Solutions, Self Defense and Best Practices

[admin]

Here is a great solution that was suggested to me the other day by police and industry experts. ( I truly mean experts)

They suggest that the reporting and intake of white collar crime and fraud simply be done to each local police force, with a few responsible people in each force given proper training and ability to funnel these complaints upwards to the right national investor protection agency, police force, or government agent.

This puts the complaint into the record, in the hands of a police agency which is independant of any industry, regulator, or self regulator. It allows the victim to walk in the front door of the police, and recieve assurance that a report will be taken and action occur.

This is a step towards what might be called "best practices" in financial investigation.

Compare this process with what we have now:

A client has a complaint.
They go to their broker who brushes them off. (no process followed)
If they have the strength and patience they then,
Got to the manager who listens politely and tries to brush them off.
If they have the strength and patience they then,
Go to the head office who gives them a polite brush off in writing.
If they have the strength and patience they then,
get handed over to the compliance department (thinking compliance is objective) and compliance's role at this point is to protect the firm
If they have the strength and patience they then,
Go to the provincial securities commission (in charge of the law)
The securities commission shows them the back door and sends them to the self regulatory agency which has no authority to enforce the law
The self regulatory agency will do everything in it's power to protect it's industry members, and so another brush off is given
If they have the strength and patience they then,
Write to an MLA or member of parliament to tell them the system is broken
The MLA or MP sends them a polite thank you and copies it to the finance minister who is in charge (in the provinces) of the securities commission (the circle is complete)
The securities commission then send a polite letter back to the client and the MP or MLA telling them that all has been looked into and that the rules and regulations have been followed to a tee.
No further investigation. Client driven in a complete, dysfunctional, incestuous circle with no investigation usually performed at any level.
WHY
All of the industry parties in this circle have a connection, a loyalty, a job, a conflict, or something political owed to each other, and thus the entire process is smothered in conflicts of interest.
If they have the strength and patience they then,
Talk to Banking ombudsman, IDA arbitration or whatever else the industry has set up to favor itself and further place hurdles in front of a client from obtaining justice.
If they have the strength and patience they then,
Talk to a lawyer about civil action, which starts at about $50,000 to begin, will take five to ten years out of the client's life, and probably ruin their last best years, while fighting a large corporation that has enough power and money to hire ten lawyers for every one you can afford.
If they have the strength and patience they then,
give up, knowing the system is indeed broken, or worse, designed to fail the client in this manner, while maintaining the pretense of serving the client.

This is called worst practices, and it is the system of self policing that Canada has today.

A retailer can and will refund your money for buying a faulty toaster.
A manufacturer can be forced to recall and refund money for a faulty or tainted product.
Sellers and manufacturers of money and investment products are the only folks I can think of who can knowingly get away with selling tainted investment products, and once you bought them, you own them. No refund. No recourse. No law applies.

[admin]

proposed fraud, crime, white collar offense reporting and intake system

What if, instead of reporting white collar crime, directly to those who are often paid, or previously paid, or hope to be paid by the investment or financial industry........................

What if crime were instead reported to police agencies, who would be given the training, the resources and the authority to undertake looking into these crimes.

So instead of reporting crime in the henhouse to the foxes, it goes to a credible police agancy, not bought and paid for by the foxes.

This is what those in the know, are talking about. Stay tuned and get yourself well informed. If you are not aware of what is going on in this area, then you are also not aware that you are being victimized by it each and every day in Canada.

Remember, fraud is "secret theft" where something is taken from you, and you remain happy and content, because you do not even know that something has been taken from you.

Isn't it time that we allowed real policemen to investigate this kind of thing, rather than allow the fraud artists themselves (not all salesmen of financial services are fraud artists, but all financial services fraud artists fall inside the protection of this "self regulated, self policing" industry.

[admin]

research tells me that a GRAND JURY system, if implimented in Canada would go a long way towards opening up the "blockage" that prevents prosecution of white collar fraud in Canada.

I am not certain that the blockage is intentional, but when one looks at the track record of having the smartest, richest and oft times, most pathalogically deficient individuals be allowed to police themselves AND manage trillions of dollars of investments............well, it makes one wonder if it is intentional or not.

The "established" individuals are asking for a system of crime reporting that stays pretty much the same as we have now. Whereby financial fraud is reported to the RCMP IMET or similar, which would be saved by being overseen by a board of "established" people.

This would be akin to having the same "see no evil" people, looking over a police organization, restricting what it is they are able to do. At last count the RCMP was quoted as having "eight cases, a full case load, and could not take on any investigations". I am not making that up.

The RCMP, if it is to be returned to credibility, has to be removed from the investment industry, political influence etc.

Next post talks about the new proposed "crime reporting input system" that is being dreamt of and talked about within the circles who advocate "best practices", and not "best coverups".

[admin]

thanks Jim

great idea.
two thoughts to pass by the drafter:
It would be great if the letter would require the firm to confirm to the client if the salesperson is acting as a "salesperson" or acting in the role of an "advisor". (this may be one and the same as below, but it would be useful in disputes to have it spelled out in these simple terms as well)

I might also add in somewhere that the letter should ask the firm to clarify,explain, or illustrate any differences they perceive in the definitions of:

1. "duty of care"
and
2. "fiduciary duty"

I find that there are at least a thousand different version of those two used, and they mean something different to each and every use. It is those "technicalities" that allow firms to weasel out of their obligations to clients when push comes to shove.

keep up the good work and thanks much

larry
----- Original Message -----
From: "Jim MacDonald" <jamesmacdonald@rogers.com>
To: "Larry Elford" <lelford@shaw.ca>
Cc: "Stan Buell" <stanbuell@rogers.com>; "Robert Kyle" <robertkyle@rogers.com>; "Pamela Reeve" <pj.reeve@utoronto.ca>
Sent: Friday, December 28, 2007 9:50 AM
Subject: Breach of Trust


> Just saw the latest video update on your website.. Re your proposed letter to the broker, I have spoken to Dan Solin about this. That is what he recommends in his book.
>
> www.dansolin.com
>
> We need to get a Canadian lawyer to draft the equivalent which you could post on your site.
>
> Dan's letter simply asks for the brokerage firm to confirm in writing:
>
> -that the firm (and advisor) will always be acting in the best interests of the client;
> -that there is a fiduciary relationship as defined in law;
> -that the firm will always provide full disclosure of any and all risks and conflicts.
>
> Rather than ask people to write a letter, it would be much easier if we could get a "canned" "lawyer approved" letter.
>
> Then when the brokerage firms receive these letters, it will be interesting to see how they squirm and likely refuse to sign them.
>
> By copy of this email to Stan, I would ask that you ask the five legal advisors to SIPA to create such a letter and that it be posted on your website and made available to Larry and others to post on their respective websites.
>
> Jim.
> Best wishes.
> Jim MacDonald MBA

[admin]

Kenmar Associates Nov. 12, 2007
2010 Islington Ave. Suite 2602
Etobicoke ON, M9P3S8


TO:
Leslie Pearson
Legal and Policy Counsel, Regulatory Policy
Investment Dealers Association of Canada
416.943.5878
lpearson@ida.ca

Manager of Market Regulation,
Ontario Securities Commission,
20 Queen Street West, 19th Floor, Box 55,
Toronto, Ontario, M5H 3S8.
dwilson@osc.gov.on.ca


Subject: Comments on IDA proposed changes to complaint handling process
IDA Amendments to Complaint Handling Requirements -- Client Complaint Handling Rule and Guidance Note and Amendments to By-laws 19 and 37 and Policy No. 2

Kenmar is delighted that the IDA has taken some initial steps to reform the complaint handling process in the brokerage industry. We are pleased to respond and offer suggestions that are based on real world experiences.

Kenmar is focused on investor education and protection. As such, fair-dealing issues, complaint systems and restitution are our priorities. We maintain www.canadianfundwatch.com for the benefit of retail investors. Twice monthly we distribute our eNews letter the Fund OBSERVER to over 4000 individuals, regulators and financial services industry participants in 5 countries.

INTRODUCTION
While at the S.E.C. in 1939, Mr. Louis Loss argued a case before the United States Court of Appeals for the Second Circuit that established what became known as the ''shingle theory” holding that a brokerage firm [e.g. an IDA member firm], when it puts up its shingle to do business, implicitly promises that it will deal fairly, honestly and promptly with its customers and can be sanctioned if it fails to do so. This is further reinforced by your rules that define a client as someone who has opened a trading account with a member firm and your definition of a actionable complaint; one that includes, but is not limited to: misrepresentation, churning, allegations of theft, fraud, misappropriation of funds or securities, excessive fees, forgery, unsuitable investments, or unauthorized trading involving the client's account(s). We define a complaint as any expression of dissatisfaction, whether oral or written, and whether justified or not, from or on behalf of an eligible financial consumer about provision of, or failure to provide, a financial service. These proposals suggest that the IDA is now taking the complaint process more seriously.

Needles to say, complaint handling is at the top of the priority list for investors .The CSA has recently reported that over a million Canadians are exposed to wrongdoing/fraud. Financial assault has terrible consequences for victims, especially seniors. We find the suggested changes a step in the right direction. We especially are positive about the restrictive time limits on acknowledgements and complaint closure times and faster access to OBSI. As the OSC IAC has spent considerable time on this issue we strongly recommend consultation with them before finalizing any changes. Ditto for SIPA www.sipa.ca.

RECOMMENDATIONS
Some specific points we wish to make:

1. We would like to see the industry adopt ISO 10002 as the standard
2. We believe finding wrongdoers on the IDA website archives should be made easier and more user-friendly to search
3. We would like to see a bi-audit of compliance with the revised Rule.
4. A review of the recent Navigator assessment of OBSI clearly indicates that they should be increasing the scope of their operations even suggesting that should address systemic issues. In order to identify oneself as an Ombudsman, OBSI must fulfill the prime requisite of accessibility -we see no evidence of this behavior in your case. OBSI holds a unique, important and privileged position in Canada and we expect that effective governance would require it err on the side of the financial consumer in a case where there is any doubt as to access. We would like confirmation that the IDA (its member firms) as a sponsor and financer of OBSI will require prompt adoption of the 24 improvements recommended by Navigator. We view OBSI as an integral part of an integrated complaint process.
5. We believe better enforcement of client signatures on NAAF’s is required as this often forms the basis for complaint decisions and restitution recommendations. KYC’s should as a matter of Rule be provided to clients.
6. We recommend an industry-standard NAAF that is client- friendly and compliant with plain language principles. There will be less complaints if the relationship starts off on the right foot.
7. email should be an accepted form of communication with client consent
8. We would ask that the IDA publicly disclose in its Annual reports the amount of fines actually collected and the reasons for non-collection. We believe this would highlight the point that the current fining and sanctioning process does not modify behavior in the same way that fining firms instead would.
9. Policy language, definitions and timelines should be harmonized with the MFDA proposals
10. We recommend that the special needs of seniors, the handicapped and immigrants be a consideration in the Rule.

We certainly agree that Confidentiality restrictions, if any, in a settlement agreement must not restrict a client from initiating a complaint or continuing with any pending complaint in progress or participating in any further proceedings. We of course continue to be skeptical and highly critical of Confidentiality Agreements in general because they leave countless other investors exposed to similar wrongdoing. We would recommend some positive language confirming that the IDA will as a matter of routine, turn over complaint cases to law enforcement as appropriate and statistically summarize this activity in its Annual Report.
The proposed rule requires that a Member firm appoint a Designated Complaints Officer (DCO) with the knowledge, experience, and authority to manage the complaint handling process and to act as a liaison with the IDA. The DCO should be someone trained in dispute resolution. While Member firms may choose to name the Chief Compliance Officer or an individual acting in a supervisory capacity over the complaints process for the DCO position, specific training should be mandatory .We would also suggest that the DCO be the process owner for the entire dispute resolution system including IT and privacy related issues. Without clear accountability the process will break down. We add parenthetically that a more positive label might be DRO-Designated Resolution Officer. The role, if any, of corporate Ombudsman should be clarified.
We’re not at all sure that there will be additional costs associated with Members handing/sending out the IDA approved complaint handling process brochure at time of account opening, complaint acknowledgement and substantive response. They already must, but too often do not, hand out the OBSI brochure when required. Such processes are fundamental to being in the business. We strongly believe that the benefits associated with greater client awareness of the complaint handling process are significantly greater than these additional costs, if indeed there are any.
OTHER FACTORS
A number of financial advisers are licensed to sell stocks, bonds, segregated funds and mutual funds. When a complaint arises it is important for clients to have a single point of complaint .We therefore suggest that clients, at their option, could request that the IDA [or the MFDA] be the central point of filing for regulatory issues and that OBSI be mandated to do the same for restitution issues. This is consistent with the principle that the investments are part of an integrated portfolio and such issues as suitability can only be determined by a holistic approach.
We note that one of the objectives is to promote the protection of investors, just and equitable principles of trade and high standards of operations, business conduct and ethics. We would prefer this was rephrased to include best practices and the highest ethical standards to reflect the fiduciary obligations of firms and the role of the IDA as an authorized SRO. We note that the IDA as an entity has positioned itself as owing no Duty of Care to individual investors.


As to the complaints brochure, we ask that it be clear, actually delivered and written in plain language with clear warnings about limitation time periods and the limits of a complaint to the IDA as regards restitution. In no event should a complaint to the IDA be a reason for OBSI not taking on a case or opening a file.

SUMMATION
In order to prevent complaints we recommend that firms acquire compliance software that could detect small problems before they become big ones. This could be added as an IDA Rule.

Finally, we ask that the IDA itself accept a framework for its handling of investor complaints. This could be ISO 10003, modified NASD or some other recognized standard. Perhaps a firm like Navigator could be contracted to establish a benchmark.

We presume that all responses to this proposal will be publicly posted for review and assessment and that the review process will be transparent. .

Should you have any questions please do not hesitate to call us.

Sincerely,

Ken Kivenko P.Eng
President, Kenmar Associates

[admin]

This is what we need to work on: the equivalent of the Canadian Food Inspection Agency or Health Canada Protection Branch. Can any of us actually imagine anyone in the current regulatory system issuing an edict like the one below? This can only be accomplished if there is an agency that has a single mandate to protect the financial health of Canadians.


Recall issued for shrimp sold in M&M Meat Shops across the country
Sat Nov 3, 11:48 AM
By The Canadian Press
OTTAWA - Shrimp products sold nationally at M & M Meat Shops are being recalled because of possible drug contamination.
The Canadian Food Inspection Agency and the Port Dover, Ont.-based manufacturer are warning the public not to consume breaded shrimp and coconut shrimp products in 400 gram packages because they may be contaminated with nitrofurans.
Those are drugs banned for use in Canada in food producing animals.
The agency says consuming foods contaminated with them could pose a health risk related to the drug's toxicity.
There have been no reported illnesses associated with the products thus far.
The manufacturer, Henry H. Misner Ltd., is voluntarily recalling the affected products from the marketplace.


James MacDonald MBA

(advocate comment, Jim is right on the money with this solution. Without an agency with the power and the mandate to protect Canadians, and only to protect Canadians, we will never have an investment climate that is not biased toward investment dealers)

[admin]

Re: National Securities INVESTIGATOR

We fully support Dr. Rosen when he states that some regulators denying their responsibilities is "good prompting for the federal government to finally relieve the provinces of their responsibilities for prosecuting securities , and set up a new national securities investigator to handle the task."

Appended copy of his article and our letter to the Editor of the National Post, which was also copied to the Minister of Finance and the Minister of State for Seniors.

If you agree, please feel free to voice your support to both Ministers.

Thanks for your support.

Stan Buell, President
Small Investor Protection Association
P.O.Box 325, Markham, ON, L3P 3J8
website: www.sipa.ca
e-mail: stanbuell@rogers.com
tel: 905-471-2911

Fighting for Justice

Dear Editor National Post
Re: "We need a national securities regulator" by Al Rosen - published October 10, 2007
Dr. Rosen is absolutely right when he says we need a NATIONAL SECURITIES INVESTIGATOR to replace the
provincial regulators.
For years small investors have had their savings stolen by an investment industry run rampant while the provincial
regulators have failed to protect investors.
Masive frauds like Bre-X, corporate skulduggery like Livent & Nortel, skimming with mutual funds, scamming investors
with business income trusts and principal protected notes, widespread forgery of documents to mislead regulators, all
have resulted in small investors being abused and losing their savings intended for retirement security.
Now the Asset Backed Commercial Paper fiasco has exposed that even sophisticated investors are subject to risks
beyond normal market risk because regulators provide exemptions and allow unregulated investment products to be sold.
Small investors do not have the benefit of action like the "Montreal Proposal" to mitigate their risk of loss but must rely
upon our legal system to attempt to get justice.
However when the Ontario Bar Association states publicly that "the civil system is not designed to provide justice" it
becomes tragically apparent that not only small but also large investors face an investment environment in Canada that
truly is Caveat Emptor.
We fully support Dr. Rosen when he states that some regulators denying their responsibilities is "good prompting for
the federal government to finally relieve the provinces of their responsibilities for prosecuting securities , and set
up a new national securities investigator to handle the task."
We urge Minister Flaherty to take action to revise Canada's failed regulatory system and implement a national securities
investigator as proposed by Dr. Rosen.
Yours truly
Stan Buell, President
Small Investor Protection Association
P.O.Box 325, Markham, ON, L3P 3J8
website: www.sipa.ca
e-mail: stanbuell@rogers.com
tel: 905-471-2911
Fighting for Justice

[admin]

http://www.fundlibrary.com/features/col ... p?id=12276




The Investor Advocate
Ken Kivenko’s column is all about investor protection. Ken fights for investors’ rights and exposes violations and malpractices. He also runs an advisory business, Portfolio Analytics, assisting investors obtain restitution due to sales or broker abuses.




It's the client, stupid


By Ken Kivenko | Wednesday, October 10, 2007

Ideas for improving client focus in the investment fund industry.
“Mutual Fund Companies have forgotten who their client is. They’re focused on servicing financial planners who sell the funds rather than the investors who buy them. And that may prove life-threatening, because the very people who would be buying mutual funds are questioning whether they want to buy them at all anymore”

—Glorianne Stromberg [ Steve Maich, “Mutual Misery”, Maclean’s, Feb. 7, 2005 ]

An October, 1998 study by former OSC Commissioner Glorianne Stromberg Investment funds in Canada and Consumer Protection: Strategies for the Millennium examined the requirements — it wasn’t a pretty picture. She made a significant number of constructive recommendations to enhance consumerism about retail fund investors. It is available from the Industry Canada Web site http://strategis.ic.gc.ca/pics/ca/mainbody.pdf Sadly, nearly 10 years later little progress has been made.

A September, 2004 joint CARP-SIPA Report, GIVING SMALL INVESTORS A FAIR CHANCE: Reforming the Mutual Fund Industry http://sipa.ca/library/Documents/CARP_S ... 4Sep28.pdf urged for a number of major reforms to better serve and protect mutual fund investors. To date little has changed. A 2006 research paper led by Harvard Professor Peter Tufano, Mutual Fund Fees around the World found Canada to have the highest fees in the world, a strong indicator that all is not well. http://papers.ssrn.com/sol3/papers.cfm? ... _id=901023)

Can it be shown that the typical Canadian mutual fund investor is not getting a fair deal from the mutual fund industry? Professor Keith Ambachtsheer did so recently in the article Losing Ground: Do Canadian Mutual Funds Produce Fair Value For Their Customers? (with Rob Bauer, Canadian Investment Review, Spring 2007) http://www.investmentreview.com/archive ... ground.pdf

His CONCLUSION:

“The preceding financial analyses suggest that the vast majority of the 60% of the Canadian workforce who are not members of occupational pension plans will have a very difficult time generating adequate pensions by investing their retirement savings through the mutual fund sector. This is so despite the very high 20%-of-pay savings rate assumed in the example. The sales/investment expenses wedge being imposed by Canada ’s for-profit financial services industry is simply too large”.

Obviously, a retail highly regulated mutual fund will have higher expenses but now the gap in fees is so large that the entire Canadian investment fund sector’s value proposition is out of whack. Now, that is a national issue that should and could attract political attention. Maybe even open the doors to lower cost U.S. funds for Canadians?

An October 2007 Canadian Securities Administrators (CSA) Investor Study: Understanding the Social Impact of Investment Fraud http://www.osc.gov.on.ca/About/CSA/csa_ ... y-full.pdf finds that investment fraud often results in a loss of trust between victims and those close to them, as well as a loss of confidence in the system as a whole. The CSA study shows one in 20 Canadians is a victim of investment fraud. A majority of 54% also agree that “As a result of the way authorities handled the case after I reported the investment fraud, I just don’t trust the way investments are run and regulated in this country.” Sounds like the industry IFIC has some work to do. The CSA study respondents likely didn’t even consider excessive fees, unsuitable investments, fund scandals and conflicted adviser advice as wrongdoing, let alone fraud.

The media and investor advocates have highlighted high fees, poor disclosure, adviser malfeasance, market timing scandals, soft dollars, the lack of an industry-wide NAAF/KYC form and of course the Norbourg fund governance breakdown and multiple fundamental issues surrounding the Portus fund collapse.

So there’s plenty of evidence that investment fund industry reforms are required. Here’s a few thoughts for the industry that we think are constructive and do-able:

Focus on the customer

Fund buyers are investors and customers. In every successful industry, customer satisfaction is at the core. Satisfying an investor requires knowledge of their personal situation, investment behaviour and goals. A much better job can be done here. Many issues and problems can be prevented. Unsuitable investments are the #1 cause of investor dissatisfaction.

Does the KYC (and NAAF) form need a revision, clearer terminology and industry standardization?

Are registrants required to have clients sign a completed KYC?

Are registrants required to provide clients with a copy of the KYC?

Do SRO’s check to see if KYC’s are properly completed and signed by clients?

This is a wonderful opportunity for the industry to move to the next level of maturity.

Move forward on fund governance

The thorny issue of fairly valuing securities was at the root of the infamous market timing scandal. It was also at the core of the Crocus LSIF fiasco. Between the Manitoba Securities Commission and the Auditor General of Manitoba, they allege that the Valuation Committee (a subset of Crocus Fund’s board of directors) did not meet for months while there were concerns voiced of deteriorating values. Investors paid heavily for this lapse of governance. Fund governance, a hot topic for years, remains limited to IRC’s with severe limitations on their mandate. In fact, IRC’s now have the power to legitimize prohibited transactions defined in securities regulations, an awesome responsibility. The industry lobby has “successfully” stalled every regulatory attempt at adopting a true fund governance regime. Nothing to be proud of — it’s time for a change of direction.

Reduce fund fees

The Canadian fund industry should take no pride at being identified as the most expensive fund provider in the world (the Tufano et al study). Take a closer look at fund fees and expenses and the underlying productivity issues that drive them. Canadian fees need trimming — not just for investors sake but because competitive ETFs are a calling. Are related-party services really hard-nosed competitive? Why not make F-class (or equivalent) funds available to investors without having to go through an advisor or charge lower fees for those who buy funds electronically, like TD’s eFunds? After all, we’ve been told that asset allocation is more important than the individual funds in the portfolio, so fees really do count. How about some disclosed price breakpoints if a larger sum is invested? A little innovation here could yield big results for fund buyers and sellers.

Take the mystery out of mutual fund fees

It’s time to move away from the outdated Out of sight, Out of mind approach to sales with opaque disclosure of fees. Pricing information is available for funds, but not in the same transparent way it is when you buy everything from a can of soup to a toothbrush, gardening equipment and an automobile. Investors need mutual funds to be sold with an easy-to-read price tag stuck to them and facts stated in plain language. Support the Joint Forum’s initiative to improve Point of Sale Disclosure http://www.jointforum.ca/JF-WWWSite/consultation.htm. Stick the price of owning funds in big, bold numbers on the front of the Fund Facts POS document along with some language that suggests it’s really important that investors read the Document. Support regulators in preparing an unbiased Guide to Fund Facts use for investors. Why not provide a Statement of Portfolio Transactions if investors request it? [transaction visibility and associated fees can be useful to an investor or adviser who wants to examine the managers behaviour and style]. And, let’s treat segregated funds like mutual funds at least for fee disclosure, compliance and governance purposes.

NOTE: The 2007 IFIC Investor survey found that:

only 54% of investors were made aware of adviser compensation when buying a fund.
only 54 % of respondents were confident or very confident that mutual funds meet their financial goals.
Download survey at: https://portal.ificmembers.ca/Desktop/E ... SFID=14590
Clarify and simplify share classes

Retail mutual funds are now available with a dizzying array of pricing models. In many cases, a single fund might offer 4 or 5 share classes, and the main difference among them is the cost. If the wrong fund class is selected, an investor could pay more than necessary. It wasn’t always this way. In the 1980s there were only two kinds of retail mutual fund shares: load and no-load. Load funds levied a sales charge (SC), or commission, when you bought units; no-loads did not. Naturally, investors didn’t like to pay loads. But instead of eliminating them, the industry made the loads less obvious. The first tactic was to create a reverse-load fund — investors paid the load when they sold their units instead of when they bought them. To distinguish these units from the original load funds, the back-load funds were called DSC units.

Today, fund investors must choose among Class SC, DSC, F, Low Load and Level Load and maybe a few variants in between. Depending on the fund class purchased, investors might incur a load when they buy, when they sell or annually. The load might disappear after a time, or it might remain forever. In some cases, there might be a lower load, but higher annual expenses, or vice versa. And in some instances, an investor might buy one fund class only to have his units automatically converted to another share class in the future!

Advisors need to spend more time with investors in assessing their personal situation. This involves consideration of the amount initially invested; the amount planned to be invested in the future; the timing of those additional investments; how long the investor plans to leave the money invested; annual withdrawal amounts; and how much other family members are also investing (both now and in the future). Advisors should assist in choosing the right fund class and the right fund appropriate for each situation. Too often we see elderly or critically ill folks stuck with expensive DSC funds, DSC funds in RRIF’s or a failure to reveal available options. Easy to fix — just comply with NAAF/KYC criteria and suitability. That would be professional.

Cost-benefit the advice being given — are investors really benefiting from the advice provided?

The investment fund industrypays billions of dollars each year to compensate advisers and planners for their sales efforts and advice they provide small retail investors. The management fee charged to investors via the MER provides the source of funds. These vulnerable investors are heavily dependent on this advice for their financial well-being.

But does this expenditure result in improved financial performance for the investor or increased commissions for the advisers?

Do firms periodically poll investors for satisfaction? Are they aware of complaints?

Do they check if advisers have the necessary professional qualifications and competencies?

Is there evidence that client statements provide basic personal rates of return, the most basic performance indicator?

Are seniors being treated right? Are funds being recommended really suitable?

Are commercially available software tools being used to assess compliance?

You’d think the industry would have a firm handle on the answers to these questions before mailing out all those commission cheques.

Bottom line: Do trailer and other commissions cost-effectively help investors make better decisions?

Litmus TEST: Do fund companies mandate the use of IPS’s and other professional advisory tools?

If the answer is NO, then why not?
According to the 2007 CSA Investor 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.
Sounds like an industry-wide checkup is called for.
Monitor investment “educational seminars ” for seniors

Seniors were raised at a time when it was believed a person’s word was their bond .The most frail and lonely seniors are often open to anyone who will chat with them. They are vulnerable because of that loneliness and advisers know it — they become a senior’s new best friend. There are simply too many horror stories of the elderly being exploited by financial advisers. U.S. securities regulators are rightfully concerned with investment “seminars” targeting seniors, according to a report released Sept. 10th. During the second annual Seniors Summit held Sept. 10 at the U.S. Securities and Exchange Commission in Washington, D.C., the SEC 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” http://www.sec.gov/spotlight/seniors/fr ... report.pdf.

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.
Source: SEC Report, Sept. 10, 2007 [46 pages]

Is Canada any different? We think not. Treatment of the elderly, pensioners and retirees is not just a financial issue, it’s a social issue and our trusted wealth management industry should be at the forefront of the demographic change that’s underway.
Manage Leveraging — it’s a conflict-of-interest for advisors

Offering an investment loan to help finance a client’s mutual fund purchases might seem like a good idea, but offering a retail investor an investment loan can be a conflict-of-interest. The more money advisors put into products, the more they make on sales/trailer commissions. Rarely do mutual fund investors clamor to take on more debt — mutual funds are sold, not bought. Companies offering investment loans through advisors report a strong rise in these things being sold. That’s a clear indication that the clients aren’t questioning this; it’s the advisors recommending it. Leveraging may be appropriate for some but for seniors, retirees and the risk-averse all that happens is that the risk of the mutual fund is magnified by the risks of leveraging. How often do we hear cases where widows are advised to leverage their investments for greater income. When the investment loses money, margin is called, draining the life out of irreplaceable nest eggs. The industry recognizes that these loans are advisor-sold so they should manage conflicts-of-interest, not turn a blind eye or worse, incentivize unsuitable transactions.

Help investors tame currency risk

Today nearly every fund has some currency risk, some a lot more than others. Currency risk isn’t a minor risk yet the industry is cavalier about it. The Loonie has appreciated in value over 60% over the last six or so years, with exchange rate moving from US$0.62/CAD to parity. Portfolios are often constructed without careful consideration of currency movements. Individual funds are pretty lousy at disclosing their approach to currency hedging. It doesn’t have to be this way. Why not disclose the approach in the prospectus and updates in the MRFP? Then, investors could decide how much risk they want to take instead of flying blind. Barclay’s Canadian international ETF’s are in fact hedged and this is fully disclosed. And dealers should allow foreign currencies in registered plans — the CRA does — instead of unnecessarily extracting fees for currency conversions. Fix information systems to allow this rather than issue new disclosures that you say you won’t.

Don’t oversell Wrap accounts

Wraps are growing like a wildfire. The question is... why? Wrap programs are generally not integrated with non-investment assets such as pension assets, business interests, Company stock options and other income sources and they have difficulty incorporating external assets, such as individual GIC’s/bonds, that are not in the wrap program.

Wraps for the most part are more expensive to own than mutual funds — typically the management expense ratios reflects a premium above the weighted average MER of the underlying funds: 2.4 % vs. 2.01 % for a stand-alone fund portfolio according to an Investor Economics study. Reputable advisers should be developing Investment Policy Statements (IPS’s) and assisting with rebalancing and tax optimization as part of their regular job independent of a wrap (mutual fund fees already provide commissions to provide sound advice). Unless investors are receiving much broader quality advice, wraps just don’t deserve to have grown the way they have. Professional advisers and do-it-yourself investors can readily create portfolios that cost much less to own than wraps and deliver risk-adjusted returns that are at least as s good. The most successful wrap products of recent years are those that don’t charge a fee premium. That’s a positive development. The answer to our question appears to be -- higher sales commissions and management fees. Not a good answer for an industry striving to obtain trust, respect and professionalism.

Dramatically improve dispute resolution

It’s time to part ways with the 3 D’s — the Deny, Delay, Defend approach to complaint handling. This causes undue investor frustration, anger and stress. Investor advocates argue that the true values of a firm are revealed when there is a dispute not when they advertise to attract investors. Develop robust processes for timely, fair resolution of investor complaints. Provide some oversight controls and measure results. Dispute resolution is among the top 3 priorities for retail investors. Just look at the results of the 2005 OSC Investor Town Hall. http://www.osc.gov.on.ca/Investor/Forum ... report.pdf

Investors made it clear they are having terrible troubles navigating the convoluted complaint process and receiving restitution. There’s been no discernable improvement in over 2 years. Why? In at least one big case, the industry is attracting national negative attention by the action of one fund dealer. And why does OBSI have to keep mentioning that dealers are not routinely advising investors of OBSI’s free resolution service when the firm’s stifling complaint process has been exhausted? This year marked the first time a fund dealer was publicly chastised by OBSI for not agreeing to its settlement recommendations. To some, it appears things are getting worse. The 2007 IFIC Investor Survey all about ignored complaint handling — it spent most of its time trying to find arguments to derail new proposed POS regulations that attempt to better communicate important fund facts. It also ignored seniors’ issues entirely. Where’s the leadership?

Vote proxy shares with integrity and thought

Like the U.S., mutual funds in Canada overwhelmingly support corporations’ positions and oppose shareholder resolutions on annual shareholder proxy votes, a new study has concluded. A report A Survey of Canadian Mutual Funds on Proxy Voting: issued Sept.18 by the Toronto-based Social Investment Organization, a trade association for socially responsible investment funds, found mutual funds voted a whopping 67 % against shareholder resolutions in 2006. Socially responsible funds were most likely to support shareholder resolutions, with 79 % voting for the proposals, compared with 31 % support from conventional funds. Three fund companies voted with management on every single issue. The 36-page report is the first broad study of mutual fund voting since the CSA introduced mandatory rules [per NI81-106] requiring mutual funds to disclose their annual proxy votes and it’s not encouraging. Source: http://www.socialinvestment.ca/document ... Voting.pdf. Is this “people’s capitalism” in action? Pay more attention to your voting, those shares are powerful instruments of shareholder rights and positive change.

Conclusion

We could go on, mentioning such bad habits as unsupported and misleading claims, fund churning, failing to provide meaningful client statements or treating income tax and after-tax reporting of returns as some sort of unreasonable activity. Paying trailers to discount brokers is a nasty waste of fund assets. Inadequate adviser supervision — as even a cursory glance at IDA, MFDA and OBSI statistics reveals — is a big and costly problem for retail investors. MRFP’s are not explaining what went right, what went wrong or what’s the outlook. Make them useful to investors, not boilerplate stylized babble.

The industry manages about $700 billion in assets — how well it does this can impact not only the Canadian economy but also our social structure. If the industry voluntarily introduces reformed business practices it will be a demonstration of respect for trusting and loyal retail fund investors. The wealth management business is big, growing and profitable enough for a new approach to be win-win. Some firms are clearly willing to be leaders and support fair-dealing. Let the whole industry join in.

SPECIAL THANKS to Dan Hallett http://www.danhallett.com/ for his invaluable and constructively critical comments on a draft of this article.

Ken Kivenko

October, 2007

http://www.fundlibrary.com/features/col ... p?id=12276

[admin]

We need a national securities investigator
Provinces try to befriend firms they're regulating

Al Rosen
Financial Post



Wednesday, October 10, 2007
Our provincial regulators clearly have no interest in seriously pursuing whitecollar crime. So it seems like high time to establish a separate national securities investigator for Canada. A simple amalgamation of current provincial regulators will do nothing to improve enforcement activities in Canada. A completely separate national entity is needed.

No sensible person would claim that Canada doesn't have a problem with whitecollar crime -- alleged whitecollar crime, we should say, because few convictions are being secured. Although provincial regulators boast of hundreds of enforcement settlements, they are mostly for small offences --cases nobody would recognize by name.

They try to paint these settlements as numerically balancing out the failure to secure timely convictions in high-profile cases such as Bre-X, Livent and Nortel. Clearly, that strategy is backwards.

One of the best tools in fighting crime is visible deterrence. Making examples out of high-profile offenders gets the most bang for the regulatory buck. What in our national consciousness requires us to handle high-profile white-collar criminals with kid gloves? Simply put, fear. Regulators know anyone with decent financial resources will crush them, as provincial regulators are outmatched in terms of talent and resources.

Effective prosecutions can only occur when strong legislation and leadership is in place to attract quality investigators to take on Canada's formidable stable of white-collar criminals. This is especially important given that Canada is often identified by international white-collar criminals as a safe haven to set up business.

Worst, however, is that our current slapdash network of provincial securities fiefdoms are conflicted at the core. They strain to make regulation as easy and as cheap as possible for regulated companies, yet they also claim to protect investors. They fail so miserably on the second count because they try so hard to make friends with the companies they're regulating. Corporations push for lower regulatory costs, and regulators happily comply by putting minimal effort into enforcement.

All this despite a recent study by the Canadian Securities Administrators that says 91% of Canadians believe that the impact of investment fraud is as serious as violent crime. Yet, most frauds go unreported because 70% believe financial fraudsters escape with little or no penalty. The fallout is that 63% become more leery of future investments in Canada.

Granted, the call for a national securities investigator may seem similar to the current system of Integrated Market Enforcement Teams, or IMETs, which has proven a dismal failure to date. Unfortunately, among other problems, the involvement of the provincial regulators and their pro-corporate sympathies has seriously infected the diligence of process in the IMETs.

Canada's current wink-and-nod approach to dealing with securities violators has all the transparency of a third-world banana republic. So-called settlements are handled behind closed doors and as quietly as possible as often as possible. Examinations of questionable financial reporting are so scarce one questions whether they are actively discouraged as being too sensitive for public consumption.

Currently, all of the provinces except Ontario are pushing back against the call for a national securities commission. They claim the current passport network is sufficient for cutting down costs for corporate clients. In other words, the corporations are satisfied, ergo their principal mandate is fulfilled. The problem, of course, is that they are supposed to have a dual mandate which also includes protecting investors with the best enforcement efforts possible. I have yet to hear a chair of one of the provincial commissions claim that enforcement is best served 13 ways from Sunday, as under the current regime.

Rather, some have claimed they have no responsibility to prosecute high-profile cases of securities fraud whatsoever. It's a staggering admission, but nevertheless good prompting for the federal government to finally relieve the provinces of their responsibilities for prosecuting securities offences, and set up a new national securities investigator to handle the task.

---- Al Rosen is a forensic accountant at Accountability Research, an independent equity research firm. alrosen@accountabilityresearch.com

© National Post 2007

(advocate comments..........Mr Rosen is correct in his statements. Putting together thirteen do-nothing regulators into one national regulator will fix only a very small part of the problem. A large part could be accomlished with his call for some form of investor protection agency which is not entirely inbred with industry)

[admin]

Clients complaints rampant online
September 24, 2007 | Bryan Borzykowski



Buying groceries, checking sports scores and planning a night out aren't the only tasks your clients are using the Internet for — they're also voicing complaints about their financial institutions.

Last week, at a regulatory compliance conference hosted by Insight Information, Carol Allen, manager of compliance at TD Insurance, said more and more people are taking to the Web to rail against their banks.

She says places like the social networking site Facebook and other chat rooms and forums allow consumers to circumvent normal complaint channels and share their stories with like-minded consumers. For proof that the web is becoming the go-to place to complain, Allen typed the word complaint into Google and got back 131,000 hits.


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Consumers are more aware of their rights than ever before, Allen said, adding that this progress is positive and she's pleased that more consumers are informed.

One challenge, however, is that clients are increasingly threatening legal action to get what they want, which forces the financial institution to respond to legal complaints rather than the customer experience.

With so many different avenues for complaint, financial institutions should take any grievance seriously. In a TD poll conducted last April, 84% of respondents said one experience could make or break their relationship with a company, while 80% felt sharing their stories could influence another person's purchasing habits. Sixty-six per cent of consumers wanted to feel appreciated by a company through good service, not incentives.

With the proliferation of online complaints, the advisory world is facing some of the same issues as the general financial industry, since public sites are often used by clients and advisors to complain about wrongdoing.

"There's a moral suasion here," says Lawrence Geller, president of Geller Insurance Agencies and operator of the For Advisors Only web forum. "The consumer goes on to the social networking site and finds, lo and behold, that they're one of hundreds of thousands of people to whom this has been done."

He says moral suasion can lead to more class action lawsuits, as more complainants means a better chance of getting the suit heard.

Unlike writing a letter to an ombudsman, which may be read by only that one person, complaining on the Net means that when a client searches for a company's information, the first thing that could pop up are criticisms against the business. This has some institutions worried.

"Companies don't like to have bad things said about them," says Geller. "Now, people do searches, and if they're complaining about a company, they post something. Somebody else does a search and what's the first thing that comes up? The complaint. Before you know it, there are 10,000 people who are communicating with each other."

While curbing dissent isn't the goal, many institutions want clients to use the proper channels to voice their concerns. The problem is that many advisors don't know where a client with a serious issue should go.

"I don't know if the average investor knows what the proper ways are to complain about a company," says Geller.

It doesn't help that complaining is often useless. He recalls a town hall meeting two years ago where investors stood up to say that their complaints were not getting heard. "There's no such thing as redress," says Geller. "The only redress the consumer has is in civil actions. Investor after investor said that."

This lack of communication and attention forces clients to hit the web to make their concerns known. Geller says if the complaint becomes viral — meaning the link gets passed around and a large number of people read it — then that grievance will likely be heard. If it doesn't catch on, there's a good chance that gripe will be lost in the ether.

"The web is so big that people don't often have a voice because it could easily get lost," Geller explains.

Getting clients to complain to the right people is something Geller's been working on. Along with Advocis, he's been drafting a plan that will create a central place where consumers can complain about companies and advisors. Right now, the system doesn't distinguish between the two, but this new plan would put errors and omissions and regulatory and administrative actions under the same roof.

However, that plan hasn't been adopted by the regulators yet, and it appears they have no desire to move forward. "The ministers of finance would have to believe that they had to do something to help the consumer," says Geller, explaining why the plan hasn't been adopted. "I'm not sure that is a high priority to them."

In the meantime, advisors should educate themselves on governance issues and talk to their clients, says Geller. Otherwise, you might not like what you find the next time you use the Internet.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(09/24/07)

[admin]

Proceeds of crime legislation would go a long ways toward helping the white collar crime situation in Canada.

If the documentable/proveable white collar fraud/abuse/crime in Canada were able to be penalized by an amount equal to the profit of such fraud/abuse/crime, it would raise an amount of money somewhere between $30 bil and $60 bil per year.

That puts proceeds of crime legislation in the league of being able to raise somewhere near as much funds as are raised by the entire income taxation system of the country.

Think about the tradeoff. Do we allow the smartest, richest, (some of) the most ethically bankrupt individuals to continue to abuse 33 million Canadians financially, or do we effectively penalize such behavior and in doing so, raise approximately enough to eliminate income taxes in Canada?

Rather like a giant sized photo radar question isn't it?

[admin]

A few things come to mind as I read the previous column by Stephen Sibold.

First is appreciation, that someone with industry experience is having the courage to speak to how the industry really is, and that there is shortcomings that cause crimes to go unpunished against Canadians.

Second is anger that this was not the approach taken during the tenure when this same writer was earning a mid six figure income as one of the top cops in this same industry. I feel grateful for honesty today, but still resent the fact that so many Canadians have been hurt by a lack of honesty from those on the "inside". (Several of Stephen Sibold's former employees at the Alberta Securities Commission are out of the agency with lives and careers damaged for similarly trying to speak their truths while employed there)

Third is relief, in that the writer is as much as admitting that the system is out of touch with reality, and needs to be fixed.

Lastly, I am saddened for all the Canadians over the past several decades who have suffered financially, been taken advantage of, abused or defrauded, and have had to suffer the further crimes of a self regulatory system which forces them to go without compensation, retribution or justice. Lives have been ruined.

I wonder if any of the other Securities Commissions in Canada will stand up and speak candidly on investor protection, or will they remain comfortably tucked under a $500,000 salary blanket while Canadians are frozen out of the justice they deserve?


They seem to want to leave things much as they are, and I wonder who they are truly thinking of?

(Breach of Trust is a criminal offense under section 122 of the Canadian criminal code, and it roughly pertains to an official serving himself or others at the preference or expense of the public interest)

[admin]

Want U.S.-style regulation?
STEPHEN SIBOLD

Stephen Sibold is a lawyer with Bennett Jones LLP in Calgary, currently studying at the University of California, Berkeley as a 2007-2008 Canada-U.S. Fulbright Scholar. He is a former chair of the Alberta Securities Commission and former chair of the Canadian Securities Administrators.

August 20, 2007 at 6:20 AM EDT

If we wish to "get tough" with criminal misconduct in Canada's capital markets, governments need to begin treating this conduct as a matter of criminal law rather than securities regulatory law.

The recent convictions in the Hollinger case in the United States have, predictably, fuelled debate in Canada as to whether similar cases would have been pursued here - let alone concluded - with the same vigour. Critics frequently cite the absence of a single national securities regulator as the root cause of the perception that Canada does not have as strong - or fearsome - a commitment to enforcing securities laws as does the United States.

While the attention of commentators has been focused primarily on the enforcement record of securities regulators, I believe that the more fundamental issue to address is how Canada deals with serious "white-collar" or commercial crime in its capital markets as a matter of criminal law.

First, we need to understand the fundamental differences between regulatory law and criminal law. Unlike the Criminal Code, the provincial securities acts are regulatory in nature and not penal. The focus of regulatory law is the protection of societal interests, not punishment of an individual's moral faults. As the Supreme Court has stated: "While criminal offences are usually designed to condemn and punish past inherently wrongful conduct, regulatory measures are generally directed to the prevention of future harm through the enforcement of minimum standards of conduct and care."

Securities regulators typically deal with "capital market" offences such as insider trading, misrepresentations in public documents and illegal trading in securities. Their usual sanctions involve fines or orders restricting future activity, such as cease-trade orders or orders prohibiting an individual from serving as a director or officer.

It is important to appreciate that all of the recent high-profile corporate scandals in the United States - Enron, WorldCom, Tyco and Adelphia, to name a few - have involved prosecutions of criminal law, not enforcement of securities legislation. The accused in those cases were charged by prosecutors under criminal laws and convicted of criminal offences, fraud being common to all.

Second, we need to understand some critical differences between the treatment of white-collar crime under the respective criminal justice systems in the United States and Canada. Unlike Canada, strict sentencing guidelines exist in the U.S. for federal offences. For example, Bernard Ebbers of WorldCom fame could have been sentenced to 30 years imprisonment under U.S. federal sentencing guidelines (rather than the 25 years that he received).

While U.S. state judges have more latitude in sentencing, the state judge in Tyco sent a strong message by his sentencing of Dennis Kozlowski to 81/3 to 25 years imprisonment. In Canada, no such sentencing guidelines exist and there is little precedent for lengthy prison sentences for individuals convicted of commercial fraud.

Indeed, last year, a Quebec judge sentenced Chuck Guité to 3½years in prison for his conviction on five counts of fraud. The United States - at both the federal and state levels - takes a much tougher approach than Canada to white-collar crime.

So, what must be done in Canada if we wish to "get tough" with criminal misconduct in our capital markets? We must first acknowledge that serious white-collar crime is properly the purview of the criminal justice system and not the securities regulators. The federal and provincial governments then need to make enforcement of white-collar crime a higher priority and allocate appropriate resources to it. For example, police forces, prosecutors and judges need specialized training. White-collar crime, such as corporate fraud, typically spawns complex, time-consuming and document-intensive cases. Unfortunately, most prosecutors and judges (especially at the Provincial Court level) have had little opportunity to acquire experience with such kinds of cases. Police forces and Crown prosecutors need to allocate the resources to pursue commercial crime with the same effort as violent crime. Parliament needs to adopt stricter sentencing guidelines so that judges can treat commercial crime with the same degree of seriousness as violent crime.

The appropriate response to criminal misconduct in Canada's capital markets is for the federal and provincial governments to treat it as a criminal rather than a regulatory problem and assign to it the high priority and necessary resources which it requires.

source Aug 20, 2007 Globe and Mail newspaper

[Stan Buell]

Last spring I met with Dan Braniff, founder of the Common Front for Pension Splitting. Dan has a history of success with single issues and having been successful the Common Front was looking for a new iniative.
Dan felt that SIPA initiatives were interesting and invited us to meet with members of the Common Front in Collingwood to discuss initiatives.

The meeting proved conclusive and it was agreed that the Common Front would take on a new initiative Retiremnet Security. This iniative comprises many of the issues that SIPA has been pursuing and so we are pleased to participate with the Common Front.

Dan is a man with energy and imagination and a background of success in achieving goals. His work with the front has made him familiar to Government and will will ably lead this group on this new venture.

A press release gained attention across the country and you will hear much more in future as additional organizations join the Common Front. There are now 18 organizations represneting millions of voters so we expect politicians will begin to pay heed.

For additional up-to-date information visit the CFRS website at www.RetirementSecurity.ca

[admin]

see a lawyer if you feel you have been misled, misinformed, or abused financially. Even if you feel foolish or feel like you have just been duped by a fast talking salesman, I suggest you inquire or more than one lawyer.
They will better understand the "duty of care" required of a professional. You will not be thinking as clearly or as objectively as they will. Sit down and tell them what happened to you, as you understand it. They will likely charge you nothing for an initial visit. What have you got to lose but some pride?

If you decide to go through the "proper" regulatory channels, that also may have to be done, but understand that the industry, the self regulators, and the regulators all come from the same pool. They swim together, work together, and circulate freely. Many experts have suggested (as I do) that the regulators are suffering from something called "regulatory capture". I wont go into detail, but suffice it to say in my opinion, none will be on your side. Their job security takes priority over your situation.