Tricks of the Trade. Sales tricks, investment abuses.

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Postby admin » Sun Sep 14, 2008 5:51 pm

Sunday, May 25, 2008

Many of you may be familiar with the fable of the frog and the scorpion. It is a story that holds a number of parallels with the investment relationship you may have with your broker or advisor.

The story is poignant as I have recently seen a number of cases where Investors react with disbelief when they are informed that the DSC on their funds was neither necessary nor advisable. Their immediate thought is that there is a misunderstanding because their advisor would never inflate the cost of their investments by selecting the more expensive sales option. In fact, I try to explain that the advisor actually cannot help themselves. Hence the fable.

The fable involves a scorpion asking a frog for a ride on the frog's back so the scorpion can cross the stream. The frog at first declines, fearing the scorpion would sting him and he would die. The scorpion argues, quite logically, that if it stung the frog, the scorpion too would drown. Seeing the logic the frog agrees to swim the scorpion across the stream. But halfway across the scorpion stings the frog! As the frog feels his muscles begin to convulse he asks the all important question,WHY? As the scorpion struggles in the water he says he could not stop himself even if it meant he lost his life. Why, because I am a scorpion!

Advisors are trained that they are "hunters" who live off the results of their sales efforts. They work hard to find customers and get the assets transferred to their firms. As hunters, the expression is that you "eat what you kill". That translates to you earn the income you generate. More is always better and as a great hunter they have earned the income. They begin to believe that you are lucky to have somebody like them advising you. Surely they deserve to make top level income for the hard work and effort they put into investing your money. As the hunter mentality sets in they are praised by their employer for increasing revenue and achieving ever higher revenue goals. But if they fail to make the goals, they are just average hunters, no longer a part of the elite circle of top producers.

The problem is that the advisor lives in the world of the scorpion. They do not charge the highest fees to hurt the client, they charge the highest fees to maintain their position in their organization. The client becomes a means to an end and that end is to maximize revenue. How do they sleep knowing they have charged so high a fee? They sleep like babies! Their can be no guilt or shame in a scorpion acting like a scorpion!

So, the next logical question is why do investors keep letting the scorpions hitch a ride? I guess we wouldn't if we knew they had the stingers. How do you protect yourself from being a frog?

Try telling your advisor straight up that you do not want any DSC commissions charged to your purchases. In fact, tell your advisor you will pay them a flat pre-negotiated fee or move to a new advisor. If you belong to a group that has access to salaried advisors take a good hard look at the benefits of an advisor who is not commission driven. Your advisor will tell you to avoid salaried advisors as they are not up to the calibre he is. Indeed, those salaried advisors are not worthy of being called hunters!

Fighting fees.....soismike
p.s. The he and she are interchangable. Scorpions come in both sexes. ... chive.html
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Postby admin » Sun Sep 14, 2008 5:49 pm

Saturday, May 31, 2008
Fox in the Hen House

Retirement is often a battle between you and your advisor. Can you guess who is winning?

The success you have in preparing for retirement will depend on whether you or your advisor wins control over your investment accounts. Recent studies have made it extremely clear that you will need to grow your savings to supplement your government retirement income. For those fortunate enough to have a defined benefit pension, the battle is for maximum happiness versus a tight budget. For those without a defined benefit pension the battle will be for a reasonable standard of living versus dependency on others.

For many investors, they believe they have acted prudently, hired an advisor who will assist them, and worked diligently to save their money. Many will realize far too late that the fox is in the henhouse!

While there are a growing number of advisors who put the client first, the overall trend is still very disappointing. Most advisors put themselves first, their employer second and the client third. What proof do I have for such a bold statement? Recently there have been a number of surveys completed by reliable sources that suggest the industry in Canada charges the highest Mutual Fund expense ratios (MER) in the industrialized world. In fact, Alia McMullen in the Financial Post on Friday May 30th, does a good job of outlining the issues. Her articles is supported by the Rotman International Centre for Pension Management which has raised the alarm that MER’s may rob Canadians of the ability to fund their retirement years.

The issue of excessive MERs have been addressed ad nauseum in Canada but with little tangible results. So advisors work for companies that charge high MERs , what can they do you may ask yourself? Well, for starters they can reduce the damage instead of compounding the matter. However many put themselves first and sell products with the highest fees they can get when cheaper options would benefit the client. The sale of expensive deferred sales charge (DSC) funds makes the problem worse for investors but makes the advisor wealthier. The question I have yet to hear an answer to is “how does the investor benefit from purchasing expensive DSC style funds”. The obvious answer seems to be that they benefit by having a very, very happy advisor and fund company. There appears to be no tangible benefit to the client. I realize the advisor needs to earn a living, but not at the expense of the client.

The product selection between Canada and the U.S. shows how a closed shop in Canada allows for the sale of substantially more DSC funds in Canada versus the comparable U.S. per centage. Instead, Americans purchase a much higher percentage of Index funds. Would it surprise you to know Canadian advisors also have access to the same options but consistently choose higher cost alternatives?

What can you do? Have a strongly worded conversation with your advisor about any funds sold to you via the DSC option. Ask how you benefit by being locked into one specific family of funds by penalties outlined in the DSC schedule? Then ask the advisor how he/she was compensated and if it differs with the DSC versus say a front end loaded fund. The smart investor hires an advisor to work "for you" NOT "with you". You can hire better friends cheaper so do not be fooled into thinking you are part of a team approach. It all starts and ends with your money!
Watching your retirement slip away......
Sois Mike ... chive.html
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Postby admin » Wed Jun 18, 2008 5:18 pm ... advice.asp

The Cost And Consequences Of Bad Investment Advice

by Ken Hawkins (Contact Author | Biography)
Many investors still rely on their investment advisors to provide guidance and to help them manage their portfolios. The advice they receive is as varied as the background, knowledge and experience of their advisors. Some of it is good, some of it is bad, and some is just plain ugly.

Investment decisions are made in a world of uncertainty, and making investment mistakes is expected. No one has a crystal ball, and investors should not expect their financial advisors to be right all of the time. That said, making an investment mistake based on sound judgment and wise counsel is one thing; making a mistake based on poor advice is another matter. Bad investment advice is usually due to one of two reasons.
The first is that an advisor will place his or her self-interest before that of the client.

The second reason for bad advice is an advisor's lack of knowledge and failure to perform due diligence.
Each type of bad advice has its own consequences for the client in the short term, but in the long term they will all result in poor performance or loss of money.

Advisor's Self-Interest Meets Client's Best Interest

Most financial advisors are interested in doing the right thing for their clients, but some see their clients as profit centers, and their goal is to maximize their own revenue. Although they all like to see their clients do well, in the case of self-interested advisors, their own interests will come first. This will typically result in a conflict of interest and and can lead to the following bad moves:
1. Excessive Trading

Churning is an unethical sales practice of excessively trading a client's account. Active trading is similar, but not unethical, and only a fine line separates the two. Advisors whose primary focus is to generate commissions will almost always find reasons to actively trade a client's account at the client's expense. Excessive trading will almost always mean realizing more capital gains than is necessary, and the commission generated, although enriching to the advisor, comes directly out of the client's pocket. Advisors who excessively trade their clients' accounts know that it is far easier to get clients to sell a stock at a profit than it is to get them to sell a stock at a loss (especially if it is their recommendation). The net result can be a portfolio where winners are sold too soon and the losses are allowed to mount. This is the opposite of one of Wall Street's proverbs: "Cut your losses short and let your winners run." (For more insight, read Understanding Dishonest Broker Tactics.)

2. Using Inappropriate Leverage

Using borrowed money to invest in stocks always looks good on paper. The investor never loses money because the rates of the return on the investments are always higher than the cost of borrowing. In real life, it does not always work out that way, but the use of leverage is very beneficial to the advisor. An investor who has $100,000 and then borrows an additional $100,000 will almost certainly pay more than double the fees and commissions to the advisor, while taking all the added risk.

The extra leverage increases the underlying volatility, which is good if the investment goes up, but bad if it drops. Let's suppose in the example above, the investor's stock portfolio drops by 10%. The leverage has doubled the investor's loss to 20%, so his or her equity investment of $100,000 is only worth $80,000. Borrowing money can also cause an investor to lose control of his or her investments. As an example, an investor who borrows $100,000 against the equity of his or her home might be forced to sell the investments if the bank calls the loan. The extra leverage also increases the portfolio's overall risk. (For more insight, read Margin Trading.)

3. Putting a Client In High-Cost Investments

It is a truism that financial advisors looking to maximize the revenues from a client do not look for low-cost solutions. As an example, a client who seldom trades might be steered into a fee-based account, adding to the investor's overall cost but benefiting the advisor. An unscrupulous advisor might recommend a complicated structured investment product to unsophisticated investors because it will generate high commissions and trailer fees for the advisor. Many of the products have built-in fees, so investors are not even aware of the charges. In the end, high fees can eventually erode the future performance of the portfolio and enrich the advisor.

4. Selling What Clients Want, Not What They Need

Mutual funds as well as many other investments are sold rather than bought. Rather than provide investment solutions that meet a client's objective, a self-interested advisor may sell what the client wants. The sales process is made easier and more efficient for the advisor by recommending investments to the client that the advisor knows the client will buy, even if they are not in the client's best interest.

As an example, a client concerned about market losses may buy expensive structured investment products, although a well-diversified portfolio would accomplish the same thing with lower costs and more upside. A client who is looking for a speculative investment that might double in price would be better off with something with lower risk. As a result, those investors who are sold products that appeal to their emotions might end up with investments that are, in the end, inappropriate. Their investments are not aligned to their long-term objectives, which might result in too much portfolio risk. (For related reading, check out Why Fund Managers Risk Too Much.)

Poor Knowledge, Incompetence Or Lack Of Due Diligence

Many people have the mistaken belief that financial advisors spend most of their day doing investment research and searching for money-making ideas for their clients. In reality, most advisors spend little time on investment research and more time on marketing, business development, client service and administration. Pressed for time, they might not do a thorough analysis of the investments they are recommending.

Knowledge and understanding of investing and the financial markets varies widely from advisor to advisor. Some are very knowledgeable and exceptionally competent when providing advice to their clients, and others are not. Some advisors might actually believe they are doing the right thing for their clients and not even realize that they are not. This type of poor advice includes the following:
1. Not Fully Understanding Investments They Recommend

Some of today's financially engineered investment products are difficult for even the savviest financial advisors to fully understand. Relatively simple mutual funds still require analysis to understand the risks and to ensure they will meet client's objectives. An advisor who is very busy or who does not have the highest financial acumen might not truly understand what he or she is recommending or its impact on the individual's portfolio. This lack of due diligence could result in concentration of risks of which neither the advisor nor the client is aware.

2. Overconfidence

Picking winners and outperforming the market is difficult even for the seasoned professionals managing mutual funds, pension funds, endowments, etc. Many financial advisors (a group not lacking in confidence) believe they have superior stock-picking skills. After a strong market advance, many advisors can become overconfident in their abilities – after all, most of the stocks they recommended saw price increases during that period. Mistaking a bull market for brains, they start recommending riskier investments with greater upside, or concentrating the investment in one sector or a few stocks. People who are overconfident only look at the upside potential, not the downside risk. The net result is that clients end up with riskier, more volatile portfolios that can turn down sharply when the advisor's luck runs out. (For more on psychology, read Understanding Investor Behavior.)

3. Momentum Investing - Buying What's Hot

It is easy for financial advisors and their clients to get carried away in a hot market or a hot sector. The technology bubble and consequent burst of 1999-2002 demonstrated that even the most skeptical investors can get caught up in the euphoria surrounding a speculative bubble. Advisors who are recommending the hot mutual funds and the hot stocks to their clients are playing into clients' greed. Buying a hot stock provides an illusion of easy money, but it can come with a cost. Momentum investing typically results in a portfolio that has considerable downside risk, with potential for large losses when the markets turn.

4. Poorly Diversified Portfolio

A poorly constructed or diversified portfolio is the cumulative result of bad advice. A poorly diversified portfolio can take a number of different forms. It might be too concentrated in a few stocks or sectors, resulting in greater risk than is appropriate or necessary. Similarly, it could be over-diversified, resulting in, at best, mediocre performance after fees are deducted. Often portfolios are too complicated to understand; this could mean that risks are not apparent, they become difficult to manage and investment decisions cannot be made with confidence. At best, a poorly constructed portfolio will result in mediocre performance and, at worst, it could suffer a large drop in value. (For more insight, see The Importance Of Diversification.)


Bad advice advice frequently results in poor performance or loss of money for investors. When choosing an advisor - or evaluating the one you have - stay alert for clues that might indicate that the advisor is not working in your best interest or is not as competent as you would like. After all, it's your money - if you're not happy with how you're being advised to invest it, it could pay to take it elsewhere.
by Ken Hawkins, (Contact Author | Biography)

Ken Hawkins is a financial writer and vice president of Second Opinion Investor Services, an investment consulting firm that provides unbiased and independent investment advice. His experience spans the investment world of the private client investor as well as the world of the institutional investor representing pension funds, asset management companies, mutual funds and investment counselors.

Ken Hawkins

Vice President Research and Development

Second Opinion Investor Services

1745 Blondeaux Crescent

Kelowna, BC

V1Y 4J8


Independent and Unbiased Advice For Investors
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Postby admin » Sun Apr 27, 2008 12:52 am ... #clip48969

watch this CTV W5 investigative report into financial abuse by financial professionals to gain a greater understanding of predatory practices in the financial services industry.

In it I state that "80% of the time" I found predatory practices to be the method used, rather than client "first" practices.

I have a number of measuring sticks to come up with that figure, and with apologies if they are repeated several times in this flogg topic, and to make sure they remain in my memory at all times, here are just the three that jump out at me this evening after watching the show:

Measuring stick #1.........sales figures for mutual funds in Canada showed that on average, in the last decade or so, about 80% of mutual funds sold in Canada were sold using the DSC (deferred sales charge) option, which is the sales method that generates the largest up front fee to the salesperson, and is well hidden from view of the client. This practice is either frowned upon or punished in the United States, but is standard practice here.

Measuring stick #2............ latest sales figures from IFIC (Investment Funds Institute of Canada) puts over 92% of mutual funds sold in Canada into the category of WRAP funds (either proprietary, house brand products, or fund of fund products). I presume that the reason for this is the publicly available stat that when a salesman sell the house brand fund, whether it is a piece of junk, or a good fund, he and his firm can earn between "twelve and twenty six times" more money than if they choose to sell an independant product. This is just greed, pure and simple, that is driving this sales stat. It is not in the client interest to buy the house brand, and it actually goes against the best fiduciary practices available for a so called professional.

Measuring stick #3..........look up the registration category of your "advisor" on the site and check their legal registration and license category. Chances are that 100% (or nearly) will be legally registered as a "salesperson", and illegally calling themselves something else.

That is now three measuring sticks, and sound, reportable ones, that point to greater than 80% of these so called professionals actually being rather non-professional.

There are others, which will come to my mind, as I recall them, or re-read them and I will continue to add to this list as time and memory permits.
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Postby admin » Wed Apr 23, 2008 4:16 pm

see this site for examples of how investment firms took advantage of clients with RRSP's by forcing them to hold only Canadian dollars in an RRSP and thus causing them to pay unknown amounts in currency conversion the profit of the investment firms, and to the damage of the vulnerable clients.

Another one of myriad ways that the investment industry act in a predatory manner towards its own clientele.

related and further info at: ... _Index.htm
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Postby admin » Wed Apr 16, 2008 5:21 pm

Fee-based accounts a "future landmine," says panel

April 16, 2008 | Bryan Borzykowski
In the U.S., the controversial fee-based account has come and gone, but Canada's still moving full steam ahead with the non-commission advisory model. Just because our financial industry is still promoting the account, however, doesn't mean we're not faced with the same problems that derailed the option down south.

At Advisor Group's Compliance Matters Summit on Tuesday, Nigel Campbell, a partner at Blake, Cassels & Graydon in Toronto, said the financial community needs to pay closer attention to the problems surrounding fee-based accounts, especially after how they've been abused in the States.

"The fee-based issue is perhaps a future landmine for the dealer community here in Canada," he says. "Everybody should be tuning in now. As is typical in our country, we learn lessons from the United States and, provided we pay attention and learn them early, we can perhaps offset any problems."

What happened in America is that fee-based accounts, which were introduced in 1995 as an alternative to commission-based trading, ended up being misused by some advisors who charged clients huge fees, despite not executing many trades and giving little advice.

As an example, in 2007, UBS Financial Services was fined $23.3 million in connection with fee-based account abuses.

In one case, the company charged a 91-year-old more than $35,000 for just four trades over two years — that's about $8,800 per trade. This was $33,000 more than what the client would have paid in a traditional brokerage account.

There hasn't been any trouble on this level in Canada, but that doesn't mean it can't happen.

"It has all the qualities of a perfect storm," says Campbell. "You have significant issues you've been warned about, coupled with the ability to garner substantial fines. That's a bad combination when it comes to regulators."

"When [the fee-based account] first got started years ago, it was not intended to create issues; it was intended to solve issues," adds Bill Haldane, CCO at BMO Nesbitt Burns. "There cannot be a fee that turns an otherwise dormant asset into an active revenue-generating asset, which in its simplest form causes a great deal of the issues that [we've seen] over the last little while."

Because of the potential for abuse, fee-based accounts aren't for everybody. The best-suited clients are ones who are active investors and have a good knowledge of what they're doing. It's imperative for advisors to know their clients well; they otherwise risk possible regulatory sanctions if anything improper happens.

Campbell says investment advisors' basic obligations are acting in the best interest of their clients and avoiding conflicts of interest.

One way to prevent any potential problems with fee-based accounts is to accentuate all the contact points with the client. Campbell explains that "provided you bring value, describe the nature of the account to the client who can understand the description and bring these other values — such as research, ongoing advice, particular attention, increased contact, meetings — then there's an easier explanation for why a particular investor is suited to this."

Jeff Kehoe, the Investment Dealers Association's director of enforcement litigation, says the best measure of whether or not a client should open a fee-based account is appropriateness. "If you have someone who only makes one or two trades a year, it might not be appropriate," he explains.

However, if the advisor has explained everything to his or her client, and the fees are transparent, and the client still decides to open an account, then it's "not something the IDA will interfere with," he says.

Kehoe also points out that advisors can expect "increasing attention" from the IDA in regards to fee-based accounts, especially when it comes to elder abuse. "It's coming to an audit near you," he says. "But if you act appropriately and demonstrate [why the account was opened] there will not be the $23 million regulatory action by the IDA."

While Kehoe says he's going to crack down, Campbell questions why the IDA hasn't been clearer with fee-based account regulation. "What struck me is there's not a lot of real clarity from the IDA at this stage," he says. "It's almost as though they're aware of the UBS thing, but on the other hand, where is the clarity going to come from? Will there be a notice to members? What is the nature of disclosure the IDA is looking for?"

"I wish I had a better answer for you," responds Kehoe, adding that while he knows it's an issue, the regulator has been "distracted" the past six months with other business. "As a result, the street priorities are still priorities."

One group among which complaints are arising is the elderly and, more specifically, their families and estates. Campbell has noticed an increase in lawsuits brought by families concerned about mistreatment. Often these complaints are delayed, as it takes relatives time to figure out that there's a problem. "It goes back to this predominant question of value for money," he says.

But providing value for the dollar isn't specific to any age group. In fact, it's what advisors should be thinking about all the time. "Are you hosing the client?" asks Campbell. "It really comes down to that. That's the ultimate test, and it's not more complicated than that. If you can provide the value your client wants, you have very little to worry about."

Filed by Bryan Borzykowski,,

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Postby admin » Wed Apr 16, 2008 2:10 pm

Financial Damages to Canadians…………..
April 16, 2008, by Larry Elford,
Cost studies or estimates from a financial industry and regulatory system that places the interests of self ahead of the interests of the clients.

Here is the back of napkin sketch I gave to someone who asked me in Ottawa. It was from memory so I am sure I left out an item or two, and I am also sure that I am not the complete source of all the ways and means known to financially abuse Canadians.........these are just the numbers that I know of for sure, or are quoting independent or academic studies that have done research in the area.

From memory:

--I take Keith Ambaschteer study from U of T that comes up with $25 billion in overcharging on Canadian mutual funds each year in Canada

--Blend that with the other university studies from Georgia tech, London bus school, Harvard etc in last two years that come up with a number smaller than this, If I recall it was somewhere between 1% and 2% damages on our 700 billionlion in mutual funds in Canada, so could be $7 billion to $14 billion each year.

--Blend that with Columbia university professor John Coffee, hired by the finance department, who said that our fractured regulatory system is costing Canada some $10 billion each year.

--Add in the double dipping that I am only guessing at a billion or so each year

--Add in abuse of fee based accounts.........for clients who buy and hold, a fee based account is like "renting" their investments to them……….damages unknown.

--Add in the sales methods of mutual funds mostly using the DSC or "highest cost to client" option, (approx 5% commission on approximately 20 billion in funds sold each year) amounts to another one billion per year more of less.

--Add in things like foreign currency exchange rip-offs like Jim Mcdonald and others are initiating class action on (I don’t have the value there)

--Add in DSC and other commission churning which could be $1billion to 10 billion.

--Put the $32 billion ABCP frozen stuff this year, and $18 billion in client losses from bad royalty trusts over the past few years.

--Throw in an Eaton’s or two similar fraudulent new issues (Eaton’s new issue bankrupt within a year, Global Crossing new issue bankrupt within a year, FMF Capital new issue gone within a year., etc., etc., etc) Portus fund, Crucus fund, and the list goes on.

--Market timing scandal (playing with mutual funds to enhance management’s bonus) $300 mil

--Fund window dressing.......playing with fund holdings at report time to enhance fund appearance falsely ………… $ damages unknown

--Advisor-sold investment loans ..........damages to the public unknown at this time

--Add in an Assante proprietary mutual fund scam for $800 mil, Berkshire? Manulife just got legal exemption given to them to do the same. Recognize that each and every mutual fund company (almost) has it's own proprietary (house brand) funds that they are pushing and advertising full it because these funds are the best financial solution for the client........or because they earn twelve to twenty six fold greater on them? (92% of mutual funds sold in 2007 were into wrap funds (proprietary a large component of these) Source IFIC

--Investment seminars for seniors, 100% of the seminars were actually sales presentations, according to reports done on the subject.......damage unknown

--Add in the Markarians, the Cosgroves of the world, the Hunts, the Roaches, the Simpsons., etc., etc, each of whom are individual investors whose lives and values count, just hard to catalogue and calculate. Basically every client with a valid grievance has very likely been shunted aside by the system that is designed to protect itself, over the past twenty to thirty years.

That is all I can think of, but I think the number is greater than 30 billion per year. I would be guessing or estimating at the $60 billion figure, but I am definitely not guessing at $30 billion. $30 billion is pretty easy to come up with.

some source and reference material posted at viewtopic.php?t=11&postdays=0&postorder=asc&start=30

also sourced at
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Postby admin » Sat Mar 15, 2008 5:37 pm

FINRA settles with 5 firms over improper mutual fund sales

The U.S. Financial Industry Regulatory Authority [FINRA] has settled with 5 firms over improper mutual fund sales and related supervisory violations .The violations include improper sales of Class B and Class C mutual fund shares and failure to have supervisory systems designed to provide all eligible investors with the opportunity to purchase Class A mutual fund shares at net asset value. For the share class sales violations, FINRA imposed an US$800,000 fine against Prudential Securities and a US$750,000 fine against UBS Financial Services, Inc. for improper sales of Class B and Class C mutual fund shares. A US$100,000 fine was imposed against Pruco Securities for improper sales of Class B shares. In resolving the Class B and Class C share matters, these firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households. To resolve the NAV violations, Merrill Lynch, Prudential Securities, UBS and Wells Fargo agreed to remediation plans for eligible customers who qualified for, but did not receive, the benefit of NAV transfer programs. It is estimated that total remediation to customers will exceed US$25 million. addressing over 27,000 fund transactions in the accounts of 5,300 households. ... es/P038054 [In recommending the purchase of mutual funds, a firm must assess the suitability of the class of shares to be purchased as well as the suitability of the particular fund. Primary considerations include the investment amount, the expected holding period of the investment, the applicable sales loads, fees and expenses associated with each class and the effect of such factors on the ultimate return on investment to the investor.]

(advocate comments......between 60% and 92% of funds sold in Canada are sold with the highest compensation choice.......depending on which time period is looked at..........this is done at the expense of the public and with the full knowledge of financial regualtors)

(Latest mutual funds sales also show that 91% of mutual fund sales for the year 2007, were in wrap products, which would consist of a fair amount (majority?) of house brand funds. House brand funds are most attractive because 100% of the fees go to the "house" that sold them to you, and they earn between 12 and 26 times greater profits from these house brands) Source for fund sales, OSC Fair Dealing Model Appendix F, compensation bias's for profits on house brand funds.
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Postby admin » Tue Feb 26, 2008 12:21 am

sales statistics from the Investment Funds Institute of Canada

From the Investment Funds Institute we see that mutual fund wrap accounts consist of only 17% of total mutual fund industry assets. That makes sense since they are the new kid on the block, and most people have their money in regular, independent mutual funds.

Recent sales statistics, (to Jan 31/08) however, indicate that 91% of today’s fund sales are putting client assets into wrap accounts……..presumably a large percentage of which consist of “house brand” or proprietary products. Are these the new fad, fashion, or are they such a vast improvement over the old tried and true?

The answer is yes and no. No for clients. Yes for salespersons. The Ontario Securities Commission has produced studies which show that by advising clients to purchase the “house brand” fund, (wrap accounts included) the firm and the salesperson share in increased revenues of between twelve to twenty six times increase over having clients hold a typical independant mutual fund. (source OSC Fair Dealing Model, Appendix F, on compensation bias in mutual fund sales)

Of course the industry made sure that the Fair Dealing Model was never put into place. It was felt that it was too…………..well um,………..fair.

It is factors such as this which lead me to conclude that four out of five investment “advisors” are misrepresenting their title and are in fact acting with a selfish sales interest. Actually hurting their client interests. Imagine what would happen if someone said that "four out of five dentists were blah, blah etc......"?

(Class action lawyers take note. The damages, if proven true are in the billions and climbing every year)

This misrepresentation is illegal, unethical, and certainly not in the public interest. Further evidence to this argument can be found by searching for the exact registration category of each “advisor” registered in Canada. Four out of five of these will be found to be also using the “advisor” title improperly, and they are in fact licensed and legally registered in the category of “salesperson”.

Selling the highest profit "house brand" stuff, while claiming to be acting as a trusted professional advisor is a lot like drunk driving. It may feel good for a moment, and you may even feel you are on top of things, but someday there is going to be a whole heap of pain.
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Postby admin » Thu Feb 21, 2008 7:03 pm

posting from a discussion on Jon Chevreau (National Post) Wealthy Boomer blog, between Jon and Andrew Teasdale, of the Tamaris Consultancy

They were talking about the question of "do you get what you pay for regarding investment fees, or as great Canadian advisor John Degoey says, "you get what you do NOT pay for", when it comes to investment fees

below is my comment

Jon, good discussion, good topic, here is my two percent worth on your question of do you get what you pay for in mutual fund investment costs………or do you get what you don’t pay for, as John DeGoey puts it?

The answer is yes and no. There are two separate and distinct things the retail mutual fund investor is paying for, and because they are typically bundled the consumer has no way of knowing what they are paying and why. It is designed that way, to confuse rather than disclose.

The first thing is professional investment management, which according to good guys like Andrew, can be had for much less than one percent on assets, even for small retail sized clients…………and as low as 1/10th of a percent on large accounts. This is truly what most clients are seeking.

The second thing you are paying for is the “sales” pitch, often misrepresented in Canada as “advice”. This is something for which you get no return, in fact, if it is truly sales pitch instead of advice, often the consumer gets damaged by the pitch. (witness sales stats whereby 50% to as high as 90% of mutual funds are sold using the highest comp plan)
In this department, which accounts for far and away, the largest cost of today’s retail mutual fund environment, the consumer is being misled and financially abused by this sales trick.

I believe the foundation for this trick lay in the ability for salespeople, licensed and registered in Canada as salespeople, to use a misleading and illegal title, without qualification. The title under provincial securities law is “advisor”, and is something that 99% of Canadian “advisors” currently do not meet the qualification for. In this way, the consumer is led to believe that they are paying for a total “package” of professional advice plus management, when in fact, the advice they think they are paying for is far too often simply sales and commission strategies in disguise. The reasons are unclear, as to why this misrepresentation escapes enforcement by either securities commissions or by the competition bureau. The failure by these agencies to act is perhaps one of the reasons why our federal finance minister is now studying how to set up a national securities agency.

I feel that when Canadian consumers finally wake up to the ruse, they will react accordingly. At this time, it feels like the financial services system in Canada is operating along the lines of the tobacco industry of 50 years ago. Powerful. Wealthy beyond imagination. Surrounded by lawyers, pretend regulators, accountants and accomplices who profit from the ruse, they happily cooperate in the system designed to profit by taking advantage of consumers, not by serving consumers. They are currently willing to go to any lengths to maintain this position.
Thanks Jon. Larry Elford (former CFP CIM FCSI Associate Portfolio Manager, retired) ... _clip.html
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Postby admin » Thu Oct 04, 2007 8:20 am


IFIC, for those who do not know, is an industry sponsored trade and lobby group (Investment Funds Institute Of Canada)

Reaction to IFIC Survey Canadian Investors' Perceptions of Mutual Funds and
the Mutual Fund Industy ( September, 2007 ) -baloney!

Feedback from our Fund OBSERVER readers and ordinary investors to the fund
industry lobbyists' Investor survey was immediate and angry . Another
example of a by-design flawed investigation intended to influence regulators
that actual delivery of vital fund information at the time of purchase is
not really required or wanted by investors. It also diverts attention from
academic studies showing Canada has outsized fees compared to the rest of
the world. An unworthy exercise in statistical gymnastics and financial
pornography .Even so, the survey revealed some soft spots and interesting
insights into the mind of uninformed and financially illiterate investors :

· the carefully tailored poll - "coincidentally " fits in with IFIC's
ongoing regulatory discussions over requirements for Point-Of-Sale
disclosure i.e. water them down from the FDM concepts

· confirmed the adage that mutual funds are sold, not bought: 83 % of those
polled made their purchases through financial advisers, and only 14 % dealt
online or directly with fund order-takers - virtually unchanged from the 85%
who reportedly used an advisor in the 2006 survey.

· the survey of 2508 investors , claims a +/- 2% margin of error. Basically
this means the sample size was adequate to set confidence limits but it does
not mean the questions were the right ones, the conclusions are definitive,
that more pertinent questions might not have led to a quite different
result. e.g. Do you know what you paid in advisory fees last year? and that
retail investors know what they're talking about [According to a recently
released CSA study , just six-in-ten (62%) Canadians correctly answered
'false when asked if mutual funds pay a guaranteed rate of return,'. When
asked if bond prices go up when interest rates go down, half (49%) responded
'don't know' and one-in-four (25%) incorrectly answered 'false'. Only
one-in-four (26%) correctly answer 'true' on this statement.

· 13% of respondents were less than satisfied with the advice they
received - a high figure but still one many feel was much understated due to
the shrewdly selected and constructed questions

· advertising and marketing methods were not probed but we know from a 2006
OSC Capital Markets Compliance team report that marketing materials and
information are wrong, outdated and/or misleading

· HOT topics like excessive fees, client reporting deficiencies , wrap
account controversies, Seg fund disclosure deficiencies , complaint
resolution and restitution, the Norbourg scandal, seniors issues etc. were
not even touched upon

· Only 54 % of respondents were confident or very confident that mutual
funds meet their financial goals-83% of respondents however expressed some
confidence in mutfunds, surprisingly edging out real estate including
primary residences at 79%.[ the survey assumes respondents consider their
home an investment in the same sense as a mutual fund]

· Only 54% of investors said they were made aware of advisor compensation
when purchasing a fund -and only 29% rated disclosure of advisor
compensation as important . Even more un-nerving is the fact that only 37 %
believed knowing the load options available for paying commissions was very
important when making an investment decision .

· A scary 39% of respondents said they did not consult any sources before
buying their funds - 34% said they consulted just one source.
· Of those who did their own research, 30% consulted newspapers, magazines
or journal articles, while 28% spoke with friends and family. Mutual fund
websites were consulted by 23% of investors doing their own research, while
only 15% checked out excellent on-line third party analysis services, such
as , Fundlibrary,com and
· Among those investors who used the services of an advisor, 52% said they
made the decision to purchase with the advisor, as opposed to the 37% who
said they made the decision themselves after listening their advisor's
opinion. Only 8% said they strictly followed the advice of their advisor.
· Investors appear to be quite happy with their advisors' understanding of
their risk tolerance, with an incredible 95% saying they were satisfied with
the assessment at the time they opened the account. [According to a 2007 CSA
Investor research study more Canadians trust investment professionals than
not, but that trust is expressed tepidly and many Canadians are uncertain of
their view. When presented with the statement "I just don't trust investment
professionals", one-in-four (24%) agree; Nearly three-in-ten (28%) neither
agree nor disagree ]
· Advisors discussed the suitability of investors' most recent fund
purchases, with 88% of respondents saying they had such a conversation.- 10%
said they did not discuss suitability
· Ninety-five percent said it was either very important or somewhat
important to understand whether the fund fits portfolio objectives; to know
what the risks were; and to look at past performance. Ninety-two percent
said it was important to consider whether the fund fit their own investment
· As regards the prospectus , 28 % said they read "more than a couple of
pages and 22% said they read the entire document. Of those who said they did
not read the prospectus, 44% said they skipped it because they believed
other sources had provided enough information- 41% said there was simply too
much to read, while 31% said it was too complex. Only 32% said it should be
required reading prior to making a purchase [ suggesting that the Joint
Forum's proposed mandatory delivery of Fund Facts is unpopular with retail
investors] but 65%.felt printed material should at least be available .A
whopping 45% said they wanted to receive the prospectus from the advisor,
while just 28% would prefer to receive it through the mail. When it came to
continuous disclosure, however the postal system was preferred by 48%,
compared to 25% who wanted the information from their advisor.
A number of the findings confirm that mutual fund investors are uninformed
and highly vulnerable to advisor influence. Some of the findings are at
variance with virtually all other independent studies, academic research,
complaint statistics the May, 2005 OSC Investor Town Hall results, popular
books like the Naked Investor and the PROFFESSIONAL ADVISOR, pro-investor
organizations like CARP and SIPA and the Joint Forum's research on retail
mutual fund investors. Investor advocates were stunned and dismayed at the
tone of the survey questions and wordsmithing and how aggregations were
made. We trust that the IFIC survey will not divert regulators ,the media,
investors and industry participants from the critically needed path to
dramatically reforming the industry and opening up competition.

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Postby admin » Wed Oct 03, 2007 7:48 am

Useful fund document promised
Market regulator outlines easy-to-read `Fund Facts'
October 03, 2007
Madhavi Acharya-Tom Yew
Business Reporter

Stock-market regulators say investors will be well-served by new proposals on providing easy to understand documents when people buy mutual funds. Some fund companies object, however.

Under the new rules, investors would receive a document called "Fund Facts." No more than two pages in length, and written at a Grade 5 reading level, the document would explain what the fund invests in, sales costs and past returns without using industry jargon.

"We need to make sure the information investors get is useful to them," Doug Hyndman, chair of the British Columbia Securities Commission, said at a mutual fund industry conference in Toronto yesterday. "This is a good basic document that gives you the core of what you need to know to make a decision."
(complete document not produced here for brevity)

(Advocate comments: It just strikes me as unusual that regulators (all thirteen of them) are just now waking up to the fact that hidden and incomprehensible jargon, given to investors, might be used to take advantage of their vulnerability and their trust with regards to financial products.
It becomes quite clear now why Canada is proven to be the highest cost provider of mutual fund services in the world. (by independant global university studies)
It now begs the question of whether or not this financial abuse of Canadians was intentional or purely accidental, and if intentional, by which manner (regulatory fine, or civil award) will consumers be made whole for the last few decades of gouging?

Perhaps if all thirteen securities commission heads were not worrying about how to protect and preserve a $500,000 job, they would have been able to worry about how to do the $500,000 job for the benefit of the public.
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Postby admin » Fri Sep 28, 2007 7:46 am

Cryptic pricing keeps fund investors in dark


Thursday, September 27, 2007 at 7:25 AM EDT

Solved: the mystery of why we pay such high mutual fund fees here in Canada.

It's because the fund industry has been so phenomenally successful at
keeping its fees invisible to most investors.
Pricing information is
certainly available for funds, but not in the same prominent way it is when
you buy everything from toothpaste to socks, gardening equipment and cars.

We need mutual funds to be sold with an easy-to-read price tag stuck to
them, and we have a narrow window of opportunity to make this happen. A
group of securities regulators have created a prototype of a concise new
disclosure document for the fund industry, and they're looking for comments
until Oct. 15. All right, here's a comment:
Make fund companies put the price of owning their products in big,
fat numbers on the front of the newdisclosure document.
The proposed document, produced by a group called the Joint Forum of
Financial Market Regulators, is supposed to wrap everything investors need
to know about a fund into a short, easy-to-read format. On the matter of
price, there's a little box on the front page to note the price of a fund.
It says: "Annual expenses, as a per cent of the fund's total value (also
called the MER)." As an attempt at putting a simple price tag on funds, this
just won't do.

Part of the problem is the use of the term MER, which is a standard way to
compare how much it costs to own a mutual fund. The MER (management expense
ratio) takes almost all the costs a fund company incurs in running a fund
and then presents them as a percentage of all the money in a fund.

Practically speaking, what you need to know about MERs is that they
represent how much of a fund's returns are sluiced into a fund company's
coffers rather than your investment account or registered retirement savings
plan. A fund with a reported 8-per-cent return and an MER of 2 per cent
actually made about 10 per cent.

If investors understood MERs better, they'd put a lot more emphasis than
they do on price when choosing funds. As it stands now, there's a small but
slowly rising level of awareness that has prompted many, but not all, fund
companies to shave their prices.

We could stoke the level of competition by thinking up a simple euphemism
for MER and then plunking it down at the top of the new disclosure document.
Call it the cost of ownership, the ownership fee, the management fee or
anything else that makes it clear there's a cost to owning funds that comes
in addition to any fees incurred in buying and selling them (those fees are
disclosed on the new form in an effective enough way). Once investors get
comfortable with mutual fund price tags, they'll begin to treat funds more
like toothpaste, socks, gardening equipment, cars and such. That is, they'll
compare features and performance and then bring price into the equation to
assess the overall value. In most cases, price will be one of the major
factors on which investment decisions are based.

As it becomes clear that investors are gravitating to lower-fee funds, the
fund industry will react by accelerating the current pace of MER reductions.
Bank on it. Fund MERs are already on a slow, steady decline at many
companies because they can foresee a day when they'll have to compete on
price. When this day arrives, they'll be the first to reduce MERs even
further while their competitors play catch-up.

Today, what sells funds is performance, not fees. Tomorrow, what will sell
fees is a combination of good performance and low fees. There's a
correlation between these two attributes, but never mind that. It's simple
human nature to want premium goods at the lowest possible price.

It has to be said that all the information an investor needs about how much
it costs to own a fund is contained in its simplified prospectus, a very
informative document that few ever read. MER info is also available on fund
company websites, and on mutual fund research websites like
Experienced investors never fail to take advantage of this pricing
information, but the masses aren't taking advantage.

That's where price tags come in. Start plastering them on those new fund
disclosure documents and we'll see the fund industry come under the same
price pressures as sellers of toothpaste, socks, gardening equipment, cars
and such.

Fund companies have managed to keep their pricing largely invisible or
incomprehensible to customers for decades. If the Joint Forum of Financial
Market Regulators does its job, it's game over for this bit of investor

Low-cost Canadian equity funds
Fund 10-Year average
MER annual return
PH&N Canadian Equity 1.13% 10.20%
Mawer Canadian Equity 1.24 11.3
Beutel Goodman Canadian Equity 1.42 9.9
Leith Wheeler Canadian Equity B 1.5 11.5
Trimark Canadian SC 1.64 6.7
Sceptre Canadian Equity A 1.69 N/A
Saxon Stock 1.86 11.7
RBC Canadian Equity 1.99 9.9

Category Average 2.53 8.2
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Postby admin » Thu Sep 27, 2007 5:28 pm

Fee-based advising victim of success: U.S. study
September 27, 2007 | Mark Noble

U.S. fee-based advisors will face challenges as more set up shop and larger competitors find ways to emulate their success, according to a study by Moss Adams.

While only 14% of U.S. advisors surveyed are registered independent advisors (RIAs), their numbers have increased by more than 30% over the past five years. And it's expected that over the next five years, they will grow by another third, according to the 65-page report commissioned by New Jersey–based Pershing Advisors Solutions.

RIA is a loosely used name that refers to firms that charge a fee to create a financial plan and manage wealth, generally 1% of clients' investable assets. RIAs tend to have the highest proportion of affluent clients, and as a result, attract a higher-calibre adivsor.

The typical RIA firm's size doubled between 2000 and 2005, and Moss Adams projects that the average assets under management of RIAs will grow from $179 million to over $1 billion by 2010, and almost $1.6 billion in 2012. At the local level, RIAs are taking market share as large if not larger than local branch offices of national competitors.

This success has not gone unnoticed. Moss Adams notes that corporate and bank firms have started adopting widespread use of the fee-based model. Also, their marketing material has become quite similar to that of RIAs, with emphasis on expertise in financial planning and independence. This approach is already successful with vast numbers of down-market clients who are too expensive for RIAs to serve.

If corporations can't beat the RIAs in the up-market, though, they'll buy them. Of the top 50 RIA firms in 2003, 16% have been acquired. Moss Adams estimates the top independent advisor firms have collectively earmarked about $2 billion for acquisitions, which could purchase about 22% or $400 billion of the AUM of the RIA market.

That number likely pales in comparison to the amount of money banks and large insurance companies, which are also aggressively acquiring RIAs, have at their disposal.

Ironically, the fee-based market in Canada, which is only now starting to come into its own, has been driven by the large bank-owned brokerages, rather than independents, says Bob Durrell, senior vice-president of business development for Assante Wealth Management.

"In Canada, bank-owned firms would probably be the biggest purveyors of fee-based platforms," Durrell says. "Many of our competitors have fee-based platforms, and a lot of our advisors are starting to ask for it. A number of the advisors we've been recruiting have assets in fee-based platforms."

Joe Canavan, CEO of Assante, says his firm has responded to this demand, launching fee-based platforms to its advisors at the beginning of September, where clients have the option of paying a management fee ranging from 40 to 100 basis points of their portfolio, depending on the size of their account. Overall, Canavan says the interest from both Assante's advisors and clients has been minimal, but he feels it's important to offer the option.

"Generally the take-up is about 5% to 10% of our advisors. I don't think there is an overwhelming demand for fee-based advising other than versus what we already have in place," Canavan says. "The option is for the clients that say they're in a fee-based platform at RBC and want to have that same fee-based relationship, even though they weren't particularly fond of their advisor there. We also do have a number of advisors who believe that this is the way of the future for their practice."

Sue Dabarno, CEO of Richardson Partners Financial Limited, says her firm has been championing the fee-based advising model since 2003. Richardson's fee-based model is serviced by small advisor teams who together can meet the economy of scale needed to serve the firm's predominantly high-net-worth clients. Fee-based assets now represent 62% of the firm's total managed assets.

"I found it interesting that the study predicts that the average RIA will exceed a billion dollars under management by 2012. We certainly believe that our advisors will exceed that target as well. Three or four of our teams are at half a billion today or above it," Dabarno says.

She doesn't worry if the fee-based platform attracts bigger competitors because the ability to achieve such a valuable client book is directly related to staying relatively small and independent.

"Some of the evidence of your success is that people start to copy you. That means of course that you have to refine your service model. So, it's up to us to continue to refine it and remain leading edge," Dabarno says. "Because of our size — we are keeping our firm around 150 advisor teams — we can move very quickly. We're very fleet of foot, and we don't have a big infrastructure, so we can adapt quickly to market conditions."

Dabarno also stresses that having a system where each advisor is a part owner of the firm ensures independent firms retain their talent, making it difficult for banks and large firms to poach top advisors and the affluent clients they attract.

"It's a win for the advisors because they're owners in the business, so that they have a say in the business, and they construct their client solutions," she says. "As owners, they want to make sure at all times they are doing the right things, their service is quality, and that it's very much fee-based."

Moss Adams derived its data from a survey of more than 1,000 RIAs in the U.S. It then interviewed a selected group of well-known industry people and top-performing advisors to comment on the data.

Filed by Mark Noble,,


(advocate preparation for court proceedings with a bank owned firm in Canada, when faced with evidence of double dipping, that of charging both a commission and then an advisory fee on the same assets, the firm's "defense" for adding an additional fee was the following: "we only charged the client a 1% fee when we could have charged 2%, and thus by adding the additional fee to their account in this manner we actually saved the client money".

I don't make this stuff up.)
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Postby admin » Tue Sep 11, 2007 4:05 pm

U.S. regulators target investment seminars for seniors

A report released on Monday found that over a year, 100% of the seminars were actually sales presentations

Monday, September 10, 2007

By James Langton

U.S. securities regulators are concerned with investment seminars targeting seniors, according to a report released on Monday.

During the second annual Seniors Summit held today at the U.S. Securities and Exchange Commission in Washington, D.C., the Securities and Exchange Commission, the Financial Industry Regulatory Authority and state securities regulators (members of the North American Securities Administrators Association) revealed the findings of a year-long examination that scrutinized 110 securities firms and branch offices that sponsor so-called “free-lunch seminars”.

They found that: 100% of the “seminars” were actually sales presentations; 59% reflected weak supervisory practices by firms; 50% featured exaggerated or misleading advertising claims; 23% involved possibly unsuitable recommendations; and, 13% appeared to be fraudulent and have been referred to the most appropriate regulator for possible enforcement or disciplinary action.

Examiners found indications of possible fraudulent practices in 14 cases that involved apparent serious misrepresentations of risk and return, possible liquidation of accounts without the customer’s knowledge or consent, and possible sales of fictitious investments.

“These findings are a wake-up call for securities regulators, the financial services industry and especially older investors,” said SEC chairman Christopher Cox. “Not only were virtually all of the ‘free lunch’ seminars sales jobs in disguise, but half made misleading or exaggerated claims, and more than a third had unsuitable recommendations or outright fraud.”

The report’s recommendations include: that financial services firms review their supervisory practices and supervise sales seminars more closely, and redouble their efforts to ensure that the investment recommendations they make to seniors are suitable; it also recommends that ongoing investor education efforts for seniors should provide education with respect to “free lunch” sales seminars.

Cox pledged that the SEC and its fellow regulators intend to put a stop to these sorts of frauds. “We will step in whenever false claims are being made. We will sanction crooks who try to feast on the life savings of older investors. And we will work with every honest securities firm to help them do more to ensure that their interactions with older investors fully comply with the securities laws. I applaud the securities examiners whose collective work has clearly shown that there’s no such thing as a free lunch,” he added.

Research by the FINRA Investor Education Foundation found that 78% of seniors received a free lunch seminar invitation and 60% received six or more invitations in the past three years.

FINRA CEO Mary Schapiro said: “With almost 8 out of 10 seniors being targeted with these tactics, the findings underscore a true need for increased educational and enforcement efforts. I’m concerned that as the population grows older, these strong-arm tactics will only grow more sophisticated. We need to send a clear message right now that high pressure sales activity is simply unacceptable. No one has the right to prey on susceptible investors.”

Home | Previous Page

"Free Lunch" Investment Seminar Examinations Uncover Widespread Problems, Perils for Older Investors

Washington, D.C., Sept. 10, 2007 - During a Seniors Summit held today at the Securities and Exchange Commission, securities regulators released a joint report summarizing the results of their examinations of "free lunch" investment seminars.

The year-long examination was conducted by the SEC, the Financial Industry Regulatory Authority (FINRA) and state securities regulators (members of NASAA, the North American Securities Administrators Association). The regulators scrutinized 110 securities firms and branch offices that sponsor sales seminars and offer a free lunch to entice attendees.

The report's key findings include:

100% of the "seminars" were instead sales presentations.
While many sales seminars were advertised as "educational," "workshops," and "nothing will be sold," they were intended to result in the attendees' opening new accounts and, ultimately, in the sales of investment products, if not at the seminar itself, then in follow-up contacts with the attendees.

59% reflected weak supervisory practices by firms.
While some exams found effective supervisory practices, many examinations found indications that firms had poorly supervised these sales seminars, including failure to review seminar presentations or materials as required.

50% featured exaggerated or misleading advertising claims.
Examples included "Immediately add $100,000 to your net worth," "How to receive a 13.3% return," and "How $100K can pay 1 Million Dollars to Your Heirs."

23% involved possibly unsuitable recommendations.
In 25 of the 110 examinations, examiners found indications that unsuitable recommendations were made, for example, a risky investment recommended to an investor with a "conservative" investment objective, or an illiquid investment recommended to an investor with a short-term need for cash.

13% appeared to be fraudulent and have been referred to the most appropriate regulator for possible enforcement or disciplinary action.
Examiners found indications of possible fraudulent practices in 14 examinations that involved apparent serious misrepresentations of risk and return, possible liquidation of accounts without the customer's knowledge or consent, and possible sales of fictitious investments.

SEC Chairman Christopher Cox said, "These findings are a wake-up call for securities regulators, the financial services industry and especially older investors. Not only were virtually all of the 'free lunch' seminars sales jobs in disguise, but half made misleading or exaggerated claims, and more than a third had unsuitable recommendations or outright fraud. The SEC and our fellow regulators intend to put a stop to this. We will step in whenever false claims are being made. We will sanction crooks who try to feast on the life savings of older investors. And we will work with every honest securities firm to help them do more to ensure that their interactions with older investors fully comply with the securities laws. I applaud the securities examiners whose collective work has clearly shown that there's no such thing as a free lunch."

NASAA President Joseph Borg said, "Our examinations prove the point — there's no such thing as a free lunch. Seniors seeking investor education and advice at a seminar should not be subject to misrepresentations, high-pressure sales tactics and outright fraud. The entire community of state securities regulators will continue our active pursuit of criminals who cheat seniors out of their hard-earned retirement savings."

Free lunch sales seminars are routinely targeted at senior citizens and are commonly held at upscale hotels, restaurants, retirement communities and golf courses. FINRA Investor Education Foundation research has found that 78 percent of seniors received a free lunch seminar invitation and 60 percent received six or more invitations in the past three years.

FINRA CEO Mary Schapiro said, "With almost 8 out of 10 seniors being targeted with these tactics, the findings underscore a true need for increased educational and enforcement efforts. I'm concerned that as the population grows older, these strong-arm tactics will only grow more sophisticated. We need to send a clear message right now that high pressure sales activity is simply unacceptable. No one has the right to prey on susceptible investors."

Free lunch seminars often have names like "Seniors Financial Survival Seminar" or "Senior Financial Safety Workshop," and offer "free" advice by "experts" on how to attain a secure retirement, or offer financial planning or inheritance advice. The advertisements often imply that there is an urgency to attend: "limited seating available" or "call now to reserve a seat."

The examinations were conducted between April 2006 and June 2007 in areas of the country that have large populations of retirees: Florida, California, Texas, Arizona, North Carolina, Alabama and South Carolina.

The report's recommendations include:

The report recommends that financial services firms review their supervisory practices and take steps to supervise sales seminars more closely, and redouble their efforts to ensure that the investment recommendations they make to seniors are suitable in light of the particular customer's investment objectives. The report also includes a list of supervisory practices that appeared to be effective.

The report also recommends that ongoing investor education efforts for seniors should provide education with respect to "free lunch" sales seminars. Specifically, senior investors should understand that these are sales seminars that result in the sales of financial products, and they may be sponsored by an undisclosed company with a financial interest in product sales.
The examination report and other materials related to the SEC's Seniors Summit are available at: ... diakit.htm.

Additional materials:

Video of Chairman's Opening Remarks at Seniors Summit:
Windows Media Player
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