By a Recovering investment “advisor"…
- Mark Hurley, Goldman Sachs“The real business of money management is not managing money, it is getting money to manage.”
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