advisor fraud, professionals, or salespeople masquerading?

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Postby admin » Fri Aug 05, 2005 8:20 am

I had a couple of hedge funds pitched at me with the intent that I should market them to my clients. They had commissions and or trailing commisisons of about double what an ordinary or similar investment might have paid. this was clue number one. When underwriters are paying huge commissions, they are usually aware that they are marketing a pig.

The benchmark depends on each type of investment, but the best professionals I have met usually meet the test of, "what would you like your parents account to be charged for this investment". They are true professionals, putting their client interests first and they are always going to succeed.
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Postby Guest » Tue Aug 02, 2005 8:15 am

Anonymous wrote: Lots of (un-named) hedge funds were promoted to the industry with extra-ordinary commissions. The results are now coming out on some of them.

I must have missed this. Which investments were/are paying extra-ordinary commissions? What are extra-ordinary commisions (what's the benchmark?)?

Postby Guest » Mon Aug 01, 2005 10:15 pm

good comment noticed in the July 2005 Advisor's Edge Report, available at for those who missed it:

"If someone agrees to pay you a ton of money in commission, it's probablly a bad product".

this could not be more true, and it is a terrific indicator to any advisor who has enough experience (and ethics) in the business. Lots of (un-named) hedge funds were promoted to the industry with extra-ordinary commissions. The results are now coming out on some of them.

Postby Guest » Thu Jul 28, 2005 9:30 pm

thanks for your response, but humor me if you will just because I am slow. Does this mean that you can represent, or misrepresent yourself as anything you would like your title to be, regardless of what it is that you are officially registered as?
To be clear, does it mean I could call myself anything I preferred to call myself regardless of my qualifications? Or I could call myself a title that I am not legally registered as in the industry?


Postby Mike H. » Thu Jul 28, 2005 7:39 pm

To simplify:

The securities act and regulators regulate activities of trading and advising.

A person who gives advice on securities but is not licensed to trade, must register with the securities comission unless they are an accountant, lawyer, or teacher giving securities advice incidentally to their main occupation.

A journalist is allowed to give general advice in a publication without registration as long as it is not directed to an individual.

A person licensed to trade is automatically allowed to give advice. A giver of advice may call him or herself an advisor, as that is what they do, even though it is not a category of registration.

So 'advisor' is not a category of registration, but a permitted activity and a permitted job title. To further complicate matters, the OSC does not regulate job titles, but the IDA and MFDA do.
Mike H.

weasel words, or answers?

Postby Guest » Thu Jul 28, 2005 4:03 pm

I dont understand the OSC answer to your question posed to them about advisors being allowed to call themselves advisors, even though they do not meet the educational requirements to be registered with the IDA or the OSC as advisors.

Are they simply using language to dodge the issue, or are they actually saying that you can give yourself (as a salesperson) any title you like and that they are not interested in what title you use?

from Town Hall web site ... -and-a.jsp
see question and answer below:

18. Why are investment salespeople who are officially registered as either "registered representatives", or as "salespeople", at the Securities Commission, allowed to represent themselves to the public as "investment advisors", indicating a different level of fiduciary duty to the public, when the Securities Act is clear on which titles are allowed and which are not?

The OSC registers individuals in the categories of salesperson, officer, director or partner. These categories are then further designated as trading or advising. The firm can be registered as either a mutual fund dealer, an investment dealer, or as investment counsel or portfolio manager (ICPM). The latter ICPM category is what we refer to as an adviser (spelled “er”). While advisor (spelled “or”) is widely used in the industry to represent a salesperson or representative, it is not a registration category. The OSC does not register job titles.

Before investing, investors should check the registration of anyone selling securities or offering advice with the OSC. They can do this on the OSC website, or by calling the OSC Contact Centre.

Postby Guest » Thu Jul 21, 2005 9:09 pm

What “professional advisor” means

It usually brings on the legal and moral obligations of a fiduciary nature

By Glorianne Stromberg

There cannot be a financial advisor alive who is not having to deal with the changing expectations of clients and regulators regarding the provision of financial services. These expectations include a heightened emphasis on the advisory role and the need for professionalism. Given the controversy provoked by David Brown, outgoing chairman of the Ontario Securities Commission, when in a recent speech to the Toronto CFA Society he said that financial advisors are professionals with a duty to understand the products they recommend and the risks they entail, it is timely to look at what just what it means to be a “professional financial advisor.” The starting point is to remember that when you hold yourself out as providing advice, regardless of the descriptive words you use, you are representing to your clients that: > You have recognized expertise in your chosen field; > You are competent to provide the particular type of advice you are offering to your clients; > They can rely on you for such advice; and > You can be trusted to act and conduct your operations with integrity, objectivity and in the client’s best interests. This implicit representation normally gives rise to the legal as well as the moral obligations of a fiduciary, whether or not you are exercising discretionary authority. In the days when people simply called themselves mutual fund or insurance “salespeople,” the consequences of being in the advice-giving business didn’t arise. The public knew it was dealing with people whose job was to sell products and that any “advice” given was purely incidental to the sales transaction and usually didn’t create fiduciary obligations.One of the consequences of positioning yourself as a professional financial advisor rather than a salesperson is that you are exposed to being judged by standards that are applicable to professionals rather than salespeople. The common characteristics of a professional with a capital “P” include:> Successfully completing a common post-secondary educational program whose curriculum has been independently and rigorously designed to encompass independently and rigorously identified competencies and is delivered by institutions accredited to do so by an independent oversight body;> Being a member in good standing of a self-regulatory organization that sets standards of practice and conduct that are rigorously monitored and enforced, including standards that prohibit conduct and transactions in which the professional has a conflict of interest or in which the client is vulnerable to the influence of the professional;> Clearly disclosing in a written engagement agreement the services to be provided, who will provide them, what that person’s qualifications are, what reporting will be done, what form the reporting will take, how and when you will be compensated for your services and by whom, what conflicts of interest exist (if any are permitted to exist), and the like; and> Clearly disclosing to the client the amount of the fees and other compensation, including referral fees (if any), that you receive or are receivable in respect of the services you have provided.Professionals with a capital “P”, are not paid on a commission basis. They do not receive embedded compensation from third-party suppliers; they do not borrow money or receive financial assistance from clients or third-party suppliers who are hoping the “professional” will use their services or products. They do not accept incentives from such suppliers. Referral fees (if permitted at all) are strictly regulated, disclosed and flowed through to the benefit of the client, unless the client’s express consent to do otherwise has been obtained. Any deviation from these standards is looked on as being conduct that is unbecoming to the professional and exposes the professional to disciplinary action.These expectations of a professional financial advisor are reasonable ones for clients to have. The industry and the regulators need to work on making sure advisors meet these expectations. IE

Postby Guest » Tue Jun 28, 2005 10:36 pm

A professional should act like one
Clients deserve to know how their advisor is paid (summary)

John De Goey
Financial Post
Monday, March 28, 2005

Having spent more than a decade as an extremely active member of what is now Advocis, I eventually despaired at the association's unwillingness to accept the notion of compensation transparency. To date, Advocis has fought the OSC's Fair Dealing Model at every stage of the process. This is largely, but not entirely, due to the FDM's desire to make advisor compensation more transparent for consumers. Advocis believes it is inappropriate to clearly disclose how and how much advisors are paid. The organization generally wants its payment structures to remain a mystery to the client.
When a person uses the services of a lawyer or accountant, that person knows how much the service costs because that person gets a bill for services rendered. Too many financial advisors think and act like sales agents; they believe it is none of their clients' business how or how much they get paid.

Postby Guest » Tue Jun 28, 2005 10:31 pm

Union Tribune Nails the Problem
SEC needs to protect investors, not brokers
April 17, 2005
During a time when the Nazis were bombing Paris and Allied forces were frantically fleeing across the English Channel, securities regulators in the United States were preoccupied with more prosaic financial concerns.
Thanks to their efforts, Congress passed the landmark Investment Advisers Act of 1940, which has been protecting investors like you and me ever since. The document is simple in its most basic premise. The legislation requires that investment advisers always act in their client's best interests.
While it might seem sad to think that legislation was necessary to mandate this, we're revisiting this historical act today because of who was not originally covered by its language. The act notably exempted traditional stockbrokers, who simply traded securities for commissions. At the time, the exemption made sense because brokers have historically been sales reps, not financial advisers.
But as anybody who has watched the recent commercials for brokerage houses knows, brokers aren't just pushing stock tips anymore. In fact, many of them would probably rather staple their mouths shut than admit they are stockbrokers. Instead, they are calling themselves financial consultants, financial advisers and wealth managers.
It's probably better for investors that many brokers have evolved beyond simply handling sales transactions in return for commissions, but that evolution has triggered a debate that's centered on this question: If a stockbroker is behaving like an investment adviser, shouldn't he or she be subject to the same higher standards that any financial planner must observe?
While the answer is certainly obvious to me and probably everybody reading this column, regulators have been agonizing over the issue for many years. In 1999, the SEC floated a proposed rule that would have extended the exemption to brokers, who had started charging fees instead of relying strictly on commissions. Brokers began switching to fee-based pricing when the increasing popularity of do-it-yourself discount brokerage firms caused commissions to plummet.
But as stockbrokers started repositioning their business to offer customers advice, they encountered a potential problem. The 1940 act states that any advice brokers provide to their clients has to be be "solely incidental" to their jobs as sales reps. Since 1940, the SEC had never defined what "solely incidental" meant or enforced the provision. Wall Street, however, pretty much defined the term to mean anything goes. In television commercials, magazine spreads, and marketing materials, stockbrokers promise to help investors meet their retirement goals, plan wisely for college and find ingenious ways to afford a second home. Does that sound like "solely incidental" advice to you?
The SEC must have been swamped with other really important things because five years later, the controversial decision to expand the exemption to include brokers charging fees – presumably for advice – still hadn't made it on the commission's agenda for approval.
I can understand how these things happen. Sometimes the laundry piles up at our house for an awfully long time. But plenty of staunch critics of the expanded broker exemption, including the Consumer Federation of America, which represents roughly 300 nonprofit organizations, the AARP and financial planning groups, weren't so understanding. And for good reason. Paradoxically, the SEC's inaction, procrastination, or whatever you want to call it, meant that Wall Street, for all these years, could act as if the proposed rule was in effect.
Clearly peeved, the Financial Planning Association, which represents certified financial planners and other professionals, filed a lawsuit last year to force the SEC to vote on the revised exemption. That got the government's attention. The commission solicited a new round of comments from interested parties on the proposed exemption. Only one major brokerage firm, T.D. Waterhouse, sided with consumer groups, who wanted the expanded exemption hacked to itty bitty pieces.
Which brings me to what happened a few days ago in Washington, D.C. The SEC commissioners unanimously voted to allow brokers to keep their prized exemption, but there were some changes. The SEC now says that a broker must register as an investment adviser if he or she maintains discretionary control over an account or engages in financial planning. That's a good thing, but at the same time the SEC only encouraged the anything-goes interpretation of that pesky "solely incidental" standard. The SEC now says financial advice will be considered solely incidental if it is in "in connection with and reasonably related to brokerages services." That could mean just about anything.
While planting a fat kiss on the brokerage industry's cheek, the SEC did acknowledge that investors are terribly confused about the differences between an investment adviser and a broker. No kidding. Consequently, the SEC announced that it would pay for an outside study to determine whether brokers and investment advisers should abide by the same regulations now that we're in the 21st century. So the SEC hasn't ruled out future changes. Thank goodness.
If you're on the verge of dispelling this controversy as a big stink about inconsequential wording, it's not. The regulatory language is important for many reasons. For instance, if you have a brokerage account with a stockbroker, you need to understand that the interests of the brokerage firm come before yours. This means that a broker, for example, could recommend a mutual fund, not because it's excellent, but because his brokerage firm is getting extra cash from the fund company to promote it. A broker could also urge that his client invest in a variable annuity because he could win a free vacation if he meets a sales quota.
Certainly not all brokers are going to conduct themselves in this way, but the point is, it's perfectly legal. In fact, even if a broker wanted to act as a fiduciary for his or her brokerage clients (and plenty would like to), the firm would forbid it. By the way, you won't necessarily ever find out about the behind-the-curtain investment motivations because the disclosures for brokers' conflicts of interest are weak. In contrast, investment advisers are prevented from behaving this way and their disclosure requirements are much stricter. Investment advisers are fiduciaries, who by law, are required to act strictly in their client's best interests.
When you're shopping for a new refrigerator at Sears and the salesperson is praising the latest Kenmore side-by-side model, you may naturally wonder if this refrigerator is really better than the Whirlpool or General Electric model displayed on the same aisle. Or is the salesperson just being partial to his employer's brand? Maybe he is, maybe he isn't. It's up to you to decide. If you have a brokerage account, you need to maintain that same sort of skepticism when a broker advises you. Too bad it has to be like that.
Lynn O'Shaughnessy is the author of "The Retirement Bible" and "The Investing Bible." She can be reached at

Postby admin » Tue Jun 28, 2005 10:20 pm

Advisor? Or Salesperson Masquerading as Advisor? ... -headlines
Broker? Adviser? Difference is important
Jay HancockMay 1, 2005
ONLY 213 YEARS after the New York Stock Exchange's founding, the government has added regulation requiring many brokers to say this before they take your money: "Our interests may not always be the same as yours."
No kidding!
Besides enjoying commissions on stock and bond trades whether or not the trades help your portfolio, brokerages often receive what amount to legal kickbacks from sellers of mutual funds, variable annuities and other products.
A broker might be tempted to sell you a mediocre fund with a big referral fee instead of a great fund with no fee. No, his interest is not the same as yours.
The Wall Street scandal aftermath is littered with fine print that will soon be ignored and unappreciated except perhaps by Georgia-Pacific, whose paper sales surely must have soared. But the red flags hung out a couple weeks ago by the Securities and Exchange Commission - with assistance from Baltimore investors, which we'll get to - are worth remembering, especially because they are still inadequate.
They have to do with the difference between brokers and investment advisers.
Do you know which one your financial agent is? This distinction is fuzzy but critical, because investment advisers are held to different duties and disclosure requirements than brokers.
Under law, advisers must put clients' interests first. Fiduciary duty, the attorneys call it. Brokers are prohibited from selling "unsuitable" investments to clients, but that standard is held by consumer advocates to be less strict and offer lower protection to investors. (The National Association of Securities Dealers disagrees, saying the "suitability" rules are just as rigorous.)
Barbara Roper, director of investor protection for the Consumer Federation of America, puts it bluntly. Brokers, she says, are "salespeople" who may be more interested in moving the product than helping the client.
"People are out there who are salespeople who call themselves advisers, and there are people out there who are advisers who call themselves advisers, and you'd better know who you're dealing with," she says.
That has gotten harder and harder.
"Financial planners" are everywhere. Banks and insurance agents sell mutual funds. Brokers, once basically stock and bond order takers and presumed by regulators to give advice only "incidentally," now dispense counsel on how to reach life financial goals.
Some are advisers. Some are brokers. Some are either, depending on what they're selling.
The new regulation, which requires some brokerage accounts to be treated as "investment adviser" business and others to come with the "our interests may not always be the same" caveat, is supposed to toughen standards for some brokers and require better disclosure from the rest.
It followed focus groups in Baltimore and elsewhere that showed investors were clueless about financial-planner categories.
"I don't know the difference," one Baltimore investor told SEC consultants in February (the agency doesn't identify them). "I mean, I've got a guy that gives me advice. I don't know what he is."
From another: "How could you be clear when you've got brokerages calling themselves planners and planners calling themselves investment [advisers]? It's not clear."
Like other organizations seeking to gauge the consumer pulse, the SEC likes Baltimore as a marketing microcosm.
"It's not New York, and it's not Washington," says Susan Wyderko, director of the agency's Office of Investor Education. "We wanted to affirmatively avoid those two cities because we wanted to find out what real people think."
The real people in Charm City gave the SEC an earful. Among other things they successfully urged the agency to use "plain English," not jargon, in the new disclosures. Don't say "fiduciary," they said.
"Hey, we're lawyers. We think those words are clear," Wyderko joked to me.
Even with the changes, the words aren't clear enough. Disclosure standards and required duties are still weaker for brokerage accounts than for investment-adviser accounts, which require timely revelation of specific financial relationships and other conflicts of interest, Roper says.
The SEC is still working on refinements. Meanwhile, ask your financial agent whether your accounts are brokerage or advisory. If brokerage, ask more questions. Are they being paid to sell you a mutual fund or other product? By whom? How much? Is this really what you need?
Copyright © 2005, The Baltimore Sun
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Postby admin » Tue Jun 28, 2005 10:11 pm

have you ever seen a bank owned investment dealer advertise commission free mutual funds? Why not? Commissions on mutual funds were deregulated in about 1987, and some investment advisors have been moving towards offering commission free mutual fund choices to thier clients for some time now. They still collect a trailing commission, and they benefit from putting the interests of the client first, as well as the ability to be more agile, and make changes without costing the client money. Why is this option not advertised?
At RBC, where I worked, it was expressly forbidden to allow this choice to be publicly advertised. I could do it within my own clients, but not in any form of advertising.

I found this violated the firm code of ethics and mission statement to clients. I think it also violates the criminal, anti-competitive elements of the competition act of Canada.
I have absolutely no problem with making money, nor with salesmen choosing to charge the maximum amount of commission they possibly can. That is thier choice and thier right as salesperson to dictate what they charge. However I have a problem with those offering themselves as trusted, professional advisors making this same choice.

Disclose the choice of compensation you as an advisor suggests to your clients, and defend it. Rather than gag, attack and punish those who choose a more competitive manner of offering mutual funds.

I found the industry talked the talk, but was unwilling to walk the walk when it comes to putting the client first. I am now suing RBC for some $13 million (ten million payable to charity to compensate for hundreds or thousands of clients who cannot or would not be able to fight this fight for themselves). I look forward to seeing RBC prove in court that they have allowed commission free mutual funds (among other allegations of double dipping etc, allowed) to be publicly advertised. Have you seen the ads? They are in your interest if you are an RBC client. Are they suggesting to you that they are acting in your interest, or are they telling you more accurately that they are acting first for themselves?
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Postby admin » Tue Jun 21, 2005 12:49 pm

Perfect logic by financially abused client
Sandra Gibson
Financial Post
Monday, June 13, 2005
Your comments are grossly unfair -- my broker conducted 18 trades in February, 2003, which resulted in significant losses for me.
I had written to the broker in January, 2003, regarding a minor infraction and in that letter I stated that "no further transactions were to be conducted without my prior knowledge." That letter went to my broker's compliance department.
I was in Mexico when the 18 trades were conducted in February and did not learn of them until my return.
What more could I have done to protect myself? If, in fact, the industry operates on a "buyer beware" basis, then IDA, OSC, etc., should declare same. (Advocate comment, "I agree 100%, anything less is misleading the public")
Many investors are intimidated (no matter what their level of intelligence or education) by brokers who imply that their knowledge is so specialized that the client could not possibly apprehend enough info to make an independent decision. (advocate comment, "yet when called into court, many bank owned dealers claim "no duty of care" to the client on a technicality, saying, in effect that the client was responsible."
I would also remind you that, unlike you, most investors are focused on other areas of knowledge with which they earn their living and many simply do not have the time to gain the know-how to make a truly informed assessment.
Who was flogging Portus? Were they all "grey" and "white" hats who grabbed their 8% to 12% fees? The problem is that corruption is the norm, not the exception. "I will say for sure that self dealing is the norm, rather than putting client interest first, and if that is corruption, then she is calling a spade a spade.
How can an investor protect himself when we have such a lack of transparency in so many areas?
"The vast majority of advisors" are being instructed to sell in-house wrap funds etc., in order to meet their $500,000-per-year quotas, so how can they "try to align themselves with the needs of their clients"? Brokers are afraid to speak out. (Advocate comment with twenty years in, TRUE)
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OSC answer re salsepersons posing as advisors

Postby advocate » Sun Jun 19, 2005 9:49 pm

I asked the following question at the OSC town hall, and was given the answer below. (which I am not sure answers fully how they are allowed to mislead clients............)

18. Why are investment salespeople who are officially registered as either "registered representatives", or as "salespeople", at the Securities Commission, allowed to represent themselves to the public as "investment advisors", indicating a different level of fiduciary duty to the public, when the Securities Act is clear on which titles are allowed and which are not?
The OSC registers individuals in the categories of salesperson, officer, director or partner. These categories are then further designated as trading or advising. The firm can be registered as either a mutual fund dealer, an investment dealer, or as investment counsel or portfolio manager (ICPM). The latter ICPM category is what we refer to as an adviser (spelled “er”). While advisor (spelled “or”) is widely used in the industry to represent a salesperson or representative, it is not a registration category. The OSC does not register job titles.

Before investing, investors should check the registration of anyone selling securities or offering advice with the OSC. They can do this on the OSC website, or by calling the OSC Contact Centre.

(advocate comment: (or question) If the Securities Act is clear on what is allowed or not allowed as a title, is the OSC answer just another example of them passing the buck? What am I missing?

Investment Industry codes of silence

Postby admin » Sun Jun 19, 2005 6:23 pm

similar to the forum on coverups, this forum is hoped to gather examples of the famous industry code of silence that still fourishes in the investment industry

let us know if you have any examples to illustrate this

My example, to be given as evidence in legal suit against RBC was the prohibition by the firm of allowing the public to be informed of commission free mutual funds

they realized it was a huge advantage to the client, but threatened and harassed me at ever turn when I was in the business when I advertised it. If anyone has experience in this or any other example of the code of silence in the industry, pass it on.

(please post it under the relevant topic, dont open and new topic on every comment)
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US verses Canada

Postby advocate » Tue Jun 14, 2005 4:53 pm

check out the NASD (National Association of Securities Dealers) in the US for some interesting contrasts to Canada

There they actually measure advisor behavior that is not serving to clients and self serving to advisors, and place warnings on their site about them, enforce fines and cause investors to be compensated.

Canada it is still a buyer beware world, where the foxes are firmly in charge of the henhouse. I heard Sandra Gibson comment in the Post the other day, "The problem is that corruption is the norm, not the exception." Sadly I have to agree, after my twenty years experience in the industry. There will come a time when the public is as informed, but so far most are still under the impression that they are being protected in Canada.


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