance, contract renewals, rent arrears, insurance/rates/ repairs and generally ensure that their original decision continues to make sense. It’s the same with personal investment websites, magazines, and other forms of general advice with regards to mortgages, property, shares, asset trading or just about any other form of money activity. For example, there was once a column called “Blue Spec” (i may not have spelt that correctly…) in the Personal Investment magazine, which offered tips and tricks, and portfolio suggestions for running a share account. It ran for years, with pithy comment and market insight that can only be gained from someone with intimate participant contacts and leading edge access to information. And yet the column eventually closed down, partly owing to the inability of the ongoing portfolio to beat the overall market indices over the long term. That is not unusual, as it is extremely difficult to beat market indices – but it does show that the general advice given by even the best of the best that is available, does not necessarly mean that you will obtain the best outcomes.

Financial Planners do not have that luxury. They have to give concrete recommendations. They have to put their name on the line, and give advice on when to sell or buy, and what to sell or buy. When to look at this strategy and when to look at that strategy. This means the planner is distilling a raft of inputs in a football field with goal posts mounted on wheels. They cannot say “move to cash because the world is ending” without having a backup game-plan because they know the client still has goals and objectives they are hoping to achieve, that will be less likely to occur if (as an example) all money stays in cash.

With these comments, i am not asking for forgiveness on the errors and misjudgements and misdirections of every planner whose advice has ever led to worse outcomes. i am simply trying to highlight the difference between advice that is provided in a general sense (eg. “the world is risky – cash is looking attractive”), and that which is personal (eg “you are unlikely to achieve your long term goals if you hold cash investments at greater than 40% of your assets, and without taxation reduction, you will be working 5 years longer to achieve the same outcome”).

Financial Planning – Personal Advice
“Personal advice” also has two component parts, which i will refer to as “full advice” and “limited advice”.

There is that which is most beloved by regulators, professional bodies and “dealer groups” (the name given to the entities holding the Australian Securities and Investments Commission, “ASIC” licence that allows them to licence authorised representatives who then give you advice). It is “full advice”. It is usually delivered in a thick, rambling Statement of Advice document. i’ve called it “full advice” because the idea is that this document encapsulates all of the following:

A snapshot of your complete current financial position
Personal contacts details, age, occupation, health
Assets and liabilities
Income and expenditure
Likely or anticipated changes to any of these
A statement of your aims and objectives that have a financial impact
A statement of your assessed attitude to risk and the risk/return trade-off
A list of recommendations based on these factors in the light of :
Current legislation
Current and anticipated Centrelink positions
Assumed asset class rates of return and relative risk
Assumed inflation and interest rates
Assumed portfolio construction outcomes in different market cycles and environments
A review of available investment options, including financial products
As assessment of the taxation impact (although financial advisors are not Accountants)
Recommendations will include statements and/or calculations on
Insurance
Investments
Cashflow and budgetting
Superannuation
Retirement income planning
Wills, powers of attorney and estate planning
A “because…” statement that sets out why these particular recommendations are appropriate to your financial situation, objectives and risk tolerance, based on an anlysis of all the factors mentioned above
A list of alternatives considered
A disclaimer and warnings of limitations for the advice or the advisor
A statement of fees and costs for the recommendations being made
A statement of where the advisor and dealer group receive fees, compensation or money – and how much
Copies of appropriate research on financial products recommended
As you can imagine, this is a time-consuming effort for even the most straight-forward of financial situations. This isn’t an exhaustive list but some folk suggest my musings are a tad lengthy so i’m working on an abridged version.


One of the limitations expressed in such a missive is a time deadline, after which the recommendations no longer hold. Similarly, if the client’s personal objectives or financial position change then the recommendations are no longer approrpriate.

The idea is that a person is then in a position to consider this recommendation, and to decide whether or not to implement the suggestions it contains.

When the time comes to review the recommendations, all of this is repeated.

This is “full advice”, and the idea is that all advice is this kind of advice, unless it is specifically limited in some way by the advisor, after confirming the agreement of the client to those limitations. You may have spotted the limitation of the full advice approach – it’s only appropriate at the time it is recommended. Regardless of the work done by the advisor to try to deal with changes of one type or another, small changes in underlying assumptions can rapidly erode the value of the full advice statement. To check whether the advice remains correct, the advisor has to start the entire process over again.

Because of that, full financial advice is expensive. If it is not then it is most likely not full advice. It’s probably general advice, wrapped up as personal advice.

Personal advice is expensive. Full stop.
As a by-the-by, recent polls suggest that Australian’s still don’t like paying for advice but where they do, the expectation for the cost of a position review is $590. When polled, financial planners average expectation of the cost of providing that review was $2,500. There is a bit of a mis-match in the perceived cost of providing personal advice and the actual cost.

Such misconeptions are not helped by the “free advice” statements included in a lot of super fund and investor material these days. If there is a financial advisor out there prepared to offer “free advice”, send them to me. I’ve heaps of work that i’d love some competent, qualified and experienced person to assist me with – especially if they’re doing it on a volunteer basis.

Now that would help me bring down the cost of advice…

Financial Planning “Limited Personal Advice”
Now we move on to the “limited advice”, which is that required by the vast majority of Australians on the vast majority of occasions that financial advice is required. Examples would be where people want the advisor to ignore the bulk of their position, and focus on one or two areas only – such as insurance or superannuation or investments outside of super or cashflow and budgeting.

Clearly, there would be circumstances where advice could be provided on these areas without the need to cover the full advice spectrum. However, ASIC and dealer groups are wary of such limitations, as they could allow an unscrupulous advisor to simply “limit away” key areas. In such circumstances, the advisor is able to focus on a “quick sale” of a financial product or service, and avoid a great deal of the work normally required to ensure the advice is adequate, appropriate and tailored to the needs of the client. ASIC rules and simple common courtesy require the advisor providing “limited advice” to highlight the inadequacies of any such advice, and to provid warnings and disclaimers that can theoretically help the customer decide whether limited advice is really what they want and whether it is in their best interest.

This is something that ASIC is grappling with right now – how can the cost of advice be kept within the reach of the average Australian (more specifically, the average superannuation fund member), without reducing its effectiveness by allowing advisors to limit their obligations to provide “the best” advice?

There are a lot of vested interests pushing the barrow of their particular lobby. Super funds would like to be able to advise fund members of answers to simple questions without having to charge an arm and a leg to do so. A person wanting to take out more insurance doesn’t necessarily want to review their Centrelink entitlements. It’s a tough job to get the legislative rules strict enough to protect the general public without having those rules lift the cost of advice out of reach of that same general public.

For example, Industry Super Funds are lobbying right now for changes to “intra-fund advice” under the new MySuper rules that will allow the fund advisors to provide severely limited advice – for example on rollover from a super accumulation to a retirement pension account. Usually, a financial planner must look at all potential alternatives – which we know is expensive – and the Industry Super folk are trying to keep the cost of that advice as low as possible, so that it can be provided under the standard fees of the product. In effect, they are asking the government to approve a substantial increase in bias (pretty much no comparison with other funds will be required) in the name of providing a lower cost service.

From the perspective of the average person on the street, limited advice makes a lot of sense. Most people have a fairly good idea of what they want and need – they just need help to sort through the raft of options that are really only clear to someone who works in the industry.

Ongoing versus transactional advice
As a financial planner who tends to deal with people over the longer term, it appears to me that regulators and legislators in Australia see all financial planning advice as a sale or a transaction. That is, the only point of seeing a financial planner is to take out or increase insurance, to start or change your superannuation or to account for some life change, such as marriage, a job change or a single major financial decision – like retirement or buying an investment property. These are all valid reasons to see a financial planner but over the years, most of the people that i deal with on a regular basis are simply paying to have me available – as someone who understands their long term aims, and is trying to help them navigate the range of financial decisions encountered over many years – and not just one single decision. This approach to planning does not appear to receive much airplay when legislation and policies are being put together.

Owing to this approach, it is easy to see why so many “do-it-yourself” services can look attractive when compared with a full financial planning service. It’s just a matter of divergent expectations on service provisions.

Most commentary i read about financial planning is based on the assumption that every interraction is a sale and a sale that involves investment advice. That’s simply not a true reflection of a lot of what financial planners can do. For example, a good deal of my time is spent discussing outcomes and alternatives for courses of action. They don’t even relate to investment. Some use the term “strategy” but regardless, it’s not always about the best/worst investment option.

Another common assumption is that the bulk of advice is provided for superannuation advice. In our business, we can pinpoint 22% of our business income as relating to the provision of advice on superannuation. That’s not what you’d expect when you read government or consumer advocate reports and papers.

Very little commentary sees the value in having a human being to talk to. Simply talking. Not everyone has the time, interest or ability to read up and study every aspect of their finances. Many people want to talk through the context of their financial world, and use that as a chance to gain a greater understanding. They could go to seminars or sign up for courses but most people know that this is only part of what you need when you are confronted with daily decision making on money matters. And that is where a human being that can help clarify specific point can be helpful.

Financial Planning – Most advice is actually a sale
Did you know that? Yes, my friend – there aren’t a lot of financial advisors out there who will simply charge you a fee to sit and chat about money. That’s because most advisors work for dealer groups who also sell financial products, and the advisors get to keep or lose their financial planning role depending upon the level of financial product sales they achieve. This does not mean that the advice provided is wrong or not appropriate. I know many financial planners employed by banks or major institutions that i would be happy for them to provide advice to my own family or even myself. It simply means that this is just one more area of potential bias that you need to be aware of.

Of course, there is another reason that most financial advice is a sale. It’s the fact that most Australians will turn to family, friends or associates for advice before they turn to a financial planner.

That is, most people in Australia are not used to the concept of paying money to sit and chat about their circumstances to someone who has a handle on the world of money. Some of the people that i see are quite self-directed, and so they simply pay me to let them bounce their ideas around. Not everyone is prepared to pay $330 an hour or enter into a long term fee arrangement for that privilege though. Most people want that advice for “free”, and so they will visit their local bank or see someone from their super fund in the hope of not paying that hourly rate. i’ve even had people tell me that the recommendations prepared by a financial planner from their super fund were “free”. mmmmm….. you mean that qualified financial planner works as a volunteer? As per my earlier comment, maybe they’d volunteer to work in my business for free?!

And so a great deal of advice is driven by specific objectives, such as questions on super or insurance, which ends up with most advice being in the form of the sale of a financial product.

How you pay for advice
This is the focus of the bulk of discussion on financial planning in Australia today. Everyone has an opinion. Many commentators suggest that Australians would be better off if all financial advisors charged for their services a particular way – the most commonly proposed method is via hourly rates. Another commonly proposed arrangement is the separation of advice from the selling of products. That’s a tough call though, as it would make it particularly difficult to provide cost effective advice to super fund members. It may not make sense but what it would mean is that someone working for the Industry Super Fund AustralianSuper, for example, would have to assess the full gambit of superannuation offerings before answering even the simplest of questions on their fund – and that would be a crazy outcome.

ASIC has recently enforced the long-standing rules about the use of the terms ”independent” and “unbiased” in the world of money, forcing many groups to stop using the term. The reason is that any dealer group that receives any form of commission cannot call themselves independent under the terms of current legislation. For example, Wealth & Security Planners receives income in the form of ongoing commissions on most of the insurance, investment and superannuation policies that it is noted as “advisor” on. Even if the business can provide an hourly rate specifically not tied to any product sale, the business cannot use the independent terminology. And that’s a good thing, too – as there are plenty of super-keen dealer groups that like to push any legislation into grey areas. Unfortunately, the recent changes to the financial services industry brought about by the government, will be highly unlikely to reduce bias in the industry. If anything, there has been a sharp consolidation within the industry, with many dealer groups actually “white badging” financial products so that they can replace income lost through other parts of the legislation. The more things look to be in favour of the investing customer, the more i see nothing but a further entrenchment of bias.

A quick note on fees…
The articles shown at the base of this post are fairly negative on advisors but they do highlight some of the areas that can be difficult when trying to make sure you only pay for the advice you need.

A lot of commentary seems to be based on the idea that paying for advice can only be a bad thing. This seems rather strange to me – it’s like someone suggesting that Tiger Woods shouldn’t pay for a coach because he’s already one of the best in his field. Similarly, not everyone has the time or even the interest to put their abilities into coming to grips with every aspect of their financial world.

One of the facets of money that is usually absent from any such critique’s is the cost of the alternative. In other words, if a person did not seek advice, what would be the cost of solely following their own thoughts and investigations? There is no guarantee that obtaining advice will provide a better outcome, as everyone has their own level of skills, expertise, knowledge and financial literacy but it seems a rather strange perspective to suggest that not seeking financial advice or input from a professional will always provide a better outcome.

As a financial planner who often spends a good deal of time trying to navigate this option against that option, amongst a swirling mist of ever-changing variables, it seems a fairly long draw of the bow to suggest that paying for financial planning advice is always a bad thing.

One of the interesting things i have noticed about fee comparisons is that the yearly and ongoing cost of “trailing commissions” is usually explicitly calculated and highlighted, whereas the cumulative cost of hourly billing rates on transactional enquiries is barely ever given even the slightest consideration. i know this because i have tried to estimate the ongoing cost of hourly rates on a “present value” basis and compare them with ongoing trailing commissions, and the results can be very surprising. But there’s no point ruining a good story with facts now, is there?

The key with fees is to talk to your planner about your preferences – but also being open to the possibility that your planner is currently undercharging you for the services they provide. Here’s a quick example… There are sites on the web, where you can transfer the “noted advisor” status to the site’s dealer group. In return, they will rebate the commissions you are otherwise paying. That’s not always the great answer it seems (there’s a lot in this issue, so i’m trying to keep my comments brief), as the site will usually only rebate amounts over a minimum figure (such as $300 or $400 or the like), and often less than 100%. In other words, there is a cost to simply having your policy or account “on the books”, and this is often forgotten in any fee discussion.

How do i know advice is ”good” advice?
Quite simply, you don’t. That’s a bit like asking a person to grade the technical proficiency of a solar panel installation. Unless you are qualified in the task, it’s a pretty tough job trying to ascertain whether what you have is exactly what you need.

However, there is the good ol’ ”duck test”…

If it waddles like a duck, quacks like a duck, and flies like a duck – it’s probably a duck.


If you look closely, you’ll probably come to the conclusion that it’s a duck. Source : http://animal.discovery.com/guides/wild ... -duck.html (AP Photo/Matt Cilley)
This is a big field of enquiry, with many twists and turns, so feel free to submit questions or thoughts and we’ll cover them in more detail over coming months.

Links to articles highlighting the potential negatives of financial planning advice.

“How to assess your financial advisor’s performance“ – a damning assessment of the investment credentials of financial advisors.

“So many hidden numbers: How advisors give their clients the vampire treatment” – after reading this, no-one would ever visit a financial advisor again.


Tags: advice, bias, financial planners are cheating you, Financial Planning, financial planning bias, personal financial planning advice

This entry was posted on May 18, 2012 at 11:45 am and is filed under Fees and Bias. You can follow any responses to this entry through the RSS 2.0 feed.

One Response to Financial advisors are cheating you

best financial advisors on June 5, 2012 at 2:38 pm
I don’t think that they cheat at all as I am following financial advisor for my investment and I hardly got any loss in stocks and bonds. I will definitely recommend there might be some cases for fraud but at least we have some honest people in financial advisor industry.

http://www.michaelsmusings.com.au/finan ... ating-you/
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