advisor fraud, professionals, or salespeople masquerading?

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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sun Dec 30, 2012 11:02 am

“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&

Screen Shot 2012-12-30 at 10.58.20 AM.png
Robert K. Jodan/University of Mississippi
Mercer E. Bullard, an associate professor at the University of Mississippi, says higher standards for brokers would not necessarily help investors.

Most investors don’t realize that when they walk into a bank or brokerage firm branch, the representatives there are essentially free to emblazon their business cards with whatever titles they please — financial consultants, advisers, wealth managers, to name a few. But if you’re looking for someone who is qualified to give smart advice about all aspects of your financial life while keeping costs down, you may not be in the right place.
BUCKS

The Perils of Finding a Conflict-Free Financial Adviser
Bucks readers tell how they found their financial advisers and discuss their experiences in working with a professional at a bank or a brokerage house.
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The issue came up again earlier this week in an article by my colleagues at The New York Times, who quoted former JPMorgan Chase brokers as saying they were encouraged to promote the firm’s own funds to customers even when more competitive investments were available. Not only were the funds expensive, but the bank also exaggerated at least one investment portfolio’s returns.

This may be one of the more blatant examples of the possible pitfalls when working with a bank or brokerage firm. Investors can’t be blamed for failing to recognize the differences between a glorified salesman pushing a particular fund and a true investment adviser who is required to act in your best interest, but there are many.

Let us name a few. If two similar mutual funds are available, brokers can choose to put you in the one that lines their pocket at your expense as long as it’s considered “suitable” for your needs (that goes for brokers selling investments or insurance). They aren’t always required to disclose conflicts of interest that may influence what they ultimately decide to recommend, experts said. Nor are they always obliged to tell you how they are compensated or who is ultimately paying them. True investment advisers are supposed to do all of those things, by law.

Two years ago, the Dodd-Frank financial overhaul law gave the Securities and Exchange Commission the authority to write rules that would require brokers to adhere to the same standard as advisers — a standard known as “fiduciary duty” — but the law stopped short of requiring that the rules be written. Not surprisingly, the S.E.C. has yet to write the rules. While the insurance and financial industries initially pushed back against the rule, the most recent delay was reportedly tied to the commission’s efforts to study the costs and benefits of a rule so that it could withstand a court challenge. So its fate and timing are still uncertain.

Still, some experts might argue that even after a fiduciary rule is passed there will still be reasons to take extra care when working with a broker (in fact, some brokers are already subject to the fiduciary rules because they collect a fee or have discretionary control over their customers’ accounts). That’s not to say there aren’t many capable advisers who work at banks and brokerage firms — they just might be limited in the type of advice they can provide because they’re working within the confines of their firm’s longtime business model, one with a deep-rooted sales culture that can’t entirely change its spots.

Indeed, several former brokers quoted in my colleagues’ article echoed a point that I’ve also heard from former brokers in recent years: As much as their firms would like to recast brokers’ images as trusted advisers, it is still hard for them to fully shed the sales mentality.

“A fiduciary duty will help at the margins, raising the amount of due diligence brokers will have to do before recommending a security, but a fiduciary standard will not rewrite the history and culture of the brokerage services industry that has existed since before the Great Depression,” said Arthur Laby, a professor at Rutgers School of Law-Camden, and a former assistant general counsel at the S.E.C.

Brokers, for instance, aren’t typically paid for advice — that is, they aren’t paid for creating a financial plan, and they rarely charge by the hour (though there also aren’t enough independent advisers that operate this way). Instead, they make money after they sell you something. “The more they sell, the more they make,” said Alois Pirker, research director at the Aite Group, a financial research firm. He says that brokers might take a 45 percent cut of the commission they collect, or, if they collect an annual fee, they will be paid a portion of that (and typically the more business they bring in, the higher the percentage they will collect).

The average fee that brokerage firms charge customers for a managed account — or an account that includes a mix of investments like mutual funds — is 2.02 percent, according to Cerulli Associates, an asset management research firm. That includes a 1.1 percent management fee, while the remainder is for the underlying investments. Accounts with cheaper underlying investments like exchange-traded funds will cost slightly less, though that data wasn’t available. (The proprietary JPMorgan portfolio charged an annual fee of as much as 1.6 percent, plus the cost of the investments.)

Independent financial planners typically include an annual charge of 0.85 percent to 1.15 percent of your money, according to Cerulli, plus the investment costs. Alternatively, you can seek out a planner who will charge either a flat fee or by the hour. But the biggest difference between a broker and a financial planner is that the planner’s fee, more often than not, will include a holistic financial checkup — a detailed analysis of where your money goes, how to approach paying down debts, how much life insurance to buy and how to set up a saving and investment plan to reach your goals, whether that includes saving for a down payment on a house, college or your retirement. They’ll also go over your estate plan, among other things.

Brokers, on the other hand, may work for firms that encourage the kind of training that would allow them to offer similar advice, but you have to ask yourself if they will be willing to spend the time with you if they get paid only after they make a sale, particularly if that portfolio isn’t worth millions of dollars. On top of that, many brokers’ training is quite limited. (Only about 17 percent of the advisers at brokerage firms are certified financial planners, according to Cerulli.) “ ‘How much do I need to have to retire?’ is the sole focus of the majority of these investment planners,” said Scott Smith, an associate director at Cerulli, though he added that many larger firms had professionals on hand with broader experience if you requested that kind of help.

Then, there’s the matter of investment costs. If you believe that you are better served investing in a diversified mix of low-cost index funds that are free of hidden charges, then you can look beyond a bank or brokerage firm’s offerings. Indeed, a diversified mix of three Vanguard index funds appropriate for retirees, for instance, costs only about 0.21 percent of your assets, or less than 0.10 if you want to invest in the exchange-traded fund shares, according to the firm. “If you were to call up Merrill, can you get them to sell you and put you into a no-load Vanguard fund?” said John C. Coffee Jr., a professor of securities law at Columbia Law School. “My guess is you cannot. But that is where I would tell my mother to put a good portion of her money, and whether it is Vanguard or Fidelity or someone else, I don’t care.”

Still, the biggest danger right now, experts say, goes back to the fact that most consumers don’t know who they are dealing with when they sit down with a broker. “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.

Imposing a higher standard will go a long way to solving a large part of the problem, experts said, but it won’t necessarily eradicate it. “I do not believe a fiduciary standard would be a panacea by any means,” Professor Laby added. “It would, however, raise the industry standard, requiring the larger firms with good compliance programs to think very carefully about whether their brokers’ recommendations could be defended in court, or before the S.E.C., as consistent with a fiduciary standard.”

Mercer E. Bullard, an associate professor at the University of Mississippi School of Law who served on the commission’s Investor Advisory Committee, said that a fiduciary duty wouldn’t necessarily ensure that investors would always be told about the myriad ways the brokerage firm makes money, including revenue sharing, where mutual fund managers may share a portion of their revenue with the brokerage firm (which may cause the funds to land on its list of preferred funds). Some brokerage firms disclose this information on their Web site now, or at the point of sale, but good luck deciphering all of it.

Regardless of what the law says now or how it may change, you can always ask any adviser you are working with who is paying them. And then, ask the adviser to sign a fiduciary pledge, something you can find in a blog post I wrote in 2010, which is attached to the online version of this column.

Because with or without a stronger law, the burden will always be on the investor to find a conflict-free “financial planner,” in the purest sense of the title.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Nov 29, 2012 11:31 am

Screen Shot 2012-11-29 at 11.26.36 AM.png

Let's call a spade a spade and a salesperson a salesperson
Reprints
By Michael Chamberlain
October 4, 2009 6:01 am ET

The majority of those working in the financial services industry are aware of the report last year by the Securities and Exchange Commission that found that 76% of Main Street investors surveyed did not know the difference between a representative of a broker-dealer and a registered investment adviser. The SEC is now struggling with ways to bring into line regulation of the two decidedly different approaches to financial services and, more important, to provide increased public safeguards.

Perhaps the primary reason for the failure of the public to recognize the difference between the two is due to the broker-dealers' use of the term “financial adviser.”

In reality, a broker-dealer rep is a sales rep, not an adviser. The broker-dealer rep does not get paid to give advice and is not licensed to provide advice, and hence is not an “adviser.” Such reps get paid when they sell a product; thus they are salespeople.

It seems clear that when broker-dealers refer to their salespeople as “financial advisers” or “financial counselors” or “financial consultants,” their intent is to mislead the public as to the true purpose of their reps. No wonder the public is confused. It seems pretty clear that the public would be less confused if the B-D rep's title were “financial services sales representative” or “vice president of sales.”

With this same approach, other industries could use titles such as “used-car adviser,” “carpet counselor” or “door-to-door consultant.” These are of course all salespeople, and the public recognizes them as such. Most people see warning lights in their minds when they deal with salespeople. It is an instinctive self-defense mechanism to be skeptical of what the salesperson is saying, to shop around with other vendors and to get second opinions.

However, when salespeople are called — and viewed as — “advisers,” the public can be led into thinking they are being told what is best for them. In fact, in a commission-driven transaction (with only the suitability rules in play), the client often comes out on the short end of the “conflict of interest” stick.

The public's understanding of the difference between B-D reps and RIAs is further confused when large B-Ds are also registered as RIAs and the B-D reps are registered both ways. With this dual registration, how are clients ever to know if the representative is wearing the RIA hat and giving advice or the B-D hat and selling a product?

This dual registration is how a rep sells a variable annuity, then puts an RIA money management contract on top of the VA and collects half of the continuing 1.5% RIA fee, in addition to his or her upfront commission. Clearly, this dual registration and income stream is not in the client's best interests.

The public would indeed benefit from a better understanding of the differences between a broker-dealer rep and a registered investment adviser. If the SEC wanted to improve the public safeguards and to improve the public's awareness as to the differences between the two modes of services, the easiest and cheapest way would be to start calling a spade is a spade. The SEC could simply mandate that “a salesperson is a salesperson” and “an adviser is an adviser,” and stop the financial services industry from referring to salespeople as advisers, consultants or counselors, etc.

ONE OR THE OTHER

The second part of such a “spade rule” would state that the financial services professional is either a B-D rep who sells products or an RIA, but no one can be both. It is no different than a physician and a pharmacist. One is trained to diagnose and prescribes, and the other sells a product. Financial services should have the same safeguards against conflicts of interest that exist in health care.

In reality, the chances of the SEC's developing a spade rule are slim to none. It will never happen as a way for the public to differentiate between the B-D rep and RIA, because it is such a simple solution and is an approach that the B-Ds would fight tooth and nail.

Michael Chamberlain, a certified financial planner, is the principal of Chamberlain Financial Planning LLC.

http://www.investmentnews.com/article/2 ... 49996/1011
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Nov 29, 2012 10:54 am

ROB CARRICK

It’s time we made financial advisers live up to that title

Screen Shot 2012-11-29 at 10.54.04 AM.png

(Getty Images/Stockphoto)

ROB CARRICK
The Globe and Mail
Published Wednesday, Nov. 28 2012, 7:52 PM EST
Last updated Wednesday, Nov. 28 2012, 7:52 PM EST
7 comments

One of the phoniest words in finance is adviser.

Adviser. If only. In truth, the term has been devalued to near nothing by people who flog investment products while passing themselves off as providers of advice. What a drag for the advisers who really do provide advice, and all the investors who would really benefit from using them.

Can we fix this disconnect somehow? It’s worth a try. So go to my Facebook personal finance page ([url]facebook.com/robcarrickfinance[/url]) and lend your support to the idea of securities regulators requiring investment advisers to work in their clients’ best interests or, in legal terms, as fiduciaries. Just click the “Like” button under the link to this story online or write something like “I support a fiduciary standard” or “clients come first.” Even a “thumbs up” or “right on” will do fine.

Canada’s provincial securities regulators recently floated the question of whether there should be a statutory requirement that advisers have a fiduciary duty to clients. Regulators are using the term “statutory best interest duty,” which is like fiduciary duty in that it means everything an adviser does must meet the test of whether it’s good for the client.

We’re still in a preliminary phase on this initiative. In issuing a consultation paper last month, a group of provincial regulators called the Canadian Securities Administrators began with this reality check: “No decision has been made whether a statutory best interest standard should be adopted (and on what terms), whether another policy solution would be more effective or whether the current Canadian standard of conduct framework is adequate.”

Comments on the fiduciary standard from investment firms, front-line staff and individual investors are welcome until Feb. 22. After that, the CSA will consider the input received and decide how to proceed.

This is where you come into the picture. Individual investors need to get involved to remind regulators they’re working for actual people and not for abstract principles of fairness. Bay Street needs to know that the fiduciary question isn’t going to be settled in the usual closed industry/regulator loop, with little or no input from the investment industry’s customers.

U.S. authorities are working toward adding a fiduciary standard to the parts of the financial industry where it’s not already in effect. Australia is introducing a version of this standard, and Britain has taken steps of its own to clarify the role of advisers in working with clients. Here in Canada, introducing a best interests standard will make settling the NHL lockout look easy. It might be on par with turning the Toronto Maple Leafs into a Stanley Cup contender.

By no means are all investment industry people in Canada opposed to the idea of a best interest or fiduciary standard. Increasingly, there’s a slow-growing recognition that moving in this direction will clarify the role of advisers and make people more confident about using them.

However, the core of the investment industry thinks a fiduciary standard will cramp its style, which is to sell products, and financial advice if absolutely necessary, to generate fee and commission revenue. The industry prefers the current standard, which is that investments be suitable to the client’s needs. But suitable is a word like edible in that it’s totally subjective. We need more clarity.

Tough market conditions may even be hardening the financial industry’s attitude toward its responsibilities to clients. Recent events at the Ombudsman for Banking Services and Investments, a last stop for investors with disputes against the financial industry, certainly suggest this. In the minority of cases where the OBSI recommended compensation to investors, there used to be some certainty that the firm involved would bow to the ombudsman’s judgment. Now, firms are starting to balk.

In two recent cases involving investors with significant losses, OBSI’s recommendation for restitution were rebuffed. OBSI has publicly named the firms involved (Octagon Capital Corp. and W.H. Stuart & Associates), but there’s no more it can do.

A best interest standard won’t stop abuse of investors, but it will give new authenticity to the term adviser. Advisers would actually have to talk to clients about their needs and goals, then recommend appropriate investments. Tricks of the phony adviser, like convincing people to borrow money to buy more investments than they could otherwise afford, will be much harder to pull off.

The same applies to selling expensive in-house mutual funds instead of better products from other firms. And it also applies to selling deferred-sales-charge mutual funds, where you actually have to pay a fee to get your own money back in the first six or so years after you buy.

It’s going to be a slog to get a fiduciary standard applied in Canada, but the process is at least under way. Every investor who supports the process helps prevent it from being sidelined.

Stand up for the fiduciary standard. Here’s how:

1. Go to my Facebook personal finance page and indicate your support:
http://www.facebook.com/robcarrickfinance

2. Contact your provincial securities commission:
http://bit.ly/TeQCTZ

3. Send me an e-mail and I’ll relay it to the right people.


For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).



http://www.theglobeandmail.com/try-it-n ... Id=5781019
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat Nov 10, 2012 5:47 pm

The following post is from a Canadian expert on the North American practice of "baiting" an unsuspecting investing public with the lure of "trusted and professional financial advice", whilst secretly switching the bait for delivery of less trained, often unlicensed*, correspondence course educated commission salespersons. Salespersons with a self regulating industry which has put in writing that they no longer even have a duty to place the interests of the customer first. I am not making this stuff up!!

Imagine an industry that can decriminalize its own deceit, misrepresentation or fraudulent misrepresentation with a covering system of self-regulation. Yes, self regulation is decriminalization in some cases.

The reason that this information is unknown, is that (in Canada) there are approximately one million people who are employed in a manner which prevents them from disclosing this misrepresentation. They would quickly lose their financial or regulatory jobs if they did so. The writer of this post is well beyond the influence and the lure of an industry salary. He should be listened to. But alas, as the image and quote from Will Rogers below, points out, the public does not wish to know of just how fooled they may have been........

292798_10151117735661892_413816431_n.jpg
292798_10151117735661892_413816431_n.jpg (14.93 KiB) Viewed 11406 times


Your challenge is to see if you can decipher exactly what license, or registration category is possessed by the investment person being written about in this case. If you cannot clearly understand (from the regulatory and other comments, not from Joe's, then just imagine how easily North Americans are being fooled each day.......)

==================================================
Larry,

FORENSICALLY:

IIROC never disclosed in any of its Enforcement docs against RANDAL WILLIAM HARDING that he was licensed as a “salesperson”.

IIROC only refers to HARDING as a “registered representative”, “the respondent” and “an approved person”.

FACT: “Registered Representative” (“RR”) and “approved person” are not / were not Securities Commission licensed as categories during the 2004 to 2007 period of Harding’s impropriety practices !!

AND: The word “advisor” only appears 3x in the IIROC boilerplate at the end of its October 18, 2011, IIROC announces disciplinary hearing for Randal William Harding

Doc. The word “advisor” does not appear in either IIROC’s “September 9, 2011, NOTICE OF HEARING or IIROC’s December 16, 2011, REASONS FOR DECISION docs.

AND: OBSI in its Press Release ‘name and shame’ offending firm Octagon yesterday:

a.) did not 100% identify the name offending market registrant, RANDAL WILLIAM HARDING

and

b.) OBSI referred to “Mr. H.” (HARDING) as an “advisor” when HARDING was never called an “advisor” by IIROC in its Notice of Hearing, Enforcement Notice and Reasons For Decision docs.

NOTE: there is also zero use of / mention of the phrase—term “securities license” in the list of PENALTIES & COSTS that the IIROC panel can adjudicate and impose !!

PENALTIES & COSTS

TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by Staff in the Notice of Hearing, the Hearing Panel may, pursuant to Dealer Member Rules 20.33 and 20.34, impose any one or more of the following penalties:

Where the Respondent is/was an Approved Person:
(a) a reprimand;
(b) a fine not exceeding the greater of:
(i) $1,000,000 per contravention; and
(ii) an amount equal to three times the profit made or loss avoided by such Approved Person by reason of the contravention.
(c) suspension of approval for any period of time and upon any conditions or terms;
(d) terms and conditions of continued approval;
(e) prohibition of approval in any capacity for any period of time;
(f) termination of the rights and privileges of approval;
(g) revocation of approval;
(h) a permanent bar from approval with the IIROC; or
(i) any other fit remedy or penalty.

BOTTOM LINES:

i.) IIROC has with premeditation dropped the specific “licensed as CATEGORY” from their “Registered Representatives” (“RRs”) verbiage v. for example, our highest calling and educated doctors who are “licensed as physicians” by their respective Provincial Colleges of Physicians and Surgeons.
@ Becoming a Licensed Physician in Ontario

ii.) IIROC did not use the CSA securities commission phrase of “market registrant” in any of its HARDING docs.

Joe


In the Matter of Randal William Harding - Discipline Decision - Liability and Penalty

INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
ON BEHALF OF THE
INVESTMENT DEALERS ASSOCIATION OF CANADA

IN THE MATTER OF:
THE DEALER MEMBER RULES OF THE
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
AND
THE BY-LAWS AND REGULATIONS OF THE
INVESTMENT DEALERS ASSOCIATION OF CANADA (IDA)
AND
RANDAL WILLIAM HARDING

NOTICE OF HEARING

TAKE NOTICE that pursuant to Part 10 of Dealer Member Rule 20 and Section 1.9 of Schedule C.1 to Transition Rule No.1 of the Investment Industry Regulatory Organization of Canada (“IIROC”), a set-date hearing will be held before a hearing panel of IIROC (“Hearing Panel”) on Thursday, September 22, 2011 at JPR Meeting Rooms, 390 Bay Street, 3rd Floor, Hearing Room C , Toronto, Ontario at 10:00 AM, or as soon thereafter as the hearing can be heard.

TAKE FURTHER NOTICE that pursuant to Rule 6.2 of the IIROC’s Dealer Member Rules of Practice and Procedure (“Rules of Practice and Procedure”), that the hearing shall be designated on the:
The Standard Track
The Complex Track

TAKE FURTHER NOTICE that on June 1, 2008, IIROC consolidated the regulatory and enforcement functions of the Investment Dealers Association of Canada (“IDA”) and Market Regulation Services Inc. Pursuant to the Administrative and Regulatory Services Agreement between IDA and IIROC, effective June 1, 2008, the IDA has retained IIROC to provide services for IDA to carry out its regulatory functions.

THE PURPOSE OF THE HEARING is to determine whether Randal William Harding (“the Respondent”) has committed the following contraventions that are alleged by the Staff of IIROC (“Staff”):

Count 1
From February 2004 to December 2007 the Respondent, while a Registered Representative failed to use due diligence to ensure that recommendations were suitable for his client NB, contrary to IDA Regulation 1300.1(q), (formerly IDA Regulation 1300.1(d)).


Count 2
From February 2004 to December 2007 the Respondent, while a Registered Representative, made unauthorized transactions in the account of NB, and thereby engaged in conduct unbecoming contrary to IDA By-law 29.1.

PARTICULARS

TAKE FURTHER NOTICE that the following is a summary of the facts alleged and to be relied upon by Staff at the hearing:

A. Overview

1. The Respondent was a Registered Representative (“RR”) responsible for accounts of a client, NB. The Respondent failed to use due diligence to ensure that recommendations were suitable for his client when he pursued an aggressive growth trading strategy for his then 60+ year old client, NB. NB is an unsophisticated investor who had not worked outside of the home and was living on a fixed income from a government pension.

2. NB trusted the Respondent completely and signed anything he asked her to, including the account opening documentation.

3. The Respondent also engaged in unauthorized trading in NB’s account.

B. Registration History

4. Throughout the period in question, the Respondent was employed by Octagon Capital Corporation (“Octagon”). The Respondent first became a registrant in 1989. He was employed with Dominick & Dominick (“D&D”) from January 2001 to January 2004, when he first met the client NB.

5. The Respondent commenced employment with Octagon in February 2004. He left Octagon in January 2008 and is no longer registered in the securities industry.

C. Client NB: New Client Application Form Investor Profile

The Client NB

6. The client, NB was born on December 8, 1941. NB’s husband was self-employed and ran a trucking business until his death in 1997. NB had never worked outside of her home, nor did she maintain investment accounts prior to her husband’s death. She was not in any way responsible for the management of her families’ finances, nor did she have any investment knowledge.

7. At the suggestion of her husband’s former accountant, NB opened an investment account in 1998. The Respondent was not the RR of record for this account, but he was an assistant to the RR of record.

NCAF 2001 (D&D)

8. In or about January 2001, when the Respondent moved to D&D, NB opened five investment accounts with him there (an RSP account, CDN margin account, US$ margin account, CDN margin short account, and a US$ margin short account). NB relied completely on the Respondent for all decisions regarding the opening of the accounts and the investment decisions in the accounts.

9. At that time, NB was approximately 60 years of age and her investment knowledge, investment objectives and risk tolerance on her New Client Application Form [NCAF] were indicated to be as follows:

Investment Knowledge
Investment Objectives
Risk Tolerance
Limited
70% income
20% medium-term capital gains
10% long-term capital gains
30% Low
50% Medium
20% High

15. This NCAF further indicated that her net worth was $1,100,000 ($600,000 liquid) and annual income was $50,000. There is no evidence to indicate why there was a change on this NCAF in the investment objectives or risk tolerance for NB. NB did not request or initiate such changes.

D. NB’s True Investment Profile

16. In fact, in February 2004, when NB was approximately 62 years of age, her true investment knowledge was minimal and her actual risk level was significantly lower than that recorded on the NCAF. Further, NB had indicated to the Respondent that she did not want any undue risk in her accounts.

17. Notwithstanding that NB had indicated to the Respondent what her investor profile should be the information on the new client account documentation did not reflect NB’s investor profile correctly.

E. Investment Losses and Unsuitable Investments

18. NB relied exclusively upon and followed the Respondent’s recommendations for all of the investments in her accounts.

19. Based upon NB’s true investor profile, and notwithstanding that she had indicated to the Respondent that she did not want undue risk, a number of the investments that the Respondent recommended and bought and sold in her accounts were not suitable for her.

20. From February 2004 to December 2007, the accounts for NB performed as follows:

Screen Shot 2012-11-10 at 2.52.49 PM.png


21. In particular, from February 2004 to December 2007 NB’s CDN margin account, in which the majority of the transactions occurred, the following chart represents the allocation of securities and associated per cent risk level, based on market value. Throughout this time her portfolio contained an unsuitable high risk component that was contrary to her expressed wishes and to her true investment profile.


F. Commissions earned by the Respondent

22. From February 2004 to December 2007, the Respondent earned total commissions on the transactions in NB’s accounts in the amount of approximately $90,000, of which he received a net total of $47,000. The account of NB was the largest source of commissions for the Respondent for the relevant period.

G. Unauthorized Transactions

23. Numerous transactions in NB’s account were unauthorized. As specific examples, NB was travelling on the following dates and was not available to confirm any proposed transactions in her accounts:

• August 2 – 22, 2004
• September 29 – October 15, 2005
• January 26 – February 2, 2006
• July 3 – July 15, 2006
• October 6 – 21, 2006
• August 4 – 11, 2007; and
• August 21 – 31, 2007.

24. Notwithstanding her unavailability, numerous transactions occurred in NB’s account during these dates.

GENERAL PROCEDURAL MATTERS

TAKE FURTHER NOTICE that the hearing and related proceedings shall be subject to the Rules of Practice and Procedure.

TAKE FURTHER NOTICE that pursuant to Rule 13.1 of the Rules of Practice and Procedure, the Respondent is entitled to attend and be heard, be represented by counsel or an agent, call, examine and cross-examine witnesses, and make submissions to the Hearing Panel at the hearing.

RESPONSE TO NOTICE OF HEARING

TAKE FURTHER NOTICE that the Respondent must serve upon the Staff of IIROC a Response to the Notice of Hearing in accordance with Rule 7 of the Rules of Practice and Procedure within twenty (20) days (for a Standard Track disciplinary proceeding) or within thirty (30) days (for a Complex Track disciplinary proceeding) from the effective date of service of the Notice of Hearing.

FAILURE TO RESPOND OR ATTEND HEARING

TAKE FURTHER NOTICE that if the Respondent fails to serve a Response or attend the hearing, the Hearing Panel may, pursuant to Rules 7.2 and 13.5 of the Rules of Practice and Procedure:

(a) proceed with the hearing as set out in the Notice of Hearing, without further notice to the Respondent;

(b) accept as proven the facts and contraventions alleged by Staff in the Notice of Hearing; and

(c) order penalties and costs against the Respondent pursuant to Dealer Member Rules 20.33, 20.34 and 20.49.

PENALTIES & COSTS

TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by Staff in the Notice of Hearing, the Hearing Panel may, pursuant to Dealer Member Rules 20.33 and 20.34, impose any one or more of the following penalties:

Where the Respondent is/was an Approved Person:
(a) a reprimand;
(b) a fine not exceeding the greater of:
(i) $1,000,000 per contravention; and
(ii) an amount equal to three times the profit made or loss avoided by such Approved Person by reason of the contravention.
(c) suspension of approval for any period of time and upon any conditions or terms;
(d) terms and conditions of continued approval;
(e) prohibition of approval in any capacity for any period of time;
(f) termination of the rights and privileges of approval;
(g) revocation of approval;
(h) a permanent bar from approval with the IIROC; or
(i) any other fit remedy or penalty.

Where the Respondent is/was a Dealer Member:
(a) a reprimand;
(b) a fine not exceeding the greater of:
(i) $5,000,000 per contravention; and
(ii) an amount equal to three times the profit made or loss avoided by the Dealer Member by reason of the contravention;
(c) suspension of the rights and privileges of the Dealer Member (and such suspension may include a direction to the Dealer Member to cease dealing with the public) for any period of time and upon any conditions or terms;
(d) terms and conditions of continued Membership;
(e) termination of the rights and privileges of Membership;
(f) expulsion of the Dealer Member from membership in the IIROC; or
(g) any other fit remedy or penalty.

TAKE FURTHER NOTICE that if the Hearing Panel concludes that the Respondent did commit any or all of the contraventions alleged by the Staff in the Notice of Hearing, the Hearing Panel may pursuant to Dealer Member Rule 20.49 assess and order any investigation and prosecution costs determined to be appropriate and reasonable in the circumstances.

DATED at Toronto, 9th day of September, 2011.

JEFFREY KEHOE
VICE-PRESIDENT, ENFORCEMENT
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
Suite 1600, 121 King Street West
Toronto, Ontario M5H 3T9


For further information, please contact:
Jeff Kehoe
Vice President, Enforcement
416.943.6996
jkehoe@iiroc.ca
Elsa Renzella
Director, Enforcement Litigation
416.943.5877
erenzella@iiroc.ca


IIROC announces disciplinary hearing for Randal William Harding

October 18, 2011 (Toronto, ON) – A Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) has scheduled a disciplinary hearing for Randal William Harding.

The hearing concerns allegations that Mr. Harding failed to use due diligence to ensure that his recommendations were suitable for a client, a widow in her 60s with limited investment knowledge. It is also alleged that Mr. Harding made unauthorized transactions in that client’s account.

The hearing is open to the public, unless the panel orders otherwise. The panel’s decision will be made available at http://www.iiroc.ca.

Hearing Date: Monday, December 5, 2011, 10:00 am

Location: JPR Meeting Rooms
390 Bay Street, 3rd Floor, Hearing Room C
Toronto, ON

Specifically, the allegations are that Mr. Harding:

• Failed to use due diligence to ensure that recommendations were suitable for his client, contrary to IDA Regulation 1300.1(q), (formerly IDA Regulation 1300.1(d)), now IIROC Rule 1300.1(q)); and

• Made unauthorized transactions in his client’s account, and thereby engaged in conduct unbecoming and detrimental to the public interest, contrary to IDA By-law 29.1, (now IIROC Rule 29.1).

The alleged violations occurred from February 2004 to December 2007, while Mr. Harding was a Registered Representative at the Toronto branch of Octagon Capital Corporation, an
IIROC-regulated firm. IIROC began the investigation into Mr. Harding’s conduct in February 2009. He is no longer a registrant with an IIROC-regulated firm.

* * *
IIROC investigates possible misconduct by its member firms and/or individual registrants. It can bring disciplinary proceedings which may result in penalties including fines, suspensions and permanent bans or terminations for individuals and firms.

All information about disciplinary proceedings relating to current and former member firms is available in the Enforcement section of the IIROC website. Background information regarding the qualifications and disciplinary history, if any, of advisors currently employed by IIROC-regulated firms is available free of charge through the IIROC AdvisorReport service. Information on how to make investment dealer, advisor or marketplace-related complaints is available by calling 1.877.442.4322.

IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc., IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.
IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.


Enforcement Notice
Decision
11-0370
For further information, please contact: Enforcement Contact:
Elsa Renzella
Director, Enforcement Litigation
416 943-5877
erenzella@iiroc.ca
Media Contact:
David Thomas
Director, Public Affairs
416 943-6921
dthomas@iiroc.ca



IIROC Notice 11-0370 Enforcement Notice/News Release – Decision – In the Matter of Randal William Harding – Discipline Decision-Liability and Penalty

December 29, 2011 (Toronto, ON) – A Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) has found that Randal William Harding recommended unsuitable transactions for a client and made unauthorized purchases in that client’s accounts.

The Hearing Panel’s Decision and Reasons dated December 16, 2011 is available at
http://docs.iiroc.ca/DisplayDocument.as ... anguage=en

Specifically, the panel found:

(a) From February 2004 to December 2007, Mr. Harding, while a Registered Representative failed to use due diligence to ensure that recommendations were suitable for a client, contrary to IDA Regulation 1300.1(q), (formerly IDA Regulation 1300.1(d) and now IIROC Rule 1300.1(q)); and

(b) From February 2004 to December 2007 Mr. Harding, while a Registered Representative, made unauthorized transactions in that account, and thereby engaged in conduct unbecoming contrary to IDA By-law 29.1 (now IIROC Rule 29.1).

The panel imposed the following penalties on Mr. Harding:

(a) A fine of $125,000;
(b) Disgorgement of commissions in the amount of $17,861;
(c) A suspension of registration approval for a period of five years; and
(d) Costs in the amount of $25,000.

IIROC formally initiated the investigation into Mr. Harding’s conduct in February 2009. The violations occurred when he was a Registered Representative at the Toronto branch of Octagon Capital Corporation, an IIROC-regulated firm. He is no longer a registrant with an IIROC-regulated firm.
* * *


Re Harding
IN THE MATTER OF:

The Dealer Member Rules of the Investment Industry Regulatory Organization of Canada (IIROC)
and
The By-Laws of the Investment Dealers Association of Canada (IDA)
and
Randal William Harding
2011 IIROC 65
Investment Industry Regulatory Organization of Canada Hearing Panel (Ontario District Council)
Hearing: December 5, 2011
Decision: December 16, 2011 (45 paras.)
Hearing Panel:
Hon. Patrick T. Galligan (Chair), Brigitte J. Geisler, Peter A. Bailey
Appearances:
Andrew P. Werbowski, IIROC Enforcement Counsel
Randal William Harding did not appear
REASONS FOR DECISION
1 By Notice of Hearing dated September 9, 2011, Randal William Harding, (the Respondent) was accused of the following two contraventions:

Count 1:
From February 2004 to December 2007 the Respondent, while a Registered Representative failed to use due diligence to ensure that recommendations were suitable for his client NB, contrary to IDA Regulation 1300.1(q) (formerly IDA Regulation 1300.1(d); and
Count 2:
From February 2004 to December 2007 the Respondent, while a Registered Representative, made unauthorized transactions in the account of NB, and thereby engaged in conduct unbecoming contrary to IDA By-law 29.1
2 At a hearing on December 5, 2011 which the Respondent failed to attend, this Hearing Panel found that the foregoing contraventions were proven to the requisite degree of proof. We stated that our reasons for our decision would follow. After the conclusion of the hearing the members of the Hearing Panel met and decided upon the appropriate penalties. On December 8, 2011 the National Hearing Coordinator was advised of that decision and was told that reasons for the decision on penalty would follow.

Re Harding 2011 IIROC 65 Page 2 of 7
3 These are the reasons for both decisions.
PROCEDURAL MATTERS
4 Before setting out those reasons a short outline of the history of the proceedings is in order. The Respondent was served with the Notice of Hearing and appeared before the Hearing Panel at the set date hearing on September 22, 2011. He advised that he was no longer in the investment industry and that he may not participate in the hearing. He, nevertheless, consented to the hearing being fixed to proceed on December 5 and 6, 2011, commencing at 10:00 a.m. on December 5, 2011. The Hearing Panel directed that IIROC make full disclosure of documents generated during its investigation. That disclosure was made shortly after September 22, 2011.
5 At the opening of the hearing, on December 5, 2011, the Respondent did not appear. The Hearing Panel waited for a half hour in case his failure to appear was due to misadventure. When he had not appeared, nor sent any message explaining his absence, the Hearing Panel directed that the hearing proceed in his absence.
6 Enforcement counsel called two witnesses. The first witness was the investigator, Michael Arthur. The other witness was the complainant, NB. Upon the completion of their testimony enforcement counsel made submissions respecting the evidence and the charges which the Respondent was facing. The Hearing Panel ruled that the charges had been proven to the requisite degree of proof. It stated that reasons for the decision would follow.
7 The Hearing Panel then heard submissions from enforcement counsel in respect to penalty and costs. At the conclusion of those submissions the Hearing Panel reserved its decision and terminated the hearing. After the hearing the members of the Hearing Panel met and made their decision respecting penalty and costs. As noted, that decision was communicated to the National Hearing Coordinator on December 8, 2011. She was advised that reasons for the decision would follow.

THE CHARGES
8 Before turning to the charges against the Respondent it is appropriate to make certain observations about him and about the two persons who testified before us.

9 The Respondent first became a registrant in 1989. He was employed by Dominic and Dominic from January 2001 to January 2004. It was during that time when he became acquainted with NB and when she became his client. He moved to Octagon Capital Corporation (“Octagon”) in February 2004. He took NB and her portfolio with him. He left Octagon in January 2008 and is no longer registered in the securities industry. The Respondent was in charge of NB’s portfolio from February 2004 until the end of 2007. That is the timeframe of the charges against him.

10 The issues between the Respondent and NB are matters particularly within his knowledge. He has chosen not to testify about them. There is a principle of the law of evidence that where a matter in dispute is within the knowledge of a party, and that party declines to testify about it, a tribunal is entitled to infer that the reason he did not testify is because his testimony would not have been helpful to his case. We think it is appropriate to draw that inference in this case.

11 Michael Arthur is a very senior and experienced investigator who has been with IDA/IIROC for many years. He gave his evidence in a professional and competent manner. We accord full credence to his testimony.

12 NB is a 70-year-old widow. She went to high school but did not finish. She did waitressing and clerical work until her marriage when she was 27. After her marriage she did not work out of her home. She and her husband had one daughter. NB’s husband had a truck and a backhoe which he operated as his own business. Evidently he was a hard worker and careful with his money because when he died, in 1997, their home was mortgage-free and he had accumulated savings of over $300,000.

13 NB testified that her husband looked after all financial matters. Everything was in his hands. She understood that he put their money in Ontario and Canada Savings Bonds and in some mutual funds, the details of which she is unaware, except that she knew them to be not risky. Her husband died suddenly, leaving her to try to deal with financial issues which she had difficulty understanding.

14 She testified that since her husband’s death she has had an income of approximately $20,000 per annum. That is made up of survivor benefits from her husband’s Canada Pension and Old Age Security together with some income from her securities. She had a $200 per month pension from her husband’s service in the Dutch Navy, but that ended when she turned 65.

15 NB’s testimony was uncertain about some details of her dealings with the Respondent, however, on the two crucial aspects of her relationship with the Respondent she was firm and clear. Both aspects will be specifically referred to when we deal with the charges. We have no reason not to accept her testimony about them. She was a credible witness. Having drawn the inference that the Respondent’s silence means that his testimony would not have been able to help his case, we are confident that she told us the substantial truth. We accept her testimony.
16 We now turn to consider the two charges.
Suitability of Recommendations
17 Count 1 of the Notice of Hearing reads as follows:

From February 2004 to December 2007 the Respondent, while a Registered Representative failed to use due diligence to ensure that recommendations were suitable for his client NB, contrary to IDA Regulation 1300.1(q), (formerly IDA Regulation 1300.1(d)).
18 Regulation 1300.1(q) reads as follows:

(q) Each Member, when recommending to a customer the purchase, sale, exchange or holding of any security, shall use due diligence to ensure that the recommendation is suitable for such customer based on factors including the customer’s financial situation, investment knowledge, investment objectives and risk tolerance.

19 The essence of this charge is that the Respondent made investments on NB’s behalf which were unsuitable for her. NB’s testimony was that she was very unsophisticated about securities. She did not have “a clue” about common shares or equities. She knew nothing about margin accounts or short sales. She said that the Respondent never explained these things to her. Doubtless she wanted some income from her portfolio, but what was consistent throughout was that she would not accept any risk. She was determined that her money be kept safe and she relied upon the Respondent to keep it so.

20 During the time that the Respondent was with Dominic and Dominic he generated New Client Application Forms (“NCAF”). The NCAFs were not signed by NB. The NCAFs suggested that NB had agreed to a portfolio which included 20% high-risk securities. We accept her testimony that she did not agree to that risk. The NCAF also overstated her investment knowledge, her income and her financial assets.
21 When the Respondent moved to Octagon, in February 2004, he had NB sign seven documents. One of them was a new NCAF which has a section Investment Objectives and Risk Tolerance. It shows a securities allocation as follows:

0% - Lower-risk, income-producing securities
45% - Moderate to higher-risk, income-producing securities
30% - Moderate-risk, growth-oriented securities
25% - Higher-risk, speculative securities and trading strategies

22 NB admitted that she signed that document, along with all of the others, without reading them because she trusted the Respondent to invest her funds as she had directed him. Accepting her testimony that she did not want any risk, the risk allocation recommended in the NCAF would clearly be unsuitable for someone with low risk tolerance. It was certainly unsuitable for NB. Again, NB’s investment knowledge, income and financial assets were overstated.

23 It is illuminating to read the description of lower risk income-producing securities, which is beside the risk allocation in the NCAF:
I agree to allocate the following (approximate) percentage of my assets held in my accounts with your firm to relatively low risk, income-producing securities which may include, but are not limited to, government Treasury Bills, Canada Savings Bonds, Money Market Mutual Funds, and other higher quality, income-producing securities, with little or no reliance on margin...

24 That describes almost exactly what NB told the Respondent she wanted done with her portfolio. It seems to us to be suitable for a risk adverse, unsophisticated elderly widow living on a modest fixed income. It is quite surprising that the Respondent did not recommend that any of her assets be allocated to that category of securities. The NCAF demonstrates that the Respondent’s recommendations to NB were unsuitable for his client. It clearly establishes a breach of Regulation 1300.1(q).

25 In addition, the Hearing Panel heard evidence that NB’s margin account had over 350 transactions in the four-year period, 27 short transactions in under four years, the shorting of a government bond, and excessive investments in highly speculative penny stocks, all of which resulted in a trading loss of over $150,000 during the time of a rising market. These transactions were clearly unsuitable for a client whose personal situation required conservative investments and who had specified low risk investments.

26 It should be noted that the trading which took place in NB’s accounts was somewhat in line with the investment objectives which were stated on the NCAF. However, it is not an acceptable response to serious allegations of unsuitable trading to observe that the trading aligned with the investment objectives. If that were to be the case, it would become common practice to overstate investment objectives to ensure that trading (inappropriate by reference to the client’s financial situation) would be considered to be “suitable”. By doing so, the registered representative is attempting to transfer the responsibility of suitability to the client who has signed the NCAF which sets out the investment objectives. Regardless of that acknowledgement by the client, it is the responsibility of a registered representative to ensure that appropriate investment objectives are set out for the client. The decision of Re Daubney, OSC (2008)31 OSCB 4817; 2008 LNONOSC 338, clearly stated that the duty of care with respect to the recommendation of suitable investments is placed upon “the registrant who is better placed to understand the risks and benefits of any particular investment product. That duty cannot be transferred to the client. (at paragraph 210). A similar conclusion was reached in the Re Lamoureux, Alta. S.C. 2001 LNABASC 433; [2001] A.S.C.D. No. 613, decision which stated that “this responsibility cannot be substituted, avoided or transferred to the client, even by obtaining from the client an acknowledgement that they are aware of the negative material factors or risks associated with the particular investment”.

27 We find that Count 1 is proven by clear and convincing evidence.
Unauthorized Trading
28 Count 2 of the Notice of Hearing reads as follows:

From February 2004 to December 2007 the Respondent, while a Registered Representative, made unauthorized transactions in the account of NB, and thereby engaged in conduct unbecoming contrary to IDA By-law 29.1.
29 By-law 29.1 reads as follows:

29.1. Members and each partner, director, officer, sales manager, branch manager, assistant or co-branch manager, registered representative, investment representative and employee of a Member (i) shall observe high standards of ethics and conduct in the transaction of their business, (ii) shall not engage in any business conduct or practice which is unbecoming or detrimental to the public interest, and (iii) shall be of such character and business repute and have such experience and training as is consistent with the standards described in clauses (i) and (ii) or as may be prescribed by the Board of Directors.

30 IIROC panel jurisprudence makes it clear that unauthorized trading in a client’s account amounts to a violation of By-law 29.1. We refer to the recent decision of the Hearing Panel in Re Wilson 2011 IIROC 47. At paragraph 21 the facts are outlined:
21 The NOH states that GM learned of trading in her account only after the fact, usually from reading the trade confirmations; she did not instruct the Respondent to buy or sell any securities and he rarely, if ever contacted GM prior to executing a purchase or sale of securities. GM relied solely and completely on the Respondent’s judgment and knowledge and did not question the activities in her account. The Respondent completed the transactions in GM’s account without her knowledge or consent.
31 The decision of the Hearing Panel appears at paragraph 25:

25 It is the decision of this Panel that it was the responsibility of the Respondent to get the consent of GM prior to making any purchases or sales in her account but he did not do so. Consequently he is breach of IDA By-law 29.1 and IIROC Rule 29.1 as alleged by IIROC.
32 NB testified that the Respondent never consulted her or advised her about any of the trades. Her evidence is remarkably similar to that of the client in Re Wilson. NB did receive trade confirmations, which she hardly understood. She did not question the Respondent about them because she trusted him completely.

33 Mr. Arthur’s evidence establishes that there were hundreds of trades made by the Respondent in her account over the four-year period. Our acceptance of NB’s testimony that she was not consulted about them and did not authorize them is sufficient to find that the Respondent violated By-law 29.1. However there is strong corroboration of her evidence about a significant number of those trades.

34 That corroboration is found in Exhibit 2, tab 17. It shows that, on seven specific occasions, NB was away from Toronto for periods of several days when any communication with her by the Respondent would have had to have taken place by long distance telephone calls. The periods were:

August 2 - 22, 2004
September 29 - October 15, 2005
January 26 - February 2, 2006
July 3 - 15, 2006
October 6 - 21, 2006
August 4 - 11, 2007
August 21 - 31, 2007
35 NB testified that the Respondent did not call her during any of those times. An examination of Octagon’s telephone records shows that the Respondent did not make one long distance call to NB during any one of those seven periods when she was away from Toronto.

36 We will not set out all of the trades made by the Respondent in her account during those times. Exhibit 2, tab 17 records 27 of them. By way of example, during the first period, August 2 - 22, 2004, the Respondent made trades in the account on August 3, August 17 and two trades on August 20. It was impossible for him to have had authorization for the making of those trades.

37 The evidence to which we have just referred clearly supports and confirms NB’s testimony that the Respondent traded in her account without her authorization. We accept and agree with the opinion expressed in Re Wilson that unauthorized trading in a client’s account amounts to a violation of By-law 29.1
38 Accordingly we find that Count 2 has been proven by clear and convincing evidence.

PENALTY
39 Dealer Member Disciplinary Sanction Guidelines issued by IIROC are not binding upon a hearing panel when it exercises its jurisdiction to impose a penalty. Nevertheless they are helpful by calling to mind the appropriate principles which should be applied in a particular case. We again refer to Re Wilson where the Hearing Panel, at paragraph 26, helpfully summarizes the import of those guidelines:
26 … This panel agrees with the statement in the guidelines that the main concerns when determining an appropriate penalty are protection of the investing public, the IIROC membership, the integrity of the IIROC process, the integrity of the securities markets and prevention of a repetition of conduct of the type under consideration. As stated in the Guidelines, sanctions should be based on the particular misconduct of the respondent with an aim of general deterrence which will be achieved if a sanction strikes an appropriate balance by addressing a registrant’s specific misconduct, but also being in line with industry expectations.

40 We have looked at the penalties imposed in certain other decisions. While that is a helpful exercise, it must be remembered that even though cases may have similarities, no two cases are the same. We think that while it is useful to look at the penalties imposed in other cases, it is our duty to consider the factors appropriate to this case and decide what is an appropriate penalty for this Respondent. Penalties in other cases can help to establish a range of reasonable penalties in cases of this kind. The main factors which we have considered are the following.

Harm to Client
NB suffered serious financial harm. Her losses, in what should have been a low risk portfolio, were upwards of $150,000 during the period of a rising market.
Repetition
There were hundreds of trades in a portfolio which should have been relatively stable.
Deliberation
Against his client’s strong wishes to the contrary, the Respondent put some of her assets into very risky investments.
Benefit to the Respondent
While some trading is to be expected even in a low risk account, the hundreds of trades which took place in this one lead us to be concerned whether he was motivated by a desire to earn commission. Over the period he earned $17,861 in commissions for transactions in NB’s account.
The Victim
NB was unsophisticated, vulnerable and trusting. The loss of over $150,000 was a very significant one for her.

Disciplinary Record
The Respondent has no previous disciplinary record. That is a mitigating factor.

41 After considering those factors, and others in the guidelines, we have concluded that the most important purpose of the penalty in this case must be general deterrence. Members of the financial industry must realize that failure to make recommendations which are suitable to the particular client and unauthorized trading will be treated very seriously.

42 We did attempt to assess separate penalties for each of the violations. The reality is that the unauthorized trades were made in relation to the unsuitable recommendation. Thus we found that the two offences were so interrelated that it was impracticable to assign different penalties to each of them. Accordingly the penalties which we imposed subsume both of the charges which we have found to have been proved.

43 Accordingly, as we advised the National Hearing Officer on December 8, 2011 we impose the following penalties:

Re Harding 2011 IIROC 65 Page 7 of 7
A fine of $125,000 covering both charges.
Disgorgement of commissions in the amount of $17,861.
A suspension of approval for a period of five years.
COSTS

44 We reviewed the affidavit of Ricki Ann Newmarch, sworn December 2, 2011. That affidavit sets out the bill of costs and how it was calculated. We find that the costs claimed by IIROC are fair and reasonable and we allow them in the amount of $25,000.

45 Accordingly Randal William Harding is ordered to pay to IIROC the sum of $25,000 on account of its costs.

Dated at Toronto this 16th day of December 2011.
P. T. Galligan, Chair
Brigitte J. Geisler
Peter A. Bailey




Friday, November 9, 2012


Ombudsman: Octagon Capital Corporation Refuses to Compensate Elderly Investor Client More Than $181,000 Lost Due to Unsuitable Investments


TORONTO – The Ombudsman for Banking Services and Investments (OBSI) today announced the refusal of Octagon Capital Corporation (‘Octagon’) to compensate one if its customers in the amount of $181,339 as recommended by OBSI. This is only the second refusal to compensate ever received by OBSI from an investment firm.


Octagon is an independent Canadian investment dealer based in Toronto. A complaint was brought to OBSI concerning the investor, Mrs. B., who was an elderly and widowed client of Octagon. She was primarily a low-risk investor and needed income from her investments to last her lifetime. Mrs. B’s advisor at Octagon traded frequently in her accounts, and often without her authorization. The securities he purchased were too risky for her, as were the margin and short selling strategies he used. Mrs. B’s accounts were unsuitably invested overall. She was an unsophisticated investor who did not know her investments were unsuitable.


Octagon is responsible for the advisor’s unsuitable recommendations and for its own compliance deficiencies that led to Mrs. B’s unsuitable investment portfolio at the firm. It has chosen not to fulfill its responsibilities to her by providing the compensation she is owed based on the facts of the case. Octagon has not even interviewed Mrs. B to determine what occurred during her time as a client of the firm.


The Octagon advisor at the centre of Mrs. B’s complaint was also the subject of an Investment Industry Regulatory Organization of Canada (IIROC) hearing concerning unsuitable investments and unauthorized trading in Mrs. B’s account. The IIROC Panel concluded that Mrs. B had limited investment knowledge, was a low-risk income investor, was recommended unsuitable investments by her advisor, was not consulted about trades, and that her advisor, Mr. H, traded excessively in her accounts. The panel fined the advisor $125,000 and suspended his registration, among other things. Mrs. B received no compensation as a result of the IIROC Panel Decision because that is not the Panel’s role.


OBSI’s recommended compensation amount of $181,339 is arrived at by first calculating the difference between the amount Mrs. B’s account should have been worth had it been suitably invested and the actual value as of the date she removed her investments from Octagon. Interest to compensate Mrs. B for the loss of use of her money, calculated from the date she first complained to Octagon, was then added.


At the direction of securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. Mrs. B’s case was one of them. Firms were offered the opportunity to have credible and experienced former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI’s Terms of Reference. If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. Octagon chose not to take up this offer.


A copy of OBSI’s investigation report regarding this case is available on OBSI’s website. Some names and personal information have been edited from the original version to protect the identity of certain individuals involved, including Mrs. B.


Where a complaint is found to have merit, OBSI makes a recommendation for compensation where it would be fair to do so, taking into account all of the facts and circumstances of the case. Refusals by firms to follow an OBSI recommendation to compensate mean that OBSI must publicize that refusal and the details of the complaint under Section 27 of OBSI’s Terms of Reference. OBSI has taken several significant and extraordinary steps to resolve this and certain other complaints that could not be resolved before resorting to announcing a refusal to compensate. Over 99.8% of complaints brought to OBSI since the organization’s inception have been successfully resolved.

***

OBSI is the national independent dispute resolution service for consumers and small businesses with a complaint they can't resolve with their banking services or investment firm. As a free alternative to the legal system, we work informally and confidentially to find fair outcomes to disputes about banking and investment products and services.


OBSI looks into complaints about most banking and investment matters including: debit and credit cards; mortgages; stocks, mutual funds, income trusts, bonds and GICs; loans and credit; fraud; investment advice; unauthorized trading; fees and rates; transaction errors; misrepresentation; and accounts sent to collections. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.


-30-


For more information, contact:


Tyler Fleming
Director, Stakeholder Relations and Communications
publicaffairs@obsi.ca
416-218-4244

(How many words can the industry invent in order to conceal from, and mislead the public, about the clear commission sales nature of investment product sales?)

In the real world, (outside of that of investment dealers and complicit regulators) this kind of misrepresentation is considered to be a basis for fraud. Please see GET YOUR MONEY BACK in this forum.

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


Fraud is proved when it is shewn that a false representation has been made

(1)  knowingly, or (2) without belief in its truth, or (3) recklessly, carless whether it be true or false.


(as stated by J.A. Sharpe in Gregory v. Jolley (2001), 54 O.R. (3d) 481 (Ont. C.A. ) (O.C.A., at p. 488:
"It is common ground between the parties that the appropriate test for civil fraud to be applied here is that stated by Lord Herschell in Derry v. Peek, (1889) 14 A.C. 337 at p. 374. [1986-90] All E.R. Rep. 1 (H.L.):

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

A key element in a criminal charge of fraud is that someone uses deceit to deliberately take away something that rightfully does not belong to him.

FRAUD Section 380
.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

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

Competition Act of Canada

PART VII.1
DECEPTIVE MARKETING PRACTICES
Reviewable Matters
Marginal note:
Misrepresentations to public
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,
(a) makes a representation to the public that is false or misleading in a material respect;


http://laws-lois.justice.gc.ca/eng/acts ... ns#s-74.01
admin
Site Admin
 
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Nov 08, 2012 10:05 am

self_deception_man-with-mask_istock_000004731560s_feature.jpg
One definition of fraud is “the deliberate deception of consumers”. In this column I would like to open a conversation into a dark world of deception within some of the most “trusted” financial institutions in North America. Sadly, during the twenty years I worked inside the investment industry, this conversation was never allowed to happen.

In the United States there are more than 11,000 registered investment advisors according to the SEC.

These are generally people who are licensed, trained and paid to act in the capacity of a professional advisor. In this capacity they are required to act in the best interests of the customer and they give this to you in writing. It falls under the Investment Advisor Act of 1940.

There are also some 600,000 broker-dealers registered in the United States and they do not have to act in the best interests of clients. They are more likely the brokers and salespersons trying to earn a commission from selling a product such as a stock, bond, or mutual fund etc..

The problem for consumers begins when those 600,000 broker-sales-types identify themselves to customers by the title “advisor” even though they don’t have the proper license or registration under the law. In my experience, this sleight of hand is done to allow salespersons to raise the level of trust in customers, while lowering their level of caution or suspicion. The comments about title misrepresentation by Quebec Superior Court Judge in Markarian V CIBC is along those lines as well. See “Misleading Titles” beginning at paragraph 262 here http://investorvoice.ca/Cases/Investor/Markarian/Markarian_v_CIBCWorldMarketsInc.htm

If you take this information to independent legal counsel you may also get comment on “phony titles and negligent misrepresentation”.

Here in Canada there are approximately 150 firms who are members at http://www.portfoliomanagement.org.

These professional investment managers are legally registered as “adviser’s” and they provide a written duty to place the interests of the customer first.

Then there are the 150,000 registrants, who were legally licensed as “salespersons”, until September of 2009, when the word “salesperson” was deleted from the Securities acts of 13 provinces and territories, and replaced with the words “dealing representative”. Nearly 100% of these sale-types usually refer to themselves as “advisor’s” in an effort to increase the “trust” they hope to earn with customers.

Each one of those people may also be trying to represent that they are “advisors” and using the word advisor to imply that they will give advice that is in the best interest of the customer. This often forms a part of the deliberate deception that was spoken of at the outset of this article.

An interesting side benefit of dealing with a registered adviser is that usually the investment management fees start out in the neighborhood of one to 1 1/4% and there are no sales commission people who may be motivated to increase those fees in ways that can harm the customer.

So with a licensed and registered advisor, a customer gets a true professional with the fiduciary duty and an almost wholesale level of investment pricing if you are fortunate enough to deal with them.

With a salesperson or broker, representing him or herself as an “advisor”, there is less qualification, no advisor license, no duty to place the interests of the client first, and fees will usually begin at about 2% and go as high as more than 5% on some products sold. In defense of the sales side of the industry, some do have professional membership which requires them to pledge allegiance to ethics and fair treatment of clients, however I have yet to see enforcement of those pledges within the industry.

In two most recent cases of financial misconduct I have found investments with multiple layers of fees, piled one on top of another, on top of another. Fees in excess of 5% annually are the kind of things that turns a broker-salesperson, into a “vice president” or a “million dollar producer”. Unfortunately none of that serves the customer.

I spoke about one specific example at the launch of the THIEVES OF BAY STREET book and it’s on my YouTube channel here http://youtu.be/diEjitz-4So along with a dozen video presentations on this and related topics.

So customers who end up dealing with a salesperson-broker in Canada or the United States, most often get a person who is (a) pretending that they are an investment advisor , who (b) is not a licensed and registered professional in the category claimed on their business cards, and (c) does not owe customers a duty of care to place customers interests ahead of the seller.

I believe that salesman-brokers who call who call themselves “advisers” are one of the greatest systemic bait and switch operations in the world. I encourage victims of this
misconduct to seek legal opinion from far outside of the financial industry in order to gain objective access to the law. If you ask a securities lawyer or regulator, you are very likely to get an answer as independent as the advice you get from a non-licensed “advisor”. (see comments regarding this in the SEC petition in following paragraph)

During my research for this story I ran across this well informed agency in the United States, and a written petition they made to the SEC. It is among the most candid and enlightening articles I have seen, to honestly discuss a matter which is cheating and shortchanging North Americans of billions of dollars, and putting those billions into the pockets of industry members who are acting with misconduct. It is found here at the SEC: http://ftp.sec.gov/rules/petitions/2012/petn4-648.pdf
AND HERE:

https://docs.google.com/open?id=0BzE_LMPDi9UOdGQwcDViV2FGXzA

Larry Elford, former CFP, CIM, FCSI, Associate Portfolio Manager
http://www.speakersalberta.com/_Elford.html

sipa
deliberate deception
also found posted to SIPA web site http://www.sipa.ca in December Sentinel Newsletter

https://docs.google.com/open?id=0BzE_LM ... Gh6SjMzLVE
Screen Shot 2012-12-20 at 5.30.26 PM.png
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Oct 24, 2012 12:40 pm

Screen Shot 2012-10-24 at 1.37.13 PM.png
Notice of Hearing
File No. 201128



IN THE MATTER OF A DISCIPLINARY HEARING
PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Arthur George Pretty

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Atlantic Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers
Association of Canada (the “MFDA”) on October 26, 2012 at 10:00 a.m. (Atlantic) concerning a
disciplinary proceeding commenced by the MFDA against Arthur George Pretty (the
“Respondent”). Members of the public who would like to listen to the teleconference should
contact the MFDA Hearings Coordinator at 416-945-5146 or mwynnyckyj@mfda.ca to obtain
particulars. The Hearing on the Merits will take place in St. John’s, Newfoundland at a time and
venue to be announced.

DATED this 31st day of August, 2012.

“Jason D. Bennett”
Jason D. Bennett
Corporate Secretary
Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario, M5H 3T9
Telephone: 416-943-7431
Facsimile: 416-361-9781
Email: corporatesecretary@mfda.ca

NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules
or Policies of the MFDA:

Allegation #1: Between March 2005 and July 2008, the Respondent recommended and
facilitated a leveraged investment strategy for at least 6 clients without performing the necessary
due diligence to learn the essential facts relative to the clients, and without ensuring that the
leveraged investment strategy was suitable for the clients and in keeping with the clients’
investment objectives, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2: Between March 2005 and July 2008, the Respondent misrepresented or failed to
adequately explain the benefits, risks, material assumptions and features of a leveraged
investment strategy and its underlying investments to at least 6 clients, thereby failing to present
the leveraged investment strategy to the clients in a fair and balanced manner, contrary to MFDA
Rule 2.1.1.

Allegation #3: Commencing September 14, 2010, the Respondent failed to comply with multiple
requests to provide a written statement to the MFDA in response to client complaints and to
attend at an interview requested by the MFDA during the course of the investigation, contrary to
section 22.1 of MFDA By-Law No. 1.

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be
relied upon by the MFDA at the hearing:

Registration History of Respondent

1. The Respondent was registered in the provinces of Newfoundland and Labrador, Nova
Scotia and Prince Edward Island as a mutual fund salesperson
with Berkshire Investment Group
(“Berkshire”), a (former) Member of the MFDA from October 2000 to July 1, 2008.

2. On July 2, 2008, Berkshire amalgamated with Manulife Securities International Ltd
(“MSIL”) and the combined entity carried on business as Manulife Securities Investment
Services Inc. (“Manulife”), a Member of the MFDA.

3. Prior to his registration with Berkshire, from September 1995 to October 2000, the
Respondent was registered as a mutual fund salesperson with Investors Group Financial Services
Inc.

4. On May 25, 2010, the Respondent was terminated by Manulife as a result of the activities
described herein.

(advocate comments.......GET YOUR MONEY BACK (see forum topic of that name at http://www.investoradvocates.ca/viewtopic.php?f=1&t=173 ) if you have been sold investment products by a registered salesperson, who has told you that he or she was a professional "advisor". This is a fraudulent misrepresentation, and I again suggest you visit the forum topic mentioned above.)


https://docs.google.com/document/d/1yjE ... jw6y8/edit full MDA document here
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Tue Oct 16, 2012 5:18 pm

self_deception_man-with-mask_istock_000004731560s_feature.jpg


I am your “stockbroker”. I am a commission salesperson, making a living only when you buy or sell one of my investment products. (or I "gather" your assets and put them in my fee based schemes) I wear this mask because you will not trust me as much if I tell you I am a commission salesperson. But that is what my license read until Sept 2009. After that date, the 13 Securities Commissions in Canada DELETED the word “salesperson" from every securities act in the country. It was too “informative”, to “clear”. They changed my license (and all 150,000 retail investment salespersons in Canada) to “dealing representative” so you would know even less of what our role is.

viewtopic.php?f=1&t=110&p=3412&hilit=csa#p3412
viewtopic.php?f=1&t=10&p=3376&hilit=csa#p3376

We get away with this because we are a “self regulating” industry. We “police” ourselves.

Since we police ourselves, we can even go further with the mask. We can call ourselves “advisor” without being registered or licensed as an advisor. We can call ourselves “advisor” even after having removed our requirement to give advice that is our customer’s best interests. All under the safe protection (for us, not you) of “self regulation”.

We go one step further with our mask of self regulation. With our advertising and our marketing, we lead customers into the false belief that we will help “manage your money”. Truthfully we are nowhere near talented at portfolio management. We sell products. We need to gather assets to sell. We do not have time for professional portfolio management. But we will lead you to believe this as well, if it makes us more.

For some background, some facts, some details and more information on any things mentioned herein, please visit the forum for investment professionals, without the spin, at http://www.investoradvocates.ca

There you will find 40 topics related to everything involving retail investing, investment sales, misconduct and malpractice. The “tricks of the trade.”

Or see a few videos http://www.youtube.com/user/investoradv ... ature=mhee

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

Here is what one writer has commented on the topic of the industry "bait and switch" or misrepresentation, along with his supporting doc:

"please read Ermanno Pascutto’s attached 9-page FAIR Canada Leverage submission letters to IIROC and the CSA. (link to the document at bottom)

I have highlighted in yellow the forensic inconsistencies in Ermanno’s 9-pages that suggest to me that his letters are either a cut and paste from several different authors and / or deliberately written letters to minimize “salesperson” recommended and $OLD leverage schemes .

Please note Ermanno’s different – lack of consistency verbiage uses: market registrants (7), salesperson (2), registrant(s) (10), registrant’s office (1), advisor(s) (5), individuals (1) and approved person(s) (2).

FORENSIC FACT: Ermanno only used “salesperson” once in each letter.

Does Ermanno’s failure to always use “salesperson” or “salespersons” minimize—undermine—compromise his 2-letters?

Would Ermanno’s 2-letters have heightened readability significance to you if he had exclusively used “salesperson(s)” instead of the other words?

NOTE: with Ermanno only using “salesperson” once in each letter, there is no flavour of, no significant importance of, no transparency of – no appearance of “caveat emptor” in either of his 2-letters. "

Joe
https://docs.google.com/document/d/16b6 ... gtKp8/edit

changeup from salesperson to dealing rep
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Tue Oct 16, 2012 9:14 am

Screen Shot 2012-10-16 at 10.13.57 AM.png
Screen Shot 2012-10-16 at 10.13.57 AM.png (177.34 KiB) Viewed 8302 times


NOTE – there is a legal market registrant “adviser” licensing category and no licensing category for the other “advisor” spelling.

http://www.albertasecurities.com/Inside ... tions.aspx
Important definitions of the ASC’s Different Market Registrant Licenses
Adviser
a person or company engaging in or holding out the person or company as engaging in the business of advising others with respect to investing in or the buying or selling of securities or exchange contracts (Examples: Portfolio Managers, Investment Counsel and Securities Advisers)

AND – IF a market registrant is not licensed as either an “adviser” or “advisor”,

is their use of this title a Criminal misrepresentation under our GOC Competition Act?

PART VII.1 DECEPTIVE MARKETING PRACTICES Competition Act of Canada.

Misrepresentations to public

Sec. 74.01 (1) A person ... who, for the purpose of promoting, ... the supply or use of a product or ... any business interest, by any means whatever, (a) makes a representation to the public that is false or misleading in a material respect.

Best regards,

Joe Killoran
Cell: (905) 767-7747
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Oct 10, 2012 8:56 am

Screen Shot 2012-10-10 at 9.53.40 AM.png


Are most advisors fiduciaries, or put another way, acting in a client's best interests? Most investors say unequivocally "yes." However, the correct answer is: "It depends."

Does your advisor hold a designation that requires him to disclose conflicts of interest and uphold certain ethics? Or is your advisor just using the title "advisor" when she is really a salesperson? The latter wouldn't be the case in Quebec, since those billing themselves as financial planners must be registered with the Autorité des marchés financiers and have the financial planner (F.Pl or Pl.Fin in French) designation. But for the rest of Canada, anything goes. Herein lies the problem.

"The majority of consumers truly believe financial advice is regulated," says Cary List, president of the Financial Planning Standards Council, which administers the Certified Financial Planner (CFP) designation. "Two-thirds of people who said they were working with a CFP, for example, were in fact working with someone who was not certified at all."

Lack of accreditation doesn't necessarily mean that the advisor isn't acting in a client's best interests. But the fact is, as List points out, "those who are only licensed to sell product are not held to a professional standard of care but only to a minimum standard.''

Meanwhile, advisors who hold designations like the CFP sign off on a variation of these fiduciary principles each year: putting the client's interest first; acting with skill, care, diligence and good judgment of a professional; providing full and fair disclosure of all important facts; avoiding conflicts of interest, and fully disclosing and fairly managing unavoidable conflicts.

Let's put all of this in perspective: you are a new investor and want to buy some mutual funds. Your advisor recommends back-end load funds. Has he explained how this product works, the ongoing costs and the pluses and minuses of this product? Has he disclosed how he is paid for this product, and told you about alternative products and costs?

Some "advisors" aren't doing this. And the lack of a fiduciary standard has now raised the ire of the Ontario Securities Commission's Investor Advisory Panel. In late April, the committee called on regulators to set a common fiduciary standard for all financial professionals.

There's even a new designation geared to fiduciary issues. The Accredited Investment Fiduciary (AIF) is offered through the U.S. firm Fiduciary 360, with the Toronto consulting firm Weigh House Investor Services representing Fiduciary 360 in Canada.

To be granted the AIF designation, advisors take a practical two-day course in a classroom on what it means to be a true fiduciary, and then write an exam. Full fee disclosure is a big emphasis, as is getting advisors thinking about the way they decide on products for investors.

"Many advisors sell mutual funds, and they probably can also sell exchange-traded funds. You can make the argument that if they were true fiduciaries, they would occasionally sell an ETF, which have lower fees and may be better for the client," says Warren MacKenzie, president of Weigh House Investor Services.

What does all of this mean for investors? Before you choose an advisor, do your homework. Here are some ways to determine if your advisor passes the fiduciary test.

1. Question everything.

When interviewing advisors, most investors will ask about investing philosophy, what services they provide and how long they've been in business. These are all valid questions, but don't be afraid to go deeper to find out if this person is truly a fiduciary. Remember, it's your money. Here are some ideas:

List recommends asking: "Do you have a professional certification and does that certification obligate you to provide a standard of care that puts my interest above your own?" If the advisor says yes, ask to see a copy of the certification.

Sometimes, it helps to ask essentially the same question but in different ways. For example, MacKenzie suggests asking, "Are you a fiduciary or are you a registered salesperson?" Assuming the advisor says "fiduciary," follow up with: "How does that manifest itself in the way you deal with clients?" MacKenzie says an advisor acting as a fiduciary will mention an investment policy statement (IPS), a document that shows how your investments will be selected and monitored. "An IPS is rare to find in regular retail channels because it's cumbersome and a lot of work to put together," he notes. "It's not part of the simple sales process."

Lenore Davis, president of the Institute of Advanced Financial Planners, says any advisor interview should include questions on compensation. Start with: "How are you paid?" If the advisor says something like, "I'm paid by the bank; there's no cost to you," be wary. Follow up with questions like: "Do you get a year-end bonus? What's that based on? What's the commission on a front-end load versus a back-end load fund?"
2. Get it in writing.

If your advisor is truly a fiduciary, he should give you a document (written in plain English, not legalese) that describes the advisor/client relationship, lists companies he represents, how he is paid and any conflicts of interest, Davis says. Some pro-active advisors may present their letter of engagement and disclosure form before you even ask. "That suggests to me that they take their obligation seriously and they want their clients to know so," List says.

3. Double-check their credentials.

So, the advisor's business card lists a designation. Having a designation generally means the person has stepped up to some sort of professional standard. Just don't let your due diligence end there. Ask which licensing body or industry association administers the designation, and get their contact information. Then phone to ask if the advisor is in good standing and if he has ever been the subject of enforcement proceedings.

4. Don't ignore the smell test.

In spite of everything checking out, do you feel uneasy about dealing with this advisor? Is there something off that you just can't put your finger on? Don't ignore your intuition. There are many advisors out there. Keep searching for the right connection.

About the AuthorDeanne Gage is a Toronto-based writer who has specialized in personal-finance issues since 1999. A recipient of several journalism awards, including one from the Investment Funds Institute of Canada, she is also a former editor of Advisor's Edge and Advisor.ca. She can be reached at deannegage@gmail.com.

http://cawidgets.morningstar.ca/Article ... ?id=381644
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sun Sep 30, 2012 6:40 pm

Screen Shot 2012-09-30 at 7.39.02 PM.png
Here is a look at another "exemption to the law" which will allow unsuspecting and vulnerable members of the public to be subjected to misrepresentation as well as being misled by an investment firm. They will be led to believe that the person they are paying for advice, has a license as an "advisor", when no such license exists.

It is standard industry practice to do this (misrepresent and mislead for marketing purposes) despite it not being "true, clear and plain" disclosure as required.

Unfortunately, as with any industry which self regulates and thus operates above the law, any and all rules can be circumvented for greater profit.

http://www.osc.gov.on.ca/en/SecuritiesL ... 12_bmo.htm

Screen Shot 2012-09-30 at 7.40.06 PM.png


changeup from salesperson to dealing rep
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Sep 13, 2012 2:37 pm

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Why A Fiduciary Standard For Investment Advisors Is Needed In Canada
Written by Boomer

The United States, Britain and Australia have recently introduced legislation to strengthen the legal rights of investors and put in place a professional standard for investment advisors.

Unfortunately, Canadian standards are far inferior. They rely on self-regulatory organizations such as the Mutual Fund Dealers Association, the Investment Industry Regulatory Organization of Canada and the Canadian Securities Administration to police their own.

They believe they are doing the job and don’t need more regulation.

However, anyone in any province, except Quebec, can call themselves a financial planner without meeting any minimum qualifications or standards.

What Is A Fiduciary Standard?

A fiduciary standard makes it a legal requirement that an advisor must put a client’s interests first. It means avoiding conflicts of interest and making the best recommendations for the client even if it means lower fees for the advisor.

It establishes the duties of the advisor and the standards to which the advisor will be held, especially when the advisor has discretion over key decision making for the portfolio.

This is already the norm for other professionals such as lawyers and doctors.

Reliance on Advisor’s Advice

It’s not reasonable to expect retail investors to understand the details of highly complex financial products and services and the risks involved, especially when vulnerabilities exist such as age, language skills and knowledge or experience in the stock market

Clients have trust and confidence in their advisor and rely on their advice for making investment decisions. They look to their advisors for advice on asset mix and specific types of investments to buy and trust their opinions

The industry promotes the idea that they can and should be trusted.

Know Your Client

The advisor has the obligation to learn about the client, their personal financial situation and investment experience, investment objectives and risk tolerance.

This information is most often obtained via a “Know Your Client” (KYC) document.

All information that could be material to the investment decision should be disclosed. The investment should not be merely “suitable” – it should be in the “best interest” of the client.

Mr. Advisor recommends a high-priced mutual fund with a deferred sales charge designed to generate the highest commission for himself.
The fund is suitable, but it isn’t necessarily the best solution. If the “best interest” standard is observed, he would possibly recommend a better, cheaper fund, Index fund or ETF.

The investor is making a purchase decision with inadequate knowledge and guidance and may not get the results he needs.

Advisors who depend on commissions may have conflicts of interest and not always disclose the relevant details to trusting clients

Related: Mutual Fund Fees – The High Cost Of Canadian Funds

Retail investors, especially seniors, are very trusting. They don’t understand the legal implications of the KYC forms, which may not have been completed correctly. Unsuitable investments are the number one cause of complaints.

Illusion of Competency

Clients believe their financial advisor is a qualified professional when the fact may be that they have very limited training – especially in the mutual fund sector.

Advisor titles on business cards can be misleading and create the illusion of competency and professionalism without regard to their true capabilities, constraints and registration. Many investors are not aware of what products their advisors are licensed or registered to sell.

Related: 5 Common Mistakes Investors Make

Many Canadians are misinformed about the required qualifications and ethical obligations of their financial advisors. In a survey done by the Financial Planning Standard Council, 70% of respondents falsely believed that individuals must be licensed in order to call themselves a financial planner.

Private Savings

Workplace defined benefit pensions are no longer the norm in the private sector. With the introduction of RRSPs, TFSAs, RESPs and employer pooled registered pension plans Canadians are being encouraged to manage their own private savings rather than relying solely on the already burdened government social and pension programs.

Related: Is Our Old Age Security Program Sustainable?

This is not a bad thing, but it pushes them to depend on the financial services industry.

Older Canadians can’t afford bad advice. The financial harm suffered when a bank or investment firm makes a mistake is magnified when they have fewer years to make up the losses and fewer income opportunities.

There urgently needs to be a push for a fiduciary standard to protect investors.

http://www.boomerandecho.com/fiduciary- ... in-canada/
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Sep 13, 2012 2:32 pm

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The Cost of Bad Financial Advice
Bad Financial Advice Costs Investors Thousands

By Dana Anspach,

Do you believe both stockbrokers and investment advisors have the same responsibility to act in your best interests? Would you be surprised to find out that there are two different legal standards that apply to the delivery of financial advice?

One standard is called “suitability”. The other standard is that of a fiduciary.

Currently, stockbrokers and registered representatives are held to the suitability standard; this means their recommendations must be suitable for you based on your age, risk tolerance and financial situation.

If they have their choice of several products which are all suitable for your situation, they may recommend the one which pays them the most in fees and commissions. Keep in mind, this may not be the product that is best for your situation, but as long as it is suitable, that’s ok. They do not have an obligation to educate you about other choices you may have.

A registered investment advisor must meet a more stringent standard; that of a fiduciary. A fiduciary has the responsibility to make recommendations in your best interest in all aspects of the financial relationship.

One couple, not understanding this difference, picked the wrong advisor and in less than seven years it cost them over $150,000 in fees and missed investment returns.

The advisor they picked worked for a large national brokerage firm. He did not take the time to educate the client about risk and return and the benefits of a diversified portfolio. Instead, he put them into a product that met their expressed need. A few years later when they were not happy, he put them in to a different product. A few years later, once again, a new product. All of these products met the suitability standard.

The client had invested $500,000. The result of all those transactions: over $75,000 of commissions to the advisor. The result to the client: they did not lose money, but they did not make much either. Their account grew at about a 2% rate of return to a total of $575,000 after seven years.

An investment advisor with a fiduciary obligation to the client would likely have taken the time to educate the client and direct them toward a more diversified approach, even though that was not initially what the client thought they needed. This diversified approach, following a conservative allocation, would have meant a rate of return net of fees of 6%, meaning their account would have grown to $750,000. This couple certainly experienced the cost of bad advice.

Where can you find advisors that are held to a fiduciary standard? One resource is NAPFA, a national association of fee only advisors (advisors who can not accept commissions).

Another organization called Paladin Registry pre-qualifies all of their advisors, and matches you to an advisor appropriate for your needs.

When searching for advice, a good rule of thumb to follow is simply to ask your advisor how they get paid. That will tell you where their loyalty lies.

It is certainly worth a bit of extra time to research and interview several potential advisors. After all, it’s your money and if you are like most people, you can’t afford the cost of bad advice.


Dana Anspach
Money Over 55 Guide

http://moneyover55.about.com/od/finding ... advice.htm
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Aug 29, 2012 8:24 am

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http://www.investmentexecutive.com/-/video-24283-stromberg-on-fiduciary-standard-make-it-law?redirect=%2Fsearch

Great six minute video interview of a former OSC Chairperson, talking about fiduciary duties, advisor misrepresentation, tricks built into the law, and what should be done to deal fairly with Canadians.

Well worth watching for those who wish a better understanding of the law (she is a lawyer), the problem, the loopholes, and the solutions by someone who truly knows.

The only problem involved is in getting around the billions of dollars made in profits to investment firms who prefer the status quo.

Please share the video widely with those you care about.

"every one percent in fees you pay on your investments will cut 20% off the future value of your investment......" Fantastic info for investors.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Wed Aug 29, 2012 7:58 am

Screen Shot 2012-08-29 at 8.57.41 AM.png
Advisor or Adviser?
Posted on April 16, 2011 by Scott Bell

Merrill Lynch boosts assets, adds advisers
From Reuters:
Bank of America Corp’s (BAC.N) Merrill Lynch brokerage business provided a bright spot in an otherwise dismal first quarter for the bank, reporting sharply higher revenue and client assets as well as a net increase of nearly 200 financial advisers.
It’s subtle isn’t it? …No, not the puff-piece story.
You probably didn’t even notice it. –It might be a typo.
The increase in financial advisers.
Ya see, there’s a pretty monstrous difference between an Advisor with an ‘O’ & an Adviser. Your friendly neighborhood broker is typically called a Financial Advisor. Not an Investment Adviser. Or Financial Adviser. At least not always. And there’s a good reason. Their role is as chameleon-like as their title, changing minute to minute & without having to tell you. Slippery.
It all comes down to fiduciary responsibility, which makes self-dealing really hard. And Wall Street loves dealing to itself.
So instead, you are placed in relationship silos.
For this account? I’m your broker aka your Financial Advisor. For that account? I’m your Investment Adviser. For bonds, I’m a broker. For Investment Managers, I’m an Adviser. For mutual funds, if it’s a small amount of money– probably Broker. If it’s a big pile of cash, Adviser. Stocks? Could be an Advisor or an Adviser.
Annuity? Broker. Long Term Care? Broker. Financial Plan? Adviser, but to implement it– Advisor. Life Insurance? Advisor. And an Advisor is a Broker, right?…
Confused yet? Now add an army of bankers institutional sales people, stuffing god knows what into the mutual funds & managers you’re Advisor (and even Adviser) is probably using.
So, no matter how you slice it, the house always wins.
Wikipedia:
Section 202(a)(11)(C) of the Investment Advisers Act of 1940[3] exempts from the definition of an Investment Adviser (and therefore the associated fiduciary standard) “any broker or dealer whose performance of such services is solely incidental* to the conduct of his business as a broker or dealer and who receives no special compensation therefor.”
Kind of depressing isn’t it?
Yeh– make sure to consult your Financial Advisor about this one. Or maybe your Financial Adviser.

http://iheartwallstreet.com/2011/04/16/ ... r-adviser/

*solely incidental: rare, casual and of little to no use or consequence to the job.....only done "incidentally" (used as a loophole in the North American investment industry to allow commission salespeople who have no advisor license and who promise (in many ways) to "advise" people in their best interest,........allow these people to get away without having to be licensed, qualified, or fulfil the contractual or duty of care requirements implied by the title)
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat Jul 14, 2012 5:37 pm

Personal Finance and Investments

In the NYT’s “A fancy financial adviser title does not ensure high standards” Tara Siegel Bernard discusses the challenges that investors face when they go for financial advice to banks or brokers even if the representatives have emblazoned on their cards impressive titles like “financial consultants, advisers and wealth managers”.

“Investors can’t be blamed for failing to recognize the differences between a glorified salesman pushing a particular fund and a true investment adviser who is required to act in your best interest, but there are many.”

The SEC is still writing the “fiduciary duty” rules as part of the Dodd-Frank reforms, but even if passed, investors will have to be on guard because of the nature of banks/brokerages’ business models. “As much as their firms would like to recast brokers’ images as trusted advisers, it is still hard for them to fully shed the sales mentality…

Brokers, for instance, aren’t typically paid for advice — that is, they aren’t paid for creating a financial plan, and they rarely charge by the hour (though there also aren’t enough independent advisers that operate this way). Instead, they make money after they sell you something.The greatest risk is being lulled into believing that the “broker is acting in the best interest of the client, as opposed to the firm”.

The fiduciary standard, even if it won’t eradicate all abuses, should “raise the industry standard, requiring the larger firms with good compliance programs to think very carefully about whether their brokers’ recommendations could be defended in court, or before the S.E.C., as consistent with a fiduciary standard”. (That makes sense, and I am an advocate for the fiduciary standard, though the legal profession has fiduciary duty to client, but when paid by the hour an obvious conflict of interest is present. No law will replace/override the integrity of the individual you are dealing with, so choose him/her very carefully.)

Thanks to Peter at http://retirementaction.com/2012/07/13/ ... y-16-2012/
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