advisor fraud, professionals, or salespeople masquerading?

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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Jul 09, 2012 8:06 am

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click to enlarge

Perception or Deception - What you may not know about registered representatives called “Financial Advisors”

A couple of weeks ago after paying golf with my golfing buddies, one of them mentioned dissatisfaction with his mutual fund investments. We then had a discussion about the investment industry and how the public is often deceived. Lack of disclosure means most investors are in the dark. I mentioned the fact that persons that call themselves “Financial Advisors” (with an O) are generally registered representatives with a responsibility to sell products. They do not have a fiduciary duty to their clients and are not legally required to put clients’ interests first. There are representatives who do put their clients first and provide a good service. However the lack of fiduciary duty can and does result in issues which cause investor loss.

I have always been intrigued by the fact that the industry regulators allow this sort of deceipt to be practiced, and is a contributing factor to why I believe all persons and firms who provide advice or sell financial products should have a fiduciary duty to their clients, with the exception of those who are simply taking orders for a product. These latter individuals should be called salespersons or order takers to show the real difference from one who provides advice whatever they are called.

A few days ago I received an e-mail from my golfing friend on the subject of “Advisors with an O” and “Advisers with an E” which I will pass on. He was interested enough to do some research and found the following article from the web:

I ❤ Wall Street. 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.
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. WHAT ARE THE REGULATORS DOING?

Why do the regulators including the CSA (Canadian Securities Administrators) allow this misrepresentation to continue. For many years the registrant sales persons were registered as “sales representative” (now dealer’s representative) but are allowed to call themselves “Advisors (with an O)”. It was “Advisor with an (O)” because there is a registration category of “Adviser” (this is Adviser with an E) and so in their legal minds they believed this subtle difference was legally defensible.
The reality is that many Canadians are not so good at spelling and Advizer with an E or an O is like a Dockter with an E or an O. Surely the regulators must recognize this as “smoke and mirrors”. It’s high time that the regulators clean up the investment industry and hold them accountable by holding them to a Fiduciary Duty.

Thanks to SIPA for this article from their July 2012 Sentinel
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Fri May 18, 2012 9:55 pm

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Abolish commissions for good, CFP argues
Commissions for financial advisers have been banned in the U.K. and Australia as of this year and De Goey would like them see them abolished here too.
By Stefania.Moretti | Online only, 16/05/12

There are four new and important changes every Canadian with a financial adviser—or anyone thinking of hiring one—should know about.

Regulators officially ushered in the Client Relationship Model (CRM) earlier this spring making it mandatory for financial advisers to fully disclose all transaction details, commission and fee breakdowns as well as annualized rates of return. Until now, advisers were only required to provide book and market value updates for client portfolios. (MoneySense’s Dan Bortolotti and Preet Banerjee recently published a free, downloadable rate of return calculator for investors.)

CRM also mandates that advisers regularly evaluate whether their clients’ investing strategy and risk tolerance matches their goals and time horizon with additional check-ins at certain “trigger” events like steep, prolonged market drops.

“I don’t think it goes far enough but it’s a step in the right direction,” said John De Goey, a Certified Financial Planner (CFP) and author of The Professional Financial Planner book series.

Full CRM compliance will be phased in over two years.

“We’re taking a few baby steps when we should be taking a few giant steps,” he told MoneySense ahead of the third installment of his book series due out this fall.

In Canada, most advisers get paid by providers for each product they sell and many of these commissions are not evident to the client. Skeptics say the practice entices advisers to push products that offer the biggest payout as oppose to products that are a client’s best interest. Commission fees have been banned in the U.K. and Australia as of this year and De Goey would like them see them abolished here too.

Thank you for voting!
Yes, they're a relic of the past 75.38% (49 votes)

No, they don't cost me anything 18.46% (12 votes)

I don't know 6.15% (4 votes)

“Now in those places, the business of giving advice becomes a true meritocracy where if advisers aren’t really adding value, they can’t get paid just for selling stuff,” he said.

“It’ll going a long way to rationalizing the industry, getting rid of some dead wood and turning the industry into more of a bona fide profession.”

De Goey is not alone in his views but he’s not in the majority either.

Critics argue banning commissions may actually lead to higher costs for investors.

Without commissions, planners will likely look for other ways to make money and that may lead to higher portfolio management, hourly and project fees. Small investors may also be shunned in favour of richer clients with bigger portfolios.

Greg Pollock, CFP, is the President and CEO of Advocis, the Financial Advisors Association of Canada.

He estimates roughly nine million Canadians are getting financial advice these days and the vast majority of that advice is paid for through commissions that are embedded in the cost of products.

“If we were to change that business model overnight, we would have a huge number of Canadians that would not be receiving the financial advice that they now need more than ever,
” Pollock said. For the record, the no. 1 priority listed in Advocis code of conduct is the client’s best interest.

Still, more advisers are opting to go the fee-based route charging an all inclusive 1%-1.5% or by the hour/project. MoneySense provides a free listing of fee-only planners in Canada.

But even fee-only advisers charge some version of commissions, Pollock said. Charging a fee based on assets under management, is essentially a commission, he said, adding there’s room for a number of business models in the industry.

Whatever the compensation model, CRM aims to make it crystal clear to investors.

De Goey said the financial services industry in Canada has been deluding itself with regard to transparency “forever.” (According to his own estimates, De Goey currently charges commissions less than 10% of the time and only on certain products that are only available to him on a commission basis, such as flow-through limited partnerships, or upon client request.)

When De Goey published his first book, he was considered a “pariah,” for supporting fee-based compensation models.

“It was a threat to the people who were fat and happy and making a lot of money by not talking to their clients about commissions,” he said.

He suspects it will take 10 years or more before commissions are banned in Canada but expects the transition to be smooth since many advisers are opting for fee-based models already.

Pollock on the other hand, doesn’t see commissions falling out of fashion at all.

“Our sense is that most Canadians don’t want to pay a separate fee for advice. They like the current system…this way they don’t have to take out their cheque book a second time for that advice,” he said. ... -container

(personally self serving comments, which should be discounted as such, are highlighted in red above, as a warning to consumers) The poor man quoted does not even appear to be able to honestly discuss the different roles between the giving of advice, and the selling of products. Advocis was begun as a lobby organization for life insurance sellers, and thus it is understandable for this group to not wish to reveal what they truly do.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon May 14, 2012 8:08 am

“Advisor ” Titles confuse and mislead : In most cases, 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 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
sceptical 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 rues in play), the client often comes out on the short end of
the “conflict- of- interest” stick. - contributed from
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat May 05, 2012 6:18 pm

A fun and interesting discussion among financial experts began a while back, via email, on the topic of investment seller titles. It went like this:

I think I am confused by the meanings of words being bandied about. Maybe what's needed first in your article is a primer on the definitions e.g.
Investment Adviser aka Adviser (caps intended) - fiduciary duty per Securities Commissions
Portfolio Manager - fiduciary duty per Securities Commissions
financial advisor/adviser (no caps) - ambiguous term, nowhere formally legally defined, no duty of care specified by anyone; often innocently (?) appropriated by mutual fund Registered Salespersons to describe themselves
financial planner - ambiguous undefined term everywhere but Quebec where it is Financial Planner (caps intended) registered with Province and fiduciary duty applies
Approved Person or Registered Salesperson - suitability requirement per Securities Commissions; applies to persons registered to sell mutual funds
A sensible reply came across looking like this:

Good point Jean

Investors need to know that even under current regulation that they have a choice, but it also needs to be pointed out that registered reps are basically regulated as sales persons, so if there is a problem, the standard of care is low:
In a regulated business model where investors are responsible for the investment decision, it is critical that the true nature of the regulated service be communicated to the investor, at outset, so that investors can choose whether to retain discretion over all, part or none of the investment decision process and the extent to which they wish, or are able, to better educate themselves to make their own discretionary decisions.


My reply looked like this:

Good discussion folks

My two cents worth is that it is both a civil and criminal violation to lead customers into a false sense of trust and confidence, using a false license (labelling oneself with a title for which no actual license exists) , and false pretences of what the business relationship truly is (salesman) while purporting to deliver some kind of professional advice........and civil actions should run rampant when customers become fully aware of this (even small claims at $25,000 per). Even a few clients I have spoken to are mulling over the threat of criminal (private filing, called "laying an information") for such fraudulent misrepresentations. I have no visions of immediate success, but given time and effort, I feel that this issue might be changed.


On April 2, 2012, at 7:08 AM, lawyers name removed wrote:

Mr. Elford,

In my opinion, it is not a violation of anything to use a title that has no licensed or defined regulatory meaning. Also, in my opinion, inflammatory language does not assist in forwarding this debate towards a practical conclusion.

So I had to of course reply with some facts to support my language. Ego? Sure, but also a foundational question of some billions of dollars of fraud in Canada.
My response:
I welcome the discussion:

I am open to learning. I respectfully disagree that misrepresentation of consumers is not a violation. It is a violation of most of the codes of conduct of the industry. Many of the promised, advertised (or implied) duties to customers of trust and integrity. Violation of fraud sections of the criminal code of Canada and the misrepresentation sections in the Competition Act. Enclosed below the securities regulation license and registration categories which were violated (pre sept 2009). To quote the national post article penned by Ed Waitzer within the previous year "Anything else is fraud, because the seller is delivering a service different from what the consumer thinks he or she is buying. " Edward Waitzer, Financial Post · Tuesday, Feb. 15, 2011

Below is from the BCSC in response to asking them if it is appropriate for someone who is not licensed and registered as an "advisor" to be representing himself as an "advisor", as nearly 100% in Canada do:

Dear Mr Elford,

Thank you for your message.

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

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

Thank you,

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

British Columbia Securities Commission

some case details and judges comments found at: ... _index.htm


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

¶ 266 In the defendant's operations, the titles are, in fact attributed to many people. In 1995, there were 206 vice-presidents and 44 vice-presidents and directors out of 556 representatives. In 1997, there were 217 vice-presidents and 109 vice-presidents and directors out of 612 representatives. In 1999, there were 197 vice-presidents and 101 vice-presidents and directors out of 725 representatives, the proportions were about the same in 2000. That year, about 300 of the 700 representatives had a title!

¶ 267 The problem is that clients do not know that these titles are simply marketing tools, i.e. a means to convince them that they have an excellent representative, and recognition for the volume of commissions. Clients therefore believe they have a "very special" and "eminently acknowledged" representative when the representative has the title of "vice-president" or "vice-president and director". That was what Mr. Markarian in fact believed, as he testified. Richard Papazian, another witness (and also a victim) thought the same thing. So the titles create a false feeling of trust, comfort and prestige, the role of which is not trivial in the commission of fraud.

¶ 268 The plaintiffs were the victims of these false representations by the defendant in their regard.
some images of government allowed license and registration categories (these are from the ASC web site, which seems about two years out of date, but the misrepresentation still remains despite changes to some of the names of each license category......basically investment salespeople will lie or do anything to not have to tell their customers what their true license category is, even if they have to "borrow" a better sounding title. (to be fair, some bank owned brokerage firms, I believe have applied for a legal "exemption", in order to make this misrepresentation of customers

Picture 27.png

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final reply by lawyer name removed:


If the advisor used a licensee’s title (and this must meet the narrow and specific terms) then, yes there may be a misrepresentation. If the advisor uses a non-licensee title, then I stick by my position. This was laid bare in Dave Brown’s Alphabet of Designations speech @ 1998 and, to my knowledge, nothing has changed.

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

Postby admin » Thu Mar 01, 2012 9:55 am

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See below case comments from Markarian v CIBC which can be found in full at the site under "cases"

The below are Quebec Court comments about the use of misleading titles by the investment industry to misrepresent themselves to the public in order to earn their trust and get control over their money............which they can then abuse if the so choose, which is often the case when a person is paid by percentage fees or commissions.

In a landmark case, Montreal Superior Court Judge Jean-Pierre Senècal awarded more than $3 million, including $1.5 million in punitive damages, to retirees Haroutioun and Alice Markarian, who had unwittingly guaranteed the trading losses of people they didn't know at the behest of their former CIBC Wood Gundy broker, Harry Migirdic. The brokerage invoked the guarantees to seize $1.4 million from the Markarians in 2001, leaving $2.54 in their accounts.
Senècal called CIBC's conduct "reprehensible" and said it "cruelly failed" in its duty to protect its clients and supervise its employee. CIBC subsequently settled out of court with several other former clients of Migirdic, who was terminated in 2001.

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

¶ 264 - In principle, a vice-president is a person in a management position in a firm. The vice-president is im- mediately below the president and reports to the president. The vice-president acts in the absence of the president. It is a prestigious title in a firm; a title held by few individuals. The English word “director”, the incorrect origin of the word used here in French, designates either the member of a board of directors of a firm or the head of a department or office. That is also a prestigious title, at least when it is attributed in a prestigious firm.

¶ 265 - In the defendant’s operations, these titles also have that meaning, but not that meaning alone! They are given as well to any representative (also called an “invest- ment advisor” or previously a “financial consultant”) who reaches a certain level of commissions in a given year, in short, who “sells” a lot and brings in a lot of commissions. A person is awarded the title essentially in “recognition” of work and as a marketing tool, as the president of CIBC Wood Gundy, Tom Monahan, acknowledged. However, to have the title of “vice-president” or “vice-president and director” adds no new responsibility or any manage- ment role. What is more, it testifies to neither greater competence nor more reliability.

¶ 266 - In the defendant’s opera- tions, the titles are, in fact attributed to many people. In 1995, there were 206 vice-presidents and 44 vice-presi- dents and directors out of 556 repre- sentatives. In 1997, there were 217 vice-presidents and 109 vice-presi- dents and directors out of 612 repre-sentatives. In 1999, there were 197 vice-presidents and 101 vice-presidents and directors out of 725 representatives. The proportions were about the same in 2000. That year, about 300 of the 700 representatives had a title!

¶ 267 - The problem is that clients do not know that these titles are simply marketing tools, i.e. a means to convince them that they have an excellent representative, and their recogni- tion for the volume of commissions. Clients, therefore, be- lieve they have a “very special” and “eminently acknowledged” representative when the representative has the title of “vice- president” or “vice-president and director”.

According to the BCSC, it is the responsibility of the registrant firm and those representatives at the firm who hold themselves out as a “financial planner” to ensure they have proper proficiency in financial planning. As noted in BCP 31-601(s. 4.6), communications with the public should leave no uncertainty as to the dealer’s or representa- tive’s proficiency. This means that the descriptions and ti- tles used on the registrant’s signs, business cards , written communications and in advertising should not mislead the public about the proficiency and qualifications of the rep- resentative providing services or advice.

To comply with this policy, the firm should have proper procedures outlining the business names, styles, salesper- son’s qualifications and business titles that can be used at that dealer or advising firm. The firm needs to ensure that all representatives have been given the guidelines and should take steps to institute an effective compliance program that will detect when representatives at the firm are offside.

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

Postby admin » Sun Feb 26, 2012 1:33 pm

"the clear and present danger is............."

Screen shot 2012-02-26 at 1.32.30 PM.png

A look at how trusting the more "respectable" financial element in Canada is a clear and present danger to your financial health.

Trust is part of the problem..
Posted on February 24, 2012
The Ontario Investor Advisory Panel recently submitted a letter to the OSC Chair Howard Wetstone. It discussed a number of things that I agree with: the need for an independent impartial body for dealing with financial services industry complaints and higher responsibility and accountability for “advisors” to their investors.

It also made the following comment:

“Maintaining and building trust between consumers and financial services companies should be a central goal of Canadian regulatory and governmental policy.”

The problem at the moment is that the public, unaware of the true relationship between themselves and their “advisors”, would be better off not trusting, and given the current mendacity, a good dose of distrust that would be generated by aggressively disclosing the true nature of the salesperson/investor relationship would be of benefit.

It would appear that the only way we are going to get change in this country is if the consumer is aware of the true nature of the financial relationship they have with the industry and starts to distrust any communication which attempts to suggest otherwise.

Distrust has never been an issue in Canada, and that is the problem.

As part of this whole trust issue, the IAP like countless many other well meaning bodies are not pushing regulators to properly regulate the current system. In the letter that i am referring to, there is no mention of making the current system fully transparent to investors. It is fine asking for fiduciary responsibility and other higher standards to be introduced, but the clear and present danger is the lack of transparency over the current relationship. It is a regulatory fiduciary responsibility to make sure that the industry is making the actual relationship and the responsibilities of that relationship clear. People do not think that “advisors” have a fiduciary responsibility for no good reason: they think their “advisor” has this responsibility because he or she represents themselves in such a role and everybody from regulators to the press talk of “advisors” reinforcing this perception.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Tue Feb 21, 2012 9:52 pm

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Canadians in the dark about the qualifications of advisors
Share Print this article
FPSC calls on Canadians to hire smart with better “hiring literacy”
By IE Staff | February 21, 2012 10:00

Financial Planning Standards Council is urging Canadians to improve their "hiring literacy" when engaging financial planners.
According to new research conducted by The Strategic Counsel on behalf of FPSC, far too many Canadians are misinformed about the required qualifications and ethical obligations of their planners. For instance, an overwhelming majority (70%) of survey respondents falsely believe that individuals must be licensed in order to call themselves a financial planner.
As part of its campaign to encourage Canadians to hire smart, FPSC the standards setting and enforcement body that oversees CFP certification) is sharing this research to debunk some of the myths Canadians hold regarding financial advice.
"With the exception of Quebec, anyone in any province can call themselves a financial planner without meeting any minimum qualifications or standards," says Cary List, president & CEO, FPSC.
"We strongly encourage Canadians to seek advice for their financial planning needs, but also to make sure they hire smart. Poor ‘hiring literacy' can put Canadians at risk of engaging individuals who may not be appropriately qualified to meet their needs; individuals who may deliberately or inadvertently misrepresent their qualifications as well as their ethical and professional commitments" adds List.
"Canadians put themselves in the driver's seat when they hire smart. There are many professionals who offer highly competent and ethical service, always putting their clients first. But in absence of common national standards that require all financial planners to meet professional qualifications and be accountable to oversight, Canadians must protect themselves by ensuring they're hiring appropriate qualified and credentialed professionals. It's critical they ask the right questions of their potential planner, and know what the red flags are," says List.
In encouraging Canadians to learn more about what to look for in a financial planner and what to expect from a professional, ethical engagement, FPSC offers the 10 Tips for Choosing a Planner, Questions to Ask A Planner and other resources at Additionally, the Standards of Professional Responsibility provides a guide for consumers of what to expect from a CFP professional.
The Strategic Counsel conducted an online survey of 1,079 English Canadians (outside Quebec) over the age of 18 who have used some financial planning services offered by financial advisors, and those who have not used financial planning services from financial advisors. The survey was conducted between Sept. 11-30, 2011. ... _count%3D2
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Feb 20, 2012 2:12 pm

9:31 AM on February 20, 2012
There's a simple reason these companies attract salespeople instead of true advisors: companies pay these guys to sell.
Take Sun Life for example. Their very "best" advisors get their picture in an internal magazine called "The Achievers".
How does a Sun Life advisor become an "Achiever"? Two criteria: sales of insurance and $ of investments. There's nothing about achieving the customer's goals.
So the advisors are just doing what they're told to do.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sun Feb 19, 2012 2:20 pm

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The flaws in Canada's financial adviser system

BARRIE McKENNA - The Globe and Mail

In the investing industry, the line between what’s best for the client and what’s good for the adviser is easily blurred.

Advisers want their clients to enjoy high returns, but they need to make money, and the potential for large rewards is tempting.

That creates an inherent conflict of interest in many client-adviser relationships, critics say, and too many investors are left in the dark about the fees they’re paying to advisers and the effect those fees have on returns.

Many investors assume financial advisers have a duty to act in their best interests. But that’s not the standard regulators currently demand. The requirement in Ontario, for example, is to act “fairly, honestly and in good faith” – the duty-of-care model. That’s a long way from explicitly mandating that financial advisers’ first obligation is to the client – a so-called fiduciary duty – such as exists for lawyers, accountants and portfolio managers.

Canadian regulators are examining steps that would follow the lead of Britain and Australia, both of which are pushing ahead with legislation to regulate adviser fees and clarify the duty of advisers to serve their clients. The Ontario Securities Commission, under new chairman Howard Wetston, has pledged to build “confidence in the investment process” by exploring the pros and cons of mandating a fiduciary duty. The commission is expected to release a discussion paper on the issue this spring.

“The adviser-client relationship … is an area of focus for the Commission because of its importance to retail investors,” said OSC spokeswoman Carolyn Shaw-Rimmington.

Critics say changes are needed in part because there’s a side to the investment business many Canadians don’t see.

Take the so-called cash payout grid, industry parlance for the mechanism that determines the pay of many brokers. The more investments they sell, the greater the share of the fees they get to keep – sometimes in excess of 50 per cent.

Fail to meet minimum revenue targets at the bottom of the grid and a young broker can soon be looking for a new career.

“The grid is the enemy of savings,” says Donald Ross, a former Vancouver-based mutual fund wholesaler for a major bank-owned investment dealer. “It creates an incredible amount of pressure to generate volume.”

Throw volatile equity markets and near-zero interest rates into the mix and what your broker earns can be the difference between you making money or owning a shrinking nest egg.

John Tak, 57, of Vancouver, and his wife say they’ve endured a decade of frustration over embedded fees and subpar returns. They’re now on their third financial adviser.

“I can’t think of another field where you don’t get a clear bill and you don’t know exactly what you’re paying for,” said Mr. Tak, an executive at a health products manufacturer. “I don’t think they’re dishonest or trying to trick me. It’s the nature of the industry.”

The standard risk profile that clients sign becomes a way for advisers to duck their responsibility to generate better returns for investors, Mr. Tak said. “They’re making money, whether we’re losing money or making money,” he complained.

A nationwide survey by Genesis Public Opinion Research for The Globe and Mail found that most Canadians generally trust their financial advisers (52 per cent gave their advisers marks of 9 or 10 on a 0-10 scale).

But they’re also deeply dissatisfied with the returns they’re getting, disillusioned with the stock market in general and wary of their own investment ability. And less than half of respondents give their brokers top marks on such critical measures as recommending investments that suit their financial goals and selling products clients fully understand.

The data suggest many investors don’t have the necessary tools to assess the quality of the advice they’re getting.

“Many retail investors don’t know any better,” said Genesis pollster Dave Crapper.

Experts say too many Canadians don’t understand what’s behind the investment advice they’re getting, and more importantly, how much they’re paying for it. In many cases, the financial advice investors get is coloured by the adviser’s needs, including a desire to keep their job. Buying, selling and just holding on to mutual funds, many with high fees, for example, is a common way for advisers to earn a living.

“A lot of people don’t understand what they’re paying for. They think the advice is free,” said Ilana Singer, deputy director of the Canadian Foundation for the Advancement of Investor Rights.

“Their own knowledge is so low they don’t know how to assess the value of the advice they’re getting … If you think you’re getting free advice, your opinion of that advice will be higher.” Ms. Singer said many investors are unaware that the cost of the advice they’re getting is often buried in the mutual funds they’re buying, through trailer fees and management expense ratios.

Mr. Ross, the former mutual fund wholesaler, said brokers sometimes face pressure to dump the perfectly good funds already in a client’s account in order to buy new ones, simply to generate fees needed to make their pay “grid.” He said the mutual fund industry helps feed this thirst for income with a steady stream of new closed-end funds, which pay the broker up-front fees and may be sold at an initial discount to their book value to drive sales.

“The public doesn’t have any idea what goes on,” added Mr. Ross, who now works in real estate. “They don’t have a clue.”

Just to break even, investors typically must generate annual returns of 5 to 8 per cent to cover fees, commissions, trading costs and inflation, estimates Victor Therrien, a mutual fund industry veteran and former executive vice-president of Brandes Investment Partners.

“Investing is a zero-sum game, right out of the gate,” said Mr. Therrien, who left the industry in 2008, disillusioned at the way investors were being treated.

“Investors don’t understand. If you have commissions, it makes that mountain you have to overcome so much more acute.”

Clarity around an adviser’s fiduciary duty would be a step forward. But the OSC isn’t making any promises. Ms. Shaw-Rimmington said the issue is complex and the OSC wants to review the implications of imposing a “best interests” or fiduciary standard before moving forward.

Early next week, the OSC-funded Investor Education Fund is releasing new research on adviser relationships and investor decision-making.

There’s also interest in Ottawa. Ursula Menke, commissioner of the Financial Consumer Agency of Canada, agrees that imposing a fiduciary duty for advisers would clearly be good for investors.

“The compensation model, by its very nature, creates a conflict of interest,” she said in an interview.

Dumping the current duty-of-care model in favour of something more stringent is likely to face stiff resistance from the industry, which maintains that Canadians have ample legal protections now.

But Ms. Singer, the investor advocate, said imposing a fiduciary duty is the right thing to do, particularly at a time when governments and employers are gradually shifting the burden of providing for retirement onto the shoulders of individuals.

“This kind of duty is important to the fabric of the country,” she argued.

“Canadians have to rely more on their own savings to get them through their retirement years. And if your savings are placed with a financial adviser, it is even more important now that greater responsibility is placed on the shoulders of the people providing the advice.”



The grid: Many advisers are paid according to what’s known as the grid, typically a one-page table that spells out how gross fees are shared between the adviser and their brokerage firm. The more fees the adviser brings in, the more of that cash they keep. An adviser generating fee and commission revenue of $200,000 a year might get to keep, say, 25 per cent. One earning $400,000 would get 35 per cent. Some brokers impose a minimum amount the adviser is expected to generate.

Fees: Some brokers charge an all-inclusive flat fee, typically in the range of 1 to 1.5 per cent, based on the size of your portfolio. A broker may also operate on a fee-for-service basis, either by the hour or based on the specific services they provide. Many other advisers offer what appears to “free” service, when in fact they are compensated via a vast array of fees on the investment products they put in your account. Many of these fees are not readily apparent to the investor.

Front-end sales or load commissions: You buy $10,000 of a mutual fund, and your adviser gets 2 per cent or $200. So your net purchase is actually $9,800.

Back-end or deferred fees: You buy a $10,000 mutual fund, $10,000 goes into your account and the adviser gets a commission. But sell that investment before a set period and you will be charged a fee.

Redemption fees: Paid by the investor to the fund when you sell units in a mutual fund.

Switch fees: Fee charged to investors when they switch funds within a family of funds.

Trailer fees: Annual fee the mutual fund pays your adviser and his or her firm to keep you in a particular fund. Rates are typically in the range of 0.25 per cent to 1 per cent a year.

Management Expense Ratios: This is the percentage of a mutual fund’s assets that are deducted annually to cover operating costs, trailer fees, marketing, and fund manager salaries. MERs range from less than 1 per cent to 3 per cent or more. This comes right out of your return. So if a fund’s investments generate a 5-per-cent return and the MER is 3 per cent, your return is about 2 per cent. Published returns are after fees are deducted.

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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Thu Dec 01, 2011 10:52 am

submitted by a Canadian investor protection advocate and expert:

Note – there’s zero transparency of market registrants licensed as “salespersons” being Criminal misleading represented as “ advisers" or "advisors”

Financial literacy includes:

1. That consumer—investors have a Right to Expect that a spade will be called a spade

– That a market registrant Approved Person will always be called a salesperson (or the new term "dealing representative which replaced the word "salesperson in Sept of 2009) and that a market registrant licensed salesperson will never ever be allowed to be misrepresented as anything other than as a salesperson unless they are licensed as a “fiduciary”

– That licensed salespersons will never ever be allowed to be misrepresented to any consumer—investors, as:

1. an “adviser / advisor”, a Financial Adviser / Advisor”, an “Investment Adviser / Advisor”, etc., that a “salesperson” can only—will always—must only be allowed to be called and represented and marketed as a “salesperson” or "dealing representative".

i.e. “when salespeople are called “advisers,”
the public can be led into thinking they are being told what
is best for them.” —Michael Chamberlain, October 4, 2009, Inv. News


2. that our securities regulators will enforce our securities act laws, rules and identified “unfair” practices …

3. That our Federal Competition Bureau Criminal Antitrust (Marketing Practices) are enforced to prevent consumer abusive misrepresentations

Criminal Provision – Misleading Representation to the Public Law:

Sec. 52.1 (3) (a) make a representation that is false or misleading in a material respect;

The criminal prohibition against misleading advertising in para. 52(1) of the Competition Act applies only where a person "knowingly or recklessly make[s] a representation to the public that is false or misleading in a material respect."
It is not necessary to prove that any person was deceived or misled.
—Stikeman, Elliott LLP @ ... l/1722.htm
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Nov 14, 2011 10:56 am

First, an article from the Globe and Mail about "terrible" financial advice, followed by a draft letter provided to one of the clients of this terrible advice to demand this client get fully refunded and compensated for the fraud they were victimized with:

Terrible financial advice – available at a location near you
TED RECHTSHAFFEN | Columnist profile | E-mail
Globe and Mail Update
Published Monday, Nov. 14, 2011 6:00AM EST
Last updated Monday, Nov. 14, 2011 7:03AM EST
I heard from a reader last week with a problem. Here is the summary:

• They were referred to a ‘financial adviser' by a friend.

• They met with the ‘financial adviser’ to say they were in their late 50s and had little savings, and some pension, and wanted advice to help them retire better.

• They were then told: “Take out a $110,000 loan – I can get you that through Manulife. I will then invest that $110,000 and get you higher returns than your borrowing costs.”

• So they were invested in Manulife Segregated Funds at 3.5% MER (an annual fee)!

• Today, they are concerned because their $110,000 leveraged investment is now worth $94,000, and they are paying interest.

• The segregated funds have a 75 per cent guarantee.

When I hear stories like this, I want to scream. To me, this ‘adviser’ showed some of the worst greed imaginable.

This couple didn’t have the means to do leveraged investing, and didn’t have the ability to even fully deduct their borrowing costs.

If they want to get out, they essentially can’t. When they sell the funds, they will be about $20,000 away from paying off the loan. This is in part because of losses on investments, and further punishment from deferred sales charge fees for selling the funds early. Guess what. They don’t have $20,000 available without tapping into their RSPs. These people are stuck.

Think of what has to happen for these people to come out ahead:

Borrowing costs of 3.5 per cent today (the rate could change, and will likely go higher in the next few years at least). Investment costs of 3.5 per cent. Even if you say their borrowing costs are tax deductible, in this case, it brings it down to 2.5 per cent. They still need to make over 6 per cent just to break even.

The ‘adviser’ makes money on the loan, and makes a lot of money on the segregated fund sale.

Of course, the overly simple, but likely proper advice for this couple in their situation would be to try to work longer, save more.

The ‘adviser’, who isn’t even licensed to sell investments other than segregated funds, saw a new prospect with little to invest, and still managed to make a good sale.

How do we all prevent this type of situation from happening? Here are three recommendations:

1) Ban the leveraged loan programs on non-registered investments that several fund companies make available – unless the investment product has a fee under 2 per cent. In the case above, a 4 per cent investment fee is ridiculous, but is even worse when someone is adding interest costs on top. While I am generally not a fan of the RSP loan programs, at least if the client is in a high-income bracket, the tax ‘refund’ can make the strategy make sense.

A leveraged loan program tied to the purchase of non-registered funds with a high fee is almost always a poor strategy for a client.

2) Have organizations like the Investor Education Fund that is funded by the Ontario Securities Commission, focus on three or four common financial mistakes that can hurt them. The Investor Education Fund does good work, and can really help in this area. The more education that is out there, the fewer Canadians will say yes to a strategy such as this.

3) Hurt the product marketer and seller where it counts. The products and selling strategy that was used by this ‘adviser’ are all legal. Today, as it stands, the ‘adviser’ still gets paid, and Manulife makes good money. This wasn't a case of poor markets. This was a case of greed. The strategy using these investment products simply doesn’t hold water given the cost of investments that were being used. There needs to be a way for a client to receive compensation from the product provider and the ‘adviser’. In this case, the regulator of the ‘adviser’ is the Financial Services Commission of Ontario. I am not sure if there is a way for the regulator to help manage this process, but they certainly have the ability to fine or punish the parties involved if they deem it appropriate – and possibly make restitution to the client. At the moment, I am not sure what other organization would be able to hit the product marketer and seller in the pocket book.

I guess when all is said and done, these situations simply make everyone in the financial advice business look bad. Because of that, I believe that people within the industry have a responsibility to try and prevent this type of greed and terrible advice. If we speak up about it and try to change it, we can hopefully significantly decrease cases such as this.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.

Follow Ted on his blog at

Nov 8th, 2011

An open letter to Manulife Investments, The Mutual Fund Dealers Association of Canada, the BC Securities Commission and the Competition Bureau of Canada.


Re: Former Berkshire client, current Manulife client, financially abused by misleading sales practices and various forms of investment selling malpractice.

Dear Sirs,

I am writing this open letter in hopes that each of your organizations will be given the chance to reply to some of the issues it raises.

I spent a deal of time interviewing a woman from British Columbia today and as I understand her story, it appears as if many many faulty investment selling practices have been used to cause her a great deal of financial violence.

Here is the story in a nutshell. Client meets a Berkshire Investments salesperson in the year 2000. This person represents to her that he is an investment “advisor”, despite being registered with the MFDA in the registration category of a “salesperson”. As this is a legal license category, and misrepresentation is a crime both in the criminal code of Canada and in the Competition Act of Canada, our first question for each agency is:

“How is it that your agency allows, or ignores this misrepresentation of licensing (misuse of the "advisor" license title), when there clearly industry rules and government laws prohibiting such misrepresentations?”

Such misrepresentations appear to permit and allow customers to be defrauded more easily and it would be expected that your agency has strong policies in place to prevent or to prosecute such practices.

Further, this woman was encouraged to purchase mutual funds, and these funds were sold to her using the Deferred Sales Charge (DSC) sales option, which happens to not be the most cost effective option for the customer, but rather the most lucractive for the salesperson. This would appear to violate both the “suitability” rule, as well as industry rules on best trade exectution. Not to mention violating the principle of what an “advisor” represents to the customer, namely advice that could or should be most helpful to the customer and not to the seller. To provide the service of a commission salesperson, while posing under the name of an advisor would in my opinion be a fraud.

Can your agency comment on how it is that you allow such practices which are clearly detrimental to the public interest? This is question number two.

Further it is learned that this customer was encouraged, or should I say “advised” or lured into a program of leverage, to such an amount and extent that she finds herself now stuck with loans of some $360,000 for these investments. She states that she was not aware of this amount of borrowing and that this has been done without her authorization or her knowledge. Can you speak to the suitability of placing someone on an average middle class income into such aggressive borrowing strategies and then further on plying their account with loans and funds without her knowledge? I understand full well the amount of commissions that would have been generated buy these leveraged purchases, and again, point out what appears to be investment malpractice becoming all to standard practice by this industry. Do the regulators condone such financial predation against vulnerable clients?

This client now finds through the news media that her investment “advisor” has been reprimanded and the company fined for lack of or improper supervision of his investment selling activities. On moving to a new investment relationship, she finds that she is locked into the DSC charges, which would cost her literally thousands of dollars to exit, plus locked into losses as a result of market declines on her investments.

She is struggling to understand how someone posing as a professional could be allowed to perpetuate this many harms to the public, and how she is forced to now suffer the consequences as a result.

Recently her accountant informed her that she paid $33,000 in interest charges alone on the leveraged purchases this investment person placed her in.

This client appears to not be of the means to have known or handled these kind of risks and appears to have been duped by a firm and an industry that uses sales techniques disguised in the form of investment “advice” to take advantage of customers.

Investor Advocates believes that there is considerable evidence of investment selling malpractice in this case, believes that this client should be made whole, with some additional compensation and consideration for her nearly 12 years of wear and tear while trying valiantly to comprehend and understand what was being done to her.

We respectfully request that this client be put back in the position she was prior to making such abusive purchases, loans, commissions, etc, and that the MFDA and the BC Securities Commission and the Competition Bureau all make written reply as to what steps are being taken by each agency to punish, make the public aware, and to prevent future abuses of the kind mentioned above, and practiced by too many commission selling agents of investment products.

Specifically and to repeat for clarity:

Why are commission salespeople allowed to misrepresent to customers that they are any kind of professional “advisor”, without the training, the license, the style of remuneration, nor the fiduciary duty normally provided to customers that real advisors must provide? Are there not MFDA and BCSC rules to prevent this?
Why does the MFDA and the BC Securities Commission not provide warnings and notice to the public, about salespeople who sell mutual funds using the highest compensation model? Why are these customer abusive practices accepted as standard practices under your regulatory regime?
Why is the MFDA and BC Securities Commission not proactive in preventing the use of leveraging when it is so damaging to some clients, and so rewarding to salespeople?
Why is the MFDA and the BC Securities Commission not notifying customers when an investment person is fined?
Why does MFDA or BC Securities Commission keep the money collected in fines and not provide any compensation to the customers abused?

I thank you in advance for your responses to these questions and I trust that your agencies will carefully investigate violations of the public which fall under your mandate, or at very least inform us if you are unable to investigate for some reason.

Finally, we will repeat that it is our hope and our expectation that this client be made whole, and additionally compensated for the extent of harm she has suffered at the hands of an abusive salesperson. As an agent of the firm that Manulife has purchased, we would ask that Manulife take this step immediately to prevent further extensive damage to the client, her health, financial or otherwise, and to the reputation of the investment industry overall.

Best regards

Larry Elford
Executive Director
Investor Advocates

(for further information see also
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Fri Nov 04, 2011 5:45 pm

11-0306 November 2, 2011
IIROC is pleased to present the Annual Consolidated Compliance Report for 2011 to assist member firms in their compliance efforts and in meeting regulatory expectations. This Guidance Note outlines a number of current issues requiring firm attention and some general and specific examination deficiencies from the IIROC compliance examination teams (Financial and Operations Compliance, Business Conduct Compliance and Trading Conduct Compliance).

Use of Titles and Designations Survey
IIROC has undertaken a targeted survey regarding the use of titles, designations and other descriptors by Registered Representatives, Investment Representatives and other employees of Dealer Member firms who deal with investors.
The unsupervised use of certain titles and designations such as “Financial Planner”, “Retirement Specialist” or “Senior Advisor” are intended to convey an impression of an advisor’s education, experience, proficiencies, and/or other credentials. The use of such titles and credentials is intended to invite client trust and reliance and may be used by clients as a basis for comparing and distinguishing between advisors expertise and professional qualifications. It is, therefore, important that there be appropriate rigor, consistency and controls around the use of titles.
The objective in undertaking this survey is to gain a better understanding of:
• the internal firm policies and procedures relating to the use of titles, designations and other descriptors by advisors and other employees in their dealings with investors;
IIROC Notice 11-0306 – Rules Notice – Guidance Note – Annual Consolidated Compliance Report 8
• the internal approval process of Dealer Members relating to the use of such titles and designations and other descriptors;
• any prerequisite training and proficiency requirements imposed internally by Dealer Members before particular titles and designations may be used by a firm’s advisors and other employees dealing with investors;
• the internal audit process in place at Dealer Members to ensure that a firm’s policies and procedures in this area are being adhered to at the firm and its branches;
• the range of titles, designations and other descriptors currently used by advisors and other employees within Dealer Members who deal with investors; and
• investor complaints received by Dealer Members relating to the use of titles and designations.
Based on IIROC staff analysis of the information obtained through the survey, IIROC will determine the appropriate follow-up action.
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Sat Oct 29, 2011 2:27 pm

"Most consumers are aware of the fact that stock brokers are paid by earning commission on the products they sell to their clients. In an effort to bring more credibility and consumer trust to its sales team, brokers now use titles such as ‘financial advisors,’ ‘wealth managers’ and ‘financial planners’ when titling their team members. Unwary consumers often confuse these salespeople with Registered Investment Advisors (RIAs). What’s the difference?"

from an american article found at: ... les-people

Protecting Yourself From Financial Sales People
Written by Bryan
Categories: Future Planning, Investment Advice

The Wikipedia definition of a financial planner reads as follows:
“A financial planner is a practicing professional who creates a financial plan; a detailed strategy tailored to a client’s specific situation, for meeting a client’s specific goals. He considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client. His objective is to create the greatest probability that all financial goals (anything requiring both money and planning to achieve) are accomplished by a target date.”
The definition above paints the picture of an advisor that can be completely trusted to work in the best interest of his or her client, helping them to make the most educated, financially sound decisions to reach their retirement goals. Wouldn’t the world be a wonderful place if this definition was accurate? Unfortunately it is not. In fact, today’s financial marketplace is riddled with confusion, beginning with the acceptable terminology used to title a ‘financial planner’ all the way down to the often misleading information that uneducated planners are fed by their brokerage firms. Let’s break this down…
Today’s Financial Planners
Most consumers are aware of the fact that stock brokers are paid by earning commission on the products they sell to their clients. In an effort to bring more credibility and consumer trust to its sales team, brokers now use titles such as ‘financial advisors,’ ‘wealth managers’ and ‘financial planners’ when titling their team members. Unwary consumers often confuse these salespeople with Registered Investment Advisors (RIAs). What’s the difference? In simplest terms, financial planners or advisors employed through brokerage firms are not required to have the best interest of their client as their primary goal. Instead, they have their broker-dealers interests as their first priority.
A report released through the Paladin Registry, an independent organization that rates the credibility of financial advisors, revealed that financial advisors regularly withhold vital information 85% of the time in order to sell certain products to the client. That is a staggering percentage of individuals who are being influenced in an area that can affect the outcome of their entire life savings. What can you do to protect yourself? The first step, of course, is to educate yourself. In order to help you with this, we’ve listed the most common examples of misrepresentation in the industry:
Credentials – As we mentioned above, financial product salespeople who want to appear more trustworthy will adopt titles such as, financial advisors, wealth managers, or investment planners. Regardless of the title, the way to protect yourself is by only seeking financial advice through a Registered Investment Advisor (RIA). Registered Investment Advisors are required, by law, to place the interests of the client above all else. Any other title should be discounted.
Experience and Competence – Inexperienced advisors may not intentionally provide you with inaccurate investment information, but without a solid foundation in the industry, an inexperienced financial advisor will only have the information fed to them by the brokerage firm they are employed with. This, of course, will lead to blindly pushing products that are not in the best interest of the consumer.
Be aware that there are no educational requirements to work in the financial service industry. Brokerage firms often hire very personable, charismatic individuals, and even resort to hiring older representatives, so they have the outward appearance of being experienced and knowledgeable. These are salespeople, period. Don’t trust your retirement savings and financial future to anyone without proper credentials. Always question the competence of an advisor.
Compensation Disclosure – Financial salespeople don’t want you to know how much they make by making certain investment recommendations, and you’ll never find out unless you specifically ask for it. Print out a copy of our Full Disclosure and Transparency Fee Chart to present to your potential financial advisor. You have a right to know how and ‘how much’ your advisor is being compensated.
Verbal Agreements and Presentations – An unscrupulous financial planner isn’t going to want you to know how vital written documentation is for protecting your financial interests. Financial salespeople will hope to win you over by building a rapport, using compelling sales literature, and making convincing verbal sales presentations. Without written documentation, it is easy to deny what was promised during a high-energy, motivating presentation. Fiduciary advisors (such as RIAs) use Investment Policy Statements to ensure that the client and advisor are aligned on the strategy and implementation of investments.
So, bottom line here? Know who you are dealing with and be aware that many financial advisors are simply product salespeople. The fact that this breed of salespeople deal with situations and information that can adversely affect the entire outcome of your life investments often makes no difference to them. It is your responsibility, as a wise investor, to understand what you are getting into when engaging the services of a financial professional.

(Holy Crackers Batman, we are being robbed!!)
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Oct 24, 2011 7:37 pm

".......if we sell a DSC fund, we should be in jail" ... story.html

Planners should make plans

Jonathan Chevreau, Financial Post · Oct. 22, 2011 | Last Updated: Oct. 22, 2011 5:06 AM ET

Aconsiderable majority - 61% - of Canadians aged 45 to 64 don't have a formal financial plan in place, according to a TD Waterhouse poll released this week.

When I see industry surveys like that, I assume the fault lies with the individuals rather than their advisors. After all, when asked why they don't have a plan, 50% told TD they "just haven't gotten around to creating one."

But after attending this week's Vision 2020 symposium - hosted by the guardians of the certified financial planner designation - I was surprised to hear that even CFPs don't routinely create comprehensive plans for their clients.

Early in Wednesday's event sponsored by the Financial Planning Standards Council, the moderator posed a simple question to four panelists: "Does every client get a financial plan?"

"No," replied Stephen Ison, a principal at Edward Jones. "The majority of our advisors are still evolving to seeing this thing as an objective, along with the changing desires of clients."

"No, not everyone gets a robust financial plan," said CFP Jason Round of Royal Bank of Canada. "My sense is not every client needs one but all get a form of advice tailored to them."

"Not everyone gets a financial plan," said Kim Thompson, senior vice-president of Credential Financial Inc. The initial focus is on understanding client needs, which may eventually lead to a "full financial plan depending on needs, complexity and investable assets."

The fourth was a consultant to various financial institutions. "There are lots of ways to define what constitutes a financial plan," said Amy Young, principal with Upside Consulting Group Inc. Different terms describe the process and there are a "wide range of outputs from asking for a financial planning exercise."

Typically, she sees documents with cover pages showing a client's name in big letters and the words "Your financial plan." But inside, the document is simply an assetallocation recommendation with no indication of goals, timelines "or even risk profiling. That concerns me."

Consumers seldom know the difference. "If the document says 'Your financial plan' on the front, they think it's covered. The technical quality of the financial plan can be quite poor ... I'd argue they haven't gotten what they need."

Regarding inflated job titles, Young said "consumers know the title financial planner is a euphemism for investment salesperson. The research shows it clearly." She suggested there may be room for a maverick firm to promote a straightforward title like investment salesperson. "Consumers are skeptical of the services they get from banks because they know these people are ultimately salespeople."

While the goal of FPSC president Cary List is to make financial planning a proper "profession," one panelist thought this unlikely as long as practitioners keep calling themselves an "industry," as indeed most did throughout the day.

The second panel highlighted this aspiration, with three experts outside the industry describing how professions like law, accounting and physiotherapy managed the transition. But the day's closing panel - on compensation structures under a professional model - revealed how far the industry has to go.

Despite the best efforts of Financial Consumer Agency of Canada commissioner Ursula Menke, three industry panelists stubbornly refused to acknowledge the inherent conflicts of interest that still abound in the dominant commission-based model. (For example, in mutual fund trailer commissions.) The closest was when IPC executive vice president John Novachis admitted that "for an account with $2million, if we sell a DSC mutual fund we should be put in jail."

But panelists felt smaller accounts of $25,000 are wellserved by the present model. To the frustration of some CFPs in the audience, there was scant agreement an entirely fee-based (or fee-only) industry could fly, despite the dismantling of commissionbased compensation structures in the U.K. and Australia. (There are a few hundred true fee-only planners in Canada but 17,500 CFPs.)

In a regulatory panel, FAIR Canada's Ermanno Pascutto said it started the discussion on a fiduciary duty of care because it's been raised in the United States, Australia and the U.K. But the focus here has shifted to acting in the best interests of clients. To enact a true fiduciary standard would require legislation in 13 jurisdictions, he said. "Since it took 10 years to create the two-page Fund Facts, it will take two decades for fiduciary duty."

If that occurs, the industry will certainly be viewed as a true profession. But it would be a lot closer once all CFPs can confidently declare ALL clients routinely get comprehensive financial plans.

(advocate the " if we sell a DSC mutual fund we should be put in jail." comment. It matters not what amount the sale is for. What matters is that the DSC is NOT in the better interests of the client, since there are cheaper alternatives. Sooooo, if someone calling themselves an "advisor" has sold you DSC funds, GET YOUR MONEY BACK. They have lied to you. They were never an advisor, they were licensed as something else, and they did not give you advice as they promised with lie #1, they took advantage of you for the biggest commission.) see
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Re: advisor fraud, professionals, or salespeople masqueradin

Postby admin » Mon Oct 24, 2011 12:57 pm

"an investor is unable to clearly distinguish between a product distributor and a financial advisor." ... 562522.ece

SEBI concept paper on investment advisors: How investors can be protected


An investor-friendly Web portal can be set up so that errant advisors cannot easily slip through the cracks and resurface at a different institution.

Investors have lost trust in financial markets today not just because of state of the global economy but also because the trust they had placed in their personal financial advisor has been broken.

Globally, the Madoff scandal started this expose of errant advisors.

The Rs 300-crore Citibank fraud brought the issue closer home in India and galvanised various regulatory bodies to look closely at the fledgling wealth management industry.

Unfortunately, the industry despite being regulated by multiple regulators including the Securities and Exchange Board of India, the Reserve Bank of India, the Insurance Regulatory and Development Authoruity and the Pension Fund Regulatory and Development Authority has not had a cohesive oversight body.

As a culmination of the various discussions held this year between the market participants and the regulators, a self-regulatory organisation is being proposed as an overseer of the wealth management industry by SEBI in a recent concept paper. SEBI is taking the onus for formalising regulations and coordinating with the other regulators.

For an investor to trust him, an advisor needs to be transparent in his dealings. Today quite a few financial advisors have moved to a fee-based advisory model from a model based on compensation by product distribution commissions.

But some institutions who claim to follow the former, in their quest to increase their asset base, have minimised the asset-based fees they earn from a client to as low as zero per cent, but retain all the product distribution commissions.

As per SEBI's concept paper released at the end of September, those who receive remuneration from the manufacturer will be called ‘agents' and only those who receive all their compensation from investors will be called ‘advisors'.

This definition can cause further upheavals for retail investors in mutual funds, as fund houses do rely on IFAs (Independent Financial Advisors) to market products. Most of these IFAs are compensated by commissions since clients are reluctant to pay for advice.


Under this suggested model, price-sensitive non-metro customers may find fewer independent advisors to service them.

To truly align a client's interest with the advisor, the fees for services should only be a percentage of assets as SEBI's recommendation, but with full credit given to clients for all product commissions earned. This would be a fully transparent model if the client's cost is capped.

This aligns an advisor's interest with the client's and minimises asset recommendations based on maximising earnings from product commission. It also makes sure product recommendations are based on a client's risk profile and appetite to withstand market volatility. Recommendations to an investor by an advisor should be based on prudent guidelines where investments are not only diversified across asset classes, but also across asset management companies (AMCs).


Minimal qualifying education requirements, continuing education requirements, accreditation and registration with the regulatory body will root out the unqualified entities and persons from calling themselves advisors.

This should allow a central agency to track the movement of individual advisors across various institutions and will help clients in obtaining an advisor's background, qualifications and track record.

This can be achieved through an investor-friendly Web portal. Errant advisors cannot easily slip through the cracks and resurface at a different institution and continue their wayward ways. Institutions will also be held responsible for monitoring and maintaining records of all client transactions for a reasonable length of time.

SEBI's proposal also includes a clause for grandfathering in advisors who don't have the relevant educational background.

This clause needs to be carefully articulated and enforced since the experience of a person in narrow product sales function may not be comprehensive to enable them to perform the functions of a true advisor.


Above all these, the key to safeguarding an investor's interest is investor education (awareness). Financial jargon needs to be simplified and investor awareness campaigns held to educate investors about the basics of finance.

It is strange to think an investor who spends at least a few minutes carefully picking a kilo of tomatoes which cost Rs 10 does not think twice before investing in the market.

When investors are asked about this discrepancy, it becomes apparent that their actions are governed by their lack of understanding of the investment and blind faith in their advisor. This makes the role of a financial advisor even more critical.

Many a times a client is reluctant to ask questions thinking it may be a basic question and it will reveal his ignorance, but all of us are not experts in all walks of life.

As one does not hesitate to ask a medical doctor basic questions when one goes for a health diagnosis, one should not hesitate to ask questions to a financial doctor when diagnosis and recommendation are made.


A number of today's issues arise from the fact that an investor is unable to clearly distinguish between a product distributor and a financial advisor.

A financial advisor looks at the overall financial picture of a client, including, all assets, liabilities and goals and develops a plan to help the client achieve his objectives. In this process, an advisor spends time not only understanding the investment risk profile but also the financial risk a client can take given the personal circumstances.

No two plans are alike and no two solutions identical but solutions are customised to suit each client's need. A product on a standalone basis may be considered a great investment choice, but given a client's personal circumstance it could be considered poison.

This ability and willingness to make the distinction and act in a client's best interest is what truly distinguishes a product distributor from a financial advisor.

(The author is CEO and MD, ASK Wealth Advisors. The views are personal)
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