On February 15, 2011, at 4:37 PM, larry elford wrote:
Feb 15th
to: Competition Bureau of Canada
Enclosed in order:
1) some enforcement matters relating to an investment person in Alberta
2) An article from Edward Waitzer, Financial Post · Tuesday, Feb. 15, 2011, suggesting that it is "fraud" to allow the misrepresentation that appears to be allowed by your agency (s)
3) An article from Ian C.W. Russell, Special to the Financial Post · Tuesday, Feb. 8, 2011, which appears to be written by another investment protection agency, seemingly in contrast to industry rules and supporting the misrepresentation or "fraud" against the public
4) Alberta Securities Commission Important definitions of the ASC’s Different Market Registrant Licenses from the ASC web site
5) "Misrepresentations to public" section 74.01 (1) A person ... who, for the purpose of promoting, ... the supply or use of a product or ... any business interest, by any means whatever, (a) makes a representation to the public that is false or misleading in a material respect.
It seems as if there may be a different answer to the difficult question of what is allowed and what is not, depending upon who is speaking. I write to you to see if you can clarify, on behalf of the public, the apparent misrepresentation of allowing persons licensed or registered in the category of "salesperson" (pre 2009) or "dealing representative" (post 2009) to call themselves anything and everything they wish to including such official license categories as "advisor", or non-official but equally misleading names such as "vice president", "wealth manager", "retirement advisor", "estate planner".
I realize in advance the difficulty that your organization may face in being truthful in this matter, but I urge you to please look past your immediate self interest, and look to the public interest instead. Millions of Canadians, friends and relatives of yourself, including your children, perhaps your children's children are at risk of being misrepresented by people who pose as professionals, without meeting the qualifications of having to act as professionals. This mistake should not be born on your head as well should it?
I thank you in advance for your reply with clarity so the public can be made aware in as simple and understandable terms as possible.
Larry Elford
lelford@shaw.ca-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
enclosure #1
"Financial professionals and salespersons in Canada are allowed to call
themselves advisors, irrespective of their professional designation."
IIROC’s In the Matter of Dale Richard Wells – Penalty below that was released last week on February 11, 2011.
This timely IIROC Enforcement Notice Decision released last week suggests to me that not all / that some IIROC “Registered Representatives” are not registered—licensed in Alberta as “advisers / advisors”.
Does this IIROC Enforcement Notice decision last week definitively refute your statement in your FP Comment column today,
that “salespersons in Canada are allowed to call themselves advisors”?
Enforcement Notice
Decision
Please distribute internally to: Legal and Compliance
Contact:
Warren Funt
Vice President, Western Canada
604 331-4750
wfunt@iiroc.ca Elsa Renzella
Director, Enforcement Litigation
416 943-5877
erenzella@iiroc.ca11-0062
February 11, 2011
IN THE MATTER OF Dale Richard Wells – Penalty
Following a disciplinary hearing held on September 2, 2010, in Calgary, Alberta, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) has found that Dale Richard Wells conducted his business in a manner contrary to IIROC Rules by providing advice in securities when he was not properly registered to conduct business of that nature.
Specifically, the hearing panel found Mr. Wells committed the following breach of the IIROC Rules:
During the period February 2006 to July 2008, he acted as an advisor, within the meaning of the Alberta Securities Act, without being registered as such, contrary to IIROC Dealer Member Rule 29.1.
The Hearing Panel’s decision and reasons on the merits can be found at:
http://docs.iiroc.ca/DisplayDocument.as ... anguage=en Following a penalty hearing held on February 1, 2011, the Hearing Panel imposed:
a $10,000 fine on Mr. Wells
and required him to pay Staff’s costs of $13,000. The Hearing Panel will issue its written reasons on the penalty on a later date, which will be made available atwww.iiroc.ca.
IIROC formally initiated the investigation into Mr. Wells’ conduct in March 2008. The violations occurred when he was a Registered Representative with the Lloydminster, Alberta Branch of First Financial Securities Inc., an IIROC-regulated firm. Mr. Wells continues to be employed as a Registered Representative with First Financial Securities Inc.
The Notice of Hearing is available at:
http://docs.iiroc.ca/DisplayDocument.as ... anguage=en IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada (IDA) and Market Regulation Services Inc. (RS), IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.
IIROC carries out its regulatory responsibility through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
enclosure # (2)
Make advisors work for investors
Edward Waitzer, Financial Post · Tuesday, Feb. 15, 2011
In January 2004, the Ontario Securities Commission released a concept paper advocating a "fair dealing model." The paper acknowledged that the regulatory regime -- regulating dealers and their representatives through the products they sell -- was based on the outdated assumption that transaction execution is the primary reason people seek financial services. Recognizing that most customers are seeking advice, the concept paper proposed changing the regulatory framework to focus on the advisory relationship.
Financial professionals and salespersons in Canada are allowed to call themselves advisors, irrespective of their professional designation. Few, however, are compensated directly for their advice. Instead, they are paid commissions to sell specific products. Addressing the conflicts of interest that result from commission-based compensation, the paper proposed that retail clients should be entitled to rely on objective advice that is in their best interest and, when there are conflicts of interest, they should be clearly disclosed so that the client can understand the conflicts and how they may affect the advice given.
In September 2004, the proposal was swept into a broader project of the Canadian Securities Administrators (CSA) and rebranded as the "client relationship model." Last month, the Investment Industry Regulatory Organization of Canada (IIROC) published its proposed reforms to establish requirements for the client relationship model. They specifically avoid imposing a duty on firms and their representatives to act in the best interest of clients, focussing instead on improving compliance with the existing "suitability" standard and improving disclosure with respect to conflicts of interest and performance reporting. IIROC noted that part of what influenced its thinking was an effort to harmonize with existing and proposed CSA standards (and other standards applicable to firms not under its jurisdiction).
To understand the difference between a "suitability" and "best-interest" standard, think of a student seeking advice at an electronics store about her need for a laptop. The salesperson recommends a highly priced unit with an expensive extended warranty -- all designed to generate the highest commission. The laptop is suitable--it will satisfy the student's needs. It clearly isn't the best solution and a disclosure obligation isn't likely to stand in the way of a motivated salesperson. If the salesperson had been bound by a "best-interest" standard, he would recommend a simpler, more reliable and affordable unit.
In the U.S., brokers and investment advisors are subject to different standards when providing investment advice. Many investors are unaware of these differences or their legal implications or find them confusing. In the wake of the global financial crisis, the Dodd-Frank Act required the Securities and Exchange Commission (SEC) to evaluate the effectiveness of existing legal or regulatory standards of care for providing personalized investment advice to retail customers. Five months later and with the benefit of over 3,500 comment letters as well as a survey conducted by the CFA Institute (which already requires both a suitability and best-interest standard of its members in order to use the Chartered Financial Analyst professional designation) SEC staff released its analysis and recommendations. It has proposed a uniform standard of conduct for all brokers, dealers and investment advisors providing personalized investment advice about securities to retail customers to act in the best interest of the customer.
The SEC staff study acknowledges that working through the details of such a standard so as to ensure it is practicable and cost effective will be complex. It does not propose a strict fiduciary duty, nor does it suggest rules to try to eliminate conflicts.
The U.K. Financial Services Authority (FSA) recently banned commissions for advised sales of retail investments and released proposals which would require advisors to explain why a product is better than a cheaper alternative. This and other more intrusive proposals are based on the FSA's realization that there are "fundamental reasons why financial services markets do not always work well for consumers."
The contrast in the direction, speed and intensity of regulatory reform between Canada and other major developed markets raises a number of questions and suggestions. Why did the OSC start down the path of a "best-interest" standard in 2004 and, while others (including the U.K., Europe and Australia) have caught up, we appear to have fallen back to where we started -- disclosure requirements and a relatively static "suitability" standard? To what extent is this a function of a fragmented regulatory framework suffering from bureaucratic inertia (and an industry suffering from regulatory fatigue)? What accountability mechanisms are required to motivate a more focussed and intense effort?
Why is it that Canadian regulators have shied away from proposing a "best-interest" standard? 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." Many argue that it's the buyer's responsibility to do due diligence and shop around for the best price. But should caveat emptor apply when buyers think they are hiring a professional to do the shopping?
There may be light at the end of this tunnel. Hopefully, the robust regulatory reform efforts underway elsewhere will inform and impose some discipline on our own. The OSC has a new chair. It recently established a highly credible Investor Advisory Panel, which has added this issue to its list of initiatives. FAIR Canada, the Hennick Centre for Business and Law, and the Toronto CFA Society are convening a second annual symposium on the subject next week. Finance Minister Jim Flaherty has demonstrated genuine interest in investor protection -- most recently supporting a national strategy to strengthen financial literacy.
Canada takes justifiable pride in its financial institutions and infrastructure. In doing so we can ill afford to gloss over the nature of customer relationships or be perceived to lag other markets in our efforts to ensure fair dealing in financial markets.
- Edward Waitzer is a professor and director of the Hennick Centre for Business and Law at York University and a former chair of the Ontario Securities Commission.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
enclosure #3
INVESTING TODAY – SPECIAL SECTION
BUILDING TRUST
Searching for the right advisor
Ian C.W. Russell, Special to the Financial Post · Tuesday, Feb. 8, 2011
Over the course of a lifetime, the average Canadian makes some big expenditures -- such as housing, their children's education and eventually their retirement. The latter is especially important as government programs are inadequate for most Canadians and life spans have extended considerably.
But Canadians are too busy with job and family responsibilities and family life and lack the specialized expertise to manage their financial affairs as diligently as they need to be managed.
That is why most people need a trusted advisor to guide them through their financial decisions at every stage of their life.
A complex job requires professional commitment
Investment advice is a full-time job. This is not just because of the bewildering array of financial products and services, the incessant volatility of financial market asset prices, turbulence of the economy, expanding opportunities in a dynamic global marketplace and the importance of preserving capital given recent experience of unprecedented swings in financial markets and economic activity.
Financial management is a complex and full-time job because those assets selected to meet the return and risk objectives of the investor constantly change in value and risk, requiring corresponding portfolio adjustments to monitor the targeted risk-return investment objectives.
As well, investment objectives themselves change as investors move through their life-cycle, such as the shift from the goal of portfolio growth to income security as one approaches or enters retirement.
Where then do you find the right advisor? If the investor wants an advisor that can provide advice on the full array of financial products, including individual stocks and bonds, ETFs, mutual funds and privately managed funds, the starting point is to open an account with an IIROC-registered firm and an investment advisor employed by that firm.
The business activities of the IIROC-registered firm are subject to rules and oversight by the self-regulatory organization, the Investment Industry Regulatory Organization of Canada (IIROC).
An IIROC-registered broker meets high proficiency standards, duty of care to his or her client, rules governing the investment process and conduct of all client dealings, requirements for putting the client first in all transactions and ensuring best available price for purchased securities.
Moreover, IIROC-registered brokers are subject to high standards of supervision, regulatory oversight and audit. The IIROC-registered firm also meets rules and procedures for the safekeeping of client assets. It is no coincidence that the scandals that have beset the financial sector in recent years have occurred among firms outside the IIROC regulatory framework.
A good advisor must be more than someone able to give advice. The client must have confidence and trust in his or her advisor to forge a productive and successful working relationship.
The advisor, therefore, should have a good investment track-record, and provide clear financial statements to make all portfolio transactions, asset positions and performance understandable. The advisor must communicate frequently in terms comprehensible to the client, execute decisions in a thorough and diligent manner -- and charge reasonable fees for service. Further, an effective relationship is bolstered by the personal chemistry between the client and advisor.
The client should feel comfortable and open in dealing with his or her advisor and provide the personal financial information needed to make the appropriate investment decisions in line with portfolio objectives.
But all this comes back to the fundamental question. How does an individual find the right IIROC-registered Investment Advisor? Investors find advisors in many ways, through referrals from friends and family, from attending seminars hosted by an advisor, from advertisements in the media and from direct enquiries at IIROC registered firms.
Whatever the approach, it is important the client reserve judgment on his or her initial choice of advisor to ensure the right fit in terms of communication, quality of service and cost, and personal relationship. Investors should be prepared to shop around if they are less than satisfied with their initial choice. One wouldn't make any major decision without checking it out thoroughly. Choosing an investment advisor is one of the most important decisions you can make, and the potential benefits last a lifetime. A good advisor is well worth the time and effort of a thorough search.
-Ian Russell is president and CEO of the Investment Industry Association of Canada.
-----------------------------------------------------------------------------------------------------------------------------------------------
enclosure #4
Province of Alberta Securities Commission web site
http://www.albertasecurities.com/Inside ... tions.aspxImportant definitions of the ASC’s Different Market Registrant Licenses
Adviser
a person or company engaging in or holding out the person or company as engaging in the business of advising others with respect to investing in or the buying or selling of securities or exchange contracts (Examples: Portfolio Managers, Investment Counsel and Securities Advisers)
Dealer
a person or company that trades in securities or exchange contracts as principal or agent (Examples: Investment Dealers, Mutual Fund Dealers and Scholarship Plan Dealers)
Investment Counsel
an adviser who shall not instruct any trades in securities, or exchange contracts on behalf of any client without advising the client of the specific trade being proposed, and obtaining the approval of the client for that specific trade
Investment Dealer
a firm that is registered to trade, buy or sell all types of securities. The Investment Dealers Association (IDA) registers these firms on behalf of the ASC.
Investment Fund Manager (or “Fund Manager”)
a person or company who has the power to direct and exercises the responsibility of directing the affairs of an investment fund
Mutual Fund Dealer
a firm that is registered to trade, buy or sell mutual funds
Portfolio Manager
an adviser registered for the purpose of managing the investment portfolio of the adviser’s clients through discretionary authority granted by the clients
Registrant
a person or company registered or required to be registered under Alberta Securities Act or the regulations
Salesperson
an individual who is employed by a dealer for the purpose of making trades in securities or exchange contracts on behalf of that dealer
Securities Adviser
an adviser who provides advice to a non-specific client, for example a newsletter or magazine
enclosure #5
PART VII.1 DECEPTIVE MARKETING PRACTICES
Misrepresentations to public
74.01 (1) A person ... who, for the purpose of promoting, ... the supply or use of a product or ... any business interest, by any means whatever, (a) makes a representation to the public that is false or misleading in a material respect.