Broker/Advisor Disguise and Deception

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click to enlarge this image of the US broker registration search page (web link found at bottom of this page)

The most important class action potential on the horizon today.
Commonly repeated forms of deception and intentional-misdirection, leads investment clients into situations of being financial abused BY so-called financial "advisors" and their sponsoring dealers

It is my belief that the commonality of the methods used to deceive/trick the public, combined with the well documented methods to unjustly enrich the broker/dealer, makes showing a case for very large class actions an easier obstacle to overcome than were the tobacco lawsuits of recent history….

Why?

Because billions of dollars are being cheated, shortchanged and siphoned away from trusting North American investors, into the hands of slick investment dealers and their "faked advisor" sales-force. videos at https://www.youtube.com/user/investoradvocate?feature=mhee

How?

7 Steps "Advisors" Take To Abuse Unsuspecting Investors

1. Conceal true license from firm customers… (use non-regulated "titles" to imply something to clients other than what license/registration says)

2. To help conceal legal duty from customers…(hide from them the difference between fiduciary (professional) duty and "suitability" (salesperson) duty)

3. Misdirect customers into a false assumption that they have a professional with a valued duty of care to them (the industry thus actually "helps" the trusting customer to "fool themselves" with industry misdirection)

4. Hide best-advice, and best-products from customers…profit from the greater rewards of selling substandard or higher-fee investments. (house brand funds, high fee products)

5. Conceal conflicts of interest from client. (fees, commissions, deferred sales charges, dealer financial relationships/incentives)

6. Conceal the lack of agency duty/sole loyalty to client. (strongly imply integrity and trust while delivery of salespersons. Misdirection, deception, shortchange clients.)

7. Conceal from clients the difference between a SEC or Canadian registered "adviser" (fiduciary professional) and a self-titled, non-regulated "advisor". (salesperson/broker)

Who?

Virtually anyone referring to themselves as an "advisor" (the correct legal license under US and Canadian Securities Acts is spelled "adviser", and Canadian regulators have confirmed that "advisor" spelled "OR" is not of concern or oversight to them at all….those who use it are free to deceive, or use it to misdirect consumers with it)

Four out of five employed by larger investment dealers are found to be taking advantage of the public in some or all of the manners numbered above.

click to enlarge this image of the Canadian broker registration search page, (web link found at bottom of this page)

Keep reading the posts that follow in this topic if you would like to see more of the problem, and some solutions/things you can do to protect your financial health from professional predation. Contact the author at visualinvestigations@shaw.ca if you are a victim of this type of deceptive/fraudulent practices by a financial professional. Class actions are being contemplated to bring accountability to an industry which promises "integrity and trust in every transaction they are involved in…."

The most important link or two which lends credibility to these arguments above is to simply go to either the BrokerCheck site with FINRA in the USA, or if in Canada, to the Canadian Securities Administrators registration search page:

http://brokercheck.finra.org Type in the name of your "advisor" here and find out that they are 9 times out of 10 truly registered as a "broker". (with a vastly different legal obligation to their client than they imply)

http://www.securities-administrators.ca%20...%20px?ID=1325 Nine out of ten "advisors" in Canada are hiding their true "dealing representative" registration. ("Dealing Representative" is described as a mere "salesperson" by the CSA)

7 minute tour of SEC Regulations of Investment Advisers, the bad news, the disguises and deceptions that it allows for most investors to suffer from, and the economic harm to Americans. There are two sets of rules, one protects you from financial predators, and sadly, this one allows financial predators to abuse more than 90% of Americans. Lives harmed, retirement dreams shattered. Some of the special tricks hidden from the public. Tell me @RecoveredBroker if I miss anything or need to correct, and tell your rep in Washington that the SEC owes you your retirement back.
https://youtu.be/aX52f3Jjbm8

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The Act contains criminal and civil prohibitions against promoting a product or business interest by making a representation to the public that is false or misleading in a material respect. Provisions in both the criminal and civil sections require that the general impression conveyed by a representation as well as its literal meaning be taken into account when determining whether or not a representation is materially false or misleading.

http://www.competitionbureau.gc.ca/eic/ ... ting-e.pdf


Keywords: Competition Act, deception, Deceptive Marketing Practices Digest

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A very well written article about the misconceptions and deceptions that succeed in fooling nearly every investor into a false sense of trust and belief……a marketing coup if you will…


Yes, Investment Advisers Should be Fiduciaries

Anita Anand
Wednesday, September 25, 2013

Co-authored with John Chapman, JD student, University of Toronto Faculty of Law.

Did you know that your investment adviser is not bound by an explicit legal duty to act in your best interests?

Surprising? Yes, but more curious is the intense debate about whether this duty should be made explicit in the law. Those who represent investors should be bound by an express fiduciary duty. Alas, such is not the case.

First, let’s be clear that the relevant law is a mess. The standard of conduct is cobbled together from provincial securities regulations, common-law principles and industry requirements,

so it is difficult to say when a fiduciary duty applies without evaluating each relationship on a case-by-case basis, which often requires a full trial. Another reason that a national securities regulator is a good idea.

Second, the IEF found that while 70% of investors believe that they are protected by a best interest standard, only 1% of them actually are.

OSC Rule 31-505 requires dealers and advisers to deal “fairly, honestly and in good faith” with their clients. Some commentators believe that this is the same as a best interest standard. But no court has recognized this argument so far, and the CSA takes this to mean that the current standard falls short of a best interest standard. Even if the Rule establishes a best interest standard, there is no apparent drawback to acknowledging this fact explicitly. The law would be clearer and easier to understand.

Some argue that establishing a uniform fiduciary standard will increase the costs of providing advice, negatively impacting certain business models. It is true that more stringent regulations carry greater compliance costs and some of these costs may be passed on to investors.

But investors pay a price for investments that may not be in their best interests

, given that advisers are required only to recommend a suitable investment rather than the best one. We believe that most investors would be willing to pay a higher up front cost for the imposition of an explicit fiduciary standard that requires their advisers to place the client’s interest ahead of their own in all circumstances. Regardless, costs should be transparent, and shared amongst investors generally, rather than concentrated amongst the unlucky that have been steered into bad investments. And, while cost is an important consideration, it alone should not drive the discussion.

In implementing the standard, Canada can look to examples from other jurisdictions to minimize the cost to the investment industry. The EU, US, UK and Australia have all implemented a higher standard of conduct for investment professionals, and some of these countries had higher standards to begin with. International examples also show that a “uniform” standard can be carved to respond to industry concerns as in the UK.

Regardless of whether the standard changes, the law is due up for clarification. Statutory regulations should set forth the current standard, so investors and advisers can turn to one place to determine the relevant standard of conduct. Investors should not need to consult their lawyers before signing on with an investment adviser.

Provincial securities regulators have investor protection as a central mandate. A default fiduciary standard for investment advisers is the best way to protect investors and needs to be explicitly enacted - now.

Anita Anand is a Professor of Law and John Chapman is a JD Student at the Faculty of Law, University of Toronto.

http://www.law.utoronto.ca/blog/faculty ... iduciaries

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Four secrets your financial "advisor", dealer or regulator will not share with you……to the detriment of perhaps HALF of your long-term life saving/retirement investing success.

Secret #1:

The "advisor" (and investment dealer) will do anything, to prevent investors from learning the EXACT license or registration category they hold.

Secret #2:

The "advisor" (and investment dealer) will not disclose to you what specific "agency" relationship the investor is in, leaving you to find out the hard way if you are in a "buyer beware" relationship, rather than "sole-loyalty" to you, the investor.

Secret #3:

The "advisor" (and investment dealer) will not explain the "suitability vs fiduciary" obligation to you as it relates to your financial interests.

Secret #4:

The advisor, broker, dealer AND the regulator (SEC, ASC, OSC etc etc) will not inform consumers if there is a waiver of the rules, an exemption to securities law (in other words, some defect in product, broker, or service provider) for the investment product or advice being given to the investor, for the "advisor" selling it, or for the broker/dealer who may have "manufactured" it.

SOLUTIONS

Consumer links to solve Secret #1: License and registration check for US brokers/advisors FINRA Broker Check site: http://brokercheck.finra.org/Search/Search.aspx

Or use the SEC Adviser Search site: http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx

Canadian investors search their broker here: http://www.securities-administrators.ca/nrs/nrsearch.aspx?ID=850

Buyer Caution…it is "standard industry practice" (and also illegal) to call oneself an "advisor" when licensed as a "broker, salesperson or dealing representative...

Consumer help for Secret #2: Law of Agency http://en.wikipedia.org/wiki/Law_of_agency (learn WHO they are looking out for)

Search out and learn how professionally the Real Estate industry discusses and discloses the topic of "Agency Disclosure", and ask yourself why your investment "advisor" and dealer hide this information from investors. (undisclosed Dual-Agency)

Someone licensed as "broker" or "dealing representative" has no legal duty to be on your side….and may actually (legally) act against your interests...

Consumer help for Secret #3: Search out and learn the difference between "Suitability and Fiduciary Standards" http://www.investopedia.com/articles/professionaleducation/11/suitability-fiduciary-standards.asp

https://youtu.be/aWulI3Kwi_A (2 minute video lesson on how suitability can and will be used against you)

Dealers and brokers use "suitability" is a license to steal from trusting investors...

Consumer links to Secret #4: http://www.reuters.com/article/2015/05/20/banks-forex-settlement-waivers-idUSL1N0YB1GA20150520 UPDATE 3-U.S. SEC grants waivers to banks after guilty pleas. REUTERS.com
viewtopic.php?f=1&t=143 (exemptions to the law, a license to cheat the investor and sell "factory seconds")

Getting your money back from #BrokerFraud a video: https://youtu.be/KH6XMXlfdBw

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Disguise…..To Deceive…..To Defraud
By a Recovering investment “advisor"…

373980_401553049910144_827053989_n.jpg (12.16 KiB) Viewed 25537 times

“The real business of money management is not managing money, it is getting money to manage.”

- Mark Hurley, Goldman Sachs
Story told by a recovering broker. @RecoveredBroker

What if every regulator in Canada (BCSC, ASC, OSC etc) were aware of a "bait and switch", where salespeople were allowed (by the regulators) to “disguise” their true license category and duty of care (or lack of duty:), hiding this information from the public, while pretending to be a licensed and regulated financial professional?

What if in the USA, the Securities Act of 1940 “exempted” for over 90% of American investors from the investment-protections within this Act. https://youtu.be/aX52f3Jjbm8

Meanwhile, in Canada, virtually every broker/salesperson plays a misleading spelling game with the legal word “adviser”, which is found in the Securities Act, cleverly skirting it by spelling their titles “advisor”, instead of the lawful “adviser”. (regulators quoted here:
viewtopic.php?f=1&t=193#p3835

Of all the clever tricks that I witnessed while I worked 20 years inside Canada’s largest bank owned brokerage firms, these clever methods for salespersons to pick the pockets of clients did not reveal themselves to me until about 2014, 10 years after I left the industry.

Here is how it works.,…….you can choose to believe it or not. I only caution you to NOT give away your trust just because someone claims to be an “advisor”.

I began my career in 1984, aged 24. My sponsoring investment firm completed my license application. I never saw my license until well after 2004.

After 2004, research showed me that my license/registration category during my years in the industry, was that of a “salesperson” despite my investment dealer putting the title “investment advisor” on my business cards in 1987. They did this very soon after the crash of 1987. It was a "better marketing" term they said. I had no idea that license laws would be violated, and back then I suspect, neither did they...

I now know that this (license misrepresentation) is contrary to the Securities Act, and also against industry rules of fair, honest and good faith dealings with clients. This was the use of a disguise, for marketing purposes, to deceive investors. We just assumed nothing like this would happen in a regulated industry.

It was not until 2014 that myself, and Canadian investment advocate Stan Buell, stumbled upon a far deeper systemic trick. We learned of the industry secret where virtually all sales persons use a non-regulated title, to make them appear as financial professionals to the public. We also began to learn that virtually every regulator who would open up to this, was fully aware of it.
Keep in mind that it only takes a skim of 2% from the clients investment returns in the form of fees, commissions or other hidden costs, to cut a person’s retirement by 50% over the long term. This is the holy grail of unethical investment salespersons/broker/dealers, because it means that the other half is in their pockets.

“The trick is to dress the salesperson in the disguise of a financial professional, ie. As if they the have a dedicated duty to care for your financial interests.....”

The cleverest of tricks is a spelling trick, and it involves using the title spelled “advisor” to create the impression that one is licensed under a Securities Commissions in Canada, or the Securities and Exchange Commission in the US.

The actual word used in each Securities Act is “adviser”. Can you imagine a more clever trick than to change one vowel and use that to skirt the law?

“The “deception” is the use of a clever spelling alteration (which avoids application of the law in Canada while the US has a slightly different method to accomplish this) to help disguise from the public, that the person is not what they hold themselves out to be.

If this does not meet the definition of fraud or intentional misrepresentation, then I am not sure what does?

For the investment broker/dealer/banker, it is a legal trick to deceive the customer for more money. Since virtually no lay-person can know the industry-intended difference between an “advisor” title, and a licensed “adviser”, the investment broker/dealer gets to lure clients with trust-assuring promises, and then deliver something entirely different.

"As one commentator to the SEC staff’s study noted, “If the product sold is that of advice, then that advice should be in the best interest of the client. Anything else is fraud, because the seller is delivering a service different from what the consumer thinks he or she is buying.”

(Edward Waitzer article, Financial Post · Tuesday, Feb. 15, 2011) (Mr. Waitzer is a Bay Street Lawyer, York University professor, and former Ontario Securities Commission chair, and this quote ( by another person) appeared in his article.
http://business.financialpost.com/fp-co ... -investors


This is also called a bait and switch, and investment clients known to this writer are slowly gaining this realization, and some are also gaining their money back when they take the right steps. The right steps include two things. One is to avoid any industry- sponsored complaint mechanisms, and two is to calmly show them where you understand that you have been deceived by a disguise. See your litigation expert and show them this video: https://youtu.be/KH6XMXlfdBw

The trick is in the “client-best-interest” requirement, which is the sticky legal detail that unethical dealers and salespersons avoid with the “advisor” disguise. (both Canada and the USA also "exempt" from this protective aspect of the law possibly most people who sell investments on commission) The billion dollar win to the industry is that they can legally avoid having to put the client best interest first, and sell products and services which may be of far greater benefit to the bank or the broker/dealer than to the client.

“The fraud is found, not only in the misrepresentations, but in the harm of fees, costs, self dealing, and house brand investment products that end up in your investment accounts, while you smile in the (false) knowledge that you have a trusted “advisor”.”

(you are the smiling, un-knowing, happy face on the left:)

Lets turn to some sources for verification:

In order to see how your “advisor” is legally licensed, in Canada visit the Canadian Securities Administrators, (CSA) Website.
http://www.securities-administrators.ca/nrs/nrsearchResult.aspx?ID=1325

(approximately 150,000 persons refer to themselves in Canada as “advisor”, and in the US it is closer to 500,000, according to industry figures)

For US investors, who wish to find out how their “advisor” is legally licensed, go to FINRA (the US broker/dealer self-regulating body) broker search, found below. Most often you will learn that their license says “broker” and not “advisor”.
http://brokercheck.finra.org/Search/Search.aspx

For the SEC site to search whether your advisor is registered with the SEC, see http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx

They each have a Registration Search function where the public can find out the exact license or registration category or their investment seller. What is much more difficult and well hidden from consumers, is an explanation of what are the legal duties and client-protection obligations behind each name, title, license or registration category. Herein lies the billion dollar secret...herein lies the regulator complicity/capture, in not revealing this to the public.

I spent a bit of time with a very nice person at the SEC, and it seemed to me as if it "did not matter" at all, what the financial person might call themselves, and I was fairly confused that this might be the case. It turns out that the SEC actually does not care what you call yourself, but rather cares what your activity is. The good news is that they will regulate and supervise both names or titles. The bad news is that the Securities Act 0f 1940 also "exempts", 90% of the commission sellers in the country from having to meet the client-protective elements of this Act.

Now you will of course ask the CSA (in Canada) what does “dealing representative” mean, and in another page (linked below) on the CSA site, it tells you that it means “salesperson”. I can only assume that the industry (which pays 100% of the salaries of the CSA) convinced the CSA to make the title a little less “salesperson-ey” sounding. Remember we are talking about disguises here.......Disguise, deceive, defraud.
[url]http://www.securities-administrators.ca/uploadedFiles/General/pdfs/UnderstandingRegistration_EN.pdf
[/url]

The “dealing representative” does not have a legal obligation to place the interests of the client before those of the dealer, hence “dealing” representative. Confusing enough? Again,

this confusion leads one straight back to the regulator to ask, “why do you feel a need to confuse the public”?

In the USA, the authority is the SEC, and they are ahead of Canada in so many ways, but for some reason, the SEC is behind us on revealing the advisor disguise to consumers.

To see how close the SEC will come to revealing the Disguise and Deception, see their Investor Alert here: SEC Alert http://www.sec.gov/investor/alerts/ib_making_sense.pdf

This link only “hints” at something hidden, but it does not take the one extra step necessary to give the American public a fair and honest heads up. One wonders why.

Thankfully, the US media is a decade ahead of ours in Canada, and there are dozens of informed articles from top journalists in the US about the “disguise to deceive” subject. Find them listed in this blog post located on this same blog topic:
http://www.investoradvocates.ca/viewtopic.php?f=1&t=193#p3775


The true fiduciary-duty (sole loyalty to client and none else) professional is spelled “adviser” in both Canadian and American Securities Acts, and during my two decade career in Canada’s largest banks, I met a few of these folks. As in a handful. They manage money professionally for pension funds, institutions, mutual funds, and high net-worth investors. They do no advertising on bus shelters, nor telephone solicitation for clients, and they do not charge 2% to 5% commissions, like so many disguised “advisors”.

If you engage one of the truly licensed “advisers” you will find yourself dealing at a professional level,

Their fees are in the neighborhood of 1.25% of assets per year, or lower, depending upon the size of your account. This is what is called professional money management. With 80% of those persons who call themselves “advisor”, about the only thing that is being “managed” professionally is…..well, to be honest...you.

Inside the industry the broker/advisor is known as the “relationship manager”, and never the “money manager”.

“You...the retail client...are the product”

Or as Warren Buffet says:

If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.

To look for truly licensed professional “advisers” in Canada begin your search here: http://www.portfoliomanagement.org/nav-investor-info/selection-checklist/

Back to the “disguise and deception” problem. Since no business journalist in Canada has chosen to reveal that there is a difference between the words “advisor” and “adviser”, I give you the words directly from various Securities Commissions in Canada.

For the full copy of each correspondence see here http://www.investoradvocates.ca/viewtopic.php?f=1&t=6


May 12, 2015 10:16 AM

Thank you for contacting the Alberta Securities Commission (ASC)..

Any person who acts as an adviser and is not registered as an adviser under the Securities Act (Alberta) has violated Alberta securities laws (see. section 75 of the Securities Act (Alberta). The word "adviser" is a defined term in the Securities Act (Alberta) meaning "a person or company engaging or holding itself out as engaging in the business of advising in securities or derivatives."

This also from the ASC:

“Thank you for contacting the Alberta Securities Commission (ASC).”

I can tell you that “adviser” is a defined term in the Alberta Securities Act (ASA) meaning “a person or company engaging or holding itself out as engaging in the business of advising in securities or exchange contracts.” Pursuant to section 7.2 (1) of NI-103, there are two categories of registration for a firm that is required to be registered as an adviser: (1) portfolio manager; (2) restricted portfolio manager.

Individuals who conduct registerable activities for a firm registered as a “portfolio manager” or “restricted portfolio manager” must be registered as an “advising representative” or an “associate advising representative” pursuant to section 2.1(1) of NI 31-103.

“An “advisor” is a generic term with no specific meaning in Alberta securities law”.

From the Ontario Securities Commission:

"Adviser" is a legal term under securities law that describes a company or individual who is registered to give advice about securities. "Advisor" is not a legal term under securities law.”

From the BC Securities Commission:

“Under the BC Securities Act, if a person is engaging in, or is holding themselves out as engaging in, the business of advising another person with respect to the purchase or sale of securities then that person must be appropriately registered or exempt from registration. This is the case regardless of how that person spells ‘adviser/advisor’ in their title.”

(all italics shown above are my own, for emphasis)


Each Securities Act in Canada has multiple provisions requiring either that the registrant NOT mislead their license or qualifications, or that they MUST reveal their exact license and registration category when dealing with the public. No hiding behind fancy disguises or fake titles.

The ability to disguise oneself as a financial industry professional, whilst hiding behind the legal obligations of a used car salesperson.....(sorry, after viewing the license requirements of car salespersons at AMVIC (Alberta Motor Vehicle Industry Council) I find they are extremely more stringent than the financial services industry) My apologies to used car salespersons.....but I digress.

Disguise, deceive, defraud.

I have covered the disguise part of this equation, and the deceive part. To keep this article within word limits, I will direct you to go to http://www.investoradvocates.ca where you will find about 50 topics on systemic financial industry tricks of the trade. Or, in simple terms, I like to call it,

“how many ways can we cheat clients out of a billion dollars and get away with it?”

There you will find more than you ever wished to know about cleverly disguised “advisors” who are “helping” you with your money. I worked with and watched them since 1984, and I saw a thing or two...

The positive in this is that there are numerous ethical persons, whistleblowers and groups out there who are not participating in the “Disguise, Deceive, Defraud” game. People who actually care about professionalism, and their clients, about others, and about their own self respect.
“Best Practices” are sought out, promoted and shared by non-profit groups like
http://www.investoradvocates.ca and [url]@RecoveredBroker[/url]
the Small Investor Protection Association,http://sipa.ca
Institute for the Fiduciary Standard
http://www.thefiduciaryinstitute.org


Larry Elford @RecoveredBroker

PS. If you have read this far, I will commend you and send you to a youtube video, which was made after considerable help from some good folks at the SEC. They sent me the Advisor Regulations and I went through them in search of the loopholes that the good folks in the financial selling game could drive a fleet of Brinks trucks through. Found them in short order……see here: https://youtu.be/aX52f3Jjbm8

Keywords:
Disguise
Deception
Defraud
SecuritesAct
AdviserRegulations

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STAN GETS A DECENT REPLY FROM A DECENT MAN, CSA (Canadian Securities Administrators) LEAD COUNSEL CHRIS BESKO GIVE VERY FIRST INDICATION OF TWO CLEAR AND DISTINCT MEANINGS BETWEEN WORD "ADVISOR" AND "ADVISER" (as they relate to the investment industry)

Highlights in red below:

Click to enlarge this image

go to http://www.securities-administrators.ca ... px?ID=1325 to search your broker or "advisor"
(my money says your person is licensed as a "dealing representative" instead of whatever it may say on the business card…..Hmmmm)

---------- Forwarded message ----------
From: Besko, Chris (FINMSC) <Chris.Besko@gov.mb.ca>
Date: Fri, Aug 1, 2014 at 6:43 PM
Subject: Financial Advisor Registration
To: "sipa.toronto@gmail.com" <sipa.toronto@gmail.com>
Cc: CSA ACVM Secretariat <csa-acvm-secretariat@acvm-csa.ca>


Thank you for your letter of March 28, 2014. It was referred to the Registrant Regulation Committee of the Canadian Securities Administrators (which I chair) for a response. We have tried to answer all your questions as fully as possible, but if you have any follow up questions, please feel free to contact me directly.



For ease of reference, we have included your question before each response.



Limitation Periods –

These appear not to be standard but may be different in each province. Can you advise what the limitation period is in each province or territory.



There are differing limitation periods for securities related matters in each jurisdiction. As a starting point, we would note that some limitation periods are found in the Limitation of Actions Act or Limitations Act in each jurisdiction (the Civil Code in Québec), which will set out general limitation periods for civil actions such as breach of contract, negligence, or breach of fiduciary duties. These limitations would apply where a person is taking civil action against another person, such as an action against a registrant for negligence.



Securities legislation in each jurisdiction also contains limitation periods. There are limitation periods that relate to civil claims by a person for misrepresentations contained in a prospectus or other offering document, or for claims of secondary market liability. In addition to these limitation periods, securities legislation can also contain limitation periods that relate to administrative hearings of offences under the securities legislation taken by Commission staff before the Commission (in Québec, the Bureau de decision et de revision, an administrative tribunal) or for proceedings of offences under securities legislation prosecuted in provincial court.



The table below lists some of the typical limitation periods.

Before an investor turns to the Commission for help, it is important to confirm that the Commission has the jurisdiction to bring a proceeding against a registered firm or its representatives. The nature of the dispute and the type of the registered firm will determine the investor’s best course of action as well as which organization can help. In particular:

· It is advisable to address any problem directly with the firm first. Most complaints can be resolved in this way.
· As of August 1, 2014, all registered firms outside Québec must use the Ombudsman for Banking Services and Investments (OBSI) as the common dispute resolution service. OBSI is a free, independent dispute resolution or mediation service available to an investor that has an eligible complaint. In Québec, the Autorité des marchés financiers provides a mediation service for disputes.
· The Investment Industry Regulatory Organization of Canada (IIROC) investigates complaints and takes disciplinary actions against investment dealers. The Mutual Fund Dealers Association of Canada (MFDA) does the same against mutual fund dealers. Complaints about dealers and advisers who are not members of IIROC or MFDA should be made to the Commission. These include portfolio managers, scholarship plan dealers, exempt market dealers and restricted dealers.
· A complaint against someone selling or advising without being registered should be made to the Commission.


We encourage investors to call the Commission for further information and guidance. http://www.securities-administrators.ca ... aspx?id=90.



Registration Classifications

1. Advising Representative – Is this the current classification for Advisers?

2. Dealing Representative – Is this the current classification for previous Sales Representative?

3. Financial Advisor – This is a common title used but there appears to be no classification. Are

these persons registered as Dealing Representatives?

4. Vice President – Are all vice presidents deemed to be officers of their firms?



The registration categories under securities legislation are set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. They are: dealing representative, advising representative, associate advising representative, ultimate designated person and chief compliance officer. These are the descriptions that apply to individual registrants for the purposes of registration. An individual who is acting as an adviser on behalf of a portfolio manager will be registered as either an advising representative or an associate advising representative. An individual who is trading in securities on behalf of a dealer (such as an investment dealer, mutual fund dealer, exempt market dealer, restricted dealer or scholarship plan dealer) will be registered as a dealing representative.



We do not prescribe specific titles to be used by those persons who are either dealing or advising in securities. Most securities legislation requires that an individual who holds themselves out as being registered to in fact be registered and to indicate the actual category of registration.

Financial Advisor, as you noted, is a common title which many persons use, whether they are registered under securities legislation or not. The use of this title is not generally prohibited, and may be used by anyone, including persons who are only licensed to deal in insurance products, mortgage brokers, deposit agents, or employees of financial institutions.

Some jurisdictions regulate the use of some titles. For example, in Québec, no person may use the title Financial Planner without holding the appropriate certificate issued by the Autorité des marchés financiers. The title Financial Advisor may not be used by anyone as it is considered similar to the title Financial Planner. Having said that, most jurisdictions do not regulate the use of Financial Advisor, and as such it is widely used.



As with Financial Advisor, the title of Vice President is increasingly a common title used in the financial services industry. While an officer of a firm may be designated to be a vice president, the use of the title is not reserved to actual officers of a corporation. As such, it is not safe to assume a person described as a vice president is in fact an officer of that corporation.


Suitability –

Does suitability have a common definition for all provinces or territories, and what is the definition? To whom or which license categories does it apply.



CSA staff published on January 9, 2014 CSA Staff Notice 31-336 Guidance for Portfolio Managers, Exempt Market Dealers and Other Registrants on the Know-Your-Client, Know-Your-Product and Suitability Obligations. We believe this notice will assist in understanding the suitability requirement and our expectation of registrants.



Fiduciary –
Does Fiduciary Duty apply to Portfolio Managers and other registrants? To whom or which license categories does it apply?

A common law fiduciary duty may apply to portfolio managers or other registrants, depending on the circumstances. Typically, Canadian courts have identified five interrelated factors to be considered when determining whether “financial advisors” stand in a fiduciary relationship to their clients: vulnerability of the client in the relationship, the trust and reliance that clients place in their advisor, the extent to which the advisor has power or discretion over the client’s account or investments, and the professional rules and codes of conduct of the advisor. In Québec, where a civil law regime applies, the fiduciary duty does not exist since it is specific to the common law. For further information, see Parts 3 and 4 of CSA Consultation Paper 33-403, including specifically the table in Part 4.

Best Interest –
Is this standard in place in Canada? To whom or which license categories does it apply?

Four provinces (Alberta, Manitoba, Newfoundland and Labrador, and New Brunswick) have a statutory requirement that when advisers or dealers have discretionary authority over their clients’ investments, the adviser or dealers must act in the clients’ best interests. Investment fund managers are also subject to a statutory best interest standard all across Canada. In Québec, according to both the general civil law and the Securities Act (Québec), registered dealers and advisers are currently subject to a duty of loyalty and a duty of care and must act in the client’s best interest. The extent of these obligations under the Civil Code varies depending on the legal context and nature of the investment advisory relationship (e.g. discretionary account or non-discretionary account, executing broker only), taking into account the degree of trust, dependence and vulnerability of the client. For further information, see Part 4 of CSA Consultation Paper 33-403.



Hopefully this answers your questions. As mentioned above, please feel free to contact me directly with any follow up questions you might have.

Chris Besko
Acting General Counsel & Acting Director
tel. (204) 945-2561
fax (204) 945-0330

The Manitoba Securities Commission
500-400 St Mary Avenue
Winnipeg, Manitoba, R3C 4K5
Toll Free (Manitoba only) 1-800-655-5244
http://www.msc.gov.mb.ca

This message, including any attachments, is intended only for the use of the individual(s) to which it is addressed and may contain information that is privileged/confidential. Any other distribution, copying or disclosure is strictly prohibited. If you are not the intended recipient or have received this message in error, please notify us immediately by reply e-mail and permanently delete this message including any attachments, without reading it or making a copy. Thank you.

Le présent courriel et les documents qui y sont attachés s’adressent exclusivement au(x) destinataire(s) mentionné(s) et peuvent contenir de l’information privilégiée ou confidentielle. Toute autre distribution, copie ou divulgation est strictement interdite. Si vous n’êtes pas le destinataire prévu ou si vous avez reçu le présent courriel par erreur, veuillez nous en aviser immédiatement en utilisant la fonction « répondre » et détruire le présent courriel et les documents qui y sont attachés sans en prendre connaissance ni les copier. Nous vous remercions de votre collaboration.

[admin]

How long will the deception be allowed to continue?

I believe the single most important issue that is causing so many Canadians to lose their life savings is the deception practiced by the investment industry and allowed by the regulators.

The industry is employing commission driven sales persons to sell high commission products and convince investors to use leverage while posing as Financial Advisors to gain the trust of unsuspecting Canadians.



There is an abundance of written evidence to substatiate this opinion. In the past SIPA has participated with many others in generating reports and attending conferences but yet Canadians are still losing incredible amounts of their savings. A few years ago the question was “why is this cntinuing to happen?” Now it seems quite obvious that it is because Canadians are deceived by the industry and the regulators.



Having just read “Yes I Can” by Jack Waymire published in September last year made me realize that there are probably many others who realize this Advisor deception is the fundamental reason for investors losing their life savings.



The question now is why is this deception allowed by regulators and Governemtn to continue at the expense of ordinary citizens? As Larry has maintained it is a problem in the U.S. and Canada.



So what can we do to help?



“Giving Small Investors a Fair Chance” CARP/SIPA report September 2004

http://www.sipa.ca/library/SIPAdocs/CARP-SIPA_Report_20040928.pdf

This report included much detail and many recommendations of which probably the two most important are:

In order to ensure investor protection, a federal Investor Protection Act should be passed which includes the establishment of a single, national independent Investor Protection Agency (IPA) accountable to Industry Canada or the Attorney General of Canada.
Truth-teller (whistleblower) legislation, including employment protection, is required to protect informants.


In 2008 SIPA issued a report detailing the failure of our system to protect investors but we may not have been aware of the deception of the public by the industry:

“Because They Can” May 3, 2008

http://www.sipa.ca/library/SIPAsubmissions/ExpertPanel-BecauseTheyCan-20080530.pdf

“Many investor voices are included in this report to hopefully raise Expert Panel members’ awareness of the tragedy taking place in our society. When we hear the stories of victim’s of financial crime and bear witness to the failure of our regulatory system to stem the flow of fraud and wrongdoing, and the failure of our justice system to provide a timely means for the victims to gain restitution, we ask ourselves why the investment industry behaves in such a way, we realize sadly that it’s because they can.”



In September 2014 SIPA posted the Sentinel that called the deception of the industry the “Grand Deception”.

“How are small investors protected by the regulators?” Sep Sentinel 2014

http://www.sipa.ca/library/SIPASentinel/2014/160-SIPASentinel-201409.pdf

The regulators claim to provide preventative investor protection. The few examples above of representatives being fined for wrongdoing illustrate the fact that regulators are unable or unwilling to stop fraud and wrongdoing from happening.

So what is the fundamental problem? It is established fact that most Canadians believe so-titled "Financial Advisors" owe them a fiduciary duty. However, the Besko letter confirms that "Financial Advisor" and "Vice President" are unregulated titles commonly used by sales persons.

Canadians are being deceived by the industry and regulators and place their trust and life savings in the hands of commission motivated sales persons who are not required to act in their clients' best interests. It is unconscionable that Government and delegated regulators continue to allow this Grand Deception to continue that results in the financial rape and pillage of the Canadian people. What is absolutely abhorrent is that the trust created by the use of false titles is routinely breached and yet no changes are being made. The extent of this financial damage is covered up so well that Canadians only find out how bad it is after they themselves have been victimized.

I shudder each time I hear someone say "I trust my Advisor". They do not know that their Advisor is a sales person until they have been leveraged and sold unsuitable products that result in the decimation of their life savings and they suffer a life-altering event. The realization that their life savings are gone and their trust has been betrayed is often cause for health to be effected, families to be broken up and sometimes suicide. It is indeed Investor Beware.



Also in September 2014 Jack Waymire published “Yes I Can” stating clearly the deception that is also occurring in the United States.

“Yes I Can” by Jack Waymire Sep 3, 2014

http://blog.paladinregistry.com/wall-street/can-sales-reps-claim-to-be-financial-advisors-updated-september-2014/

“You bet they can and they do. I checked the legality of the claim with FINRA, the SEC, and California (my state of residence) to ask them this straightforward question. After one and a half hours of being on hold and talking to seven different people I concluded there is no regulation that prohibits reps from calling themselves financial advisors. No regulation creates a major source of risk for investors.”


Small Investor Protection Association
Seeking Truth and Justice
http://www.sipa.ca
e-mail: sipa.toronto@gmail.com
tel: 416-614-9128

[admin]

This was sent to me yesterday by a man seeking to sue a large bank for giving him an investment sales rep "advisor", who did not carry the license nor the duty of care implied by this non-legal title. (adviser, spelled using "ER", and not "OR", is the word and the spelling used in North American Securities Acts) (it is also

the word ten thousand industry-paid lawyers will use to beat you like a red-headed stepchild……if you ever feel the need to complain about investment fraud:)

Alberta Securities Act registered title list SECTION 100;

Representation or holding out of registration

100(1) A person or company shall not represent that the person or
company is registered under this Act unless

(a) the representation is true, and

(b) in making the representation, the person or company
specifies the person or company’s category of registration
under this Act and the regulations.

(2) A person or company shall not make a statement about
something that a reasonable investor would consider important in
deciding whether to enter into or maintain a trading or advising
relationship with the person or company if the statement is untrue
or omits information necessary to prevent the statement from being
false or misleading in the circumstances in which it is made.
RSA 2000 cS-4 s100;2006 c30 s16


Despite wording such as this in Alberta's Securities Acts, and other provincial acts I have read, the industry "prefers" to do it another way (called misrepresentation:) and regulators in Canada "prefer" to keep their up-to $700,000 salaries, so regulators remain as willfully blind to investor protection from this form of fraud, as is required to stay under the radar.

In Canada, securities regulators are actually helping the industry to get away with predatory behaviours upon the public….

To see how they do it in the USA, read the next posting by US investment industry expert Jack Waymire.

[admin]

Why is there no regulation? Wall Street does not want one and it usually wins because its companies spend hundreds of millions per year on lobbyists who make sure regulations favor companies and not investors.

Can Sales Reps Claim to be Financial Advisors? – updated September 2014
sales reps claim financial advisorsYou bet they can and they do. I checked the legality of the claim with FINRA, the SEC, and California (my state of residence) to ask them this straightforward question. After one and a half hours of being on hold and talking to seven different people I concluded there is

no regulation that prohibits reps from calling themselves financial advisors. No regulation creates a major source of risk for investors.

Why is there no regulation? Wall Street does not want one and it usually wins because its companies spend hundreds of millions per year on lobbyists who make sure regulations favor companies and not investors.

A regulation may not even matter if the rep claims to be a financial advisor in a sales pitch.

Investors have no record of what was said to them so it would be very difficult to enforce the regulation. It would be their word against the reps.

A regulation would be easy to enforce if investors require reps and financial advisors to document their role in writing before selecting them.

Obvious Differences

I thought the differences between real financial advisors and reps were pretty straightforward. Financial advisors provide financial advice and ongoing services for fees. Sales representatives sell investment products for commissions. This sounds

simple enough until a sales rep with substantial sales skills manipulates the two roles so they sound similar if not identical.

Why the Confusion?

In the absence of regulations, Wall Street is in a position to create a substantial amount of confusion. Why confuse investors?

Confused investors are dependent investors so they are more likely to buy what Wall Street reps are selling.

Why does this form of deception work?

Most investors have no idea there are major differences between sales reps and real financial advisors. If they did, they would never select sales reps to invest their assets in the securities markets.

The second form of deception is even slicker. Sales reps are allowed to make recommendations. Advisors are allowed to provide advice. What is the difference between investment recommendations and investment advice? There is no difference.

The rep recommends investing in a load fund. The advisor advises investing in a no-load fund.

The results are the same. Investor assets end-up in mutual funds. The principal difference is the method of compensation for reps and financial advisors and future services you receive. If you selected a rep there aren’t any future services. His role stops at the sale.

Three Critical Questions

There are three critical questions you should ask the person who wants to sell you investment products:

Are you a registered investment advisor or an investment advisor representative? If the answer is no, the person is a sales rep. (license search essential, most reps will say yes, when the license says NO) (advocate comment)

Are you a fiduciary when you provide financial advice for fees? If the answer is no, the person is a sales rep. (this must be obtained IN WRITING, from a credible source in the company…..verbal is zero value) (advocate comment)

Are you compensated with fees for your knowledge, advice, and services? If the answer is no, the person is a sales rep. (most sales reps now moving to fee based, but WITHOUT the fiduciary license or duty, buyer beware of this answer) (advocate comment)

You do not want sales reps investing your assets.

Why? Regardless of what they say in sales pitches, they are paid to sell you investment and insurance products. They are not paid to help you achieve your financial goals because they do not receive any continuous compensation. Only real financial advisors receive ongoing compensation for providing ongoing services.

Tags: fiduciary, financial advice, financial advisors, investing, investment advice, Investment Advisor Representatives, investment products, investment recommendations, investors, Registered Investment Advisors, Sales Rep, Wall Street


About the Author


Jack Waymire Jack worked in the financial services industry for 28 years. For 21 years he was the president and chief investment officer of a registered investment advisory firm with more than 50,000 clients. He left the industry in 2003 when his book (Who's Watching Your Money?) was published by John Wiley. That same year he launched an investor information website (http://www.PaladinRegistry.com) that was based on the principles in his book. Jack is a columnist for Worth magazine, a frequent blogger on major financial sites, and widely quoted in the media including the Wall Street Journal, Forbes, BusinessWeek, Bloomberg, and Kiplinger.

[admin]

"... trust-based marketing, without acceptance of fiduciary status, can rise to level of intentional misrepresentation."

Rights of the Clients of Financial Advisors to Good Faith During Relationship Formation

Filled with apprehension, apposite to her uncertain personal financial future, abetted by anxiety pertaining to the global economy, my neighbor yearns for my guidance in today's complex financial world. She yearns to place faith and confidence in me, in my expertise, and in my judgment. My neighbor seeks my counsel, bound faithfully to her through the power of trust.

My neighbor's expectation of my faithful service exists not just within her, but within all of our fellow Americans, as they struggle to navigate a maze of investment products, mitigate risks, and secure their own financial futures. My neighbor is not alone, for her longing for the peace of mind which flows from the placement of trust is nearly universal among our fellow brethren.

But we must ask, and financial advisors and investment counselors - when our neighbors give to us, financial advisors, their confidence, what rights do they in return secure from us? I explore just one aspect of these rights - those which exist during the formation of the relationship between the investment or financial advisor and the client.

GENERALLY, THE RIGHT TO HONESTY AND GOOD FAITH IN FORMING THE CONTRACT

We begin with good faith in the formation of a contract in which trust and confidence are to be reposed by a client to a fiduciary. While the doctrine of culpa in contrahendo has long been viewed as a source of the obligation of good faith in civil law jurisdictions, in the context of negotiations to form a contract, only recently have our common law courts chosen to embrace good faith in contract formation. In 1808, Justice Sedgwick of the Massachusetts Supreme Judicial Court observed, in disregarding a pretense by a party in securing a contract which resulted in fraudulent concealment, that "not only good morals, but the common law, requires good faith, and that every man in his contracts should act with common honesty." Bliss v. Thompson, 4 Mass. 488, 492 (1808).

Each of our neighbors possesses a choice - to engage with a person in an arms-length transaction, or to go further and secure the services of a fiduciary. Yet, during this process, our neighbor is not to be fooled by misleading titles, false statements, or other designs amounting to fraudulent concealment. Indeed, given the expectations of our fellow citizens (as evidenced by so many surveys of consumers over the past decade) that they will place trust in those who provide financial and investment advice, full and complete frankness of the nature of the relationship must be undertaken.

Hence, we require full and frank disclosure of the nature of the relationship to be assumed. "If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, in all its start significance.” See “Will the Investment Company and Investment Advisory Industry Win an Academy Award?” remarks of Kathryn B. McGrath, Director of the SEC Division of Investment Management, at the 1987 Mutual Funds and Investment Management Conference, citing Scott, The Fiduciary Principle, 37 Calif. L. Rev. 539, 544 (1949).

SPECIFICALLY - THE RIGHT TO NOT BE CONFUSED BY THE USE OF TITLES OR OTHER MARKETING DEVICES WHICH MIGHT HIDE THE NATURE OF THE RELATIONSHIP

There must be no attempts as obfuscation of the nature of the relationship, when an arms-length relationship exist and trust and confidence is neither placed nor accepted. As stated by the U.S. Securities and Exchange Commission (SEC) early on in its history: "The necessity for a transaction to be really at arm's-length in order to escape fiduciary obligations has been well stated by the United States. Court of Appeals for the District of Columbia in a recently decided case: ‘[T]he old line should be held fast which marks off the obligation of confidence and conscience from the temptation induced by self-interest. He who would deal at arm's length must stand at arm's length. And he must do so openly as an adversary, not disguised as confidant and protector.

He cannot commingle his trusteeship with merchandizing on his own account…."

Seventh Annual Report of the Securities and Exchange Commission, Fiscal Year ended June 30, 1941, at p. 158, citing Earll v. Picken (1940) 113 F. 2d 150. [Emphasis added.]

Yet, the very use of titles, such as "financial advisor" or "financial consultant" or "wealth manager," or designations such as "Chartered Financial Consultant" or "Certified Financial Planner(tm)," are indicative of an advisory relationship.

Someone forgot to tell Wall Street that trust-based marketing, without acceptance of fiduciary status, can rise to the level of intentional misrepresentation.

The view that one holding out as an advisor should be governed by the fiduciary standard of conduct finds recent support in academic literature: “The relationship between a customer and the financial practitioner should govern the nature of their mutual ethical obligations.

Where the fundamental nature of the relationship is one in which customer depends on the practitioner to craft solutions for the customer’s financial problems, the ethical standard should be a fiduciary one that the advice is in the best interest of the customer. To do otherwise – to give biased advice with the aura of advice in the customer’s best interest – is fraud.

This standard should apply regardless of whether the advice givers call themselves advisors, advisers, brokers, consultants, managers or planners.” James J. Angel and Douglas M. McCabe, Georgetown University, Ethical Standards for Stockbrokers: Fiduciary or Suitability? Sept. 30, 2010. [Emphasis added.]

See also Arthur B. Laby, Reforming the Regulation of Broker-Dealers and Investment Advisers, 65 Bus. Law. 395, 400, 413-17 (2010) (arguing that the broker-dealer exclusion from the definition of "investment adviser" in 15 U.S.C. § 80b-2(a)(11)(C) should be lost if a broker-dealer markets itself or otherwise holds itself out as an "adviser" in light of the connotation of the word).

The SEC, over five decades ago, warned against the use of any attempt to obscure the nature of the relationship by brokers. In its 1963 comprehensive report on the securities industry,

the SEC stated that it had “held that where a relationship of trust and confidence has been developed between a broker-dealer and his customer so that the customer relies on his advice, a fiduciary relationship exists, imposing a particular duty to act in the customer’s best interests and to disclose any interest the broker-dealer may have in transactions he effects for his customer

… [BD advertising] may create an atmosphere of trust and confidence, encouraging full reliance on broker-dealers and their registered representatives as professional advisers in situations where such reliance is not merited, and obscuring the merchandising aspects of the retail securities business …. ” 1963 SEC Special Study on the Securities Markets. [Emphasis added.]

SPECIFICALLY - THE FORM OF PAYMENT SHOULD NOT DECEIVE: 12B-1 FEES (called mutual fund "trailer fees" in Canada) ARE DECEPTIVE TO CONSUMERS AND VIOLATIVE OF THE "SPECIAL COMPENSATION" RESTRICTION ON THE EXCLUSION OF BROKERS FROM THE REQUIREMENT OF REGISTRATION AS AN INVESTMENT ADVISER

The form of payment must also be consistent with one's status as a fiduciary. If an asset-based fee is to be charged, then there exists a reasonable expectation of the client of an ongoing advisory relationships.

In reality, in many contexts,

12b-1 fees are "investment advisory fees in drag.”

They are utilized to compensate registered representatives and their broker-dealer firms for services of an investment advisory nature.

The anti-fraud provision of the Advisers Act, 15 U.S.C. § 80b–6, Prohibited transactions by investment advisers, forms the basis on which fiduciary duties have been applied to investment advisers, states: “It shall be unlawful for any investment adviser by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly— ….” (Emphasis added.) Broker-dealers who receive “special compensation” - generally, anything other than a commission at the time of a product sale or upon the deposit of funds into the product, appear to fall outside of the broker-dealer exclusion from the Advisers Act. See Philadelphia Suburban Water Co. v. Pennsylvania Public Utility Commission, 2002 PA 3603 (PACW, 2002) (“’Indirectly’ signifies the doing by an obscure circuitous method something which is prohibited from being done directly, and includes all methods of doing the things prohibited except the direct one. Farmers' State Bank v. Mincher (Tex. Civ. App.) 267 S.W. 996. State v. Pielsticker, 225 N.W. 51, 52 (Neb. 1929). Moreover, in Amicable Life Insurance Co. v. O'Reilly, 97 S.W. 2d 246, 249 (Tex. Civ. App. 1936), the Texas Supreme Court noted that ‘indirectly’ cannot be treated as surplusage; this word must be given its meaning in the adjudicated case.”)

Noting hat the ill-advised fee-based accounts rule was overturned in Financial Planning Ass'n v. S.E.C., 482 F.3d 481 (D.C. Cir., 2007),

I can only wonder why no judicial challenge to 12b-1 fees as impermissible special compensation has not yet arisen. One cannot do indirectly what one cannot do directly.

CONCLUSION

While other blog posts have addressed other aspects of the fiduciary obligation, including the inability to "switch hats" at will and the impossibility of wearing "two hats" for the same client, in this post I have directed my attention at the harm caused, in the business practices today, during the contract formation stage.

The SEC and FINRA have, for far too long, permitted this harm to occur.

Yet, through the Dodd-Frank Act, the SEC has the ability to right these wrongs.

For the sake of all of our neighbors, let us hope that the SEC will proceed down the path of correctly applying, and then enforcing, fiduciary obligations. Let us hope that the SEC will choose to respect the rights of our fellow Americans to honesty and good faith, as they enter into contracts for the receipt of personalized investment advice.

Ron A. Rhoades, JD, CFP(r) serves as Chair of the Steering Group of The Committee for the Fiduciary Standard. He is an Asst. Professor at Alfred State College, where he serves as Program Director of its B.B.A. Financial Planning program.

http://scholarfp.blogspot.ca/2014/08/ri ... isors.html

http://scholarfp.blogspot.ca/…/rights-of-clients-of-financi…

[admin]

Part one of the Grand Deception is to strongly imply, with words, language, and by every implication, that the investment customer is dealing with a trusted professional advisor/adviser, who will guide, protect and watch over the customer's best courses of action and best interests. (BAIT)

Part two of the Grand Deception is to substitute (bait and SWITCH) a broker, dealing representative (agent for the dealer) or salesperson, for the trusted professional fiduciary adviser that the customer thinks they are getting……below is a good summary of the second part of this process, although it carefully avoids one of the greatest elements of the suitability obligation since it is written by industry participants……the deception continues even in this case summary. Missing element will be disclosed at the end of this post.
================

THE Suitability Standard in Plain Language January, 2015 Source: http://www.mfda.ca/enforcement/hearings ... 201240.pdf


The suitability standard is a relatively low standard of investment advice. It merely requires that a recommendation be suitable for an investor given his/her personal circumstances. It does (this should say "does NOT") have to be the best , lowest risk or best price. The suitability standard stands in contrast to the Best Interests Standard ( referred to as a fiduciary standard) that requires an advisor to act in the best interests of the client. Here is an extract from an MFDA Decision that succinctly articulates the fundamentals of the Suitability standard:

“...158. Existing jurisprudence establishes a three-stage process that advisors should follow to meet their suitability obligations. The three-stage process is described by the Alberta Securities Commission in Lamoureux, supra at p. 18:
Suitability is to be assessed prior to any investment recommendation by the registrant to a client. The process that culminates in a registrant’s investment recommendation to a client has three component phases or stages that must occur in sequence.
The first stage involves the “due diligence” steps undertaken by the registrant to “know the client” and to “know the product”. Knowing the product involves carefully reviewing and understanding the attributes, including associated risks, of the securities that they are considering recommending to their clients. Knowing the client was discussed above. Only after the “due diligence” of the first stage is completed, can the registrant move to the second stage in which they fulfill their obligation to determine whether specific trades or investments, solicited or unsolicited, are suitable for the client.

Suitability determinations . . . will always be fact specific. A proper assessment of suitability will generally require consideration of such factors as a client’s income, net worth, risk tolerance, liquid assets and investment objectives, as well as understanding an understanding of particular investment products. The registrant must apply sound professional judgement to the information elicited from “know your client” inquiries. If, based on the due diligence and professional assessment the registrant reasonably concludes that an investment in a particular security in a particular amount would be suitable for a particular client, it is then appropriate for the registrant to recommend the investment to that client.
By recommending a securities transaction to a client, a registrant enters the third stage of the process... At this stage, when making the client aware of a potential investment, the registrant is obligated to make the client aware of the negative material factors involved in the transaction, as well
1
as positive factors. The disclosure of material negative factors in the third stage of the process is intended to assist the client in making an informed investment decision.
159. There are several features of the suitability analysis that must be emphasized. These do not purport to be exhaustive, but are all relevant to the issues at this hearing.
160. First, an advisor is mandated to know the client, not merely those associated with the client. Information about the experience or sophistication of the client’s relative or friend, absent a power of attorney or similar legal authorization, is not a proxy for knowing the client or obtaining instructions from the client. Of course, a client may enlist friends or family to participate in meeting with an advisor, and in assisting the client in making investment decisions. However, it remains the advisor’s personal responsibility to ensure that an investment is suitable for that client, and that the client (not just a friend or family member) makes an informed decision based on an understanding of the potential downside to the investment. We also observe that it undermines supervisory and compliance safeguards to attribute the personal characteristics of friends or family members to the client in a KYC form
161. Second, the completion of a KYC form alone does not insulate advisors from a finding that the first stage of the suitability process has not been performed. The KYC form is merely one tool to facilitate fulfillment of the advisor’s obligation. Of course, a KYC form filled out by or with the involvement of the advisor in a perfunctory, incomplete, or inaccurate way undermines the validity of the suitability analysis. Equally important, the mischaracterization by an advisor of the client’s experience, investment horizon or objectives in a way that is designed to validate an otherwise unsuitable investment recommendation amounts to a serious breach of an advisor’s obligation to act in the client’s best interests. Similarly, the completion of inadequately explained forms such as acknowledgements or waivers does not mean that the advisor has met his or her disclosure obligation. Disclosure must be provided in a meaningful way so that the advisor can competently determine that the client both understands the risks and features of the products and strategies that are being recommended and is making an informed decision to proceed.
162. Third, the obligation to assess suitability rests with the advisor, and cannot be assumed only by the client, even where the client is aware of the risks associated with a particular investment or strategy.
163. Fourth, without purporting to describe all of the criteria in determining suitability, it can fairly be stated that an investment product or strategy is not suitable for a client unless, at a minimum, the client has the sophistication necessary to understand the relevant risks, the willingness to accept the risks and the capacity to withstand the potential adverse consequences that might result from those risks materializing.
164. Fifth, an investment product or strategy is not retroactively made unsuitable because it fails due to circumstances that were not reasonably foreseeable. Conversely, an advisor is expected to disclose to the client, at a minimum, reasonably foreseeable adverse conditions or risks that are material to an investment decision. An advisor’s belief that such reasonably foreseeable conditions or risks are unlikely to materialize does not relieve the advisor from this disclosure obligation. In this regard, we adopt with approval, the observations of the British Columbia Court of Appeal in Rhoads v. Prudential- Bache Securities Canada Ltd., [1992] B.C.J. No. 153 at p.8:
2
It ought to be reasonably foreseeable to any investment advisor that there might,at almost any time, be a market downturn that might prove to be of minor or major proportion and would impact, potentially substantially, the performance of an equity based mutual fund. Even though the precise timing of a downturn may not be predictable, the possibility of a downturn at any time is foreseeable. However, such an event would not necessarily be foreseeable to an investor.
165. Sixth, special considerations apply if a leveraged strategy is contemplated. As Staff accurately reflected at paragraph 69 of its written submissions, an advisor who is evaluating the suitability of a leveraged strategy must consider whether:
(a) the client has sufficient income or unencumbered liquid assets to be able to:
(i) withstand a market downturn without jeopardizing their financial security (including their ability to maintain their home);
(ii) meet a margin call (if potentially applicable); and
(iii) satisfy all loan obligations (both principal and interest) associated with the strategy without relying on anticipated income from the investments; and
(b) there is any reason to expect the client’s current sources of income to be reduced in the short term bearing in mind the client’s stage of life (age, anticipated retirement date, etc.), employment status and personal circumstances (e.g.; disability, pregnancy,any known risk of imminent anticipated job loss, etc.).
Stage three of the suitability analysis is of particular importance when a leveraged strategy is being recommended. The advisor must properly explain and ensure that the client understands how the investment product, including leveraging, works and the material risks associated with the implementation of the proposed strategy. This is simply a reflection of an advisor’s obligation to disclose to a client in relation to any investment product or strategy, the benefits and potential risks in a balanced, realistic and objective way. An advisor’s assessment of risk cannot be skewed by the advisor’s optimism in the strategy or by self-interest.
166. Seventh, the duty on an advisor to take positive steps to ensure that the recommendation is suitable and that adequate disclosure of the risks has been made is of particular importance where the client has limited investment experience or lacks financial sophistication.
167. Finally, an advisor is not entitled to make an unsuitable recommendation even if he or she discloses material negative factors about the product or strategy and regardless of whether the client claims to understand and accept the risks involved in the investment. It is unnecessary for us to address the situation in which an advisor is asked to implement a strategy against his or her recommendations since the Respondent does not allege that this scenario ever arose here.
The “Fair Dealing” Rule
168. In addition to the MFDA Rule governing unsuitability, MFDA Rule 2.1.1 (sometimes described as the “fair dealing” rule) is relevant to the allegations contained in the Amended Notice of Hearing. It articulates the standard of conduct imposed upon all Members and Approved Persons. It requires, among other things, that Members and Approved Persons:
(a) deal fairly, honestly and in good faith with clients;
(b) observe high standards of ethics and conduct in the transaction of business; (c) refrain from engaging in business conduct or practice which is unbecoming or
3
detrimental to the public interest; and
(d) be of such character and business repute and have such experience and training as is consistent with the standards of the industry. ...”
These basic principles are too often ignored when dealers provide their so-called Substantive Reponse to complainants. This why we continue to press regulators for reforms of the KYC process, enhanced risk profiling and better supervisory controls.
Kenmar Associates

Thanks to Kenmar for this information.
Source: http://www.mfda.ca/enforcement/hearings ... 201240.pdf

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Now for the most important element missing in the "suitability test". It is a measurement, comparison and customer informed evaluation of the COSTS of various investment recommendations. This is the essential part of the Grand Deception where the PAYOFF comes to the dealer/advisor. After fooling their customers into a false sense of trust, then substituting a commission salesperson instead of a fiduciary……the win for the dealer/salesperson is to then sell products which are to the greatest advantage to the dealer and not the customer. The difference is in the hundreds of billions silently transferred from the pockets of investors, into pockets of dealers.

See video on the suitability standard, from a recovering broker, who tells how it is a license to steal from clients rightful returns: http://youtu.be/aWulI3Kwi_A

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click on image to enlarge, click twice to zoom in. click link below to see entire document


Canadian Finance Minister Joe Oliver correspondence:

"It is troubling to hear of the deceptions being perpetrated by advisors".

https://drive.google.com/file/d/0BzE_LMPDi9UONmZZa2tuT2FYUnM/view?usp=sharing

He is replying to http://www.sipa.ca (Small Investor Protection Association) founder Stan Buell, who writes about the Grand Deception: linked here http://www.investoradvocates.ca/viewtopic.php?f=1&t=193#p3775

(Finance Minister Joe Oliver is a former Investment Industry participant AND former head of the Investment industry trade and lobby group, the IDA (Investment Dealers Association of Canada)

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Below is a pasted copy of the letter that Stan of SIPA.ca sent to the PMO's office in 2014:
He lays out the deception and abuse of Canadians quite well in just two pages.

I am still searching for copy of the March 2013 letter that Mr Oliver refers to.



October 2014 F I R S T D R A F T

The Right Honourable Prime Minister Stephen Harper
Office of the Prime Minister
80 Wellington Street
Ottawa, ON K1A 0A2

Dear Prime Minister Harper,

We are concerned that Canadians are losing their life savings due to fraud and wrongdoing by the regulated investment industry.

The magnitude of these losses and the reasons for them are largely covered up.

The media exposes some of the unregulated fraudsters like Earl Jones but there is little exposure of the much larger issue of systemic fraud and wrongdoing by the regulated investment industry.

A contributing factor to the decimation of Canadians savings is the lack of one national regulator for financial services. Only in Quebec has the Government created a regulator to regulate the banks and insurance companies as well as the securities dealers and fund companies.

Canadian investors do not see the difference between financial products classed as securities and those products that are not classified securities. They simply place their trust in their Financial Advisor.

We believe a fundamental cause for this major issue is the simple fact that business titles are not regulated and anyone can call themselves a Financial Advisor.

Small Investors, and in particular seniors, are being deceived and sold products that are eminently unsuitable for most of them. Government must examine the broader issue of seniors losing their savings due to inappropriate action and outright wrongdoing by the investment industry.

Each year Canadian consumer/investors are losing billions of dollars due to fraud and wrongdoing by the regulated investment industry.

How is this possible in a just society?

Listen to what Canadians say. Refer to http://www.sipa.ca/library/voices.htm to see what many abused consumer/investors say.

Canadians are being misled when the industry calls sales persons "Financial Advisors". The fact is most so titled "Financial Advisors" are in fact classified as a "Dealing
Representative - A sales person". According to the regulators "Financial Advisor" and "Vice President" are considered business titles and there is no regulation of business titles.

Financial Advisor, as you noted, is a common title which many persons use, whether they are registered under securities legislation or not. The use of this title is not generally prohibited, and may be used by anyone, including persons who are only licensed to deal in insurance products, mortgage brokers, deposit agents, or employees of financial institutions.

Some jurisdictions regulate the use of some titles. For example,  in Québec, no person may use the title Financial Planner without holding the appropriate certificate issued by the Autorité des marchés financiers. The title Financial Advisor may not be used by anyone as it is considered similar to the title Financial Planner. Having said that, most jurisdictions do not regulate the use of Financial Advisor, and as such it is widely used.

As with Financial Advisor, the title of Vice President is increasingly a common title used in the financial services industry. While an officer of a firm may be designated to be a vice president, the use of the title is not reserved to actual officers of a corporation. As such, it is not safe to assume a person described as a vice president is in fact an officer of that corporation.

- Registrant Regulation Committee of the Canadian Securities Administrators
Canadians are not aware of this fact and continue to place complete trust and their life savings with so titled "Financial Advisors" unaware that the sales person to whom they have given their life savings does no have a fiduciary duty.

Most seniors are reluctant to speak out for a variety of reasons. They trust their advisors, the regulators, and Government agencies. They do not understand why they
are losing their savings. Yet there is no Federal Government Authority responsible for investment protection or the prevention of financial elder abuse.

While we recognize that securities regulation is a provincial jurisdiction, we believe the Federal Government must provide Consumer/Investor protection on a national basis.

Quebec is way ahead of the rest of Canada as they have one regulator for all financial institutions, they control the use of titles, and they can pay restitution when investors have been victimized by the industry.

Why aren't all Canadians entitled to this treatment?

It is unfair and unjust that the securities regulators knowingly allow the industry to mislead Canadians by allowing sales persons to call themselves "Financial Advisor" and "Vice President".

"He had my trust. He was in a respected position of trust; first as Vice President of the company and secondly as my financial advisor. He abused this relationship. You would think that as Vice President of a company and financial advisor that he would have carried out the terms of “the [Dealer] Management Account”, which was to preserve my capital and income, in a more prudent manner. I am sure there are other investors that are having the same set of problems or did have the same problems. I am still wondering if he actually retired or was forced out due to these looming problems, which seem to indicate mishandling or misappropriation of client funds. All the trades are completely unsuitable and imprudent for my investment objectives; a severe breach of trust.”
- A small investor

We ask that you take action to right this wrong and help make Canada a just society so that Canadians may trust the financial services industry which plays such a vital part in Canadians' lives.

Yours truly


Small Investor Protection Association


cc Leader of the Opposition
Leader of the Liberal Party
Minister of Finance
Minister of Justice
Minister of Consumer Affairs
Senate Committee on Banking Trade and Commerce
House of Commons Finance Committee

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Jul 5, 2012 INVESTING
Should You Go to an Adviser or an Advisor?
ARTICLE
COMMENTS (9)
BROKERAGES
FINANCIAL ADVISERS

By JASON ZWEIG
CONNECT

Associated Press The New York Stock Exchange

Long ago, investors bought stocks from “customer’s men,” who then became “registered representatives,” who in turn morphed into “investment adviser representatives.” Financial planners, meanwhile, became “financial advisers” and even “wealth managers.”

Much like garbagemen rechristening themselves “sanitation engineers,” the folks who flog investments are tweaking their titles to make what they do seem fancier and more impressive than it is.

Stockbrokers and financial planners alike have been migrating, en masse, from the word “adviser” to the alternative, subtly-more-impressive spelling advisor. (When you type advisor in WordPress, as I just did, the software underlines it with red sawteeth, signaling that the word is misspelled. Most dictionaries say either spelling is acceptable.)

What’s remarkable about this is that the federal law that regulates the provision of financial advice is called the Investment Advisers Act of 1940, with an “E,” not an “O.” Both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which oversee how investments are sold to the public, call someone who gives financial advice an “adviser” – not an “advisor.”

Why, in a regulated industry, would you choose to be called something other than what the law that regulates you calls you?

Lexicographer Barry Popik tells me that a search of the Library of Congress’s site, Chronicling America, for the years 1836 to 1922 shows that the word “advisers” returns 875,830 hits, versus just 21,145 for “advisors.”

And the Corpus of Contemporary English, reports Popik, shows more than 5,200 citations for “advisers” but just under 2,000 for “advisors.”

On the other hand, search now at the U.S. Patent and Trademark Office and you will find more than 3,800 companies with “Advisors” in their name, vs. well under 300 that call themselves “Advisers.”

So, it seems, the written language overall has long appeared to favor “adviser” over “advisor,” but financial companies have a strong preference for calling themselves advisors.

Why?

There may be something about the “-or” suffix that lends it more gravitas than “-er.” A donor seems, somehow, more generous than a giver. An author is more dignified than a writer. An orator is more eloquent than a lecturer or speaker. When real-estate agents invented a moniker for themselves, they chose to become Realtors, not Realters.

Plus, if you are working on a master’s or doctorate, you will have an advisor for your thesis or dissertation, not an adviser. Many financial advisers crave the same kind of intellectual respectability – and marketability – that graduate degrees confer, which helps explain why they often collect professional designations enabling them to festoon their names with sets of initials.

We’ll know the field of financial advice has finally arrived as a profession when its practitioners accept how the law of the land says they should spell what they do – and when they stop trying to gussy it up with a spelling gimmick.


This article has been ethically "cleansed" from the WSJ, (thanks industry trade and lobby pressure:) helping to keep this one of the better kept secrets in the world today. The below article by a reputable financial expert on this topic may still be available:

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MANISHA THAKOR: We are in deep need of a uniform, federal fiduciary standard of care to which every individual providing personalized financial-planning or investment advice must adhere.

What? You thought this was already the case?

You are not alone.

Most people do not realize that financial advisers (also known as financial planners, financial consultants, investment counselors, money managers, portfolio managers, wealth managers and other names) come in two flavors

.

Flavor A are “investment advisers”

who are regulated by the Investment Advisors Act of 1940. A key piece of this legislation is the mandate that such advisers adhere to a “fiduciary standard.” The act clearly defines this as a duty of loyalty and care to the client and states investment advisers must place the interest of the client ahead of their own.

Flavor B are “investment brokers,”

individuals who are employed by “broker-dealers” and who are regulated by the Financial Industry Regulatory Authority (Finra). These individuals are governed by a “suitability standard.” The stated definition of loyalty here is to the broker-dealer (not the client!) and recommendations must simply be consistent with the client’s financial situation, not necessarily in their best interest.

Suitability is like going to a doctor whose practice is funded entirely by Big Pharma Company XY and who gets a commission for prescribing XY’s pills.

Suppose the migraine medication that works best for you is made by Big Pharma Company Z; if held to a suitability standard, the doctor could simply prescribe XY’s migraine pill without telling you about the conflict of interest or discussing the other alternatives.

Thankfully, we have one standard to which doctors are held. It’s time those giving advice on our financial well-being also be held to a consistent standard. For an eye-opening look at the fiduciary vs. suitability dichotomy at work, watch PBS’s Frontline episode on “The Retirement Gamble.”

Manisha Thakor (@ManishaThakor) is founder and chief executive of Santa Fe, N.M.–based MoneyZen Wealth Management LLC.

http://blogs.wsj.com/experts/2014/10/09 ... d-brokers/

[admin]

Calling a broker an adviser is dangerous. It's time to embrace the black-and- white distinction rather than trying to shove everyone into one gray box.

An 'adviser' in name only, INVESTMENT NEWS,
Sep 28, 2014 @ 12:01 am


Merill Lynch's recent termination of a team of top advisers because of allegations they had recommended that clients invest outside the firm raises issues other than “selling away.” Reporter Mason Braswell noted that selling securities without permission or processing them outside of a brokerage's platform violates firm policy and Financial Industry Reg- ulatory Authority Inc. rules.

But a bigger matter remains: If recommending that clients buy off a platform is in their best interest, but doing so is forbidden, an adviser in this situation cannot possibly act in a fiduciary capacity.

The question of whether all advisers should be held to a fiduciary standard becomes meaningless. They can't when the broker-dealer's interests bump up against the client's.


That, in turn, brings up a timely point. The Securities and Exchange Commission is considering whether to put all brokers and advisers under the same fiduciary standard, requiring that anyone offering retail investment advice work in the best interests of clients. Brokers currently are required to do only what is suitable for clients, and their loyalties ultimately lie with their company.

In objecting to a uniform fiduciary standard, some brokerages, insurers and advocacy groups have stressed that their business structure simply doesn't align with a straight fiduciary relationship and have asked for exceptions to always acting in a client's best interest.

How can a broker ultimately serve two masters, the company and the client? One must win out when there's a conflict. The fact is that brokers don't have to choose. It's when they call themselves advisers that things get tricky.

The SEC's directive is clear.

As Blaine F. Aikin explains in this issue's Fiduciary Corner column: “An often-overlooked fact is that anyone (even a broker) who provides personalized investment advice to investors is already subject to a fiduciary standard. This fact is generally ignored due to the SEC's failure to enforce the requirement established under the Investment Advisers Act of 1940.”

DISCLOSURE

The only exemption is when the broker is providing an arm's-length transaction and all parties involved know that.

If financial professionals present themselves as advisers when it's convenient to do so — on business cards and in marketing — but then don't uphold the position's fiduciary responsibility, the distinction is muddled and everyone loses.

So what's the alternative?

It's one thing to say that brokers acting in an advisory capacity should be fiduciaries and another to ask if they can accomplish that.

The fiduciary duty issue has gone nowhere in the nearly four years since the SEC originally had to report on the differences between adviser and broker oversight. A new way forward is called for.

The only solution is to call a spade a spade or, in this case, a broker a broker. There is room for brokers and advisers in this industry; both serve worthwhile functions.

But individuals and firms must be held accountable for the titles they use. A person providing advice not incidental to selling securities is an adviser and must act as a fiduciary. If the advice is ancillary to the sale of securities, that person is a broker.

TWO SENTENCES

A two-sentence disclosure at the beginning of a relationship (and accurate representation in marketing) would tell clients what they need to know and keep everything aboveboard: “I'm a broker, and my primary obligation is to my firm. I'll do the best I can for you within that structure.”

Where do dual registrants fit? When do they exchange one hat for the other?

Having donned the adviser hat in establishing a trust relationship with the client, it cannot be removed during transactional activity. The moniker — and its requirement to act as a fiduciary — must stand in all engagements with the client. Broker-dealers also must abide by this and let advisers act accordingly.

All parties would benefit from a stark distinction, a line in the sand. If advisers are working in a fiduciary capacity, no gray areas of loyalty exist — they must act in clients' best interest and not be reprimanded by firms for doing so.

Clients also would be better off, as firms could no longer imply a trust relationship where one doesn't legally exist.

Calling a broker an adviser is dangerous. It's time to embrace the black-and- white distinction rather than trying to shove everyone into one gray box.

http://www.investmentnews.com/article/2 ... -name-only