fiduciary or not? a "Bait and Switch" game

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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Sat Apr 14, 2012 10:04 am

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Why Bay Street pans the fiduciary standard: In the absence of fiduciary obligation, broker-dealers and their representatives are able to exploit the information imbalance by extracting extra “agency rents” from clients. An option to purchase financial services products compensated by commissions is a choice that consumers can make for themselves and may even represent a less expensive option, especially for the small client. The basic tenet of doing what is best for the client transcends business models- fee-only advisory arrangements aren't the only way to do right by the customer, because bad apples can turn up among those advisers, as well. In civil actions, the imposition of a fiduciary standard may deprive the investment adviser of certain defences, including that the client is at least partially responsible for his/her own losses, or that the losses are attributable to market events rather than negligence or bias. A fiduciary standard could have the unintended consequence of making legal cases move even more slowly in the courts if advisers fight harder because the potential penalties are greater. Canadian Courts have demonstrated they will rule for clients who argue their advisers have breached the lower standard of “Duty of care,” without needing to argue there's been a higher breach of fiduciary duty. Securities regulators should focus on tackling the unregistered advisers, like Earl Jones, who
have caused many of the biggest investment fraud scandals. In our view, the real conflict has never been about suitability vs. fiduciary, per se, but about advice vs. sales. If you want to give personalized advice, you subject yourself to a fiduciary duty, which can be accomplished regardless of compensation model; if you want to avoid the fiduciary duty, just don't give personalized advice, or hold yourself out as being an advisor.

(advocate comments)
See "bait and switch" comments further to this industry game of misleading customers, and avoiding accountability through systemic tricks at :
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Wed Apr 04, 2012 4:31 pm

Fiduciary standard doesn't raise costs: Study
Brokerage industry's claims of more expensive products fail to take "agency rents' into account

April 1, 2012 6:01 am ET
A new study out of Texas Tech University casts significant doubt on brokerage industry claims that the fiduciary standard leads to higher costs and fewer product choices for investors.
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Ever since the 2010 Dodd-Frank Act empowered the Securities and Exchange Commission to extend the fiduciary standard to all investment advisers who provide personalized advice to retail investors, the formidable brokerage industry lobbying machine has been working overtime to delay, dilute or defeat imposition of the fiduciary standard. The higher-cost-and-reduced-choice argument stands at the heart of these efforts even though opponents of such a standard have not offered any evidence to back these claims.

Now the issue has been examined in an independent academic study entitled “The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice.” In the interest of full disclosure, this study was funded in part by fi360 Inc. and the Committee for the Fiduciary Standard, of which I serve as chief executive and a member of the steering committee, respectively.

Professors Michael Finke and Thomas Langdon designed the study to “take advantage of differences in state broker-dealer common-law standards of care to test whether a relatively stricter fiduciary standard of care impacts the ability to provide services to consumers.” In other words, they observed that several states unambiguously impose a fiduciary standard on brokers, and several others unambiguously do not impose a fiduciary standard, while the majority of states fall somewhere in between.


By comparing the fiduciary and nonfiduciary states, the researchers were able to test the hypothesis that the fiduciary standard leads to higher costs and fewer choices, among other things.

The study results contradict brokerage industry contentions on all counts.

“We find no statistical differences between the two groups in the percentage of lower-income and high-wealth clients; the ability to provide a broad range of products, including those that provide commission compensation; the ability to provide tailored advice; and the cost of compliance,” the study concludes.

In effect, the fiduciary standard is not more expensive for investors; it is more efficient. They can acquire advice that is subject to higher accountability without higher costs or reduced choices.

Why doesn't the fiduciary standard lead to higher costs to investors? After all, it is a higher standard under the law than the suitability standard, with stronger investor protections. Moreover, all other things being equal, investors who know the difference between the fiduciary and suitability standards would prefer that their adviser be held to higher obligations for objectivity and competence, so fiduciary advice is inherently worth more.

The study offers a clear explanation for why there is no apparent cost differential.

It has to do with the ability of firms that adhere to a nonfiduciary standard to take advantage of the information imbalance between advisers who know a great deal about investments and the products they offer, and their clients, who typically know much less. In the absence of fiduciary obligation, broker-dealers and their representatives are able to exploit the information imbalance by extracting extra “agency rents” from clients.

Agency rents, the authors of the study explain, “occur when the broker recommends products that benefit the broker to the disadvantage of the customer. Examples of agency rents include recommending products that have higher commissions or not taking the time to consider alternative financial strategies for a customer.”

The results of the study suggest that when obligated to place investors' best interests first, broker-dealer firms should accept lower profits rather than raise prices or cut services.

Fiduciary principles embody the high ideals attendant to professional advice. The higher-cost, fewer-alternatives argument against the fiduciary standard seeks to put a price on the cost (or value) of professional principles.

Even if one were to accept the dubious theoretical idea that we should compromise professional principles based upon cost considerations, the study from Texas Tech helps make clear that this a false choice based upon practical observations in the real world.

Blaine F. Aikin is chief executive of fi360 Inc. and a member of the steering committee for the Committee for the Fiduciary Standard. ... d=REGALERT
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Sat Mar 24, 2012 5:30 pm

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Short video describes the difference between a broker selling product and a fiduciary giving advice. Keep in mind that the investment industry is the broker selling product despite trying valiantly to portray it otherwise........
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Sat Mar 24, 2012 4:00 pm

Another case of technically correct, but contextually out to lunch:

The report correctly states that you cannot ascribe a fiduciary duty to a
simple investor initiated transaction relationship, but it ignores the fact
that many of the relationships regulated by transaction based regulation
operate well outside of such a context and this document does not address
this issue. If you are going to understand this issue you need to have a
firm grasp of the underlying processes, since these transcend the legal
niceties upon which most of the arguments to date have rested: the law
should always be driven by the facts and not vice versa. This is a concern
with the palpable legal monopoly of regulatory discussion and decision in
this country.

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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Sat Mar 24, 2012 9:43 am

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(thanks to Ken Kivenko at for sending us this)

This document (In the link above) from Groia & Company Professional Corporation 365 Bay Street, Suite 1100 Toronto, is titled EXTENDING A FIDUCIARY DUTY TO FINANCIAL ADVISORS and gives a look at the duty (or not) that people calling themselves financial "advisors" owe to you, the customer.

As you will see, the self regulating nature of the business has allowed some remarkable misrepresentations to take place in order to better gain access to your money. Professional best practices appear to be not important in this quest.

My advice is for those seeking a fiduciary duty (your interests served professionally) you should only hire one who will give you this in writing. see for examples.

the pdf from Joeseph Groia is also found at this link if needed: [url]
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Re: fiduciary or not? a "Bait and Switch" game

Postby admin » Mon Mar 19, 2012 9:40 am

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Goldman flap underscores fiduciary issue
By Darla Mercado
March 18, 2012 6:01 am ET

When midlevel Goldman Sachs executive Greg Smith blasted his firm publicly last week for what he deems its rapacious behavior toward corporate and institutional clients, many retail advisers whose résumés include wirehouse stints nodded in recognition.

“During the last 30 days that I worked at a brokerage firm, I received 25 e-mails from my branch manager on why every one of my clients needed to have [some] new proprietary mutual fund,” said Bob Rall, a fee-only adviser at Rall Capital Management and a veteran of Prudential Securities Inc.

“Everything was about the YTB on the product — the yield to the broker — not the yield to the client,” he said.

Russell G. Thornton, a vice president at Wealthcare Capital Management Inc. and a Merrill Lynch alumnus, agrees.

“Within the commission and sales environment of the wirehouse world, the general operating principle is: "How can I sell the most stuff to my clients?'” he said.

Although Mr. Smith's frame of reference reflects the institutional market, some advisers hope that his Op-Ed will be a wake-up call for clients, getting them to demand better quality of service they receive from advisers.

“One thing this ... will certainly do is make the idea of a client-first duty of care harder to ignore,” said Michael Branham, an adviser at Cornerstone Wealth Advisors Inc. and 2012 president-elect of the Financial Planning Association.

“Regardless of your legal obligation, it makes business sense to put the client's interests first,” he said. “Whether it's [The Goldman Sachs Group Inc.] or a small independent broker-dealer, that's what clients are really asking for.”

Some of the media coverage declared that advisers' true loyalties are to themselves and their firms, not their clients.

“A blazing resignation at Goldman Sachs shows us once again that financial advisers too often put their own interests first,” blared a sub-headline in an article posted last week on Time magazine's website.

Some advisers think that they are far enough from Wall Street so that the Op-Ed won't spur clients to question their commitment.

But others said that all the attention the Op-Ed generated only made a stronger case for highlighting the distinction between advice from a fiduciary and product information from a sales representative. If anything, it gives the public a hint of the battle brewing in Washington over from whom a fiduciary standard of care should be required.


“I think clients want to know that whoever is working with them has their interests at heart, and that there's more loyalty to the client than to the firm,” said Susan John, chairwoman of the National Association of Personal Financial Advisors.

“In the world of Greg Smith, the affected clients are institutional and presumed sophisticated — they should know and understand the rules of the game,” said William L. McCollum, a portfolio manager and chief compliance officer at Eagle Financial Management Services LLC.

“To the retail client, the revelation of conflicts of interest may come as a surprise: They have been misled to believe that their interests come first, when in most cases, there exists no fiduciary relationship,” he said.

“These firms and their representatives should not pretend to be something they are not,” Mr. McCollum said.

But other advisers think that the basic tenet of doing what is best for the client transcends business models. In other words, fee-only service arrangements aren't the only way to do right by the customer, because bad apples can turn up among those advisers, as well.

“The whole fiduciary thing has been blown out of proportion, and ultimately it boils down to trusting someone,” said Mr. Thornton, who describes his fee-only business model as “not better, but different” from his previous commission-based work.

“There were people I didn't like and didn't trust at Merrill, but I also know fee-only people who I don't truly trust or understand. Bernie Madoff should have been a fiduciary, and he was the worst.” Mr. Thornton said.

“If you do what's best for the client, you still make money — but that's long-term, as opposed to short-term,” said Rick Peterbok, chief executive of Interactive Financial Advisors, a dually registered firm. “If you do more to help the client, the rest will be OK.” ... sueAlert01
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Thu Mar 01, 2012 9:34 am

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UK panel calls on regulators to impose fiduciary duty


Panel says it’s not reasonable to expect consumers to understand complex financial products and associated risks
By James Langton | February 29, 2012 12:35

A British investor advocacy group argues that it's unreasonable to expect ordinary consumers to understand complex financial products, and it calls on regulators to impose a fiduciary duty on the industry.

The Financial Services Consumer Panel Wednesday published a briefing paper on consumer responsibility, which maintains that it's not reasonable to expect consumers to understand the detail of highly complex financial products and services, and the risks they create.

The panel, which is a statutory body that provides advice to the UK Financial Services Authority from the consumer perspective, argues that the overwhelming advantage firms have in knowledge and understanding means that it is essential for the regulator to ensure that products and services provided by the industry should do what consumers reasonably expect.

"Clearly consumers need to act sensibly when making decisions about financial services. However, all too often the products they are being sold are so complex and the risks involved so obscure that it is impossible for them to make reasoned decisions," says Adam Phillips, chairman of the panel.

The paper comes amid a parliamentary debate over new legislation, which would facilitate the creation of a new regulator amid the pending separation of the existing FSA's prudential and conduct regulation responsibilities. The legislation contains a proposal that the new regulator (the Financial Conduct Authority) should "have regard" to the principle that consumers should take responsibility for their decisions.

"Given the complexity of financial services, knowledge is power. This power currently resides in the hands of firms rather than consumers. It is time to redress the balance, not to load further responsibility onto consumers," Phillips says.

He adds that the panel believes that the new FCA should be able to make rules to impose fiduciary responsibilities on the industry. "This would ensure that consumers could be confident that the firms would act responsibly and treat them fairly. At present, the financial services industry is beset by low levels of compliance with regulation and high levels of complaints," he says. ... EN-morning
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Tue Jan 31, 2012 10:51 am

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click to enlarge, click to zoom in

.......advocate this letter to Finance Minister Flaherty, you should notice the contributions to the "investment advisor bait and switch game", which is the game where commission salespeople, misrepresent themselves to the public (too big to prosecute?) and get away with it due to the firms they work for..........misrepresent themselves to the public as trusted advisor's.............the role of an advisor is to serve your best interests, and the role of a salesperson is often quite the being able to trick the public into thinking they are getting trusted advice, while delivering commission one of the greatest bait and switches in the world in operation the letter and see if you can spot the trick...........


Letter to Minister Flaherty:

Compare U.S. and Canadian Mutual Fund Fees

Canadians Mutual Fund Fees up to 100% higher than U.S.

FAIR Canada has recently written an open letter to the Canadian Minister of Finance, the Hon. Jim Flaherty, urging him to ask the Senate National Finance Committee to examine the high cost of owing mutual funds for Canadians in comparison to Americans. Minister Flaherty has asked the Committee to examine the price differential between Canadian and U.S. products. Given that Canadians have a significant amount of their investments in mutual funds and other similar products, the Committee should examine why Canadians pay much higher fees compared to America. Better investor protection in securities regulation including increased price competition in Canada would be of benefit to millions of Canadians and would be supportive of the government's objective to improve the retirement savings adequacy of Canadians. The Canadian mutual fund industry's high fees and expenses is an issue of national importance which should be looked into.

Here is a copy of the open letter sent to Minister Flaherty.

Dear Minister Flaherty:

Re: Price Differences between Canadian and U.S. Mutual Funds

FAIR Canada supports your recent announcement that the Canadian Government wants to examine why prices in Canada are much higher than in the U.S. You have asked the Senate National Finance Committee to examine the price differential between Canadian and U.S. products. Many retail products, such as clothing, sporting goods, electronics and other items are significantly more costly in Canada than they are in the United States, despite the fact that Canada's dollar has been at par or higher in value versus the US dollar for some time.
FAIR Canada urges you to include an examination of the high cost of owning mutual funds for Canadians compared to Americans. Canadians have a significant amount of their wealth invested in mutual funds and similar financial products, with approximately $620 billion invested in mutual funds alone. Many studies have shown that Canadian funds have significantly higher costs than their US counterparts. For example, in March 2011 Morningstar released its Global Fund Investor Experience 2011 report (the "Morningstar Report") which found that "Canada fails for Fees and Expenses" and awarded Canada a failing grade (an F-) in the category of fees and expenses. The Morningstar Report found that "Canada is the only country in the survey with TERs [total expense ratios] in the highest grouping for each of the three broad categories." Canadians should not have to continue to pay the highest mutual fund fees compared to other countries.

According to the Morningstar Report: the median asset weighted expense ratio of fixed-income funds in Canada is 1.31% compared to 0.75% for the United States; the median asset-weighted expense ratio of equity funds in Canada is 2.31% compared to 0.94% in the United States; and for money market funds it is 0.80% in Canada compared to 0.47% in the United States.

If you compare a domestic equity fund offered by the same fund company in both countries you will find that costs are higher in Canada. We chose Fidelity Investments randomly. A domestic large cap fund offered by Fidelity Investments in the United States has a TER of 0.94% whereas a similar domestic large cap fund offered in Canada by Fidelity had a TER of 2.84% .

As part of the examination, the Senate National Finance Committee should ask why the Canadian market bears such high costs as compared to the U.S. The mutual fund industry argues that there are higher fees in Canada versus the US, in part, because of the greater economies of scale that are possible in the US market. Studies have shown that countries that have a smaller fund industry than Canada still have lower fees. The Morningstar Report states that while the claim that the United States has lower fees and expenses due to greater economies of scale has some merit, it cannot explain why Canadian fund expenses are significantly higher than those in other countries with smaller populations.

It appears that the fees that are charged are based on what the market can bear. The fund industry provides incentives such as trailing commissions to salespersons in order to incent them to sell their product to investors over others. Fund companies compete based on who provides the highest trailing commission to the salesperson rather than on the cost of the fund to the investor or the best product for the investor. This is similar to the situation with respect to pharmacies in Ontario where rebates were paid by drug manufacturers to pharmacists to incent them to sell their generic drugs. Legislation has now been passed in Ontario to address the issue with respect to generic drugs.

FAIR Canada believes that part of the blame for excessively high fees rests with the Canadian regulatory system. Canadian financial firms charge high fees to consumers simply because they are able to do so under the current regulatory environment where there is limited price competition. While provincial securities regulators have done a good job of fostering competition in other areas of the financial markets, they have not done enough to encourage price competition among mutual funds and other financial products sold to retail investors. The regulatory system does not provide true transparency in fees with "trailing commissions" being paid by product manufacturers to financial firms out of fees charged to consumers. Most consumers are not aware of the payment of "trailing commissions".

Although financial firm marketing implies that firms and advisors act in the client's best interest, there is no actual legal obligation that advisors provide advice that is in the best interest of the client. The absence of a duty to act in the client's best interest (or a fiduciary duty) allows the advisor to take advantage of the ignorance of the client, maximizing the financial compensation to the advisor at the expense of the client. Many investors are sold what their advisor recommends, which will very often be a mutual fund or other financial product with excessively high fees. The recommendation does not have to consider other products that may have lower costs. FAIR Canada is hopeful that the National Securities Regulator that you have championed, and that FAIR Canada strongly supports, will be able to address these issues.

The high cost of owning mutual funds impacts the ability of Canadians to adequately accumulate savings for their retirement. Better investor protection in securities regulation, including increased price competition in Canada, would be of benefit to millions of Canadians and would be supportive of the government's objective to improve the retirement savings adequacy of Canadians.

FAIR Canada believes the Canadian mutual fund industry's high fees and expenses is an issue of real importance to Canadians and should be examined by the Senate National Finance Committee.

We would be happy to discuss this matter further with you.


Ermanno Pascutto, Executive Director


.......advocate you read this letter you will see that FAIR Canada both understands the problem of misrepresentation........and at the same time "aids" in the problem of title misrepresentation...........advisor or salesperson? which is it?
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Sun Jan 22, 2012 2:51 pm

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Broker fiduciary rule officially in limbo
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SEC calendar says issue date for controversial proposal 'to be determined'; year anniversary fast approaching

By Mark Schoeff Jr.
January 13, 2012 2:37 pm ET

Nearly a year after the Securities and Exchange Commission delivered a report to Congress recommending a regulation that would impose a universal fiduciary duty for retail investment advice, the agency has yet to propose a rule — and the road to that point soon may lengthen further.

Securities and Exchange Commission (SEC)
In a letter to Congress last week, the SEC said that it will gather information for an economic analysis of the impact of a standard-of-care regulation.

“SEC staff, including [Division of Risk, Strategy and Financial Innovation] economists, are drafting a public request for information to obtain data specific to the provision of retail financial advice and the regulatory alternatives,” SEC Chairman Mary Schapiro wrote Jan. 12 to Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets Subcommittee.

“In this request, it is our hope commenters will provide information that will allow commission staff to continue to analyze the various components of the market for retail financial advice,” she wrote in the letter obtained by InvestmentNews.

The SEC intends to launch the public request next month, observers said.

After the SEC compiles the data, it will have to prepare the cost-benefit analysis.

The next steps will involve proposing a rule, gathering comments and writing a final rule — an effort that could consume all of 2012.

In its latest regulatory calendar, the SEC lists a fiduciary-duty proposal under “dates to be determined.” It designates specific time frames to issue 51 other rules and reports, many of which are required by the Dodd-Frank Act.

“If they were on the brink of proposing a rule, it would be on the calendar,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It seems increasingly unlikely that we'll get all the way to a final rule by the end of this year.”

In fact, Ms. Roper predicted that the fate of a fiduciary-duty rule may rest on the election.

“We won't get fiduciary duty finalized unless President Obama is re-elected,” she said.

If a Republican wins the White House, the SEC will flip from a 3-2 Democratic majority to a 3-2 Republican majority, putting any unfinished Dodd-Frank business in limbo.

Although it slows down the rule-making process, conducting a cost-benefit analysis is becoming central to the regulatory process.

Last week, the Labor Department issued a request for information to financial industry groups about their company members' individual retirement accounts. The agency will use the data to do a cost-benefit analysis of a rule that would expand the definition of a “fiduciary” under federal retirement law.

Mr. Garrett and his congressional GOP colleagues have been putting pressure on the SEC to do more-rigorous economic analysis to justify the hundreds of regulations emanating from the Dodd-Frank financial reform law.

The Dodd-Frank measure didn't mandate that the SEC promulgate a fiduciary-duty regulation, but it gave the commission the latitude to proceed after completing its fiduciary-duty study.

The SEC sent the report to Congress last Jan. 22.

It contained a dissent from the Republican SEC commissioners, Troy Paredes and Kathleen Casey, who did not explicitly oppose a universal-fiduciary-duty regulation but asserted that the study lacked a sufficient economic analysis to support its recommendation. Ms. Casey left the SEC last summer.

The battle over fiduciary duty intensified shortly after Dodd-Frank was enacted in July 2010. The SEC has received thousands of comments and conducted dozens of meetings with interest groups since then.

The National Association of Insurance and Financial Advisors is worried that a universal fiduciary duty would raise compliance and litigation costs for its members, and curtail their services to middle-market investors. It finds the slow walk toward a fiduciary regulation reassuring.

“It should take a long time to do this properly,” said NAIFA President Robert Miller.

“I can only take that as a sign that they understand the complexity [of the issue] they're working with. It doesn't look like they're trying to put anyone out of business,” Mr. Miller said.

The Securities Industry and Financial Markets Association supports universal fiduciary duty but has urged the SEC to create a new standard rather imposing on brokers the one contained in the law governing investment advisers. Brokers currently must meet a less stringent suitability standard when advising clients.

The SEC's measured pace on fiduciary duty is understandable, according to a SIFMA official, given the challenges of cost-benefit analysis.

“They recognize, while there are some quantitative metrics — and we have highlighted those in our early filings — there are some qualitative issues, as well,” said Kenneth Bentsen Jr., SIFMA's executive vice president for public policy and advocacy. “They're making a sincere effort to go through that.”

Although they would like to have seen the SEC get farther than it has on fiduciary duty, advocates understand that the commission invites a lawsuit if it does an insufficient cost-benefit analysis. Last summer, a federal court vacated an SEC rule on proxy access, ruling that the cost-benefit analysis was flawed.

“We are supportive of the SEC moving forward in a deliberative and appropriate process to lay the foundation for a rule,” said Marilyn Mohrman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards Inc.

She argues that universal fiduciary duty will help the millions of baby boomers who are nearing retirement and must protect their nest eggs.

“These are the people who desperately need financial advice at a fiduciary standard of care,” Ms. Mohrman-Gillis said. “It is even more necessary today than when Dodd-Frank was passed.” ... /120119957
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Sat Dec 24, 2011 10:39 am

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Part of the largest bait and switch in the world is this, "The industry/regulator complex has a registered category of "Adviser" (spelled with an 'e') that is qualified and registered to give advice. However the regulators allow dealers' representatives, or sales people, to use the title "Advisor"(spelled with an 'o') which misleads the public." source (Small Investor Protection Association December Sentinel Newsletter)

(advocate comment.......In Canada, your investment banker, the so called regulators, a few thousand lawyers, and even your politicians, have met behind closed doors and divided up the pie in a manner best suited to their financial interests. You are the pie. Sorry)
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Mon Nov 28, 2011 9:37 am

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Fooling people (or failing to properly inform them) is one of the basic tricks used to preform the investment "advisor" bait and switch. Do not be ashamed if you have become a victim. Be ashamed of the industry that plays this game and GET YOUR MONEY BACK!
Thanks to Ken Kevenko at for this post info.

(Advocate comments: anyone with an RRSP, or a basic garden variety investment account has what is called a "non discretionary" account. Here is good info on how the industry will use this to screw you if they need to)

Sponsored by The Hayes Law Firm
Non-discretionary Accounts
August 06, 2007
by Lawrence C. Melton, THE HAYES LAW FIRM,, 1-866-332-3567 (toll free)

There are two general types of investments accounts: non-discretionary and discretionary. A non-discretionary account requires the broker to obtain authorization before it makes any investment decisions. A discretionary account allows an investment broker to make account transactions without the client’s prior approval. The problem is twofold: (1) brokers often treat non-discretionary accounts as if they were discretionary, and (2) brokers do not adequately explain the difference between the two accounts to the customer.
Suppose you, the average investor, open an account with a brokerage firm. Chances are you will do so without knowing whether the account is discretionary or non-discretionary. Down the road, the broker messes up, defrauds you, and makes grossly unsuitable investments. You want to take legal action, but you are uncertain. What will be the broker’s defense? He will say the account was non-discretionary and deny responsibility. In other words, he will blame you. He will say you were in control of the account, not him. No doubt, this is news to you. After all, the broker acted like he was in control. There was implicit understanding that he was in control. The only basis the broker has for saying that he was not in control is the non-discretionary status of the account.
How do you overcome this defense? How do you prove that the broker was in control, even though the account was non-discretionary? Answer: You have to prove the broker “assumed” or “usurped” control of your account.

A broker is not insulated from a charge of unsuitable trading merely because the customer did not vest the broker with formal written discretionary authority. Rather, where it can be shown that the customer-broker relationship is such that the broker in fact manages the trading in the account, control will be found. (In re Thomas McKinnon Secs., CCH Fed Secur L Rep ¶ 99104 (1996, SDNY)).
Typically, this occurs when the customer evinces such trust and confidence in his or her broker that the customer invariably follows the broker's advice and recommendations. (See Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977); Mihara v. Dean Witter & Co., 619 F.2d 814 (9th Cir. 1980)).
The question is whether the customer has sufficient understanding and financial acumen to evaluate the broker's recommendations and reject them when the customer thinks it inappropriate. (See Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977); Carras v. Burns, 516 F.2d 251 (4th Cir. 1975); Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977)). ... _accounts/ 11/25/2011
ABOUT BROKER FRAUD BLOG: Non-discretionary Accounts Page 2 of 3
Where the customer is relatively naive and unsophisticated, and the customer routinely follows the broker's advice, control will generally be found. (Mihara v. Dean Witter & Co., 619 F.2d 814 (9th Cir. 1980); Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (9th Cir. 1980)).
While an otherwise intelligent customer will not be allowed to hide behind a mask of ignorance, the customer's sophistication and success in one area of life will not necessarily mean that he or she will be found sophisticated enough to understand all the risks of a particular investment or trading strategy, so as to protect the broker from a finding that the broker controlled an account. Clark v. John Lamula Investors, Inc., 583 F.2d 594 (2nd Cir. 1978); Cruse v. Equitable Sec. of New York, Inc. 678 F.Supp.1023 (SDNY 1987).
Whether or not a broker controls the trading in his or her customer's account is a question of fact. Control may exist as a result of an express written agreement between the broker and the customer, or may be inferred from their particular relationship. (Fey v Walston & Co. 493 F2d 1036, CCH Fed Secur L Rep ¶94437, 18 FR Serv 2d 835 (7th Cir. 1974); Newburger, Loeb & Co. v Gross (1977, CA2 NY) 563 F2d 1057, CCH Fed Secur L Rep ¶96148, 1977-2 CCH Trade Cases ¶61604, 24 FR Serv 2d 42 (2nd Cir. 1977), cert denied 434 US 1035, 54 L Ed 2d 782, 98 S Ct 769, appeal after remand (CA2 NY) 611 F2d 423, 28 FR Serv 2d 602).
To determine whether a broker exercised de facto control over trading in a non-discretionary account, courts look to several factors. Zaretsky v. E.F. Hutton & Co., 509 F.Supp. 68 (SDNY 1981); In re Thomas McKinnon Secs., CCH Fed Secur L Rep 99104 (SDNY 1996).
Of critical importance are the personal characteristics of the customer, such as his or her age, education, general intelligence, and business and investment experience. Control is likely to be found where the customer is particularly old, young, lacking in education, or was inexperienced in the stock market or lacked financial sophistication. Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (9th Cir. 1980) (finding control when customer was particularly old); Kravitz v Pressman, Frohlich & Frost, Inc., 447 F.Supp.203 (Mass. Dist. Ct. 1978) (finding control when customer was particularly young); Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (E.D. Mich. 1978) (finding control when customer lacks education); Carras v. Burns, 516 F.2d. 251 (4th Cir. 1975) (finding control when customer lacks education or is inexperienced in the stock market or is lacking financial sophistication).
Another factor closely examined by the courts is the relationship between the broker and customer, whether it was an arm's length business relationship or a combination of business and friendship.
Also significant are the reliance placed on the broker by the customer. Fey v. Walston & Co., 493 F.2d 1036 (7th Cir. 1974); Petrites v. J.C. Bradford & Co., 646 F.2d 1033 (Fla. 5th DCA); Marshak v. Blyth Eastman Dillon & Co., 413 F.Supp. 377 (ND Okla 1975). If a broker has acted as an investment adviser, and particularly if the customer has almost invariably followed the broker's advice, the fact finder may consider this as evidence that the relationship is discretionary and that the broker owes a fiduciary duty to the customer. Patsos v. First Albany Corp., 433 Mass. 323, 741 N.E.2d 841 (Mass. 2001).
A course of dealing in which a broker executes trades without client's prior approval suggests that the account is discretionary for purposes of broker's fiduciary duties; similarly, if a broker has acted as an investment adviser and client has frequently relied on that advice, there is a strong indication that the account is discretionary. In re Murphy, 297 B.R. 332, 41 Bankr. Ct. Dec. (CRR) 226 (Bankr. D. Mass. 2003). ... _accounts/ 11/25/2011
ABOUT BROKER FRAUD BLOG: Non-discretionary Accounts Page 3 of 3
Past evidence of following broker's advice will establish control. If a broker has acted as an investment adviser, and particularly if the customer has almost invariably followed the broker's advice, the fact finder may consider this as evidence that the relationship is discretionary and that the broker owes a fiduciary duty to the customer. Patsos v. First Albany Corp., 433 Mass. 323, 741 N.E.2d 841 (Mass. 2001).
As noted by the Second Circuit, a broader duty may be recognized in a non-discretionary account in the following circumstances:
(1) if the broker has engaged in unauthorized transactions or has otherwise effectively taken over the handling of an account even though it is labeled as a self-directed account;
(2) if the client is prevented by "impaired faculties" or extreme lack of sophistication from understanding the basics of trading and thus simply lacks the capacity to handle such an account;
(3) if the broker "has a closer than arm's length relationship" with the client;
(4) if the broker violates legal or industry requirements concerning risk disclosure when opening an account; or
(5) if the broker offers advice on a specific transaction that was "unsound, reckless, ill-formed, or otherwise defective."
Stewert v. J.P. Morgan Chase & Co., 2004 WL 1823902, 2004 U.S. LEXIS 16114 (NYSD 2004) (citing Kwiatkowski v. Bear Stearns & Co., 306 F.3d 1293, 1302-03, 1307-08 (2d Cir. 2002)).
If you can establish the above elements, the broker will not be able to hide behind the non-discretionary account defense. THE HAYES LAW FIRM,, 1-866-332-3567

(although this is from a US law firm, my expertise in Canada covers 30 years and I maintain that the argument applies equally to Canadian investment selling malpractices, Larry Elford, former CFP, CIM, FCSI, Associate Portfolio Manager, retired)
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Thu Nov 24, 2011 2:04 am

logo-PMAC.png (19.37 KiB) Viewed 17545 times
Fiduciary duty--the legal obligation to put clients' interests first--is required in Canada for portfolio managers who have discretionary authority over their clients' accounts; but it is not required for financial advisers in Canada.

(find yourself a portfolio manager and avoid commission salespeople who call themselves "advisors" ... bs=article
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Thu Oct 13, 2011 10:10 pm

Regulators considering fiduciary duty standard for advisers and dealers
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Jonathan Chevreau Sep 26, 2011 – 4:39 PM ET | Last Updated: Sep 26, 2011 4:43 PM ET

Prompted by developments in Australia, the U.S. and the U.K., Ontario regulators are seriously considering making financial advisers and securities dealers subject to a tougher standard of fiduciary care for retail clients.

The Ontario Securities Commission says it “considering whether an explicit legislative fiduciary duty standard” should apply to dealers and advisers in Ontario.

It defines a fiduciary duty as “essentially a duty to act in a client’s best interest.” While section 116 of the Ontario Securities Act applies a fiduciary duty to investment fund managers in their dealing with the funds they manage, the OSC says “there is no equivalent duty under the Act that explicitly applies a fiduciary duty to dealers and advisers in their dealings with their clients.” It adds however that “there is legislation that requires them to deal fairly, honestly and in good faith with their clients.”

The statement was made in section 2.3 of the OSC’s 2011 Annual Summary Report released Friday and available here. [Click on the second Sept. 23 item under Regulatory Highlights.]

The passage, contained in a section entitled “Responding to global financial developments,” says that while there is no fiduciary legislation in Ontario, “Canadian courts can find that a given dealer or adviser owes a fiduciary duty to his or her client.”

When courts consider fiduciary obligation exists

That can occur if:

a) the client places significant trust and reliance on the dealer/adviser and the latter accept this responsibility

b) if the dealer or adviser has explicit (i.e. managed accounts) or implicit power over the client (non-managed accounts where clients usually follow whatever advice is provided)

The section closes by noting “important” international duties concerning fiduciary duty. It says the SEC (Securities and Exchange Commission) in the U.S. is expected to introduce rules in 2012 that would create a “common statutory fiduciary duty” for investment advisers and broker-dealers when they are providing personalized advice to retail clients.

The Australian government is also expected to introduce legislation next year that will make advisers subject to a fiduciary duty when dealing with retail clients. In the UK, authorized firms are already required to “act honestly, fairly and professionally in accordance with the best interests of their retail clients.”

Investment Executive reports here that the OSC promised to study the issue earlier this year in response to calls from FAIR Canada (the Canadian Foundation for Advancement of Investor Rights) and the OSC’s Investor Advisory Panel.

The OSC plans to publish a full discussion paper on fiduciary duty this fall.
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Tue Oct 11, 2011 8:44 am

Update Oct 13, 2011, at very least I owe Alan Acton some slack, and perhaps an apology. I am so used to the typical Canadian "bait and swtich" where a commissioned salesperson with a correspondence course and no fiduciary duty to the customer......where a person like this gets to call themselves anything they wish ("advisor?") EXCEPT the name by which they are after misreading his title myself I woke up last night thing "Alan is not a "dealing representative" which is the term the Securities Commission brought in to replace the word "salesperson" in Sept 2009, but rather his license says "associate advising representative". So it seems that this person is on a different path, a path where in fact he "may" owe a duty of care and a fiduciary duty to the customer. He may be in the process of becoming licensed as a professional "advisor" with the real honest to goodness license and training to back it up. Go see if you would like to learn where to find a real, honest to god advisor. Not a salesperson lying to you about his job, his license and his motivations. If this is the case, then he may be right about the fiduciary duty. Problem is, Canadians do not know the difference between a licensed, trained and professionally compensated "advisor", and the 99.9% who are commission salespeople who call themselves "advisor". See more in another topic in these posts.

Sorry Alan if I got it wrong in this post. I look forward to finding out.

Now the million dollar question is: If truly licensed and paid "advisors" in Canada allow commissioned salespeople to step into their profession without any of the training and without the license to call themselves advisor (which covers 99.9% of "advisors" in Canada), then why is this professional group not screaming bloody murder. I would if a bunch of product pushing sales geeks were using my license without any qualifications. It would be a bit like Doctors remaining silent while each pharmaceutical salesperson in Canada started calling themselves "doctor" simply to build up more credibility..............
now on to what got me started..

It’s not all high-level securities fraud
Financial Adviser
Written by Alan Acton
Posted Date: October 10, 2011
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High-profile securities fraud cases like Bernie Madoff often get a lot of media attention, while the examination of financial adviser negligence gets overlooked. According to the Investment Industry Regulatory Organization of Canada, there were a total of 99 enforcement actions against financial advisers in 2010. Twenty-seven per cent of decisions against advisers were classified as due diligence/suitability and misrepresentation violations. In addition, a considerable amount was won in civil suits against advisers in 2010.

Financial advisers in Canada owe a fiduciary duty to their clients to deal fairly, honestly, and in good faith with their clients. They also have to do their homework; not only on the investments they recommend, but also knowing their client’s risk tolerance level and financial situation. These are the know-your-client (KYC) rules that advisers are obligated to follow. Investment recommendations must match up with the client’s financial situation and knowledge level. Obviously, an adviser betting an elderly person’s life savings on a risky and complex option strategy is a gross violation of KYC regulations.

The KYC information must be updated any time there is a material change in a client’s circumstances. According to IIROC, the financial adviser should meet with the client at least annually to conduct suitability reviews. Or, if an adviser leaves the firm, the new adviser assigned to the account should meet with the client immediately to update KYC information.

If proper KYC documentation is not done, the financial adviser may be negligent, even when no transactions were made. This is a failure to consistently monitor the client’s situation and investment account, and act accordingly.

Another area of enforcement action is misrepresentation. This happens when an adviser misleads a client by making false statements or withholding important information, specifically if it applies to details that may impact a client’s investment decision. For example, an adviser may not disclose all the risks related to a particular security in an attempt to convince the client to buy it.

According to securities litigation specialist John Hollander (who partners with Harold Geller) of Doucet McBride LLP in Ottawa, many times there is an absence of informed consent. “The fact is that what goes up can come down. The potential for gain coincides with the potential for loss. This means both the size of the gain or loss and how often the gain or loss may occur must be fully explained to the client. To reach for a higher profit, the client must face a higher risk of loss,” says Hollander.

He goes on to say, “If an adviser fails to fully explain both the likelihood and the size of the potential loss an individual might incur, the client may have cause to sue.”

Many more cases come to light when the stock markets drop. As Warren Buffett says, “Only when the tide goes out do you discover who’s been swimming naked.” When the markets decline and volatility increases, many risky strategies go south quickly. Oftentimes clients do not even realize their investment portfolios were at risk.

With approximately 29,000 registered advisers in Canada, the incidence of enforcement actions is minimal. However, suitability and misrepresentations violations represent the largest enforcement actions of last year. Advisers have to do a better job of keeping their KYC information up to date, and explaining all of the investment risks clients face, or face disciplinary penalties and the possibility of civil litigation.
Additional Info

Alan Acton

Alan Acton is a financial adviser in Ottawa and can be reached at

Column: Financial Adviser

Advocate comment: There are two things I cannot agree with in this article. First I don't think this person is aware that 99.9% of "advisors" in Canada are using that name as a marketing gimmick and actually do not possess anything close to an advisor license. I would like to hear his thoughts on that after some research. Perhaps he can look up his own registration category at the province and let us know what it says.

Screen shot 2011-08-11 at 12.10.02 PM.png

click to enlarge

Second, is his article referring to the "wishful" marketing of industry training manuals, and conduct and ethics guidelines, or to the actual reality of how these principles have been sold out in back room by an old boys club of regulators, self regulators etc? In other words, is he speaking from an informed perspective of what is actually possible (ie, to hold your so called advisor to a fiduciary standard, based on his promises to you), or is he simply repeating industry marketing bullshit without being aware that the industry has pulled that carpet out from under the public? SOrry for the bluntness Alan, but a few million people are hurting by some billions of dollars based on the lies that the industry uses. Professionals like yourself are depended upon to tell it right.
Screen shot 2011-10-11 at 9.51.02 AM.png
click to enlarge (dealing representative is the license category that all registrants were changed to who were formerly (pre sept 2009) registered as SALESPERSON)

(It is ironic to read an article about legal actions and misrepresentations which contains misrepresentations)

PS. I read the qualifications of Alan now, and I see he has the CFP, CIM, CFA, the CIM and the CFA being the serious of the bunch, so his qualifications are up to that needed to carry the "advisor" license. My apologies for earlier questions or inferences. Now I am trying to understand what it is that Polaris or his company does. If it is fee only, or portfolio management (with a fiduciary duty included) then I truly owe him an apology for my misunderstanding.

I hope Alan will send me a note to set me straight on anything I need correction about herein. The public needs to know just who is an "advisor" to be trusted and who is just a salesperson in "advisor's" clothing.
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Re: fiduciary: a financial "Bait and Switch" game

Postby admin » Thu Sep 29, 2011 6:31 pm

(more "salesman selling securities" games)

CSA extends exemption to dealers from new relationship disclosure requirements

Both the MFDA and IIROC allow a two-year transition period for firms to get in compliance

Wednesday, September 28, 2011

By James Langton

Regulators are extending the exemption from new relationship disclosure requirements for fund dealers and investment dealers until the end of 2013, the Canadian Securities Administrators said Wednesday.

Firms that belong to the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada had been granted an exemption from the new relationship disclosure requirements that are to be imposed under the provincial securities commissions’ registration reform rule, on the basis that the self-regulatory organizations are bringing in their own similar requirements as part of the Client Relationship Model reforms. That exemption is due to expire on Sept. 28.

The CSA published a notice Wednesday indicating that it is extending those exemptions until the end of 2013. It notes that the MFDA has already approved its new disclosure rules, and it says that IIROC is expected to finalize its rules by the end of this year. Both SROs would then allow a two-year transition period for firms to get in compliance, which would run to the end of 2013. So, the regulators are exempting firms from their requirements in this area while the SRO rules are implemented.

Additionally, the are also extending interim relief exempting certain companies, such as banks and credit unions, from the requirement to register when trading in short-term debt instruments. That relief was also slated to expire on Sept. 28, it is now being extended until Sept. 28, 2014. And, they are also offering relief from the new restrictions on registration exemptions for international dealers and international advisers that were introduced earlier this year. ... BImageCI=1
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