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Royal Commission or Judicial Inquiry Case #1

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Re: Royal Commission or Judicial Inquiry Case #1

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When the whistle stops
The ex-employee who tried to bring down Saskatoon
financial adviser Brian Mallard died two years ago. But
Mallard's fight for his reputation
didn't.

Nov 6, 2006 Matthew McClearn and Doug Watt

Word of Kent Shirley's death arrived on Boxing Day 2004. Brian Mallard, who owns a successful financial advisory firm in Saskatoon, was vacationing in Hawaii. He visited an industry website and read about the fate of his erstwhile 30-year-old administrative assistant. The news shocked Shirley's friends and family, but Mallard had long predicted it. So, today's the day, he thought.

By then, the two men were on the worst of terms. Nearly a year earlier, Shirley had launched a wrongful-dismissal suit in which he'd claimed that Mallard's company, Brian Mallard and Associates, and its mutual fund dealer, Assante Corp., flouted industry rules and placed their own interests above those of clients. The unproven accusations pitched Mallard into the fight of his career. And they forced Assante to delve deep into its controversial past to confront whispered rumours that had plagued the company for years.

Shirley had become a potent symbol for those who distrust investment advisers and the regulatory apparatus charged with supervising them. But he had a tormented history of drug addiction, mental illness and poor performance on the job. Even worse, some accused him of stealing the documents that he put forth as evidence against Mallard and

Assante. Was it merely sour grapes, or did Shirley have a credible case?

Plenty of people thought Shirley's allegations warranted a closer look. Many would later regret their curiosity. Shirley's dispute with Mallard consumed reputations, destroyed careers and pushed some to self-destructive behaviour. And matters did not end with his death. If anything, they got worse.

It was 1994, long before everything went wrong, and Kent Shirley was a 19-year-old looking for work. A former fencer who'd competed at international competitions, he had few credentials besides ambition. He did, however, have a brother who already worked with Brian Mallard. It was enough to get him a summer job doing data entry. In an interview in September 2004, Shirley claimed he worked “his ass off” for Mallard. “I worshiped him,” he said. “He was God. He was great. He was an idol….I did everything I could to please him.”

A consummate salesman, Mallard had made a name for himself in Saskatoon. He began selling insurance at the Canada Life Assurance Co. in 1973 and attained his chartered life underwriter designation in 1979. The next year, he founded Dataplan Consulting Associates (later Dataplan Financial Services) and added mutual funds to his product lineup in 1987. During the ensuing years, Mallard fell out with his partners and became a one-man dynamo. In 1996, Assante bought Dataplan; Mallard held the position of CEO until Dataplan merged with another Assante acquisition, Equion Financial. After that, he formed Brian Mallard and Associates, but retained Assante as his mutual fund dealer.

In recent years, Mallard's branch boasted $350 million in assets under management from 4,000 clients, of which 650 were Mallard's own. He became sufficiently wealthy that he now spends part of the year in Hawaii. And his extensive use of TV commercials made him a recognizable figure in Saskatoon, a city of more than 200,000. Though less recognized elsewhere, Mallard has been a leading voice in his industry, holding senior board positions with the Canadian Association of Insurance and Financial Advisors and its successor, Advocis, serving a two-year term as the association's chair.

When Mallard needed a personal assistant in 1996, he chose Shirley. “He was hard-working, keen, followed the rules, and did what he was told as fast and efficiently as possible,” Mallard recalled in an interview this summer. In his new role, Shirley sat in on client meetings, taking notes as Mallard provided clients with financial plans and advice. Shirley deemed his compensation generous, and at one point Mallard even co-signed a $50,000 loan agreement for him.

These were heady times. Winnipeg entrepreneur Martin Weinberg founded Assante's predecessor, Loring Ward Investment Counsel, in 1987. It bought Optima Strategy Funds, a family of eight mutual funds, in 1993, and merged with the Equion Group of Toronto in 1995. That year, Weinberg embarked on an ambitious bid to buy up smaller mutual fund dealers across the country. He oversaw 18 acquisitions during the coming decade, including Mallard's DataPlan. The company went public in 1999.

As Assante's ranks of advisers and customers swelled, however, so did controversy about how it sold mutual funds. Many advisers across Canada sell third-party funds, and receive compensation from those third-party fund companies in return. In contrast, Assante's business strategy hinged on selling its own “in-house” mutual funds, including its Artisan and Optima products. Assante told shareholders this approach offered “the potential for a nine- to sixteenfold increase in operating margins.”

Not everyone shared Assante's enthusiasm. The financial services industry has attracted an odd cast of characters, loosely described as “investor advocates,” who attack behaviour they view as detrimental to the public. Some of them are former investment professionals who have been punted from the industry. Others claim they've lost fortunes at the hands of unscrupulous advisers. A number of investor advocates pounced on in-house funds. Despite the fact that other companies (like Investors Group) also sold them, Assante became the lightning rod.

One oft-heard criticism was that, across the board, Assante's products were (and are) expensive to own. The Artisan Most Conservative Portfolio, for example, features a management expense ratio that has averaged about 3%, compared with an industry average of about 2%. In an article published in 2001, mutual fund analyst Dan Hallett observed: “Assante stands out in its apparent goal to use its growing advisor base to increase its in-house funds, most of which have fees that are far greater than their peers.”

Did clients get what they paid for? A cursory analysis of Assante's products shows that over the years many have performed admirably compared with peers. “At least a couple of managers running their funds have done a really good job,” observes Hallett. He adds, however, that to justify such fees, advisers should provide a high level of service. And “the higher the fees, the tougher it is to put out strong returns over time,” he warns.

Another problem was that Assante encouraged its advisers to own company shares. The tactic was intended to encourage them to keep working with Assante and align their interests with those of shareholders. The problem is that the interests of shareholders don't always square with those of clients. Assante didn't gloss over this. In one mutual fund prospectus, it warned investors that the more Assante shares an adviser owned, the more he benefited each time he sold Artisan products to clients.

Among investor advocates, there were whisperings of even deeper conflicts of interest. Rumours surfaced from former Assante advisers that the company set quotas for selling in-house products to clients, and offered company shares to advisers in exchange for meeting those targets. Such incentives would encourage advisers to favour Assante products regardless of whether they were right for clients. “I certainly got a lot of calls from media asking about it,” Hallett recalls. “People wanted to write about it, but they couldn't until they had documented proof, and there wasn't any.”

One journalist who jumped on the story was Jonathan Chevreau, a personal finance columnist with the National Post. In November 2002, Chevreau warned readers to be wary of firms hawking in-house funds. He cited Assante as an “egregious” example. “As in-house funds are added to the mix, investors should question how 'independent' these advisors are,” Chevreau wrote.

Chevreau's criticisms were not well received by Assante. It responded by holding meetings between senior executives and Post journalists, and wrote a letter to the Post's editor. “Assante does not impose quotas,” the company stated, “nor do we pressure advisors to sell our own in-house portfolio management solutions.” Allegations that advisers received more compensation for selling in-house products were similarly untrue, the letter added. The Post's executive editor at the time, Doug Kelly, later wrote a letter to Weinberg apologizing for “any inaccuracies” in the Post's stories. Weinberg considered Kelly's letter a victory; he distributed it to Assante employees.

Where did the rumours originate? In an interview this summer, Weinberg explained that when Assante acquired other companies, it offered owners of those companies additional compensation if they met certain profitability targets during the following three years. “Some of the most profitable things they could sell were the Optima Strategy and Artisan funds,” Weinberg conceded. “But that wasn't the only way to get there. You could have sold insurance or grown your practice or done other things” to reach the profitability targets. Assante terminated such arrangements when rules governing industry sales practices changed in 1998. “There were no quotas, ever,” Weinberg added.

But rumours of secret quotas and incentives persisted. Stephen Gadsden, a former Assante adviser, who left in 2002, claimed that during one meeting that year an Assante executive vice-president instructed managers and sales representatives to redeem up to 80% of their clients' money and reinvest the proceeds in Assante products. And a dissatisfied client, Jocelyne Robidoux of Thunder Bay, Ont., sued Assante in 2003, alleging that without her consent, her Assante adviser redeemed her third-party mutual funds and bought Artisan products. Assante claimed that Robidoux authorized her adviser to conduct discretionary trading on her behalf; Robidoux denied that. The matter was settled out of court when Assante paid Robidoux $13,000, the amount she claimed she'd lost as a result of the transactions. Assante admitted no wrongdoing.

“I don't know what caused [the rumours] — it was very frustrating for me at the time,” said Weinberg. “The industry could not quite understand how we were gaining such market share, and concluded that we must be doing something aggressive.”

Even a change in ownership did little to quell suspicions. In 2003, CI Fund Management (now called CI Financial Income Fund) bought Assante for $846 million. At the same time, CI purchased Toronto-based Synergy Asset Management and a new management team was brought in to steer the Canadian acquisitions. The team included former Synergy boss Joseph Canavan, who was appointed as Assante's new chairman and CEO. Weinberg and his team departed.

In an interview with Advisor's Edge Report (a trade publication) last year, Canavan said that at the time of CI's purchase Assante was a “dog's breakfast” — a good company with a “challenged business structure,” but one that had been “totally dressed up to be sold.” He claimed that infighting was common, and advisers were unhappy. He added that some of Assante's products paid advisers huge compensation — and described that as being “not legit.” Such comments could only contribute to perceptions that Weinberg's management was aggressive. (Weinberg found such claims offensive. “We built a firm with a strong culture and a strong offering to clients, that demonstrated its success in the marketplace,” he said. “It was never built to sell.”)

By the time of its purchase by CI, Assante sat on a powder keg of suspicion. Kent Shirley lit the fuse.

Aphotograph of Kent Shirley at an office pool party in August 2000 reveals broad shoulders and a powerful build. He sported cropped hair and a confident smile. He was an avid bodybuilder, but his bulked-up physique concealed tremendous vulnerability.

His life began to unravel in 2001. According to Mallard's court filings, Shirley's performance deteriorated markedly. He failed to complete paperwork, behaved erratically, forged client signatures, engaged in “inappropriate personal conversations” with female staffers, and showed up for work looking dishevelled. Mallard noted that Shirley was packing on muscle. “He went from being a little over six feet, 180 pounds, to about 260 pounds — and it wasn't fat,” he said in an interview. “I believed he was doing steroids. He denied it, but the signs were definitely there.” Some days, Mallard claimed, Shirley flew into a rage over trivial matters or sat in his office and sobbed for hours at a time. “He was GQ material,” said Mallard, “but underneath that veneer, he was a mess.”

Shirley denied some of Mallard's allegations. Those he admitted to were disturbing enough. In an interview months before his death, he revealed he'd become addicted to Valium while fighting insomnia. He confessed that he was “very involved in the steroid scene.” Things took a turn for the worse in 2001. He attempted suicide and was hospitalized due to an overdose. The personal turmoil spilled over into his professional life. “Apparently some clients said, 'Kent appeared as though he was stoned,'” Shirley said. “It may very well have happened. I was trying to work and function in life at the same time, and I probably shouldn't have been.”

Shirley went on an eight-month leave of absence in 2002, on the condition that he seek medical help and enter a rehabilitation program. Mallard claimed that Shirley wasn't co-operating, and didn't want him to return. In December 2002, however, Mallard says he received a call from Shirley's father that changed his mind. “He was very afraid that Kent would hurt himself and felt that he needed a safe place to work, and that was my place,” says Mallard. “So I said I would look for a way.” Mallard's change of heart was unpopular with his staff and lawyers.

When Shirley returned to work in February 2003, he and Mallard struck a written agreement stipulating that Shirley would refrain from abusing drugs, maintain a “neat and businesslike appearance” and obtain the Certified Financial Planner designation. The idea was that he would work under heightened supervision, with less responsibility, but gradually resume his old duties. It didn't work. Shirley was upset with the demotion, and Mallard accused Shirley of bungling a major project. Shirley also failed a CFP course. Mallard decided he had “no alternative” but to terminate.

At a performance review in January 2004, Mallard told Shirley to go home and think about his future during the weekend. After Mallard left the room, Shirley remained seated, silent and unmoving, for about 10 minutes. “I left that meeting wanting to slit my wrists,” Shirley recalled later. “They were so cruel.” Shirley never returned to work, and soon advised Mallard in writing he would sue for constructive dismissal.

Months later, Mallard noted something unusual about the credenza in his office: the dust inside one of its compartments had been disturbed. “It doesn't get opened that often,” says Mallard, who thought little of it at the time. “We had this little skirmish going on with Kent, but I didn't realize that World War III was breaking out.”

On Feb. 6, 2004, Shirley visited the offices of the Saskatchewan Financial Services Commission, the province's securities regulator. There he met two investigators, Vic Pankratz and Rick Mitchell, whom he deluged with allegations against Mallard and Assante. One was to become particularly significant: he claimed that Assante pushed in-house products because they produced bigger profits. “That's why 90% of our book is in Assante [products],” Shirley said. He offered the investigators documents to support his claims.

As the interview wrapped up early that afternoon, the investigators asked Shirley why he was speaking to them. Shirley categorized his grievances in detail — they were mostly personal. “A lot of people are going to say it's revenge,” he told the investigators. “And somewhat, yeah, it is.”

Shirley's documentation included much correspondence, such as letters and e-mails — everything from internal memos to communications between Mallard and senior Assante executives. There were also business plans, documents laying out internal policies and procedures, and lots of information about clients, including their social insurance numbers and account statements. Not, in other words, the sorts of things any employer would want floating about.

Shirley claimed that when he'd gone on leave, his own files had been placed in banker's boxes — and that he'd later received permission from the office manager to take them home. He also backed up the data on his office computer. “Did I steal information? Absolutely not,” Shirley said in an interview. “I took information to give it to the regulatory authorities in the proper jurisdictions to show to them wrongdoing.”

Mallard's account is strikingly different. Citing forensic evidence collected later in 2004, he claims that Shirley returned to the office the weekend following the fateful performance review. He gained entrance using his security pass, which the company had yet to cancel. He copied documents to a receptionist's computer, which he then burned onto a compact disc. And he collected the boxed-up documents. “He went into my desk drawer, took copies of my personal family trust documents, took copies of my income tax records, personal correspondence,” Mallard says. “He ransacked my office.” The company's computers and security system — and dust trails in the credenza — gave Shirley away.

Shirley was subject to numerous rules and regulations on handling client information. Be it his employment contract with Brian Mallard and Associates, or the codes of conduct of bodies to which he was accountable (like Advocis, the MFDA and the Insurance Council of Saskatchewan), these all said roughly the same thing: he couldn't disclose client information to others without express consent, unless he was required to do so by a court or regulatory authority. As he said later, however, Shirley reasoned that “under Advocis rules, under [the rules of] pretty much every regulatory body there is, if you have information that pertains to illegal matters, you can take that information.” That belief would soon be put to the test.

Shirley filed his constructive dismissal lawsuit in March 2004. The statement of claim alleged that Mallard breached the terms of their mutual agreement by “condoning, engaging and requiring Shirley to engage in unethical and/or illegal conduct,” and “harassing and condoning the harassment of Shirley.” It also claimed that Mallard regularly breached industry rules by providing clients with inside information and personal loans, overbilling them, offering them stock advice while lacking the necessary licence, selling his own shares to clients, and so on. Shirley claimed that one of his fellow employees regularly forged Mallard's signature on forms, with the latter's knowledge and consent.

In his statement of defence, Mallard claimed Shirley's allegations were lies intended to embarrass him. Mallard denied “breaching ethical codes, laws, rules and regulations or requiring [Shirley] to do so.” Mallard asserted in an interview: “I run a scrupulously compliant office, and I will not tolerate anything that lacks integrity.”

Upon learning of Shirley's lawsuit, Mallard says he notified Assante and requested he be personally audited immediately to address the allegations. He heard nothing until April 28, when he got a call from an Assante vice-president, who said the Mutual Fund Dealers Association of Canada had raised the matter with company management. The MFDA is the self-regulatory body for Canada's mutual fund dealers, with the power to suspend a firm's licence, and the Saskatchewan Financial Services Commission had instructed it to investigate. Mallard, however, found the Assante conversation reassuring. “He made it sound like they were under siege by the MFDA and that they would be arm in arm defending me against these spurious charges,” Mallard says.

Actually, Assante was doing some digging of its own. Jaime Ross, the company's senior vice-president of risk management, said in an interview this summer that the new management team didn't know what took place under Weinberg's watch. It was eager, however, to demonstrate to regulators that it was serious about compliance. “We had to uncover all of this ourselves,” Ross said. “[Shirley] cited facts with quite an amazing amount of specificity….The focus on sales incentives gave us some concern as a new management team.”

In May 2004, two Assante auditors conducted a two-day inspection of Mallard's offices. Mallard claims the auditors, too, reassured him he had nothing to worry about. Several days later, though, one of Mallard's employees told him some forms had disappeared from his office. These were incomplete forms that clients had already signed, and Mallard's employee broke industry rules by possessing them. Mallard knew they could be construed as evidence of improper discretionary trading — in other words, buying and selling securities in a client's account without authorization. Mallard's position, though, was that they constituted an acceptable tactic for rural clients in a sparsely populated province like Saskatchewan. “Sometimes you have to do things that are beneficial to the client but not necessarily compliant, just because of the distances and the geography,” he explains.

Moreover, he believed Assante had no right to seize the forms in the first place. He phoned one of Assante's auditors and asked her whether she'd taken the forms. She confirmed that indeed, she had. He accused the auditors of committing a crime. Following the conversation, Mallard checked and determined that other documents were also missing. (Assante's Ross admitted that taking documents during an audit is not standard practice, and that Mallard should have been notified.)

It didn't take long before the other shoe dropped: Assante attempted to suspend Mallard and two of his employees. But Mallard's suspension didn't square with the terms of his employment contract, so he refused to accept it. Soon after, Assante told Mallard he would be removed as branch manager and fined $60,000. Mallard stepped down and sued Assante for $10 million.

Meanwhile, in March 2004, Shirley, frustrated that he could not find a job, moved to Red Deer, Alta. For the rest of the year, he contacted anyone and everyone who would listen to his claims about Mallard — and more than a few who wouldn't. He regularly communicated with SFSC investigators. He launched a complaint against Mallard with the Financial Planners Standards Council, the body that controls the CFP designation in Canada. He spoke with the RCMP and the Investment Dealers Association of Canada. He wrote a letter to Canada's then-finance minister, Ralph Goodale. “I've given the documents to the MFDA and the OSC,” Shirley said in an interview. “They've got them now. I've confirmed it.”

But Shirley quickly ran into a wall. For example, he claimed that he filed a complaint against Mallard with Advocis (Mallard was a board member at the time), and offered a document from Mallard's office to support it. Advocis, however, demanded that Shirley obtain Mallard's permission to use it. “It's just ludicrous,” Shirley fumed. Meanwhile, investigations into his other complaints progressed slowly. “Every day, I think about dropping the entire thing because it's so frustrating,” he said at the time.

That summer, Mallard believed he was gaining the upper hand against Shirley. “[We] seized some assets, brought financial pressure to bear — the usual tactics you use when you're fighting a lawsuit,” he says. “You could see an end in sight. I was thinking, this thing is probably going to cost me $20,000 in legal fees. We'll wrap her up and call it a day.”

Mallard didn't count on Joe Killoran.

An Oshawa, Ont., resident, Killoran describes himself as “Canada's most feared investor advocate.” A father of three and occasional substitute teacher, he worked in financial services during the 1980s (including at Merrill Lynch Canada and Prudential Bache Securities), but claimed that his employment was terminated four times “for having and showing a conscience.” More recently, Killoran waged a one-man crusade against the financial services sector and its various regulators, and Assante ranked among his favourite targets. “I was unfortunate enough to be on Joe Killoran's e-mail list,” says analyst Dan Hallett. “Not all of his e-mails were about Assante, but a large percentage were. That name always popped up, highlighted in big red letters.”

Shirley contacted Killoran in July 2004. The two men communicated mostly by e-mail and sometimes by phone; they never met. Killoran estimates he contacted Shirley more than 3,000 times in five months.

Killoran pressed Shirley to send him documents. He told Shirley that Eliot Spitzer, New York state's attorney general, was interested in evidence regarding Assante's practices. Killoran noted that whistle-blowers sometimes receive a cut of court judgments in the United States, and predicted fines resulting from Shirley's information “would be several billion dollars.”

Shirley appreciated the encouragement. “I have full faith in trusting you,” he wrote Killoran. “You are helping me, and I like to think what I have can help you long term possibly with a settlement.” Killoran received his first batch of documents in August 2004. He became frustrated, though, that Shirley wouldn't send him the rest. Killoran wrote:

Kent, I'm offering you the best ray of sunshine, the best potential to light your way out of the tunnel that my creativity + contacts can achieve. If you don't want my help, just tell me straight up and I'll spend my time looking to help other abused individuals…your delay to forward the rest is really hurting our credibility with [Spitzer].”

Shirley sent another bundle of documents in September 2004. All told, Killoran claimed he received more than 7,000 pages.

The internal documents shook Killoran. He began calling them “smoking gun whistleblower evidence.” Killoran claimed the documents showed that Assante not only encouraged advisers to sell in-house products, but gave them Assante shares in reward for doing so. Shirley confirmed that. He said that the scheme provided bonus shares to advisers when their clients invested 40% or more of their portfolios in Assante products. “I have a copy of [a document showing] all the advisers that got stock,” Shirley said, “and where they were sitting on the conversion basis, how many were still in escrow, how many had been released.” But Shirley added that Assante “kiboshed” the program around 1997.

Killoran concluded that the program constituted “the largest premeditated criminal fraud in Canada's history.”

He provided documents to the National Post's Chevreau. In August 2004, Chevreau interviewed Mallard and produced an article calling the case a “classic David v. Goliath tale.” He concluded that “this case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.” Mallard was incensed. The two-hour interview did, however, provide him with a valuable insight: during it, Chevreau revealed that he'd obtained documents originating from Mallard's offices. Those documents provided critics an unprecedented window into the business affairs of Assante and Brian Mallard and Associates. And suspicious eyes were peering in.

Working together as they did for eight years, Mallard and Shirley knew each other well. Shirley predicted, for example, that Mallard would attack his credibility and portray him as a drug-crazed lunatic. “It's a wonderful defence,” Shirley said, “but it certainly doesn't hold up against a stack of documents.” Indeed, he believed that if he could make those documents public, he could turn the tables against his former employer. He also knew there were complicating factors. “I can see a problem being that none of the documents will be admissible because they're all confidential,” he said.

Mallard faced a dilemma of his own. He believed Shirley was mentally ill. “I'm dealing with a guy who has a psychosis,” Mallard said in a September 2004 interview. “He believes he's a whistle-blower and is out to prove I'm an evildoer. Once that fails, I'm concerned that he will try to commit suicide….I don't want to push him into that position.”

But Mallard also worried that his clients' confidential information was blowing in the breeze. He wrote a letter to the Post demanding the return of internal documents in Chevreau's possession, which he eventually received. He wasn't alone. Assante, too, inspected materials returned by Chevreau, and it whetted the company's appetite to see more. Brian Foster, a lawyer for Fraser Milner Casgrain, who served as Assante's outside counsel, wrote Shirley's lawyer a letter in September 2004 demanding that Shirley return documents directly to Assante. “While these records and the information were located at the offices of Mr. Mallard and may have been produced by Mr. Mallard or others in his employ,” Foster argued, “the records remain the exclusive property of [Assante].”

Foster intended to use the documents to investigate Brian Mallard and Associates. “They thought there was something wrong with me,” Mallard says. “The fact that a psychopath had their clients' information and could sell it to an identity theft ring in Brazil didn't seem to enter into their psyche at all.” But Assante's Ross claimed that the company didn't know what information had been taken from Mallard's office: “Having gone through an agonizing period of time defending the firm against the regulators related to sales practices, we didn't know what we were going to find.”

Through his lawyer, Geoff Dufour, Shirley vowed that any documents pertaining to Mallard and Assante that “are not strictly personal to him” would be returned “to either Assante or Mallard.” Privately, however, he had no such plans. “I'm scared if I return the docs then I get charged for sure,” he fretted to Killoran in an e-mail. Killoran advised against returning the materials. “Bury it, hide it, rent a storage locker someplace,” he suggested.

Shirley didn't guess that Mallard had other means of retrieving the documents. On Oct. 12, 2004, Shirley received an unexpected visit from Albert Sweet, who introduced himself as a fellow tenant in his apartment building. Sweet complained of wiring troubles, and inquired whether Shirley had experienced similar difficulties. He had. He invited Sweet in, and the two began chatting. “The apartment was generally messed up and had very disorganized papers all over the place,” Sweet said later in an affidavit. He described Shirley as shirtless, unshaven and thin.

Though he didn't let on, Sweet knew Shirley's history. A private investigator with Bison Security Group, he didn't live in the building and couldn't give a damn about its wiring. He was more interested in the computer and papers in Shirley's living room. He reported their whereabouts to Mallard.

Armed with that knowledge, Mallard approached the Court of Queen's Bench of Alberta and applied for an ex parte Anton Piller order. Sometimes described in the legal community as a “nuclear weapon,” the order allows a plaintiff to enter a defendant's home (or other premises) to search and seize materials and documents belonging to the plaintiff. Ex parte meant that Shirley would not know about Mallard's request until the order was executed and, therefore, have no opportunity to prevent the seizure. Simultaneously, Mallard also filed a lawsuit against Shirley for misappropriation of the internal documents, defamation and for disclosing confidential client information.

Anton Piller orders are rarely granted. Theoretically, a court will place significant requirements on any plaintiff requesting one. Mallard's lawyer, Richard Billington, argued it was necessary because Shirley had misappropriated the information, was disseminating it to reporters, and had defamed Mallard using Internet chatrooms. “We don't know what he has done with these documents,” said Billington, who has considerable experience with Anton Pillers. He argued that Shirley was likely to destroy, alter or hide evidence Mallard needed for his court actions against Shirley. He nominated KPMG to supervise the search and seizure.

Justice D. B. Mason of the Court of Queen's Bench of Alberta granted the order. The following day, KPMG representatives — accompanied by Billington and a police officer — went to Shirley's apartment at 9:30 a.m. After Shirley answered the door, Billington explained the court order to him. Billington remained near the front door while KPMG employees seized Shirley's computers, compact discs, paper files and other materials. KPMG also conducted a “bit-stream imaging” of the hard drives — a process by which an exact copy is made to preserve it as evidence. KPMG summed up what it found in a seven-page report to Justice Mason. Among other things, it found more than 1,500 communications between Killoran and Shirley.

The Anton Piller order prevented both Assante and the MFDA from accessing Shirley's documents, and its gag provision barred Shirley from talking with investigators. But both organizations still wanted to investigate. They subsequently asked the court to give them access to the documents. Assante suspected that Mallard — who ultimately paid hundreds of thousands of dollars for KPMG's custodial services — was hiding something. “One would wonder and question why Mr. Mallard wanted that [gag order],” Assante's lawyer, Brian Foster, told the court. “One has to give some thought to that.”

Judge Mason barred them from the documents. “I see the piggybacking of the MFDA and Assante under these proceedings as being simply that,” Mason said at the hearing. “I do not propose to open these proceedings to a wholesale review and fishing expedition on behalf of Assante or [the] MFDA.” Mason's ruling removed any doubt: the documents were kryptonite to anyone hoping to use them outside the context of the lawsuits between Shirley and Mallard.

During the fall of 2004, Killoran encouraged Shirley to keep up the fight. In one e-mail, he wrote: “You will persevere!! You will survive!! You will overcome it!! You will be much stronger when this is all over!!” Later, he was even more unequivocal. “Get your head out of your asshole,” Killoran admonished. “It's time that you realize you are going to WIN.”

Shirley, though, understood that if he couldn't use the documents to support his allegations, his campaign was hamstrung. In an e-mail to an investigator with the Saskatchewan Financial Services Commission, he pleaded: “Get me my computer from KPMG and I will show you….It's in there.”

Continuing setbacks took an obvious toll on Shirley. When Mallard encountered him at a mediation meeting in November 2004, he was shocked by Shirley's appearance. “He looked like crap,” Mallard later recalled. “He was unshaven, thin and had a pasty pallor. His eyes were bloodshot and sunken.”

Shirley made a last-ditch effort to tell his story. In December 2004, he contacted several journalists (including Doug Watt and John Lawrence Reynolds, author of several books about malfeasance in the financial services industry) about writing a book. Echoing Killoran, Shirley told Reynolds in an e-mail that he had firsthand information about “what may turn out to be the largst [sic] scandal in our industry.” The message, however, suggested his aptitudes were not equal to the task. “I have al [sic] the evidence etc, but not very good at writting [sic],” Shirley wrote. By then, his communications were a mess of jumbled thoughts.

That month, Mallard informed Shirley that he intended to seek contempt-of-court charges against him for distributing confidential documents. Later, Mallard, Shirley and their lawyers participated in a settlement conference at which broad terms were reached. A week before the Christmas break, Mallard formally sent his proposed terms to Dufour. According to Mallard, they included a public letter of apology from Shirley.

“I'm very pissed off and depressed,” Shirley wrote in an e-mail to an associate in December 2004. “I wonder how many other cases they [regulators] sit on or sweep away.”

On Dec. 20, Killoran wrote an e-mail to investigators at the SFSC and OSC, expressing concern about Shirley's well-being. He requested employment at a rate of $100 to $200 an hour, half of which he vowed to pay to Shirley. The request was implausible and, in any case, too late. On Christmas Eve, Kent Shirley died suddenly in his parents' home. The cause of death has not been made public.

Kent Shirley's death crippled the already shaky case against Mallard. The star witness was dead. Not a single client came forward to lend credence to the allegations. The documents Shirley put forth as evidence were locked in a vault. Copies were still circulating, but anyone who passed them around risked attracting the ire of a judge. This thwarted anyone who sought to use those documents as evidence of alleged impropriety at Brian Mallard and Associates or Assante.

And yet, Mallard's problems were not over. Numerous regulators — not to mention Assante — remained highly suspicious. By early 2005, a loosely organized group of investor advocates were pushing Shirley's case. To them, he had become a martyr.

Killoran was the most zealous. For his troubles, Mallard had already served him with a defamation lawsuit for a bizarre e-mail Killoran had sent to a long list of recipients several months earlier. It contained two cartoons and contained disparaging comments about Mallard. Mallard claimed Killoran's antics damaged his reputation and humiliated him. Killoran continued to lobby various regulatory and law-enforcement bodies to investigate, and dug himself deeper.

He was assisted by Robert Kyle, an investor advocate with a controversial history. Formerly a derivatives trader, Kyle was suspended by the Investment Dealers Association of Canada in 1998. After he refused to provide his firm's records to investigators, the IDA commenced a disciplinary process that eventually resulted in stiff fines for him and his firm, as well as the termination of their registrations. Kyle has been a thorn in the IDA's side ever since, unsuccessfully appealing its ruling to higher authorities. (The Ontario Divisional Court rejected Kyle's case this year, effectively ending the matter.)

Kyle operates a website dedicated to criticizing Canada's regulatory system, and he began a page about the Shirley-Mallard struggle, to which he posted court documents, correspondence and other materials. Mallard complained that the site was incomplete and defamatory and threatened to sue Kyle's Internet service provider. The ISP immediately shut down the site, but Kyle found another service provider and re-established it. Mallard sued this summer. Kyle has since removed the material involving Mallard and Shirley from his site but still faces legal action.

The two investor advocates pushed regulators vigorously. Killoran delivered two boxes of documents to the OSC, couriered materials to Eliot Spitzer, sent documents to then-Minister of International Trade Jim Peterson, and contacted the Royal Canadian Mounted Police. Kyle wrote letters to Lorne Calvert and Dalton McGuinty, the premiers of Saskatchewan and Ontario, respectively, calling attention to Shirley's allegations. He also offered evidence to the SFSC, and lobbied the OSC to collect documents from him relating to the matter.

Mallard was particularly concerned about the MFDA, which requested a meeting with him in February 2005. “I believed that they would use information provided to them by Kent Shirley that he had obtained illegally and had altered to make their case against me,” he recalls.

At that interview, Mallard claims, MFDA investigators (including enforcement counsel William Donegan) presented him with a two-inch-thick binder containing many of the same documents seized from Shirley's apartment under the Anton Piller order. It was an audacious move: Donegan attended the hearing months earlier at which Judge Mason made clear he would not grant access to those documents. Mallard's response was equally audacious: he threatened to seek an injunction and sue Donegan personally. “I remember smiling and saying to Donegan that I would answer all of their questions providing that he admit where the MFDA got the stack of documents from,” Mallard says. “The so-called evidence was nothing more than the cobbled-together lies and misrepresentations of a bipolar drug addict bent on revenge.” (Donegan declined comment.)

Gradually, the tide turned against Mallard's accusers. In February 2005, the Financial Planners Standards Council told Mallard that Shirley's complaint had been dismissed. Less than three months later, the OSC informed Killoran that it had closed its file on the matter, with no action taken against Mallard or Assante. The RCMP's Integrated Market Enforcement Team, which deemed the matter insufficiently important to warrant its attention, refused to consider Killoran's calls for an investigation. And in July 2005, the MFDA informed Mallard that it had completed its investigation and would be taking no further action.

In an interview, Assante's Ross confirmed that as part of the OSC and MFDA investigations, the company hired forensic accountants and delved deep into its past. This internal investigation uncovered the Weinberg-era program under which advisers received bonus shares for meeting sales targets, but nothing more. In other words, Shirley's allegations about the program were largely accurate, but Assante did not break any industry rules. Ross said Assante's investigation confirmed that no quotas or improper incentives existed after 1998, and that the OSC cleared Assante after an “exhaustive and thorough” process.

What was it about Shirley's cache of documents that others found so alluring? Regulators seldom discuss investigations, so what they made of them is anyone's guess. (The MFDA, for example, refused to confirm or deny whether Mallard was ever investigated.) Defending himself against the numerous legal challenges sparked by those documents cost Mallard about $1 million. “I've been looked at by more goddamn people than I deserve, and none of them has found any evidence of malfeasance or inappropriate actions,” Mallard fumes. “It is mysterious to me why it will not die.

“'He's an adviser. All advisers are dirty. Must kill adviser.' That was the prevailing mentality,” Mallard says. “Kent Shirley came to them with a bunch of lies and an agenda, and they chose to believe [him] over me.”

Mallard and Assante reached a settlement earlier this year. In April, Brian Mallard and Associates transferred its registration to Quadrus Investment Services, a mutual fund dealer based in London, Ont. Although Mallard admits his relations with Assante were strained, he expressed satisfaction with the firm's co-operation during the transition. “They [Assante] behaved in a manner which exhibited high integrity,” he says. Mallard remains confident in Assante's products. “We have not moved a single dime of [client] money away from Assante.”

Ross expressed regret about the way Mallard was treated. “If this were to happen today, we'd deal with it in a far more supportive manner,” Ross said in an interview. “He [Mallard] is a guy of integrity. It's clear that he was an innocent victim in this situation. We departed on amicable terms, and we wish him well.”

As Mallard's troubles eased, Killoran's mounted. The court took a dim view of his distributing documents. For example, Killoran e-mailed KPMG's report on the raid on Shirley's apartment to a diverse group of recipients. Spitzer, of course, made the list — as did another mysterious choice: Mallard's lawyer Richard Billington. Mallard promptly alleged that Killoran was in contempt of court.

Saying he couldn't afford a lawyer, Killoran chose to represent himself in legal actions in both Saskatchewan and Alberta. He proved a less-than-able advocate; the judges didn't know quite what to make of him. Under cross-examination in the Alberta defamation lawsuit, Killoran refused to answer questions and contradicted himself. Judge W. F. Gerein of the Saskatchewan court observed that Killoran's statement of defence read “like a bad speech.” Gerein added: “The document is rambling, disjointed and only marginally consistent with the acceptable form of pleadings.”

Killoran attempted to have Shirley's documents entered as evidence, a move that would effectively make them accessible to anybody. But these efforts, too, came to naught. In a decision issued in April 2005, Judge Gerein observed that Killoran failed to follow court procedure. Gerein deemed most of the documents irrelevant to the matter at hand, and struck them from the record, along with large parts of Killoran's statement of defence. Gerein issued an injunction instructing Killoran to cease publishing oral or written statements about Mallard and his clients and advisers. It also barred him from distributing the documents obtained from Mallard's offices.

Court orders apparently made little impression on Killoran; he promptly violated them. Among other things, he sent unsolicited e-mails to police officers making fresh allegations against Mallard. On occasion, Killoran referred to Mallard as “a duck” rather than mention him by name — apparently in the mistaken belief that this approach circumvented the order. Judge Gerein branded this tactic “too clever by half.” In October 2005, he found Killoran in contempt of court and fined him $5,000.

The following month, this time in Calgary, Killoran was again found in contempt. Judge Mason cited him for distributing the KPMG interim report and for refusing to disclose from whom he obtained it. “By the conclusion of the hearing, I was concerned about Mr. Killoran's mental state,” Mason wrote in his decision. “There was no medical evidence before me of Mr. Killoran suffering from a mental disorder, and I was unable to find on the basis of his conduct in Court that he was likely to present a danger to himself or others. I chose not to take the matter further.” Mason sent Killoran to jail for 10 days and fined him another $5,000. As a result of the sentences, the Durham District Board of Education dropped Killoran as a supply teacher. Even that did not dissuade him. He continued to distribute documents relating to the Shirley-Mallard dispute — at considerable risk to himself, and to little effect.

Shirley's cache of documents continued to claim victims. Earlier this year, investor advocate Larry Elford (who worked as an adviser with RBC Dominion Securities for 17 years but left the industry following a legal dispute with his employer) and Toronto-based forensic accountant Al Rosen filed separate complaints to the Institute of Chartered Accountants of Alberta. Both alleged that because KPMG had conducted work for Assante prior to 2004, it had a conflict of interest when it served as court-appointed custodian for the materials seized from Shirley's apartment. But both made critical mistakes: they provided the ICAA with documents Mallard's lawyer believed they had obtained from Killoran. When the Court of Queen's Bench of Alberta got wind of the complaints, it demanded that both men appear to explain why they should not be found in contempt of court. The court seized the documents from the two men and ICAA, effectively terminating the complaints.

Rosen was dropped from the proceedings, but Killoran and Elford are expected to appear before Judge Mason in Alberta sometime in the next few months. For the previously jailed Killoran, in particular, the stakes may be high. “This is a private lawsuit,” Mason said during a hearing this summer. “I thought I had got that through Mr. Killoran's head; obviously I didn't….We will deal with that.”

As for Assante, it's tough to say how this dispute — and attendant rumours about its sales practices — affected its reputation. But it's clear that reputation is not top-drawer. This year, J. D. Power and Associates conducted a survey in which it obtained opinions from more than 5,000 Canadian investors about their full-service investment institutions. Of the 15 brokerages ranked, Assante came last.

As of the time of this writing, there's no telling how far Shirley's cache of documents has travelled, where they might crop up next, or who will have cause to regret encountering them. Mutual fund analyst Hallett, for example, received many e-mails from Killoran regarding Assante. “Maybe there's real information in what Killoran was sending around,” says Hallett, his tone dubious and uncertain. “But like most people, I have a day job and don't have time to read all that stuff.” Perhaps it's for the best.

geoff howe

November 6-19, 2006 canadian business

http://www.canadianbusiness.com/busines ... tle-stops/
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Jul 01, 2011 3:58 pm

Would-be whistleblower found dead
by Steven Lamb (December 31, 2004)

A would-be whistleblower from the financial services industry has been found dead, apparently of suicide. Reports say Kent Shirley was found dead in his parents' home on Christmas Eve.

Shirley was embroiled in a constructive dismissal lawsuit against Advocis' founding chairman Brian Mallard, with both sides alleging regulatory wrongdoing. Shirley was an assistant in Mallard's Assante practice in Saskatoon, between 1996 and January 2004.

According to court documents, Shirley alleged Mallard "condoned, engaged in and required Shirley to engage in unethical behaviour and/or illegal conduct." Mallard denied the charges, calling the suit "extortion".

Shirley had turned files over to the Saskatchewan Securities Commission, the MFDA and the RCMP. The legal battle found its way into the national news media in an article by Jonathan Chevreau in the National Post. Chevreau reported the death this week on Wealthyboomer.com.

For some, Shirley was seen as a whistleblower fighting for investment transparency.

Stephen Gadsden, CFP, a former Assante planner and current contributor to FundLibrary.com, has posted an "An Open Letter to Canadians" on his website, saying: "[Shirley's] death represents, at the very least, an example of the ultimate consequences of corporate and regulatory sweep-it-under-the-rug-and-hope-it-goes-away business practices that have plagued Canada's financial services industry for decades."

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/31/04)
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Jul 01, 2011 3:57 pm

An Open Letter to Canadians

By Stephen Gadsden, December 28, 2004

While what follows is not intended to besmirch or otherwise impugn the character of
anyone, I am angry and provoked. This is because I just read John Reynolds’ book Naked
Investor.

It also brought to mind experiences I had while a branch manager with Fortune Financial
(1994-1998), Equion (1998-1999) and Assante Financial Management Ltd. (2000-2002).
Let me begin with my last dealer first.

Assante, as you may know, was the brainchild of Michael Nairne and Martin Weinberg
and was hatched back in the mid-1990s. Their plan was to take the original company,
Equion, which was a small Winnipeg-based investment firm, and use it as a core around
which to build their new company and launch it as a public company in 2000.

Their strategy was to buy out other small financial planning and investment firms and
lock them into the new Assante structure. They did so by way of a complicated share swap
scheme.

If this conversion venture proved successful, both Nairne and Weinberg stood to pocket
millions of dollars as Assante’s publicly-traded shares increased in value.

As a new branch manager with Equion I had reservations about this plan.

You see, before joining Equion I had been a successful branch manager at Fortune
Financial, Richmond Hill. With 22 brokers and financial planners under my direction, my
branch office was rated one of the top producing offices in the country.

After three years at the helm I was unceremoniously dumped by the principal shareholder
and owner of Fortune, David Singh. I angered Mr. Singh because I would not buy any of
his company’s shares and “support” his enterprise. Neither would I support his new
proprietary mutual fund products called Infinity Funds.

When asked by attendees of my public seminars about Fortune’s Infinity Funds, I
suggested people interested in them purchase the funds on a dollar-cost averaging basis
since they were new and unproven. I recommended that people not invest large lump
sums in Fortune’s proprietary funds at the time.

After moving to Equion in June 1998, I witnessed a similar kind of development.

I was offered an opportunity to buy privately-held shares of Equion before the scheduled
transformation of the firm into Assante in 2000. I politely declined the offer, preferring to
wait and see how Equion’s transformation transpired.

2 of 5

Like Fortune before it, Equion, too, had been developing a range of proprietary
investment products called Artisan Portfolios and Optima Funds.

In 1999 I attended a company-wide sales meeting in Mississauga, Ontario. At this
meeting Artisan and Optima products were introduced and promoted heavily by Mr.
Nairne and included glowing testimonials from senior Equion sales representatives.

The presentation for these products was based on two ideas. First, as “managed”
portfolios, both Artisan and Optima products allowed sales people more time to market
their franchises and build their businesses rather than continue to worry about the choice
and monitoring of third-party mutual funds offered by manufacturers such as Mackenzie,
Templeton and Trimark.

Second, Equion executives told the audience that the mutual fund industry was becoming
increasingly litigious. Financial advisors who sold mutual funds would be held
increasingly liable by their clients for portfolio performance. Artisan Portfolios and, in
particular, the Optima Strategy product would act as a bulwark against such developing
industry trends.

The assertion was, of course, that diversified portfolios and managed portfolios required
little or no mutual fund advisor input. The conclusion was, and the representatives I
talked to after the presentation understood, that putting clients’ capital in Artisan and
Optima products would better protect Equion’s mutual fund sales people from client
wrath and future stock market risk.

I had only one nagging issue. Would Artisan and Optima products live up to the billing?

With the Equion transition complete, Assante was launched and got its systems up and
running in 2000. Once accomplished, the company again turned its attention to the
promotion of its Artisan and Optima products.

I had already researched Equion’s original Artisan and Optima product-presentation and
concluded that as a group Artisan and Optima products were young, below-average
performers, and expensive to own when compared to alternative mutual fund products
previously available in Canada’s investment marketplace.

Out of two hundred or so clients I serviced as a Chartered Financial Planner, I had only
one client who purchased Assante’s Optima Strategy product, a kind of fund-of-funds
management format. After two years of watching her capital go nowhere, she left
Assante, much to my dismay.

With one or two exceptions, Optima products had not done that well over the years. It
hadn’t helped either when an oversight on Mr. Nairne’s part resulted in Optima funds
being performance-rated before management fees, which resulted in better investment
performance than the funds actually had achieved.

3 of 5

Assante admitted to its sales force that those of its proprietary products that were poor
performers were due to a restrictive management style.

Assante promised that, in future, a more comprehensive management style would be
applied to help mitigate the effects of future securities market risk.

As time passed, many managers and their sales reps, some of whom were top sales
producers and Assante stock holders, sold their clients out of their original third party
mutual fund portfolios and poured millions of dollars in proceeds into Assante’s Artisan
and Optima products.

I, for one, did not participate in this conversion process.

My partner and I then attended a branch manager and Assante executive meeting at the
Sheraton Toronto North Hotel on Highway 7 at Leslie Street on or about April 22nd 2002.

At this meeting we were horrified to hear Mr. Nick Mancini, Executive Vice-President,
Assante, tell us that Assante executives and other principal shareholders expected all
managers and sales representatives to redeem up to 80% of their clients’ money that was
not invested in Assante investments and reinvest the proceeds in Assante’s Artisan and
Optima mutual funds.

Mr. Mancini gave a number of reasons why such a conversion to Assante-owned mutual
funds was a great idea. Here are three of them:

1. Such activity would be good for all Assante shareholders. This is because
Assante’s fee income charged to clients of its Artisan and Optima funds was
higher than fee income Assante received from third party fund companies such as
Trimark. By raising Assante’s cash flow the company’s balance sheet would look
much better and attract other potential Assante stockholders.

2. Assante shareholders could benefit from an increase in the price of the company’s
publicly-traded shares.

3. Those Assante managers and sales reps who sold their clients into Assante’s own
products would benefit not only because of increasing Assante stock prices, but
they would retain greater control of their clients’ monies through the company’s
Artisan and Optima products.

I couldn’t see any advantage to my clients to convert a portion of their third-party mutual
funds and I refused to do so. I couldn’t justify moving my clients out of above-average
performing and less costly mutual funds to Assante’s Artisan and Optima products.

On September 30th 2002 the axe dropped and I was “fired without cause” by Assante.
The transfer of my securities licence was cleared with restrictions on January 2003.

4 of 5

During this period my clientele and business equity were allocated to another Assante
representative.

After 21 years of service I have since left the financial services industry as a product selling
advisor.

But, this little story doesn’t end here.

You may be wondering why I waited until now to convey this one small experience of
Fortune, Equion and Assante.

Over the past few years I have listened to similar accounts from other mutual fund sales
people and have watched as similar stories passed in and out of the media, all without
consequence or resolution. The final provocation for me occurred with the following:

• Jon Chevreau’s brave call for further investigation of apparent breaches of
securities law by an established sales rep and one-time founding member of a
national financial planners association called Advocis. See Chevreau at
Assante lawsuit bears a closer look - http://www.investorvoice.ca/PI/1166.htm

• According to a respected source, Mr. Chevreau’s attempts to investigate these
issues further have been spiked by his handlers which, as an investigative reporter
and journalist, I know often occur when a company or person receives threatening
letters, impending lawsuits or “slap suits” as they are otherwise called, or is the
object of collusion by parties with similar, vested interests.

• The release of John Reynolds’ expose of the self-serving, turtle-like acts of our
Canadian securities regulators and their appointed Self-Regulatory Organizations
(SRO’s) such as the Investment Dealers Association (IDA), the newly minted
Mutual Fund Dealers Association (MFDA), and our very own securities
Ubermensch, the Ontario Securities Commission (OSC). See Reynolds at
http://www.penguin.ca/nf/Book/BookDispl ... 37,00.html.

• I was recently informed that a courageous securities industry “whistleblower”
with boxes of incriminating evidence once in his possession, was found dead
under as-yet-to-be-determined circumstances on Christmas Eve 2004.

His death represents, at the very least, an example of the ultimate consequences
of corporate and regulatory sweep-it-under-the-rug-and-hope-it-goes-away
business practices that have plagued Canada’s financial services industry for
decades.

Consumer and industry rights advocate, Joe Killoran, goes so far as to call the
unfortunate death of this one-time mutual fund sales assistant a “blatant collective
murder” where government regulators, SROs, and corporations should be held
accountable.

5 of 5

On the other hand, remember Royal Trustco? How about Bre-X? What about our
big banks’ involvement in the Enron fiasco? Has Air Canada’s humiliating
bankruptcy and fall from grace, and the wealth of thousands of stock holders who
were dragged down with it, been investigated properly?

Oh yes, let’s not forget Nortel, and the recent imbroglio of mutual fund market
timing. The list goes on and on.

I am truly amazed.

Canadians should start thinking seriously about what’s been happening to their fortunes
over the years and why.

Just how long will we continue to tolerate the greed, manipulation and rot that appear to
permeate our financial service industry from top to bottom?

How long will we continue to ignore the damage and pain that has been inflicted, and
continues to be inflicted, on investors and advisors alike by a financial system that is
clearly out of control in its duplicitous, self-dealing drive for profits?

Where is the raft of class-action lawsuits by Canadians who have been suckered by
corporate robber barons who hide behind entire law firms, manipulate the media and
infect an already twisted, self-serving and conflicting regulatory environment?

And not the least, how will Canada’s financial services community and industry
regulators compensate a struggling, conscientious young man who wanted to better the
financial system by revealing transgressions of the most lurid kind, but got death instead?

Something sure stinks in Canada’s financial services industry. Where is Eliot Spitzer?

Stephen Gadsden, B.A., M.A., CFP (1991)
Aurora, Ontario
Canada
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Jun 25, 2011 4:03 pm

Screen shot 2011-06-25 at 5.02.17 PM.png
Nov. 16, 2002: Jon Chevreau’s 1st column


“Beware advisors who sell their own funds”

As in-house funds are added to the mix, investors should question how "independent" these advisors are.

Why they push in-house funds is no mystery. "Distribution is a low-margin business, but manufacturing is where the real money is," says fund analyst Dan Hallett. Assante makes 0.05% margin on distribution, but 1.2% making and selling its Artisan and Optima Strategy funds.

A disturbing trend at some firms are edicts that advisors sell a set percentage of in-house funds. One is Assante, reading between the lines of a recent piece in The MoneyLetter by Stephen Gadsden, a former Assante advisor who balked at filling client portfolios with in-house funds.

Last spring, Assante changed its policy to encourage advisors to drive up to 80% of assets into its funds, Gadsden says. A three- tiered commission grid best rewards advisors selling in-house funds, he says.

The danger for clients is that overweighting in-house funds may displace superior, less costly external funds. Gadsden says Assante's new business policy is "a big conflict of interest between working on behalf of a client's best interests and working for Assante's corporate profitability."

Assante spokesperson Gail Grainger confirms 40% of Assante's assets are in in-house funds, but denies it puts pressure on advisors to sell them or that they are paid more to do so. "I beg to differ," Gadsden counters. "I was at the spring 2002 company managers' meetings.

Many branch managers informed of the scheme were in an uproar. It's impossible for Assante advisors' recommendations to be objective."

Trailer fees on Optima Strategy funds are higher than external funds, and advisors who own Assante stock can profit by filling client portfolios with its funds.

While not as egregious as Assante, Cartier is no exception to some of these trends. It sells five fund groups -- AGF, AIM, Fidelity, Mackenzie and Templeton -- plus its own Cartier funds. It now also sells Cartier funds through outside advisors.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Sep 23, 2010 1:59 pm

The issue I have concerns about was a legal issue in a Calgary Court House a few years ago now. At that time I was not involved in any way except to attend the courtroom and observe with interest.

What I saw was a court case where a young man was involved, with evidence of wrongdoing against a former employer.

The young man's home (in Red Deer) was invaded with an Anton Piller order (private search warrant) where he was forced to turn over all incriminating evidence against his former employer, AND he was forbidden in writing to contact the police or "any authority", despite it being fully known to the lawyer who drafted this order, that the young man was in contact with and co-operating with both police and regulatory agencies.

I feel that this young man's constitutional rights, not to mention rights to not suppress evidence etc., etc were stolen from him in this case. There is much more that was done in a damaging manner, but I will spare you the entire load of info.

The young man fully expected the wording in this Anton Piller order to be overturned, and attended Calgary Court just prior to x-mas 2004 to see if such a motion had been filed. It turns out that the judge HAD indeed overturned that portion of the order preventing him from speaking to certain authorities, but his lawyer failed to file this motion for a further nine months time.

The young man took his own life in an apparent suicide x-mas eve 2004.

It prompted me to put parts of his story into my film BREACH OF TRUST, The Unique Violence of White Collar Crime. http://www.breachoftrust.ca video chapter six available on the net

I have about twenty pages of document summary and timeline to outline the extent of the loss of liberties involved here, and the subsequent gain of money to those involved.

I am saddened by the extent of corruption and conflict of interest allowed by our professional and legal system in order to "play" the system, and to gain financially from it.

The irony may also be that the judge that granted such an order (or was tricked into signing this order by a corrupt lawyer), has retired to head up a human rights commission in alberta..........funny how those things go.

Cheers and thanks
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Wed May 12, 2010 8:34 pm

image005.gif
image005.gif (5.57 KiB) Viewed 21970 times
CANADIAN BUSINESS MAG ONLINE
SEAN SILCOFF
2000-02-07
Glitz and misses

Investors might really get to like Marty Weinberg's wealth management company to the stars--if they could just figure out what it does


Some wealthy people collect art, while others collect rare wines or cars. Marty Weinberg collects heads. In his Winnipeg home are two heads in particular that action movie buffs will instantly recognize. One is the small gold statue that Harrison Ford snatches up at the beginning of Raiders of the Lost Ark. The other is a life-sized robotic model of Arnold Schwarzenegger's noggin from Terminator 2, complete with a control mechanism that allows Weinberg to move the model's eyes, mouth and ears.

If you think the 39-year-old Weinberg's taste in movie memorabilia is a bit strange, consider Assante Corp. (TSE: LMS), his burgeoning wealth management empire. Over the past five years, Weinberg has bought up a slew of mutual fund dealers and financial advisers on his way to creating the country's largest non-bank-owned financial planning firm, overseeing $26 billion in assets. His company is more than that: Weinberg's mission is to serve as "personal chief financial officer" to affluent Canadians, offering such services as tax advice, estate planning and bill payment--in addition, of course, to managing their investments. In the US, Weinberg has gone Hollywood in a different way, snapping up firms that manage the wealth and business affairs of movie stars and negotiate multimillion-dollar salaries for sports heroes.

Weinberg's client roster now includes about half the starting quarterbacks in the National Football League, as well as movie star Tom Cruise and TV host David Letterman. If you're compelled to yell "Show me the money!" at Weinberg (like the sports agent Cruise portrays in the 1996 film Jerry Maguire), the joke is on you: in October, Weinberg paid US$120 million for Steinberg, Moorad & Dunn, the California-based firm founded by the real-life inspiration for Jerry Maguire, super-agent Leigh Steinberg. "'Show me the money' is what we're trying to do," says Weinberg.

Funny, that's what Assante investors have been waiting for ever since Weinberg decided to turn his one-time hobby into a publicly traded company. Last spring, Weinberg tried to peddle Assante shares to institutional investors at $15 a pop and flopped big time. He had to slash the offering price to $9.50, only to watch the stock skid to $5.70 in October; it has yet to reclaim its May 1999 IPO price. You could argue that all financial services firms had a rough ride in the markets last year. But Assante has attracted scant institutional interest, little market activity and not one analyst report in its eight months as a public company. The biggest buyer of Assante stock is Assante itself: in late October the company announced plans to buy back up to 2.7 million--about 5%--of its own shares. "We think it's one of the best deals we can find," says Weinberg, who owns more than 14.5 million multiple voting shares (and 88% of voting control) himself. Assante is certainly growing by leaps and bounds: revenue for the first nine months of 1999 rose 135% to $228 million from the same period the year before, while earnings before interest, amortization and taxes climbed a steady 71% to $40.6 million. So why is Weinberg the only one buying the company?

Reason No. 1: he may be the only one who understands it. Before anything will change, Weinberg has to explain to investors exactly what his company does, what that's worth, and how to decipher the company's convoluted share structure--which makes it nearly impossible to come up with hard per-share earnings estimates. "It's not a simple structure, and that's what the market will need time to understand," says Timothy Lazaris, a financial services analyst with Griffiths McBurney & Partners, one of several Bay Street number crunchers now working on their inaugural reports (Lazaris's firm also partially underwrote the Assante IPO). "That's the role of the analysts and that's why we're taking a little bit longer than normal to understand it completely."

But even if the analysts offer up "buy" ratings, don't expect investors to respond immediately. Weinberg doesn't. "I think we will need a float somewhere in the area of two to three times what it is today. We'll also need adequate coverage of the company and the ability to show that we have executed several quarters of our strategy," he says. "We're more a listed private company than a public company right now. I guess in my own mind I have a one- to two-year target time frame to make Assante a real public company." That, no doubt, will come as a surprise to stockholders, who, last time they checked, owned shares in a "real" public company.

Every year around RRSP season, investors look out on the vast array of mutual funds and throw up their hands in confusion. But if anyone is having a hard time these days, it's the folks who actually peddle those funds and the people who manage them.

While Canadians poured money into mutual funds between 1990 and 1998, last year was a different story. There was a bigger roster of funds to choose from than ever. Yet sales dropped to $17.7 billion in 1999 from more than twice that amount the year before. Meanwhile, some of the biggest fund management companies in Canada--including Dynamic Mutual Funds Ltd. and Trimark Financial Corp.--have recently experienced net redemptions of tens of millions of dollars, according to the Investment Funds Institute of Canada. Small fund dealers, for their part, have found their businesses squeezed by the need to keep up to date in an industry that has become increasingly regulated, technologically advanced--and dominated by giant bank-owned competitors.

Meanwhile, another trend is affecting the money management world: a soaring number of baby boomers who have become wealthy in the prolonged bull market (an estimated 300,000 Canadians now have a net worth of $1 million or more). Many have arrived at the point where they want their extensive portfolios to encompass more than just mutual funds. At the same time, some find their financial needs expanding beyond basic wealth management, to such fee-based services as estate and tax planning.

Assante is designed to service this collision of trends. In the early 1990s, Weinberg dreamed up the idea of a fully integrated wealth management firm while working as controller with his father-in-law's electronics store. At the time, Weinberg was running an investment management firm, Loring Ward Investment Counsel on the side, managing customized portfolios for a group of affluent Winnipeg professionals in his spare time. Weinberg envisioned expanding his firm into a place where his clients, under one roof, could not only manage their money, but obtain tax advice, assistance with drafting an estate plan or insurance coverage. By treating otherwise separate functions and professionals as part of a coordinated "life management" team for the client, Weinberg believed he could offer a unique service that would surely give Loring Ward a distinct advantage over other money-management firms. He soon quit the family business and began looking for ways to expand his company.

While looking for a Bay Street partner to help him grow in the mid-1990s, Weinberg came upon Michael Nairne, a fellow Winnipeg native who had built Equion Group Ltd. of Toronto into one of the better-known mutual fund financial advisory firms in the country. The two understood each other and determined they would build their list of clients together by buying up financial planning firms, then selling them an expanded array of products and services.

After merging their companies to form Assante in 1995, the two embarked on a frenetic round of deal-making that saw them snap up a total of 13 Canadian and six US wealth management firms between 1996 and 1999. The idea was to purchase a company, keep the management intact and then leave it to operate as it had before. Only now, clients would be sold Assante's exclusive in-house investment products and services--primarily its exclusive Optima Strategy funds, available only to investors with $100,000 or more. According to Assante's 1999 prospectus, the in-house selling job proved highly effective: the longer a company was owned by Assante, the greater the share of Assante products its clients were likely to buy (from 11.4% of total assets in the first year to almost 50% after four years).

But Assante has faced critics at every step. Any fund company that both creates and sells its own funds risks being in conflict of interest, as former Ontario Securities Commission chair Glorianne Stromberg noted in her 1999 report on the mutual fund industry. After all, any managers who own Assante stock have a vested interest in pushing their in-house funds on clients--whether those investments are appropriate choices or not.

Beyond that, however, are questions surrounding exactly what it is the company brings to its clients. Assante charges a pretty hefty fee for its offerings. Those in-house Optima funds carry management fees in the 3% range--a high figure, when you consider the payback. "Their returns haven't been overly impressive," says Dan Hallett, senior analyst with FundMonitor.com. (For example, Assante's $951-million Optima Strategy Canadian Equity Fund--its largest fund--was in the bottom quartile of its peer group for the first 11 months of 1999, yielding a 2.9% return.) "If I were to sum up [Optima] in a word, it would be 'expensive.' We're really not big fans of this fund family."

But if cost-conscious clients find Optima funds too pricey, they'd be floored by the cost of joining Assante's high-end private client management program, where they get the "personal CFO" treatment. Across the industry, according to Kelly Rodgers, president of Rodgers Investment Consulting, clients with more than $1 million in assets can expect to pay management fees starting at 1% of assets, and declining as their net worth increases. Someone with between $1 million and $2 million worth of investible assets, for example, should pay about 1%. Compare that with Assante, where clients with comparable assets pay 2%--twice the typical amount.

Weinberg says that's like comparing apples and oranges, since he brings more than investing services to the table. "We charge for the value we bring to people's lives. We've focused on having clients live happily ever after by meeting a personal benchmark. If we minimize tax, give them income liquidity, allow them to retire when they are supposed to and not have risk creep into their portfolio--this client can go to bed happy. Combine that with all the other services--including bill payment, wealth management and tax and estate--and what you have is about 20% of somebody's life being looked after by one organization under one roof. We've just added 10 to 15 years in quality time to that person's life, for a fee."

That, of course, assumes clients see value in taking any business away from their existing lawyers and accountants. (In fact, Assante usually just draws up the financial master plan, leaving the paperwork to outside accountants and lawyers.) Says Rodgers: "Why would I go to a financial planner for expert tax advice? Wouldn't I go to an expert tax lawyer or tax accountant? I've never had clients complain about it being too complicated to deal with their lawyer once every two years to update their will or to have their accountant do their taxes every year."

That may be so. But Assante's business model is based on a whole lot of people paying no heed to what Rodgers says. Already, the firm has about 2,000 client accounts (with average assets of $1.6 million under management) receiving its high-end service. And Weinberg's idea of cross-selling financial services--and pulling "embedded" value out of the bottom line--certainly seems to have excited the principals of the Canadian and US wealth management firms he's bought in the past five years--particularly Leigh Steinberg, who envisions building a gigantic sports agency, offering a full range of life-management services. But trying to pin a value on Assante itself is another matter. One thing is for certain: over the next few years, the company will issue millions of shares to managers to pay for the string of deals Weinberg has completed. But determining the exact number of shares and their value is difficult. A typical deal goes something like this: Assante pays the first instalment in cash. That is followed by a second payment of a fixed amount on a predetermined date (usually the third anniversary of the deal), where the number of shares is determined by the stock price on that date. Later, the owner can earn an indeterminate bonus of more shares, at an as-yet-undetermined stock price, if the firm reaches predetermined financial targets.

The deals are structured to ensure the head of an acquired company continues working toward better results and a higher stock price--while leaving Assante only to pay minimal up-front costs. That may sound clever, but chances are this complicated scheme is just too much for the average investor to comprehend, since it's impossible to predict exactly what the number of shares will be at any given time going forward. And if investors give up on the stock, imagine how all those managers who sold out for future shares will feel if the stock doesn't perform and their shares become overly diluted.

Well, there's at least one person who believes that it will all fit together. His name is Marty Weinberg. In fact, he sounds downright irritated when he's asked to explain for the umpteenth time exactly what winds of change he's blowing across the financial services industry from his perch 15 storeys above downtown Winnipeg. "It's absolutely logical, every single step of the way," he says.

Now comes the hard part--proving it works. Someday all those shares will be vested and the company will be easier to understand. By then, according to Weinberg, earnings should be at least four times what they are today and a loose network of independent firms will be integrated under the strong Assante brand name. If there is merit to his theory about the market for personal CFOs, Assante's financial results and stock price should prove him right. The underlying message in Marty Weinberg's confident, impatient voice seems to be, "Yes, yes, give me time and I will show you the money."
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Dec 12, 2009 5:24 pm

I am posting this case about secret commissions being an offense under the criminal code as a similar example to the case of commission rebating, house brand fund sales, and bonus shares in the mutual fund received by salespersons in this case study proposal.

secret commissions means secretly or without the requisite disclosure. The Crown is not required to prove the existence of a corrupt bargain between the giver and the taker of the reward or benefit. It is thus possible to convict a taker despite the innocence of the giver.

He accepted the commission secretly and influenced the affairs of his principals.

lack of disclosure is an element of the actus reus of the offence of taking a secret commission under s. 426(1)(a)(ii) of the Code, and awareness of that lack of disclosure is an element of its mens rea.

By contracting secretly with Qualico, the Accused knowingly fettered what he held out to be his professional judgment and put himself in a criminal conflict of interest.

secret commissions are not acceptable as they compromise the integrity of our commercial life. The essence of this offence involves the taking of a "secret commission".

In the context of the "Secret Commission" cases, the fundamental duties of the agent are those arising from the fiduciary nature of the agency relationship. The relationship of trust focuses on the principal with the result that agents must not let their own personal interests conflict with the obligations owing to their principals. A conflict of interest exists when an agent is faced with a choice between the agent's personal interest and the agent's duty to the principal. Fridman, supra, put it in this way (at p. 153):

The intent of the section is that no one shall make secret use of an agent's position and services by means of giving him any kind of consideration for it. . . . [T]he intent in passing this section was and is to protect the principal, the employer, in the conduct of his affairs and business against people who might make use or attempt to make use of his agent.




R. v. Kelly, [1992] 2 S.C.R. 170; (June 11, 1992)

William Thomas Kelly Appellant

v.

Her Majesty The Queen Respondent

Indexed as: R. v. Kelly

File No.: 21719.

1991: October 31; 1992: June 11.

Present: L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Stevenson* and Iacobucci JJ.

on appeal from the court of appeal for british columbia

Criminal law ‑‑ Secret commissions ‑‑ Elements of offence ‑‑ Accused acting as financial investment advisor selling housing units to his clients ‑‑ Commissions paid to accused by development company for sale of units not disclosed to clients ‑‑ Whether accused guilty of corruptly accepting a reward or benefit under s. 426(1)(a) of Criminal Code ‑‑ Whether Crown required to prove existence of corrupt bargain between giver and taker -- Meaning of word "corruptly" ‑‑ Criminal Code, R.S.C., 1985, c. C‑46, s. 426(1)(a).

The accused was charged with four counts of corruptly accepting a reward or benefit contrary to s. 426(1)(a) of the Criminal Code. He was one of the principals of a company ("KPA") which offers, for a fee, financial planning services, including advice respecting investment in real estate and tax planning strategies. In 1980, the accused persuaded a property development company to give KPA the exclusive right to sell the units of its MURB project. KPA sold all the units, mainly to its clients, within the relatively short time prescribed in the agreement and received a commission from the development company for each unit sold. These commissions were the same as those which the development company would have paid to any salesman. At trial, the evidence indicated that KPA's clients were unaware of the commissions paid by the development company to KPA. At their initial meeting with new clients, KPA only gave vague and general information as to its sources of remuneration on a "white board". The accused himself later advised his associates that, with respect to the MURB project, he did not want further disclosures in writing. In defence, the accused testified that the clients purchasing the MURB units should have known of the commissions to be paid to KPA from two small references in the Offering Memoranda on the "Issuing and Sales Costs". The accused was convicted on all four counts. The trial judge found that he had an obligation to make full, frank and fair disclosure of the sales commission. The majority of the Court of Appeal affirmed the conviction. The question raised on this appeal is what the Crown must prove in order to obtain a conviction pursuant to s. 426(1)(a) of the Criminal Code. In particular, this Court must determine whether s. 426 has any application where the party making the payments was not part of a corrupt bargain with the taker.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:13 pm

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Assante lawsuit bears a closer look
Mutual fund sales practices at centre of employment suit

Jonathan Chevreau
Financial Post

Thursday, August 26, 2004
The founding chair of Advocis is being sued by a former assistant to his financial planning practice at a division of Assante Corp.

In some ways, this is a classic David vs. Goliath tale. The goliath figure is Brian Mallard, a wealthy, often-quoted industry figure with multiple credentials and 32 years in the business.

He manages an Assante branch in Saskatoon. He also was -- from January, 2003 until May, 2004 -- the founding chair of Advocis, which represents Canada's financial advisors and insurance sales-people.

Facing him is a figurative David: Kent Shirley, a Saskatoon-based financial advisor who filed a constructive dismissal lawsuit in March. Shirley is suing Mallard personally, plus two companies bearing his name and Assante Financial Management Ltd.

Mallard's amended statement of defence and counterclaim, filed in Saskatoon in June, depicts Shirley as a troubled young man with a host of personal problems.

In an interview, Mallard indignantly dismisses the suit as an attempt to "extort" $50,000 from him: the amount Shirley borrowed from a bank to buy Assante stock from his (Shirley's) brother, also with Assante. Mallard cosigned the loan, pledging Assante stock as collateral.

Shirley won't speak on the record about his motivations, but far from shutting up and disappearing, the opposite seems to be happening.

What began as an obscure employment dispute is escalating into a case that could shed much light on sales practices in Canada's financial advice business.

Shirley provided extensive documentation to the Saskatchewan Securities Commission, the Mutual Fund Dealers Association (MFDA) and the RCMP.

His statement of claim alleges Mallard did not practise what he preached in his founding role at Advocis. Or as the document puts it in more formal language: "The Defendants condoned, engaged in and required Shirley to engage in unethical and/or illegal conduct."

The suit says the defendants "regularly breached codes, laws, rules and regulations and required him to do so as a condition of his continued employment." Shirley was expected to "participate in, and/or turn a blind eye to, the Unethical Practices."'

The alleged unethical practices include providing insider information to clients, making personal loans to clients, giving stock advice to clients, facilitating trades while not properly licensed to do so, selling personal stock to clients, and issuing personal guarantees on client accounts.

All those allegations are false, the defence argues, "brought solely to embarrass the Defendants and tarnish their reputations." The defendants "deny breaching ethical codes, laws, rules and regulations or requiring the Plaintiff to do so as a condition of his continued employment." Mallard's counterclaim also seeks damages for negligent or intentional misrepresentation and breach of contract.

In an interview, Mallard defends each charge, but admits he provided personal guarantees to some clients worried about bear market losses in 2000. However, he says this was acceptable practice before the MFDA set up shop.

Except for seven months' medical leave in 2002-2003, Shirley's suit says he was "employed full time" at Assante from 1996 until January, 2004.

Mallard denies Shirley was constructively dismissed; he says he was a contract worker rather than a salaried employee, and wasn't terminated but quit.

Either way, Shirley was afforded a bird's-eye view of internal incentives for advisors to replace third-party funds in client portfolios with more profitable in-house Assante product. He was also there as this strategy was parlayed into the ultimate sale of the firm to C.I. Fund Management.

It's this aspect of the case which has attracted the attention of Joe Killoran, who describes himself as "Canada's most feared investor advocate" [see http://www.investorism .com]. He believes the case illustrates how the industry is still not properly regulated.

Killoran focused on the sale of proprietary funds in a presentation last week to the Ontario Finance Committee's five-year review of the Ontario Securities Commission. He accused the OSC and other provincial securities commissions of "gross malfeasance" in the lax way they permit integrated fund manufacturer/ distributors to incent advisors to sell in-house proprietary funds.

This has become an issue in the United States, which is why Killoran forwarded Assante's pre-IPO business plan to New York State Attorney General Eliot Spitzer. Killoran drew Spitzer's attention to the sales practices of Assante's U.S. arm: Loring Ward International. Killoran says he contacted Spitzer because Canada does not have the whistle-blower protection laws the U.S. has had since 1989.

Killoran says the original business plan outlined payment of bonus Assante shares to advisors once they converted 40% of client assets to Assante's proprietary Optima funds. He says this practice skewed the provision of objective advice.

For his part, Mallard insists, "I have 500 clients that love me." In typically strong language, he adds he's "pissed off with a system that assumes every advisor is guilty."

He says the more interesting story is Assante's reaction to the suit, including the firing of at least one internal compliance officer.

Mallard says securities commissions have ceded authority to self-regulated bodies like the MFDA and the Investment Dealers Association. Rather than investigate alleged abuses themselves, the MFDA tells dealers they have received a complaint about an advisor. At its request, two Assante compliance officers audited the Saskatoon branch in May, Mallard says. One later moved to the MFDA.

This case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.

© National Post 2004
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:11 pm

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Dec. 05, 2002: Jon Chevreau’s 4th column National Post


Fund awards all about sales

Finding a winning mutual fund has been a tough task the last three years, but most everyone in the fund industry was a winner at last night's annual Canadian Investment Awards & Gala.
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None of Assante's in-house funds won awards last night, nor did the proprietary funds of their distribution rivals -- not even Investors Group Inc., unless you count Mackenzie, with four winning funds. Instead, Investors won the "Imagine Community investment award."
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Other winners are listed at http://www.investmentawards.com, but it doesn't include my suggestion for "sleazy distribution award."
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:10 pm

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Dec. 03, 2002: Jon Chevreau’s 3rd column National Post


Love the firm, not the funds

Managing money for the wealthy is nice work if you can get it.

Assante Corp. of Winnipeg targets pro athletes and entertainment stars who completely delegate their financial affairs to others. They seem oblivious to high fees that would send any knowledgeable do-it-yourself investor running for the exits.

But rather than dishing out annual fees of 2.5% to 3% or more, you can instead be the beneficiary of such fees by buying Assante's stock (LMS/TSX) instead of its products.
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There is what Veritas Investment Research calls a "seismic shift" occurring in the balance of power between fund companies and their distributors, particularly new channels such as Assante, Cartier Partners and IPC Financial Network.

Of the top 25 once-independent financial-planning firms that existed in 1996, 22 have been acquired by these consolidators. Assets are being shifted from brand-name external funds to more profitable in-house "multi-manager wrap" programs.

Some fund companies are irked they must compete with in-house funds for the attention of advisors, but one has decided if you can't beat them, join them. CI owns 6.2% of Assante, one of the largest non-bank financial services firms in the country and there is speculation it plans to acquire a controlling interest.

Certainly, the banks' research arms have Assante on their radar, with some initiating coverage with "buy" recommendations over the past two years. That wasn't always the case. It took years for Assante to shake off criticism of its early growth years and poor financials after its creation by founder Martin Weinberg in 1995.

Following its initial public offering in May, 1999, Assante "couldn't get a Canadian institution to buy our stock," says Kish Kapoor, Assante's executive vice-president.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Thu Nov 12, 2009 12:09 pm

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Nov. 23, 2002: Jon Chevreau’s 2nd column National Post Newspaper


Independent advisors on endangered list
Compensation system presents some 'real conflicts'

Any investor willing to pay for good financial advice naturally expects it to be objective and independent.
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Such advice-skewing blandishments were eliminated by the big fund manufacturers in the wake of Glorianne Stromberg's recommendations in 1995 and 1998. However, distributors seem to have escaped a new sales code rule from the Canadian Securities Administrators designed to prevent such conflicts.

"These arrangements are very troubling," says Stromberg, who was a commissioner at the OSC when her two reports shook up the mutual fund industry. "Intermediaries hold themselves out to clients as being independent and making sure clients' interests come first.

But their compensation system presents them with real conflicts which raise the question of whether their advice is skewed by what they will receive if they recommend proprietary product."

Such practices, she said in an interview yesterday, "should be setting off warning bells that the current regulatory and industry talk about doing away with the sales code will not be in the best interests of investors. So much for principles. It's time to update the sales code rules to deal with the new round of questionable practices that have developed."

At a minimum, these distributors and advisors shouldn't be allowed to describe themselves as independent, Stromberg says.

Some firms are indignant about this interpretation. Assante Corp. has acquired 18 dealers since 1995 but vice-president Kish Kapoor denies the firm even contemplated" a three tiered differential commission grid which allegedly would pay better on in-house funds and certain approved external funds. Kapoor says Assante is just standardizing the grids of the firms acquired.

But even without preferential grids or differential trailers, advisors personally invested in public fund distributors are motivated to sell in-house product. The more they sell of it, the more profits for the firm and the higher their stock will eventually be.

Bay Street makes a virtue of these practices.

TD Newcrest just issued a buy recommendation on Assante, enthusing that its "advisors also benefit financially" by shifting customer portfolios from third-party funds to in-house products.

"We suspect some advisors at Assante realize their actions can impact Assante's share price," it says, adding advisors make 1.2% on its in-house Optima product rather than 1% selling external funds.
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Sat Oct 03, 2009 3:51 pm

MEMORANDUM

Date: January 27, 2000

To: Assante

From: Martin Weinberg

Re: Canadian Business Article - February 7, 2000

Private & Confidential

The current issue of Canadian Business Magazine contains an article on Assante, which was reprinted in the Toronto Star on January 26, 2000. As with all media coverage, journalists attempt to write a "story" that will grab a reader’s attention. Although many of the facts articulated in the article were correct, the context in which they were used to support the journalist’s opinions led to implied conclusions that are inaccurate.

There are a number of issues that were raised during the interview that appear in the article. While I attempted to provide context and background to the journalist, it is inevitable that important and detailed information can get lost in the interests of ‘grabbing the readers interest’.

Therefore, I would like to take this opportunity to provide context, background and fact to a number of the key issues that were raised in the article, should you find yourself at the end of a telephone with a client who asks "What does all this mean?"

Assante’s Share Price in Context

In preparing to ‘go public’ Assante invited a broad group of investment bankers to value the shares of the company. The valuations ranged in the $13 -$15 range with one investment house providing a much higher valuation. At that time, our peer group was trading at 12X -14X EBITDA (earning before interest, tax, depreciation and amortization). From that point in time up until the date of pricing, the multiples of EBITDA in our industry collapsed, falling to under 6X or a 50% decrease in valuations. Our entire peer group including companies like Investors Group, Trimark, Mackenzie, Charles Schwab and Merrill Lynch all fell, some by more than 50% from their highs. Assante was re-priced at $9.50 or 37% below the initial valuation.

Since that point in time, Assante’s share price has bounced around settling in the $8.00 range. In light of the poor IPO environment (e.g. Manulife and TD Waterhouse) and a weak mutual fund industry, Assante has performed in-line with the rest of the industry.

Performance of the Company Vs Performance of the Stock

As I indicated to the journalist, the Assante story is complex. In each year since its inception we have more that doubled the size of the company and added new lines of business and services to broaden and enhance our service offering to clients. This has made it a complex and changing story for investors and analysts to follow.

In our report to shareholders for the third quarter of 1999, Assante reported an increase in revenue of 145%, an increase in EBITDA of 97%, an increase in after-tax-cash-flow of 90%, and an increase in net income of 210% outperforming every other company in our peer group.

In addition, year over year, we increased assets under administration by 110% and assets under management by 39%. Our net new sales as a percentage of ending assets were 34.3% as compared to IFIC at 15.5%. Our market share as a percentage of IFIC members increased. Assante has been one of few companies in the industry that has experienced net positive monthly inflows ranging between 3.5% and 19% during 1999.

Assante’s financial performance continues to be strong against the backdrop of a very weak financial services market. We will continue to focus our energy on managing the company and not on trying to manage the stock price. While Assante’s share price will continue to be buffeted about by market gyrations, our ability to create lasting shareholder value will be rewarded over time.

Analyst Coverage

The good news is both CIBC World Markets and Griffiths McBurney are in the final stages of their research reports and we should see coverage before the end of the first quarter. As analysts get to know and understand the company their coverage will assist others in understanding the company. It will assist investors in understand the unique service offering we are building and understand the long term value we are building.

Why hasn’t there been coverage until now?

Unfortunately, almost immediately after Assante completed its IPO in May 1999, Canada Life, Clarica (Mutual Life) and Manulife began final preparations for demutualization and their IPOs. Financial Services analysts who cover Assante spent the summer writing reports in preparation for demutualization and then the entire fall working on these very large IPOs. In fact, many underwriters have added a dedicated insurance analyst as this industry sector doubled in size with these three IPOs.

In addition, the lead financial services analyst at CIBC World Markets, our lead underwriter, left the company during the summer of 1999 and the company waited until they had a replacement before initiating our research report.

Institutional Interest

At the time of our IPO we made the strategic decision to go ahead with the issue in spite of a weak IPO market. We determined that it was important to take advantage of the

small window of opportunity that we believed was required to secure our position in the marketplace.

Although institutional investors purchased over 65% of the issue, many institutions want to see a larger float of stock, which allows them to get in and out of their positions with relative ease. Ideally, these investors would like to see a float of two or three times our current float. As escrow provisions fall away on the anniversary of the IPO each May and as we complete new acquisitions, we will see an increase in the number of shares available, which will make Assante stock more attractive to the larger institutional investors.

In addition, a significant part of my time in 2000 will be spent meeting with institutional and other investors throughout North America to tell the Assante story and build interest.

Life Management Services/Sports & Entertainment

Many clients, advisors and employees have been asking what life management services are and why we have been acquiring companies in the sports and entertainment industry.

You know that your clients have less time and their lives are becoming more complex. As we looked down the road we asked ourselves what would clients need and demand from their advisors today and in the future. We believe that within three to five years, our clients will be looking to their most "trusted advisor" to simplify their life by providing an increasing number of services including; investment, insurance, virtual banking, loans, mortgages, bill payment, and the coordination of many other aspects of their lives. They will also expect almost instantaneous results using digital technology.

Many of the leading edge services we intend to develop over the next few years will be provided by professional services firms with expertise, infrastructure and a proven track record. We have chosen partners in the U.S. that have the expertise and infrastructure to assist with delivering these and other services to our Canadian clients at various levels of sophistication and continue to seek other strategic partners for other Life Management Services. While the market may not see the need to have these services today, we are not prepared to wait until the private banks, large financial services firms, and other firms taking away clients from our advisors.

If we have learned nothing else from the last two years its that staying at the forefront of product and service development and back office technology is critically important to the success of your relationship with your clients and our success as a company. We are working hard on all of these fronts as our number one priority.

Fees

As the industry becomes even further commoditized, market share for investment products will go to the lowest cost delivery system. Discount brokers are offering to rebate commissions, the internet is gaining eyeballs that are now trading through a myriad of sites and banks are broadening their offering to include hundreds of third-party funds. Advisors are also considering "doing it all themselves" but have not considered the immense infrastructure costs, the ability to control asset classes and management styles, the expensive of top flight wealth management personnel, marketing, staffing, systems and other issues related to executing a strategy.

In the past, Assante decided to bundle the fees to include products, unique and sophisticated portfolio management tools, a customized wealth management plan, consolidated reporting, and consolidated tax reporting that are developed by tax, estate, and investment professionals. We outsource the ‘papering’ of these strategies to outside firms as it is not the highest and best use of our time.

My comment that the reporter was comparing apples and oranges stands. For example, Optima Strategy without the Asset Management Service offers a diverse group of asset classes that when priced on a stand-alone basis, are priced at "market" and are even lower after taking into account rebates for larger accounts. Our Private Client Program’s fees run from 2.5% down to .5% depending on the size of the portfolio. Our average fee runs about 2% and includes a dedicated client service manager and our wealth management program. The fees are tax-deductible if we are managing a taxable account, thereby potentially saving the client money compared to having the client engage a multitude of professionals and incurring significant costs that may not always be tax-deductible.

Assante’s Deal Structure

Assante’s acquisitions are structured to ensure maximum shareholder value. We typically negotiate a substantial portion of the purchase price as an "earn-out" to ensure we have partners who are as committed to the business as we are and that they must achieve certain financial targets before any of the "earn-out" is paid.

We believe that each of the transactions that we have completed have been accretive to our shareholders. That is, for Assante to issue additional shares to the vendor, the vendor must produce a bottom line that will increase the EBITDA per share after taking into account shares to be issued pursuant to the "earn-out".

In each of our acquisitions, the vendors have agreed to take a significant component of their consideration in Assante stock. In some cases, we have been able to reduce the number of shares at some point in the future (3 - 5 years) based on an improvement in our stock price. However, in these cases we have also negotiated the maximum number of shares that can be issued to satisfy the purchase price.

While our deal structures are perceived as complex by outsiders, they are designed to result in better alignment of achieving synergistic results from the vendors and protection for our existing shareholders.

As every one of our advisors knows, the value in any professional practice is in the relationship you have with your clients and we have never been prepared to see those relationships walk out the door after we complete an acquisition. For this reason, we have required that the principles of these firms sign long term service contracts with Assante inclusive of non-compete and non-solicitation provisions.

Assante’s Normal Course Issuer Bid

We began purchasing shares in November of 1999. Since then we have bought about 80,000 shares or just over .1% of the outstanding stock the company. We will continue with our share buy-back program, once the fourth quarter blackout is lifted. We continue to believe that the company is undervalued.

Going Forward

As we work together to build this company we must not just focus on quarterly performance, we must focus on the long term. Your practices and this company were not built overnight. We all have many ambitious goals ahead of us. Building a solid organization that stays at the forefront of our industry is a never-ending challenge that we must all continue to pursue with passion and hard work.

Staying out of the media is not necessarily an option if we want to continue to tell our story so that investors and clients understand what we are building. We have always led the way and risen to the challenge. In leading the way, there will be bumps.

I hope this letter has helped you put the comments of the article in context and given you some information you can share with clients and colleagues. If you have any questions, please forward them by email to Meg Sintzel, Vice President, Communications, at msintzel@assante.ca.

Sincerely,

Martin Weinberg
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Re: Royal Commission or Judicial Inquiry Case #1

Postby admin » Fri Sep 18, 2009 10:37 pm

Screen shot 2011-06-25 at 5.02.17 PM.png
Assante lawsuit bears a closer look
Mutual fund sales practices at centre of employment suit

Jonathan Chevreau
Financial Post

Thursday, August 26, 2004
The founding chair of Advocis is being sued by a former assistant to his financial planning practice at a division of Assante Corp.

In some ways, this is a classic David vs. Goliath tale. The goliath figure is Brian Mallard, a wealthy, often-quoted industry figure with multiple credentials and 32 years in the business.

He manages an Assante branch in Saskatoon. He also was -- from January, 2003 until May, 2004 -- the founding chair of Advocis, which represents Canada's financial advisors and insurance sales-people.

Facing him is a figurative David: Kent Shirley, a Saskatoon-based financial advisor who filed a constructive dismissal lawsuit in March. Shirley is suing Mallard personally, plus two companies bearing his name and Assante Financial Management Ltd.

Mallard's amended statement of defence and counterclaim, filed in Saskatoon in June, depicts Shirley as a troubled young man with a host of personal problems.

In an interview, Mallard indignantly dismisses the suit as an attempt to "extort" $50,000 from him: the amount Shirley borrowed from a bank to buy Assante stock from his (Shirley's) brother, also with Assante. Mallard cosigned the loan, pledging Assante stock as collateral.

Shirley won't speak on the record about his motivations, but far from shutting up and disappearing, the opposite seems to be happening.

What began as an obscure employment dispute is escalating into a case that could shed much light on sales practices in Canada's financial advice business.

Shirley provided extensive documentation to the Saskatchewan Securities Commission, the Mutual Fund Dealers Association (MFDA) and the RCMP.

His statement of claim alleges Mallard did not practise what he preached in his founding role at Advocis. Or as the document puts it in more formal language: "The Defendants condoned, engaged in and required Shirley to engage in unethical and/or illegal conduct."

The suit says the defendants "regularly breached codes, laws, rules and regulations and required him to do so as a condition of his continued employment." Shirley was expected to "participate in, and/or turn a blind eye to, the Unethical Practices."'

The alleged unethical practices include providing insider information to clients, making personal loans to clients, giving stock advice to clients, facilitating trades while not properly licensed to do so, selling personal stock to clients, and issuing personal guarantees on client accounts.

All those allegations are false, the defence argues, "brought solely to embarrass the Defendants and tarnish their reputations." The defendants "deny breaching ethical codes, laws, rules and regulations or requiring the Plaintiff to do so as a condition of his continued employment." Mallard's counterclaim also seeks damages for negligent or intentional misrepresentation and breach of contract.

In an interview, Mallard defends each charge, but admits he provided personal guarantees to some clients worried about bear market losses in 2000. However, he says this was acceptable practice before the MFDA set up shop.

Except for seven months' medical leave in 2002-2003, Shirley's suit says he was "employed full time" at Assante from 1996 until January, 2004.

Mallard denies Shirley was constructively dismissed; he says he was a contract worker rather than a salaried employee, and wasn't terminated but quit.

Either way, Shirley was afforded a bird's-eye view of internal incentives for advisors to replace third-party funds in client portfolios with more profitable in-house Assante product. He was also there as this strategy was parlayed into the ultimate sale of the firm to C.I. Fund Management.

It's this aspect of the case which has attracted the attention of Joe Killoran, who describes himself as "Canada's most feared investor advocate" [see http://www.investorism .com]. He believes the case illustrates how the industry is still not properly regulated.

Killoran focused on the sale of proprietary funds in a presentation last week to the Ontario Finance Committee's five-year review of the Ontario Securities Commission. He accused the OSC and other provincial securities commissions of "gross malfeasance" in the lax way they permit integrated fund manufacturer/ distributors to incent advisors to sell in-house proprietary funds.

This has become an issue in the United States, which is why Killoran forwarded Assante's pre-IPO business plan to New York State Attorney General Eliot Spitzer. Killoran drew Spitzer's attention to the sales practices of Assante's U.S. arm: Loring Ward International. Killoran says he contacted Spitzer because Canada does not have the whistle-blower protection laws the U.S. has had since 1989.

Killoran says the original business plan outlined payment of bonus Assante shares to advisors once they converted 40% of client assets to Assante's proprietary Optima funds. He says this practice skewed the provision of objective advice.

For his part, Mallard insists, "I have 500 clients that love me." In typically strong language, he adds he's "pissed off with a system that assumes every advisor is guilty."

He says the more interesting story is Assante's reaction to the suit, including the firing of at least one internal compliance officer.

Mallard says securities commissions have ceded authority to self-regulated bodies like the MFDA and the Investment Dealers Association. Rather than investigate alleged abuses themselves, the MFDA tells dealers they have received a complaint about an advisor. At its request, two Assante compliance officers audited the Saskatoon branch in May, Mallard says. One later moved to the MFDA.

This case may or may not end up swept under the rug. But from what I've seen, it merits closer attention.
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Re: Royal Commission or Judicial Inquiry

Postby admin » Fri Sep 18, 2009 8:02 am

Assante adds to sports agency collection


This time it's hockey players


Wednesday, April 5, 2000

INVESTMENT EXECUTIVE
Canada's Newspaper for Financial Advisors
By IE Staff

(April 5 - 09:30 ET) - Winnipeg’s Assante Corp. has acquired another sports agency. M.D. Gillis & Associates Ltd., a firm that specializes in hockey players.

Assante is paying an undisclosed quantity of cash for Gillis. The deal also carries an earn-out of 147,604 special shares which have liquidation value of $19 per share. These shares are escrowed and will be earned based on achieving financial targets over the five years following closing. Assante currently trades at about $5.

The Gillis agency was founded in 1991 by former Boston Bruin and Colorado Rockies player Mike Gillis. It currently represents Pavel Bure, Pat Verbeek, Bobby Holik and assorted other NHL players. This deal is the fourth acquisition so far for the Assante Sports Management Group.

"We are delighted to have Mike join the Assante team," says Martin Weinberg, president and CEO of Assante, "This acquisition is consistent with our strategy of partnering with the leading firms in each of our chosen lines of business."

Weinberg says that Assante’s strategy in the sports management business is to bring its wealth management services to these clients and to build critical mass of sports management experience.
-IE Staff
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Re: Royal Commission or Judicial Inquiry

Postby admin » Fri Sep 18, 2009 8:01 am

the following article has been removed from the Canadian Business web site !!

http://www.canadianbusiness.com/feature ... 598&page=2


SEAN SILCOFF
2000-02-07
Glitz and misses

Investors might really get to like Marty Weinberg's wealth management company to the stars--if they could just figure out what it does

Some wealthy people collect art, while others collect rare wines or cars. Marty Weinberg collects heads. In his Winnipeg home are two heads in particular that action movie buffs will instantly recognize. One is the small gold statue that Harrison Ford snatches up at the beginning of Raiders of the Lost Ark. The other is a life-sized robotic model of Arnold Schwarzenegger's noggin from Terminator 2, complete with a control mechanism that allows Weinberg to move the model's eyes, mouth and ears.

If you think the 39-year-old Weinberg's taste in movie memorabilia is a bit strange, consider Assante Corp. (TSE: LMS), his burgeoning wealth management empire. Over the past five years, Weinberg has bought up a slew of mutual fund dealers and financial advisers on his way to creating the country's largest non-bank-owned financial planning firm, overseeing $26 billion in assets. His company is more than that: Weinberg's mission is to serve as "personal chief financial officer" to affluent Canadians, offering such services as tax advice, estate planning and bill payment--in addition, of course, to managing their investments. In the US, Weinberg has gone Hollywood in a different way, snapping up firms that manage the wealth and business affairs of movie stars and negotiate multimillion-dollar salaries for sports heroes.

Weinberg's client roster now includes about half the starting quarterbacks in the National Football League, as well as movie star Tom Cruise and TV host David Letterman. If you're compelled to yell "Show me the money!" at Weinberg (like the sports agent Cruise portrays in the 1996 film Jerry Maguire), the joke is on you: in October, Weinberg paid US$120 million for Steinberg, Moorad & Dunn, the California-based firm founded by the real-life inspiration for Jerry Maguire, super-agent Leigh Steinberg. "'Show me the money' is what we're trying to do," says Weinberg.

Funny, that's what Assante investors have been waiting for ever since Weinberg decided to turn his one-time hobby into a publicly traded company. Last spring, Weinberg tried to peddle Assante shares to institutional investors at $15 a pop and flopped big time. He had to slash the offering price to $9.50, only to watch the stock skid to $5.70 in October; it has yet to reclaim its May 1999 IPO price. You could argue that all financial services firms had a rough ride in the markets last year. But Assante has attracted scant institutional interest, little market activity and not one analyst report in its eight months as a public company. The biggest buyer of Assante stock is Assante itself: in late October the company announced plans to buy back up to 2.7 million--about 5%--of its own shares. "We think it's one of the best deals we can find," says Weinberg, who owns more than 14.5 million multiple voting shares (and 88% of voting control) himself. Assante is certainly growing by leaps and bounds: revenue for the first nine months of 1999 rose 135% to $228 million from the same period the year before, while earnings before interest, amortization and taxes climbed a steady 71% to $40.6 million. So why is Weinberg the only one buying the company?

Reason No. 1: he may be the only one who understands it. Before anything will change, Weinberg has to explain to investors exactly what his company does, what that's worth, and how to decipher the company's convoluted share structure--which makes it nearly impossible to come up with hard per-share earnings estimates. "It's not a simple structure, and that's what the market will need time to understand," says Timothy Lazaris, a financial services analyst with Griffiths McBurney & Partners, one of several Bay Street number crunchers now working on their inaugural reports (Lazaris's firm also partially underwrote the Assante IPO). "That's the role of the analysts and that's why we're taking a little bit longer than normal to understand it completely."

But even if the analysts offer up "buy" ratings, don't expect investors to respond immediately. Weinberg doesn't. "I think we will need a float somewhere in the area of two to three times what it is today. We'll also need adequate coverage of the company and the ability to show that we have executed several quarters of our strategy," he says. "We're more a listed private company than a public company right now. I guess in my own mind I have a one- to two-year target time frame to make Assante a real public company." That, no doubt, will come as a surprise to stockholders, who, last time they checked, owned shares in a "real" public company.

Every year around RRSP season, investors look out on the vast array of mutual funds and throw up their hands in confusion. But if anyone is having a hard time these days, it's the folks who actually peddle those funds and the people who manage them.

While Canadians poured money into mutual funds between 1990 and 1998, last year was a different story. There was a bigger roster of funds to choose from than ever. Yet sales dropped to $17.7 billion in 1999 from more than twice that amount the year before. Meanwhile, some of the biggest fund management companies in Canada--including Dynamic Mutual Funds Ltd. and Trimark Financial Corp.--have recently experienced net redemptions of tens of millions of dollars, according to the Investment Funds Institute of Canada. Small fund dealers, for their part, have found their businesses squeezed by the need to keep up to date in an industry that has become increasingly regulated, technologically advanced--and dominated by giant bank-owned competitors.

Meanwhile, another trend is affecting the money management world: a soaring number of baby boomers who have become wealthy in the prolonged bull market (an estimated 300,000 Canadians now have a net worth of $1 million or more). Many have arrived at the point where they want their extensive portfolios to encompass more than just mutual funds. At the same time, some find their financial needs expanding beyond basic wealth management, to such fee-based services as estate and tax planning.

Assante is designed to service this collision of trends. In the early 1990s, Weinberg dreamed up the idea of a fully integrated wealth management firm while working as controller with his father-in-law's electronics store. At the time, Weinberg was running an investment management firm, Loring Ward Investment Counsel on the side, managing customized portfolios for a group of affluent Winnipeg professionals in his spare time. Weinberg envisioned expanding his firm into a place where his clients, under one roof, could not only manage their money, but obtain tax advice, assistance with drafting an estate plan or insurance coverage. By treating otherwise separate functions and professionals as part of a coordinated "life management" team for the client, Weinberg believed he could offer a unique service that would surely give Loring Ward a distinct advantage over other money-management firms. He soon quit the family business and began looking for ways to expand his company.

While looking for a Bay Street partner to help him grow in the mid-1990s, Weinberg came upon Michael Nairne, a fellow Winnipeg native who had built Equion Group Ltd. of Toronto into one of the better-known mutual fund financial advisory firms in the country. The two understood each other and determined they would build their list of clients together by buying up financial planning firms, then selling them an expanded array of products and services.

After merging their companies to form Assante in 1995, the two embarked on a frenetic round of deal-making that saw them snap up a total of 13 Canadian and six US wealth management firms between 1996 and 1999. The idea was to purchase a company, keep the management intact and then leave it to operate as it had before. Only now, clients would be sold Assante's exclusive in-house investment products and services--primarily its exclusive Optima Strategy funds, available only to investors with $100,000 or more. According to Assante's 1999 prospectus, the in-house selling job proved highly effective: the longer a company was owned by Assante, the greater the share of Assante products its clients were likely to buy (from 11.4% of total assets in the first year to almost 50% after four years).

But Assante has faced critics at every step. Any fund company that both creates and sells its own funds risks being in conflict of interest, as former Ontario Securities Commission chair Glorianne Stromberg noted in her 1999 report on the mutual fund industry. After all, any managers who own Assante stock have a vested interest in pushing their in-house funds on clients--whether those investments are appropriate choices or not.

Beyond that, however, are questions surrounding exactly what it is the company brings to its clients. Assante charges a pretty hefty fee for its offerings. Those in-house Optima funds carry management fees in the 3% range--a high figure, when you consider the payback. "Their returns haven't been overly impressive," says Dan Hallett, senior analyst with FundMonitor.com. (For example, Assante's $951-million Optima Strategy Canadian Equity Fund--its largest fund--was in the bottom quartile of its peer group for the first 11 months of 1999, yielding a 2.9% return.) "If I were to sum up [Optima] in a word, it would be 'expensive.' We're really not big fans of this fund family."

But if cost-conscious clients find Optima funds too pricey, they'd be floored by the cost of joining Assante's high-end private client management program, where they get the "personal CFO" treatment. Across the industry, according to Kelly Rodgers, president of Rodgers Investment Consulting, clients with more than $1 million in assets can expect to pay management fees starting at 1% of assets, and declining as their net worth increases. Someone with between $1 million and $2 million worth of investible assets, for example, should pay about 1%. Compare that with Assante, where clients with comparable assets pay 2%--twice the typical amount.

Weinberg says that's like comparing apples and oranges, since he brings more than investing services to the table. "We charge for the value we bring to people's lives. We've focused on having clients live happily ever after by meeting a personal benchmark. If we minimize tax, give them income liquidity, allow them to retire when they are supposed to and not have risk creep into their portfolio--this client can go to bed happy. Combine that with all the other services--including bill payment, wealth management and tax and estate--and what you have is about 20% of somebody's life being looked after by one organization under one roof. We've just added 10 to 15 years in quality time to that person's life, for a fee."

That, of course, assumes clients see value in taking any business away from their existing lawyers and accountants. (In fact, Assante usually just draws up the financial master plan, leaving the paperwork to outside accountants and lawyers.) Says Rodgers: "Why would I go to a financial planner for expert tax advice? Wouldn't I go to an expert tax lawyer or tax accountant? I've never had clients complain about it being too complicated to deal with their lawyer once every two years to update their will or to have their accountant do their taxes every year."

That may be so. But Assante's business model is based on a whole lot of people paying no heed to what Rodgers says. Already, the firm has about 2,000 client accounts (with average assets of $1.6 million under management) receiving its high-end service. And Weinberg's idea of cross-selling financial services--and pulling "embedded" value out of the bottom line--certainly seems to have excited the principals of the Canadian and US wealth management firms he's bought in the past five years--particularly Leigh Steinberg, who envisions building a gigantic sports agency, offering a full range of life-management services. But trying to pin a value on Assante itself is another matter. One thing is for certain: over the next few years, the company will issue millions of shares to managers to pay for the string of deals Weinberg has completed. But determining the exact number of shares and their value is difficult. A typical deal goes something like this: Assante pays the first instalment in cash. That is followed by a second payment of a fixed amount on a predetermined date (usually the third anniversary of the deal), where the number of shares is determined by the stock price on that date. Later, the owner can earn an indeterminate bonus of more shares, at an as-yet-undetermined stock price, if the firm reaches predetermined financial targets.

The deals are structured to ensure the head of an acquired company continues working toward better results and a higher stock price--while leaving Assante only to pay minimal up-front costs. That may sound clever, but chances are this complicated scheme is just too much for the average investor to comprehend, since it's impossible to predict exactly what the number of shares will be at any given time going forward. And if investors give up on the stock, imagine how all those managers who sold out for future shares will feel if the stock doesn't perform and their shares become overly diluted.

Well, there's at least one person who believes that it will all fit together. His name is Marty Weinberg. In fact, he sounds downright irritated when he's asked to explain for the umpteenth time exactly what winds of change he's blowing across the financial services industry from his perch 15 storeys above downtown Winnipeg. "It's absolutely logical, every single step of the way," he says.

Now comes the hard part--proving it works. Someday all those shares will be vested and the company will be easier to understand. By then, according to Weinberg, earnings should be at least four times what they are today and a loose network of independent firms will be integrated under the strong Assante brand name. If there is merit to his theory about the market for personal CFOs, Assante's financial results and stock price should prove him right. The underlying message in Marty Weinberg's confident, impatient voice seems to be, "Yes, yes, give me time and I will show you the money."
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