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for registered reps, whose clients are they anyway?

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Re: for registered reps, whose clients are they anyway?

Postby admin » Thu Feb 23, 2012 10:35 pm

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RBC recruits duo from Stifel
With Calif. bond team, growing firm has hired 23 advisers this year

By Michelisa Lanche
March 7, 2010 6:01 am ET
RBC Wealth Management continues to add financial advisers from competing brokerage firms and has now recruited a two-person team from Stifel Nicolaus & Co. Inc., a subsidiary of Stifel Financial Corp.

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Cindy Dellinger and Mike Lamb, who specialize in fixed income, will join RBC as senior vice presidents and financial consultants in the firm's San Francisco operations. They have nearly $3.9 million in combined trailing-12-month production, according to RBC spokesman Chris Nietupski.

Valerie DeSimone also joins Ms. Dellinger and Mr. Lamb in the San Francisco office as a senior associate.

The move to RBC allows the team to “utilize a much larger primary adviser platform for its clients,” according to a statement from the company, which added that Ms. Dellinger and Mr. Lamb each has at least 25 years of experience in the financial advisory business.

RBC recruited a total of 315 advisers in the fiscal year ended Oct. 31, Mr. Nietupski said.

“We took advantage of tremendous growth opportunities the changing markets afforded us,” he said.

RBC's hiring pace this year seems to be heading in the same direction as last year's; 23 financial consultants have joined the firm since the beginning of the fiscal year that began Nov. 1, Mr. Nietupski said.

E-mail Michelisa Lanche at mlanche@investmentnews.com.
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Re: for registered reps, whose clients are they anyway?

Postby admin » Thu Feb 23, 2012 10:10 pm

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Feb 22, 2012

RBC Wealth Management, one of the nation’s largest full-service securities firms, recently welcomed the highly sought after FG Group, consisting of Financial Advisors George Feneis and Paul C. Granito, to the New York metro area, according to Scott Fergang, Paramus Branch Director. The FG Group joins RBC Wealth Management from Morgan Stanley Smith Barney, and has more than $350 million in assets under management and close to $3 million in production.
George Feneis, a Senior Vice President – Financial Advisor has 45 years of industry experience and has spent the past 31 years at Morgan Stanley Smith Barney. “I thought long and hard about my decision to move to RBC Wealth Management and decided to do what was ultimately best for my clients, which was to go to a firm with a relationship-based culture that takes pride in best serving the needs of their clients,” said Feneis.
Paul Granito, Senior Vice President – Financial Advisor, brings 14 years industry experience to RBC Wealth Management. “I am excited about the opportunity to work for a smaller-feel firm, that still has the global resources our valued clients have come to expect and deserve,” added Granito. “As a team, George and I look forward to bringing our respective expertise and experience to a new firm.”
“We’re thrilled to welcome a team of the FG Group’s stature to RBC Wealth Management,” said Fergang. “We are fortunate to continue attracting the best people, with the best businesses, and the best reputations in the Paramus area.”

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Re: for registered reps, whose clients are they anyway?

Postby admin » Fri Oct 14, 2011 3:58 pm

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RBC DS rep's wrongful dismissal suit to proceed
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Rutherford case headed to trial
By James Langton | Oct 13, 2011 20:35
An Ontario court has denied an investment dealer's bid to have a rep's wrongful dismissal suit tossed out on the basis that a key precedent in this area regarding who owns the client isn't an absolute bar to such claims.
The Ontario Superior Court of Justice ruled against RBC Dominion Securities Inc. on its motion for summary judgement in a case where a former employee, Thomas Rutherford, is suing the firm for wrongful dismissal, among other things.
The decision dated October 12 notes that the firm's argument that there's no genuine issue for trial relies heavily on the decision, King v. Merrill Lynch Canada Inc., in which the court rejected similar claims on the basis that the plaintiffs had not acquired a proprietary interest in a book of business' that was built up over time at Merrill Lynch.
The decision says that Rutherford argued that the King decision doesn't apply in this case as the causes of action he pleads are founded on proprietary interests arising from internal relations between investment advisors. In particular, the decision notes that Rutherford was ultimately dismissed from the firm over a disagreement about an internal succession plan that would have seen clients transferred from one advisor to two other advisors, including Rutherford, in which the firm was to pay the advisor $640,000 for his book, and two other advisors were to each pay the firm $320,000 for half of that book.
Rutherford argued that genuine issues for trial arise from the ownership of his relationships with clients that are governed by contract; and that the other causes of action aim to determine and protect the internal property rights of his client relationships.
"While the plaintiff's claims are somewhat novel, they are not attacked as disclosing no reasonable cause of action and nor would I conclude that such a procedure would prove successful," the court ruled in the decision by Mr. Justice Peter Annis. "I find that there are significant factual and legal issues in dispute with respect to the claims made by the plaintiff relating to the internal ownership of the value related relationships that can only be disposed of by trial."
In particular the decision notes that the King decision doesn't explicitly rule out the possibility of employee proprietary rights. "In my view, the decision, when read carefully, does not deny all proprietary rights or interests of employees," it says, noting that one part of that decision suggests that employees may acquire ‘internal' proprietary interests in clients in accordance with plans and arrangements made by the employer.
Also, the decision notes that, "The King decision was not about the internal ownership of the valued client relationship or the employer's participation in those ownership claims. If the decision has any applicability, it will only commence after the court sorts out issues between Mr. Rutherford and Mr. Enns regarding the internal ownership of those valued client relationships and the propriety of the employer's conduct in that determination."
The court dismissed the RBC DS's motion for summary judgment, and awarded $30,000 in costs to Rutherford.
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Re: for registered reps, whose clients are they anyway?

Postby admin » Fri Sep 16, 2011 8:43 am

When a broker joins an investment dealer, they go to any length to suggest that the broker's clients belong to the broker, and they should bring any and all of them to the new dealer. Even going so far as to pay them to join up. The article below discuses how brokers are being paid to stay with National Bank who is buying HSBC.

But......when a broker leaves an investment firm, they are given an entirely different story, even to the point of a legal threat against them. They are all of a sudden told that they were "simply employees", with no right to even their own client information.

There is a double standard that the industry gets away with due to their strength and size.
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Financial Post

Barry Critchley Sep 16, 2011 – 7:00 AM ET | Last Updated: Sep 15, 2011 5:16 PM ET

What a time to be a broker at HSBC Securities, the firm that is in the process of being sold to National Bank Financial.

The brokers are in an enviable position: They can expect an attractive retention package from their new employer, a package that will typically include cash and stock; but some of them can expect attractive offers from other brokerage firms that are anxious to add more brokers, and see their opportunity.

As for the risks, they tend to be greater with the offers from other brokerage firms because there’s always a chance some of the brokers’ clients won’t follow them to their new, non-National Bank Financial, employer. But the incentives — normally based as a percentage of assets under administration and which are paid upfront but forgiveable over a period of time provided the broker stays and brings the assets over — are higher. Some brokers have made a career of collecting such payments.

Brokers thinking of going down this path can expect pressure from the new employer to stay. Indeed, National Bank’s goal is to get the broker to cash the cheque. “Guys don’t want to pay the money back, so once they cash the cheque, they tend to stay,” said one brokerage executive who has recruited numerous brokers over the years.

National Bank has had some experience this year with trying to retain brokers as a result of an acquisition. On July 15, it completed the purchase of Wellington West and offered retention packages to the Wellington brokers. (By one report, they were offered 0.35% of assets under administration over a three-year period.) Last month, when the bank reported its third-quarter financial results (for the three months ended July 31, 2011), it said that 99% of advisors representing 99% of assets under administration signed an employment contract with National Bank, noting that the next stage in the process is the integration of Wellington into NBF.

Since then, there has been talk that some of the former Wellington West brokers have left.

Of course, there is pressure on National Bank to sign up as many brokers as it can: It has outlayed a boatload to buy Wellington West ($330-million) and now the full-service brokerage arm of HSBC Securities (at least $200-million), and naturally enough wants to get a return.

***
It’s understood National Bank was careful in how it crafted its pitch to win the HSBC full-service business. Sources have indicated the bank gave an undertaking that it wouldn’t try to poach HSBC’s clients, who in addition to having an investment account with the broker also have banking relationships with the parent bank. And given the type of HSBC client, those banking relationships are extensive. Many are conducted through the HSBC Premier Account, which is offered to its customers who are deemed global citizens and who have an active Premier chequing account and maintain a $100,000 balance in combined personal deposits and investments with HSBC Bank Canada and its subsidiaries.

On its website, the bank says, “Premier offers you a comprehensive suite of international wealth management services and banking solutions designed to meet your everyday needs,” adding, “It is the world’s first globally linked banking service that offers a new way of banking to help you take advantage of the world’s opportunities.”

Products (credit cards, lines of credit, travel and medical insurance) and the services (global privileges and rewards, financial planning and trust and emergency services) are the two parts to the account.

Posted in: FP Street Tags: Brokers, HSBC Holdings Plc, National Bank Financial, Wellington
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Re: for registered reps, whose clients are they anyway?

Postby admin » Thu Nov 04, 2010 7:13 pm

(advocate comment......banks always wants it BOTH ways......when brokers leave them to go elsewhere they say that the clients belong to the bank, not the broker, but when they recruit brokers from elsewhere, they are specifically after the clients the broker has. Only a true bully gets to play it both ways)

Flight of U.S. advisors just beginning, RBC says

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RBC Bank branch in Kennesaw, Ga.
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Joseph A. Giannone, Reuters · Tuesday, Jan. 26, 2010

The flight of U.S. financial advisors to independent firms has only just begun, and Royal Bank of Canada intends to lure its share of these break-away brokers.

RBC Wealth Management recruited more than 320 advisors in the past year, taking advantage of a wave of brokers departing brokerages wounded by the 2008 financial crisis and engaged in disruptive mergers.

John Taft , RBC’s U.S. wealth-management chief, said the recruiting frenzy has subsided, so RBC will focus on attracting breakaway brokers and their clients.

“The crisis-driven flight of talent has settled down,” Mr. Taft said in an interview. “In terms of the movement of wirehouse advisors to the independent channel, we think we’re at the beginning of that trend, not the end.”

More than 22,000 registered brokers moved from one broker-dealer to another last year, industry tracker Discovery Database says. More than 8,000 movers came from the four largest “wirehouse” brokerages, and more than 1,000 of these moved to regional and independent firms.

Executives at the big brokerages last month assured analysts the turmoil spawned by the 2008 financial crisis has eased. They also played down the independence trend as hype, insisting most top producers were staying put.

Mr. Taft disagrees. RBC last fall agreed to buy JPMorgan Chase & Co’s registered investment advisor services business, which provides trade and other support to independent firms, to get in front of what Mr. Taft sees as a continuing wave of departures.

“Some of the very best advisors in the industry moved from their wirehouse platform to our platform. Anything you hear about those being lower-end brokers is, in our experience, not accurate,” he said. “The quality of advisors who were moving was extraordinary.”

RBC is following in the footsteps of Charles Schwab, TD Ameritrade, Raymond James Financial and others catering to advisors that establish their own firms but want trading, clearing and technology offerings of a big brokerage. RBC and its rivals benefit from commissions and fees generated by these affiliated advisers.

Royal Bank built the sixth-largest U.S. brokerage over the past decade, rolling up regional firms like Sutro & Co., Tucker Anthony and Dain Rauscher. The brokerage, which describes itself as a “boutique with a national footprint,” has 2,200 advisors serving clients with US$160-billion in assets in 42 states.

Last year and 2008 “were the two best recruiting years we ever had, by several orders of magnitude,” Mr. Taft said, fuelled by “issues at the large wirehouse firms that spooked their financial consultants, spooked their clients and prompted them to look for more stable and secure platforms.”

Mr. Taft says RBC benefits from its links to Royal Bank, which avoided the mistakes that hobbled U.S. rivals, boasts a triple-A credit rating, and has nearly twice the market value of Morgan Stanley.

“If the firm where your assets are custodied lost billions of dollars, or was in danger of going out of business, or is run by people under indictment for tax fraud, that doesn’t make you as a client feel very good,” Mr. Taft said.

Wealth managers are in the business of selling peace of mind, security, a sense of well-being, he added.

Beyond recruiting and its independent advisor plans, RBC has also been a steady buyer of small regional firms. Last year it bought Ferris Baker Watts of Washington, D.C., and New Jersey-based JB Hanaurer, adding 400 advisors.

RBC recently completed integration of its various regional businesses, finally creating one national platform. Mr. Taft said takeovers are not a priority at the moment.

“Right now, our focus is on working with the advisors already on our platform. That doesn’t mean we’re not recruiting or that we are not interested in an acquisition, but it’s not the focus,” Mr. Taft said.



Read more: http://www.nationalpost.com/Flight+advi ... z14Mzffnud
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Re: for registered reps, whose clients are they anyway?

Postby admin » Mon Sep 20, 2010 8:53 am

Dow Jones Newswires , New York

By SUZANNE BARLYN

Leaving one investment firm for another is often a step toward greater career satisfaction, but it can also lead to legal trouble.

Journal Reports

Read the complete Wealth Adviser report .

Brokers and other financial advisers who change firms often run afoul of employment contracts that govern advisers' relationships with their clients and co-workers and access to the clients' information, among other things. And you don't have to be a cheat to become the target of legal proceedings by a former employer—failure to carefully review your employment contract can get you into trouble that you never saw coming.

"It's common [for lawyers] to represent someone who is subject to policies and agreements they didn't know they had," says Thomas K. Potter III, a lawyer for Burr & Forman LLP in Nashville, who represents brokerage firms in disputes with customers and departing brokers.

Many advisers can avert certain legal problems, lawyers say, by following the Protocol for Broker Recruiting, a set of guidelines intended to end legal wrangling between firms while safeguarding clients' privacy and freedom to move their accounts when their brokers switch between firms that observe the procedures. But the Protocol doesn't apply to every case.

So how can you avoid legal troubles after moving on? Here are some things to consider:

Am I covered by industry guidelines?
More than 500 firms participate in the Protocol for Broker Recruiting, according to the Securities Industry and Financial Markets Association, or Sifma, which administers it. Protocol signatories generally agree not to sue one another when their advisers switch firms, provided the advisers follow certain rules.

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Phil Foster
For example, advisers can't tell clients about their plans to move or ask them in advance to move their accounts. But advisers can bring limited information about clients to their new firm, such as telephone numbers, mailing addresses and email addresses. Most other details, such as account numbers, information about client assets and Social Security numbers, stay behind—a requirement aimed at ensuring compliance with federal and state privacy laws.

In effect, the Protocol overrides certain restrictions in employment contracts regarding client confidentiality. Some advisers, however, hit snags. Break one Protocol rule, and your protection may vanish. The firm you left is then free to take legal action against you for actions that are prohibited by your employment contract. And your contract likely is more constricting than the Protocol.

Also keep in mind that the Protocol only applies when both the firm you are leaving and the one that you're moving to are Protocol signatories. So you need to be sure that's the case if you're expecting to be protected by the Protocol. And you need to be sure your information is current, because firms can choose to drop out of the Protocol.
Sifma typically provides weekly updates on Protocol members to participating firms. Advisers can also check with a securities or employment lawyer who receives the updates to confirm whether a firm participates.

Advisers starting their own firms can join the Protocol. Eric Thurber, a former Morgan Stanley Smith Barney adviser, believes he avoided potential trouble when he helped launch Three Bridge Wealth Advisors in Menlo Park, Calif., in 2009, by establishing the firm as a Protocol member, he says. The strategy offered not only legal protection but also a framework of ethical standards that he thought clients would respect.

What does my employment contract say?
Many advisers move without reading what's in their employment contract, says Marc Dobin, a lawyer in Jupiter, Fla., who represents brokerage firms and brokers in industry disputes. Some advisers forget they even signed one, he says, especially if they joined a firm years ago.

Don't Sweat the Small Stuff

Leaving a brokerage firm often resembles a divorce, especially when it comes to ownership of personal items. A key bit of wisdom may apply equally to both situations: Fighting over the little things only makes lawyers rich.

Brokers often leave their offices intact when they resign from a firm to join a new one, so as not to signal their impending departure. In most cases, brokers can make arrangements to retrieve their personal items within about two weeks of their departure. The broker, often through a lawyer or other representative, schedules a time with the old firm's management for a courier or a moving company to pick up the items.

Disputes often erupt, however, over the ownership of certain items, says Thomas K. Potter III, a lawyer for Burr & Forman LLP in Nashville, who represents brokerage firms in disputes with customers and departing brokers. Those battles are more likely to happen when a broker has worked at a firm for many years. The legal ownership of some items, such as an iPod awarded in a company contest, can become fuzzy, he says.

Thomas Lewis, a lawyer for Stark & Stark in Lawrenceville, N.J., says he has handled numerous disputes over personal items, from golf trophies to personal computers. In one dispute over a PC, a broker paid more in legal fees than the cost of a new computer, he says. Mr. Lewis suggested the broker buy a new one instead, but the broker told him the battle was about "principle," he says.

Disputes can also arise over the very existence of particular items. Taking a picture of the office just before leaving, or writing up an inventory, can help prevent those fights, says Mr. Potter. "You're not thinking of the mundane things in the heat of what's going on," he says. "But it's the mundane things that can swallow up the dispute later on."

—Suzanne Barlyn

Employment contracts can be a minefield of potential legal traps, including agreements that prohibit brokers from soliciting the firms' clients after they leave or asking other employees to join them, for example.

Again, it's important to remember that even if you're moving from one Protocol firm to another, your employment contract typically is enforceable if you break any Protocol rule. Bringing notes about clients to a new firm is a common Protocol violation that often leads to legal proceedings by firms seeking to enforce employment contracts, says Thomas B. Lewis, a securities lawyer for Stark & Stark in Lawrenceville, N.J.

Many wealth advisers mistakenly believe they are free to take with them whatever information and notes about clients and their accounts they have compiled over the years, he says. Courts typically order advisers to return such information.

How will clients know I'm moving?
Telling clients about an upcoming move is almost always forbidden, but it creates something of a dilemma for advisers. Valuable clients may become wary of an adviser who suddenly vanishes from a familiar office.

Many advisers tread in gray areas, says Jerry Santangelo, a lawyer for Neal, Gerber & Eisenberg LLP in Chicago who handles securities-industry litigation. Some have avoided allegations of soliciting by telling clients only that they would soon be leaving their firm, without revealing the new firm's name until after the move, he says. Brokers also have avoided trouble by not revealing to clients anything about their reasons for leaving, especially any that reflected poorly on their firm, he says. But he warns that there is no way to tell how much leeway a firm will allow an adviser in any given case or how a court or arbitration panel will rule if a firm chooses to pursue legal action. The safest option, he says, is to say nothing.

Advisers who choose to tell clients they are leaving should be selective, says Mr. Santangelo, to minimize the chances that their firm will learn of their pending departure before they're ready to leave. Brokers who are forced out by management before they're ready may not have time to collect client information that's allowed by the Protocol—an omission that may cost future business.

Some brokers may stockpile trades during their last weeks at a firm, hoping to execute them once they move. However, Mr. Lewis discourages any practice that deviates from normal business. "You always have to do what's in the best interest of your clients," he says, even when that means selling a branded product from one firm that won't transfer to another. Stockpiling also would violate a duty to the employer and show intent to potentially harm the firm the broker is leaving, Mr. Lewis says.

Can I be sued for raiding?
Branch managers who move and then encourage key producers from a former office to follow could be slapped with a raiding suit, along with the new firm.

This is one area that isn't covered by the Protocol. And it isn't clear exactly what will be considered improper. But lawyers say court and arbitration panels generally try to determine if the departures from a firm cost it so much business that its viability is threatened.

"It's one thing to compete fairly in the market. It's another to cripple an office," says Joe Gehring, an employment lawyer at Gehring & Satriale LLC in New York.

Lawyers say courts and arbitrators often will also consider whether a branch manager solicited fellow employees while still on the payroll or asked brokers to copy client documents—actions that can be considered violations of the fiduciary duty that managers typically owe to their employers.

Should I tell my sales assistant?
An adviser's sales assistant can play a vital role in serving clients who transfer their accounts to the new firm. But bringing a sales assistant to a new firm can expose an adviser to potential liability for soliciting the old firm's employees. This is another area not covered by the Protocol.

Advisers should try to hold off telling a sales assistant about a move until after they have resigned, says Mr. Santangelo. Then ask the new firm's management to make an offer to the sales assistant. You are less likely to be accused of soliciting your old firm's employees if the new firm, not the adviser, makes the request, he says.

What about my signing bonus?
Advisers who are responsible for repaying a portion of a signing or retention bonus should prepare to make good on the debt or face legal action.

Brokerage firms are aggressive about fighting to get back a portion of a signing or retention bonus if the adviser leaves before an agreed-upon term is completed, usually five to 10 years.

The employment agreement often prohibits an adviser who leaves early from soliciting accounts at a new firm until the adviser pays that money back. That provision isn't enforceable for advisers who move between Protocol firms, provided they follow all the Protocol rules. But even in those cases the adviser still isn't off the hook for the money owed to the old firm and may have to pay the firm's legal fees if it begins proceedings to enforce the contract.

Arbitration panels rarely show sympathy for arguments about why part of a bonus shouldn't be paid back. Advisers sometimes file counterclaims against firms that are pursuing them for bonus repayments, claiming, for instance, that the firm didn't live up to the promises it made when the adviser was hired, says H Thomas Fehn, a lawyer at Fields, Fehn & Sherwin in Los Angeles who defends brokers.

Those arguments typically fall on deaf ears. Brokers win only about 1% of disputes over bonus repayments that go through arbitration, he says.

Ms. Barlyn is a reporter for Dow Jones Newswires in New York. She can be reached at suzanne.barlyn@dowjones.com .
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Postby admin » Wed Nov 26, 2008 2:08 pm

There's no 'perfect form' for KYC

November 25, 2008 | Steven Lamb
Advisors need to worry less about the specific form used and focus more on building a relationship with their clients so that they truly know them on a personal level, according to speakers at the Advisor Group's Fall Compliance Conference.

"The best way for us all to protect ourselves, and more so to make sure we're doing the right thing for the client, is to turn the form into a process," says John Kelleway, regional vice-president, GTA, & branch manager, Dundee Securities.

While a KYC form may provide a useful starting point in the discovery process, forms alone leave room for misinterpretation. What the client understands as "medium risk" is likely very different from the advisor's definition.

"Many of the mutual funds that we see today are rated medium risk at most firms, and some of those are down 40% to 50%," he says. "I think we all underestimated the risk ourselves."

The KYC is a two-way street, but as the professional in the relationship, it is up to the advisor to ensure the client understands this. At the bare minimum, the client should keep the advisor apprised of any major life events, including marriage, the birth of a child, divorce and the death of a relative.

"It works in partnership. You'll be calling them when things change from your end, but it's important that they call you as well," says Kelleway. "That is one of the things that I see not happening as well as it should."

Dundee's software tracks the date of the last modification to the client's profile. If it has been two years since the last update, the company's "two-year tickler" alerts the advisor that the client's file may be getting stale, and prompts him or her to contact the client for an update.

Kelleway points out that advisors who hold themselves out as planners, rather than investment advisors, will be held to a higher standard by regulators. Obviously, creating a holistic financial plan requires far more detail than asset management alone.

Regulators are aware of the shortcomings of the standard KYC form. Advisors should collect supporting documentation for some of the key entries on the form, according to Prema Thiele, partner, Borden Ladner Gervais.

"If you're selling exempt securities under an accredited investor exemption, you would think that your KYC form should include the kind of information that you need to be sure that you have the accredited investor exemption, i.e., that it has the income and net worth specification that clearly allows you to perfect that exemption," she says. "Remember, what we're trying to do is bullet-proof yourself with these forms."

Another problem with just filling in the blanks is that the entry may be ambiguous. Thiele offers the example of a form in which the time horizon was listed as "none."

"Does that mean that I have an extremely long time horizon, or does that mean I have a very short-term [horizon]?" Thiele asks. "Or does it mean that I don't care? What does 'none' mean when we don't have a time horizon?"

Information on a form may also be inconsistent. One client was listed as having a "speculative" investment style but also a "low" risk tolerance. The terms used on the KYC form often need to be defined by the advisor.

Kelleway recommends using demonstrations to which the client can relate. For example, a client may profess to be comfortable losing 20% of his or her assets inside a month. But would that client still be comfortable if his or her $100,000 portfolio turned into an $80,000 portfolio? Possibly not.

Complicating matters further are clients with multiple accounts, in which case Thiele suggests advisors conduct a KYC process on each account. The risk tolerance on an RRSP account for a 45-year-old may differ significantly from that on an open account.

Thiele says it is important that the advisor not substitute his or her assessment of a client's ability to absorb a loss for the client's own risk tolerance.

"It has been suggested that one's risk tolerance should be the lower of the client's willingness to accept risk, versus the client's ability to withstand a decline in their portfolio," says Thiele. "It's not just the client's comfort level or attitude towards risk but also the client's ability to withstand financial loss."

Just as important is that the advisor not base the risk profile on the client's expected return. The client wants a 10% annualized return, but if he or she is unwilling or unable to sustain a significant market downturn, the advisor needs to manage expectations.

"Sometimes I think risk tolerance is determined by other things that you have on your forms," says Thiele. "I think on the determination of risk tolerance, those factors ought not to dominate your assessment. Just looking at the fact that [the client] earns more than $2 million a year — that's not enough."

Follow-up questions are vital. A 30-year-old client may tell his advisor that he has a long-term investment horizon and wants a 100% equity allocation in his RRSP. That may sound reasonable, but if it is his only account, the advisor should probably ask if the client owns a house. If not, does he plan on funding a purchase from his RRSP? Suddenly the time horizon may have shortened to only one or two years.

"We just heard the other day that the S&P 500 was back to levels from 1997, so after 11 years some people who held the index made no money," says Kelleway. "Eleven years was supposed to be one of those long-term [horizons] where you can take a lot of risk because you have the ability [to recover]."

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

(11/25/08)
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Postby admin » Tue Nov 13, 2007 1:29 pm

Dispute centres on right to sell book


Court: firm violated an “implicit covenant”


By Paul Webster
Mid-November, 2007



An Ontario court decision ends another round in the long-running contest between investment advisors and investment dealers over ownership of an advisor’s book of client accounts. But the battle will probably continue.

In an Oct. 12 ruling, replete with criticism of BMO Nesbitt Burns Inc.’ s management, Justice Peter Jarvis of the Ontario Superior Court of Justice has ruled the firm violated an “implicit covenant of fair dealing” in denying former broker Richard Clark the right to sell his book of business to a colleague.

“This is a ruling that is undoubtedly going to send shock waves through management offices of every investment firm in the province,” says Toronto lawyer Kenneth Dekker, a specialist on recent Canadian cases involving investment advisors’ books of business.

“Investment firms typically view the books of business as belonging to the firms,” Dekker says. “But this ruling verges on elevating brokers’ proprietary interest in their books into a contractual right. The only thing more shocking about this ruling would be if it is not appealed.”

JoAnne Hayes, Bank of Montreals senior manager of corporate communications, confirms an appeal is indeed being considered.

Justice Jarvis found that Clark — who had discussed selling his $42-million book with a colleague in Nesbitt’s Burnamthorpe branch in Mississauga, Ont., shortly before that branch was closed and Clark was terminated in April 2004 without notice and without cause at age 52 — had every right to expect to be able to sell his book.

This finding is largely based on a long-standing tradition of such transactions within the firm, including one earlier management-approved deal in which Clark had purchased another broker’s $15-million book of business for $55,000 in 2001.

“There was no justification at all to not allow Mr. Clark to proceed to attempt to sell his book,” Justice Jarvis concluded. “[A] sale could almost certainly have been accomplished within a reasonable period of time had he been able to stay.”

Well before Clark was terminated, Justice Jarvis noted, a colleague had expressed an interest in buying the book from Clark, who was contemplating retirement in order to pursue other business interests after 17 years at Nesbitt. Judge Jarvis noted the two advisors had informally agreed that the book was worth “upwards of $175,000.

“Any reasonable agreement would have received the approval of management acting out of faith,” Judge Jarvis wrote, after noting that Nesbitt manager Ray Lessard’s actions in firing Clark without notice and then transferring his book to a broker within Lessard’s own branch at the “advantageous” price of $50,000 “had the effect of protecting, if not increasing Mr. Lessard’s own participation in its proceeds.”

Justice Jarvis found that Lessard had dealt with Clark — who at the time of dismissal was embroiled in a bitter marital separation battle in which damaging, although later withdrawn criminal allegations had been asserted against Clark — “in a cold and impersonal” manner “calculated to hurt.”

Judge Jarvis awarded Clark 18 months pay in lieu of notice, along with $90,000 for the value of his book and $25,000 in damages stemming in part from Lessard’s conduct toward Clark.

Despite this outcome, Clark is not happy about the outcome from a financial perspective. “The amount of money I won pales in comparison with what I would now be earning,” he says. “And my lawyer says [Nesbitt] will appeal on the basis that it doesn’t want it getting out that you can sell your book.”

Noting that the judgment assesses the value of Clark’s book well below the price at which he expected to sell it, Clark suggests Nesbitt singled him out to try to roll back brokers’ proprietary control.

In a business built on brokers’ performance, Clark asserts, the right to sell books of business stands as a key incentive. “Everyone should have a right to sell their book,” he insists. “Nesbitt had a policy of allowing you to sell the book. That’s how they reward you for bringing in the clients.”

Nesbitt has the right to appeal the decision for up to 30 days following the Oct. 12 judgment. At the time of publication, the investment dealer was reviewing the decision and considering whether it should appeal.

Malcolm MacKillop, the lawyer in Toronto who defended Nesbitt, is not discussing the case at present.

Lawyer David Harris, the wrongful dismissal specialist who represented Clark, notes that Justice Jarvis’s ruling affirms precedents established in several recent cases, including two from British Columbia that have affirmed brokers’ proprietary interests in their books of business.

“I was surprised that [Nesbitt] didn’t acknowledge ownership,” Harris says. “It seems to want to establish the principle that it is not going to allow brokers to keep their books. But this decision adds weight to individual brokers’ proprietary control.”

Not all legal analysts agree, however. In Calgary, Gary Clarke, a lawyer specializing in employment law who follows cases involving books of business with special attention, thinks the Clark case should be looked at “in its isolated facts” — especially considering the well-established practice of buying and selling books within Nesbitt.

“I don’t see the court doing anything here in terms of changing the law in this area,” he says.

Concerning the practice of selling books within the investment dealer, says Clarke: “You can’t sell what you don’t own, which indicates some sort of ownership was accepted within the firm. But this [basis for ownership] will only be the case within a firm at which this was customary.”

Unlike Dekker and Harris, Clarke doesn’t view the Ontario Superior Court decision as establishing a broader entitlement to brokers throughout the industry. “I don’t see everyone having an ownership on the basis of this decision,” he says.

Instead, Clarke suggests the case should be seen as a wake-up call to the industry that ownership of books is an issue that warrants clarification within investment firms, a conclusion he also draws from a B.C. case earlier this year in which RBC Dominion Securities Inc. sued Merrill Lynch Canada Inc. for poaching an entire brokerage team away from DS’s branch in Cranbrook, B.C.

In that judgment, delivered by Justice Mary Southin of the B.C. Court of Appeal, each of DS’s departing employees was found to be entitled “without fear of litigation, to prepare a list of his own book of business from the records of the brokerage house. To hold in the 21st century that an advisor, who usually, by considerable personal diligence, has built his book of business, must rely on his memory for the full names, addresses, telephone numbers and e-mail addresses of his clients, is not, in my opinion, in the interests on the clients and, therefore, is not in the public interest.”

Clarke notes that Justice Southin had underlined the fact that DS had no formal agreement with its advisors regarding ownership of the books, an issue that he notes also arises from the Nesbitt case.

“Anytime you have a situation in which a past practice is not clear,” Clarke suggests about these disputes over books of business, “you’re always better off when you have formal agreements.” IE
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Postby admin » Tue Nov 13, 2007 1:27 pm

Court rules advisor indirectly entitled to information


Lawyer is to review employment contract; if anything of relevance is found, it could be used to prove constructive dismissal




By Donalee Moulton



The first round in a court case that has pitted an advisor against two former employers has gone to the one-time employee — sort of.

The Nova Scotia Court of Appeal has ruled that CIBC Wood Gundy must hand over an employment contract put in place when it purchased Merrill Lynch Canada Inc. in 2002. But it’s who that document is being handed over to that is noteworthy.

“The court allowed the document could be relevant, but it must first be reviewed by [the advisor’s] lawyer,” says Dennis James of Patterson Law in Truro, N.S., who represented Merrill Lynch Canada, an interve-nor in the case. “The option of having a lawyer look is unusual.”

This unusual step was taken “because the firms seemed so nervous about what was in this agreement,” says Eric Slone, a lawyer with Gavras Slone Lenehan in Halifax who represented Richard Blackman, the advisor. In such situations, judges usually allow full disclosure or no disclosure. In this case, the judge found middle ground. “The [firms] didn’t want Blackman to see it; only me,” Slone says. “The judge agreed.”

This could open the door for advisors to see the agreements that were put in place regarding their employment when financial companies merge or are acquired. “It could be an important issue for the industry, given the frequency of mergers and acquisitions in the sector,” Slone notes. “There is a tremendous amount of protection for employees when a company changes hands.”

That protection seems to have enveloped Blackman — at least, for now. Blackman, who is suing CIBC for constructive dismissal, had a long career as an advisor, starting with Royal Bank of Canada. In 1998, Blackman moved to Midland Walwyn Capital Inc. and worked out a deal in which he would be treated as a new employee without a book.

“He didn’t anticipate bringing over more than half his clients, and he wanted to be treated as a new broker as a benchmark for gauging his performance,” Slone says.

The statement of claim alleges that the shorter length-of-service designation was favourable to Blackman because employees with longer length-of-service designations were paid less given similar revenue production.

The dominoes then fell. Midland was sold to Merrill in the late 1990s, then Merrill’s retail operations were sold to CIBC and combined with Wood Gundy. Before the final domino tipped over, however, Merrill changed the rules of the game concerning Blackman. “In early 2001, without explanation and without any obvious reason,” Slone says, “it bumped his length of service from three years to 10-plus.”

And the game was on. Blackman sued Merrill; but before the case could be resolved, the retail brokerage was sold to CIBC. “CIBC contended it did not breach contract; Merrill did,” Slone says. “My client contends CIBC had contractual obligations — obligations to employees that came over from Merrill.”

To prove those contractual obligations, Blackman asked to see CIBC’s agreement with Merrill. And all hell broke lose.

“In our view, it’s a confidential commercial document and the courts ought not to step on that confidentiality,” James says.

The firm also argued that the documents were not employment contracts at all and not related to individual employment. “Merrill argued that it is established law that you can’t assign employment contracts without the consent of the employee,” James notes. “The court didn’t take that as absolute.”

The court found that an agreement was probably in place between the two firms respecting continued employment of advisors and other staff. That finding was premised in large part on a document CIBC sent to all Merrill employees during the buyout. It stated: “All employees of Merrill Lynch Canada Inc. who are part of the deal will receive comparable job offers. CIBC and Merrill have worked closely together to ensure that the overall terms and conditions of your employment offer have an equal or greater value to you compared to what you have today.”

The court concluded that whatever agreement was in place could be important — and on point. “CIBC’s position, supported by the intervenor, is that the agreement is irrelevant,” states Justice Thomas Cromwell in his decision. “They submit that the plaintiff is not a party to the agreement and, therefore, it cannot affect his rights. Respectfully, this view of relevance cannot be sustained.”

Blackman’s victory is only partial, however. First, his lawyer must review the agreement. If anything of relevance is found, it’s back to court to get the judicial stamp of approval for using the information to prove constructive dismissal. “Even if the agreement is helpful,” Slone says, “we have a long way to go to establish a case.” IE
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Postby admin » Tue Aug 28, 2007 9:47 am

Exit planning: Successfully reaching qualified buyers
Cindy Jenner Cowan



(August 2007) Building a practice is no easy task, but when the time comes time to sell you want to make sure you're getting the best possible deal. Unfortunately, many advisors don't know the first thing about putting their business up for grabs.

Selling a practice isn't as simple as calling your competitor and negotiating a price — it's one of the most complex transactions you'll engage in during your career. To break it down, here are four things you'll need to do before you can sign on the dotted line.

Those who are best prepared generally find the sales process to be the least disruptive to their current operations; they are able to identify and deal with the greatest number of potential bidders, they command the highest price multiples and set their own stage for a successful transition.



Cindy Jenner Cowan is vice president of training and development at Worldsource Financial Management. With more than 17 years of experience in the financial services industry, the expert in relationship management and value-added coaching recently developed FRAMEWORKS, a training program for Worldsource advisors, focusing on advisory practice life cycles. For more information please visit www.partnerwithWFM.com. You can also contact Cindy directly at (604) 376-9119 or cjennercowan@worldsourcewealth.com.

(08/21/07)

(advocate comments........related to how the large financial services firms use bully tactics to get it both ways. The above article demonstrates how the industry views the broker's client book to be his own and a valuable "business within a business" that he or she can sell. WHy is it that when a broker departs one firm for another, they change faces and claim that the broker was simply an "employee" with no rights whatsoever to clients.
The courts are changing this one case at a time, but the firms still use abusive practices and tactics to threaten and intimidate brokers. Another shame on those firms who operate in this manner.
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Postby admin » Mon Jul 09, 2007 12:38 pm

Court dismisses BMO Nesbitt motion for injunction against departing advisors


Loss of client assets not considered “irreparable harm”


Sunday, July 8, 2007


By James Langton



The Ontario Superior Court of Justice has denied a motion by BMO Nesbitt Burns Inc. seeking an injunction against two former investment advisors that jumped ship for rival RBC Dominion Securities.

BMO Nesbitt was seeking an injunction against two brokers, John Ord and Darren Wolpert, that resigned from the firm in May to join DS.

BMO Nesbitt wanted an order restraining Ord and Wolpert from soliciting any of Nesbitt’s clients, in the case of Ord for 12 months and in the case of Wolpert for six months, on the ground that they are in breach of their obligations to Nesbitt. It also sought an order restraining DS on the ground that it assisted them in breaching their obligations.

The court ruled that Nesbitt met the test of establishing that there is a serious issue to be tried. However, it failed to demonstrate that an injunction was warranted to prevent it suffering “irreparable harm”.

“In my view, the question of whether permanent market loss constitutes irreparable harm is not simply one of establishing permanent market loss. Rather it has to be considered having regard to all the facts of the case,” wrote Judge Pattillo in the court decision. “Here the evidence establishes that the $175 million of assets managed by Ord represented 2.6% of the total assets under administration at the branch where Ord worked and less than .2% of all of the assets Nesbitt has under administration. More importantly, however, and as I have found, the loss is capable of being calculated in monetary terms. Accordingly, while the loss of the clients’ assets is not insignificant and may represent permanent market loss, on the facts of this case it is not irreparable.”

The judge noted that in light of the conclusion that Nesbitt has failed to establish irreparable harm, it didn’t need to spend a great deal of time weighing the balance of convenience as to whether or not to grant the order.

Nevertheless, the judge wrote, “In my view, on the facts of this case, the balances of convenience tips in favour of the defendants and not granting the injunction. While the assets Nesbitt has lost and may additionally lose in the future are significant, there is no question that Nesbitt will remain in business. In addition and as I have found, the loss is capable of monetary calculation. On the other hand, if the injunction is granted, even for the limited period requested, it would severely restrict the ability of Ord and Wolpert to earn a living for the time it was in place.”

“I think it is also important to consider in this discussion the interests of the clients about who the fight is really all about and who are entitled to have access to the investment advisor of their choice,” the judge added.

Therefore, the motion was dismissed.
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Postby admin » Thu Feb 02, 2006 9:54 am

Broker wars: Whose clients are they, anyway?
Matthew McClearn
From the June 2005 Issue of Canadian Business Magazine
It was a rude awakening. Bert Van der Geest, an IT consultant in Victoria, learned in May 1999 that his investment adviser of seven years, Carolann Steinhoff, had just left brokerage ScotiaMcLeod Inc. Weeks later, he met with the new broker assigned to his account, Ron Campion. Campion had some bad news: contrary to Van der Geest's understanding, his portfolio had performed badly under Steinhoff's administration.

Campion handed him a portfolio evaluation. "He said I'd lost quite a lot of money in all these stocks," Van der Geest recalls. "I looked at it, and it just didn't seem right to me. It was very disturbing. I felt, geez, I hadn't been paying close attention."

Confused, Van der Geest took the portfolio evaluation home. That night, he compared it to the official monthly statements he had received over the years. Several things struck him. First, the book values of his securities (the prices paid at purchase) on Campion's evaluation did not match those on the statements. For example, the book value of a mutual fund he had bought for $879.45 was listed as $4,593.57. What's more, columns on ScotiaMcLeod's report didn't add up. That left Van der Geest even more baffled. "I didn't know whom to trust at the time," he says.

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Though he hadn't realized it yet, Van der Geest had become a pawn in a no-holds-barred struggle between Steinhoff and her former employer. Steinhoff, one of ScotiaMcLeod's top brokers, had been fired, ostensibly due to concerns about her trading practices. She had since joined a small independent brokerage, United Capital Securities Inc., and tried to convince her clients to move their accounts with her. ScotiaMcLeod had other plans. It divided Steinhoff's accounts among her former colleagues, who tried to persuade clients to stick with the firm. Much was at stake: Steinhoff had been, by a wide margin, the Victoria office's top-performing broker.

In the financial services game, squabbles over high-net-worth clients can get rough. The baffling portfolio evaluation presented to Van der Geest was just one sign that this one would be particularly nasty. The fight would generate numerous complaints, an out-of-court settlement and a lumbering disciplinary process that dragged on for years.

If Van der Geest and other clients thought they'd be shielded from the flying fur, they were sorely mistaken. Steinhoff's expectation that the Investment Dealers Association of Canada would rein in her former employer was similarly misplaced. Though she fought for--and eventually received--complete exoneration, a dark cloud hung over her reputation for more than five years. ScotiaMcLeod, meanwhile, would come away largely unscathed, but with fewer clients than it had probably hoped for. The enduring lesson is that when disputes erupt in brokerage boardrooms, they have a way of spilling out onto public streets.

Carolann Steinhoff believes in good and evil. She is equally certain of her own morality. She is extensively involved in philanthropy, and in an interview with Canadian Business at a Victoria restaurant said she was "incapable of doing anything wrong." But perhaps her most distinguishing feature is an unflinching combativeness. That, coupled with her considerable financial resources, made her a less-than-ideal target for ScotiaMcLeod's aggressive tactics.

Originally from Montreal, Steinhoff headed west as a pharmaceuticals sales representative for Johnson & Johnson. She entered the brokerage industry in the late 1980s, and landed her first job at ScotiaMcLeod in Victoria. As part of her efforts to learn the ropes, she spent a week with one of the firm's top producers, Jacques Maurice, studying how he conducted his business. Steinhoff took to her new job like a fish to water. "From Day 1 in this business, I went, 'Thank you, God, I have found something I absolutely love doing,'" she says. Former colleagues say Steinhoff regularly worked 12-hour days, and weekends. From the outset, she set her sights on lawyers, surgeons, professors, wealthy retirees and other high-net-worth clients. "I didn't know anyone in Victoria, so I used to sit in the boardroom and do cold calls," she says. "I'd just pick up the phone, night after night until 11 p.m., call people and get money into T-bills."

But Steinhoff did not relate well to her fellow brokers in ScotiaMcLeod's Victoria office. "I was the only female broker," she says. "When I joined, another broker came up to me and said, 'We had a female once, and she married one of her clients and she lasted six months.' I dug in my heels and said, 'It doesn't really matter.' I worked my guts out. And as I became more successful, they became more resentful."

The industry's top performers are awarded in numerous ways. One is membership to a brokerage's President's Council, reserved for the best salespeople; the elite wind up in the sanctified Chairman's Council. While Scotia does not reveal the terms of admission, these clubs are exclusive. By any measure, Steinhoff outshone her colleagues. She made ScotiaMcLeod's President's Council in her first year; every year after, she was on the Chairman's Council. By 1999, she had about 500 clients. She says she was raking in more than $4 million a year in commissions for the firm and was one of its best-performing brokers, not only in Western Canada, but nationwide. In August 1998, Scotia Capital Markets chairman and CEO David Wilson sent her a letter celebrating her 10th anniversary with the company. In a handwritten postscript, he wrote: "You have made an outstanding contribution to the firm over 10 years! Keep Going!!"

That same month, Steinhoff got a new boss, when Nola Grant became branch manager at the Victoria office. The two women clashed. Steinhoff claims Grant tried to revoke terms of her employment negotiated years before. (Citing the matter as a human-resources issue, Grant declined comment for this story.) At the same time, Steinhoff did things that didn't exactly endear her to Grant. Steinhoff says she told regional sales manager Hamish Angus that Grant was too young and immature for the job. "You've hired the wrong person," she remembers telling him. "You have to fix this situation."

On Dec. 17, 1998, a dark cloud formed over Steinhoff. According to ScotiaMcLeod, she received a memo from her superiors alleging that she may have engaged in discretionary trading. It was a serious allegation. If a client wants his broker to trade on his behalf, he must apply in writing for what's known as a "discretionary" account. The application must be approved in writing by a senior brokerage official. Otherwise, before executing a transaction, brokers must obtain client instructions on the security to be traded, at what price, in what quantity, and the timing of the order. Failure to do so could be construed as discretionary trading, an offence most brokerages consider grounds for termination.

That same month, Steinhoff claims, one of her assistants came into her office in tears. As Steinhoff tells it, the woman related a conversation she had just had with Grant, whom she claimed had told her: "If Carolann leaves, we'll make it worth your while to stay on." Steinhoff concluded that Grant was planning to punt her, and wanted the assistant (who had good relations with clients) to help keep customers happy. Recalls Steinhoff: "I said, 'You know what? It's time to leave.'"

Steinhoff put word out on the street that she was looking for a new employer. It wasn't long before brokerage houses--including Merrill Lynch and TD--were soliciting her. "Pretty soon, they were fighting over me," Steinhoff says. During lunch with senior executives at Merrill Lynch in Toronto, she adds, they asked: "What do we have to do to get you onside?" There was one problem: despite precautions, Steinhoff believes, news of her job hunt managed to get back to her ScotiaMcLeod superiors.

By looking for employment elsewhere, Steinhoff had raised one of the brokerage industry's most important questions: Who owns the client? Investors, after all, are the industry's lifeblood. The commissions they pay are split between firm and adviser, according to a grid structure that typically changes each October. Top producers get as much as half; Steinhoff received up to 51% of trading commissions from large client accounts by the end of her tenure. When firm and adviser part ways, however, the client is in play.

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Brokerages have a variety of options when attempting to retain customers. Some insist advisers sign non-solicitation agreements barring them from contacting clients for a specified period after their departure. Firms can also apply for court injunctions to prevent former employees from soliciting customers--a common tactic, particularly when the ex-employee was a manager and therefore has a greater fiduciary duty.

Advisers, however, typically have the upper hand. That's mainly because they interact directly with clients, and tend to build stronger personal relationships. There are no industry-wide statistics. But one B.C. Supreme Court judge estimated that a "competitive recruit" from another brokerage firm could bring 50% to 75% of his clients with him; "a senior broker with a long-term clientele" could bring as many as 90%. The attitude of Philip Hagell, a longtime Steinhoff client who has followed her through two job changes, is typical. "Whether Carolann had worked for ScotiaMcLeod, Royal Bank or Sam's Loan Sharking, it wouldn't matter to me," he says. "I deal with Carolann because I like Carolann."

Not all broker departures turn into the sort of free-for-all experienced by Steinhoff's clients. But Steinhoff was no ordinary broker. With about $250 million in assets under management in 1999, her "book" represented more than half of the total at ScotiaMcLeod's Victoria office. When a brokerage office loses that much business, it could be forced to close its doors.

While Steinhoff considered her job options, more storm clouds gathered. According to a document generated by ScotiaMcLeod, she received two memos--and attended two meetings--in late 1998 and early 1999--in which her employer admonished her to cease executing discretionary trades. "I knew the heat was on, and I had to get out of there," Steinhoff says. "But I couldn't--because my father was dying."

Steinhoff's father died in April 1999. After she returned to work about a week later, she received a letter, dated April 30, from James Werry, a ScotiaMcLeod managing director and head of brokerage. It informed her she would be placed under "close supervision" for one month due to client complaints about discretionary trading. That meant her superiors would review and sign off on every trade she executed. The letter further warned that Steinhoff could be fired "for cause without further notice or warning" for future transgressions. "This is a serious matter and it must be dealt with by you in that fashion," Werry stated. (Ironically, nearly two weeks later, he sent a warm congratulatory letter to Steinhoff for winning the company's 1998-99 RRSP campaign and awarded her a $1,000 marketing allowance.)

Steinhoff mounted an internal defence and denied executing a single discretionary trade. The same day Werry's letter arrived, she sent a missive of her own to the human-resources department complaining about how Angus and Grant were treating her. She also made it clear that she believed Grant was making plans for her departure. "Recently," Steinhoff wrote, "she approached another senior assistant of mine, Kathy Allen, and offered her a job as an associate with another broker in the office."

Steinhoff argued in a follow-up letter to Werry that each of the five client complaints was without merit. But her arguments seem to have had little impact. Steinhoff was called into a boardroom at around 10 a.m. on May 18. Waiting for her were Grant and Angus. Steinhoff instantly knew something was wrong--the Vancouver-based Angus wouldn't regularly be there. But she had little time to ponder where things were headed. According to Steinhoff, Angus stood up, strode over and handed her a letter.

Steinhoff opened and read it. It tersely explained that her employment had been terminated for failure to comply with the terms of her supervision. "My legs went wobbly," she says. "My vision went blurry, and I almost fell down--the physical impact of that betrayal was so huge."

Steinhoff recalls Angus telling her: "The door is there." Disoriented, she turned to leave--and walked straight into the wall.

Word of Steinhoff's firing spread quickly. ScotiaMcLeod did the obligatory paperwork, filing a Uniform Termination Notice, which lays out the reason for an adviser's dismissal, with the Investment Dealers Association. Steinhoff's UTN showed that she had been fired for "violation of terms of close supervision." (Exactly what aspect of supervision she had violated was not disclosed.) The form also observed that she was subject to unresolved client complaints and internal discipline for regulatory infractions.

ScotiaMcLeod wasted no time. On the same day it fired Steinhoff, Grant wrote clients a letter notifying them that Steinhoff was no longer with the firm. "ScotiaMcLeod values your business and would ask your support as I personally review your investment portfolio(s) and objectives in order to appoint the appropriate investment executive to meet your needs," she wrote.

It was a feeding frenzy, as Steinhoff's former colleagues divvied up the action. "They'd indicated during our meeting that because her account was so large, it would take a number of people to manage it," says client Hagell. "They were giving us the impression that the account was so busy that she couldn't have possibly paid attention to everything."

The story continues below...
Bet your bottom dollar
Day traders are back, and the hot new market is foreign exchange.
The middlemen
Mortgage brokers give banks a run for their money.
Legal weapon
Trizec's defamation lawsuit could have a chilling effect on brokerage research.


This article
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Bet your bottom dollar
Day traders are back, and the hot new market is foreign exchange.
The middlemen
Mortgage brokers give banks a run for their money.
Legal weapon
Trizec's defamation lawsuit could have a chilling effect on brokerage research.

Canadian Business Magazine
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Steinhoff suddenly discovered her currency was on the wane. Granted, she still had defenders. Among them was Merrill Lynch's Thane Stenner, who had left ScotiaMcLeod some years earlier and claimed that after his departure "the rumours they floated were vicious." He sent a memo to senior Merrill Lynch officials suggesting Steinhoff's dispute with ScotiaMcLeod presented an opportunity to pick up a top broker on the cheap. Under normal circumstances, Merrill Lynch would have to follow standard industry practice of paying a big signing bonus or offering other incentives to acquire Steinhoff. That, Stenner observed, wouldn't be necessary. Stenner's memo acknowledged that hiring Steinhoff would involve risks--including unwanted media coverage. But, still, he threw his support behind her. "I've known C.S. for 10 years and I believe strongly that C.S. is worth the risk of at least investigating further," he wrote.

Ultimately Merrill decided against recruiting Steinhoff. She recalls asking one Merrill Lynch executive, "'You don't think I've done anything wrong, do you?' He said, 'Well, we'll have to wait and see.'" TD also backed off. "I phoned around to the other firms I'd done some interviewing with, and it was just click, click, click," Steinhoff says. "Everything was on ice, and that gave Scotia's brokers time to go after my clients."

With help from former ScotiaMcLeod veteran and friend Chris Hodgson--who has returned to the company and is now executive vice-president of wealth management at Scotiabank--Steinhoff began negotiations to find work at a smaller brokerage. In June 1999, she joined United Capital Securities Inc., a Vancouver-based firm. UCS did not have a Victoria office, but Steinhoff's book was sufficient to justify opening one. "I have decided that an independent (rather than bank owned) full service, money management firm is more compatible with my investment philosophy," she wrote in a letter to clients. "You are all very valued clients to me and I would very much like to have you here with me to move into the new millennium on a very positive, personal and professional platform." She encouraged clients to sign documents transferring accounts to her.

ScotiaMcLeod representatives immediately set out to undermine confidence in Steinhoff and her new employer. "The innuendo was horrendous," Steinhoff claims. She alleges that ScotiaMcLeod officials told clients her house was for sale. (In fact, her neighbour's was.) ScotiaMcLeod officials also expressed skepticism about UCS. One letter to clients from Grant read: "Many clients have asked us about this new firm. As we had not heard of them before, we researched the internet and were able to determine that they are a Vancouver based investment firm. On June 15, 1999 we were able to download some information from their web-site, however this site is no longer active. If you would like a copy of this information, please do not hesitate to call." Grant added that most clients had told her they would stick with ScotiaMcLeod.

Steinhoff claims that her former colleagues were also soliciting complaints against her. Hagell, for one, says Scotia- McLeod investment adviser Mark Stoker asked him and his wife to sign a letter indicating that Steinhoff had misrepresented the value of his accounts and had executed unauthorized trades. Hagell had no such complaint. "I recall telling them point-blank that we would not sign anything until we had researched ourselves, and we'd asked them for a copy of the letter," he says. He became suspicious when ScotiaMcLeod refused to provide a copy.

Steinhoff's boss, UCS's Brian Worth, was taken aback. "This kind of behavior in our industry is unfortunate," he wrote in a letter to Steinhoff. "In a business where trust is the key link between advisor and client...misinformation will lead them to certain failure. I suspect that if the core management of ScotiaMcLeod knew what was going on in the Victoria office they would be as unimpressed as we are."

While Steinhoff grappled with ScotiaMcLeod, a new opponent arrived on the scene: the Investment Dealers Association. The IDA advances the interests of its 208 member firms, all of which are investment dealers like Scotia Capital, ScotiaMcLeod's parent. It also has a self-regulatory function: it licenses brokers and brokerages, requires firms have adequate capital and enforces bylaws and rules of business conduct.

No fewer than nine client complaints were outstanding against Steinhoff at the time of her dismissal; most were for unauthorized trading. But the most damaging were yet to come. They originated from Mary Conley, a Victoria physician who had been a customer since 1992. Conley was a happy client until 1998, but several factors appear to have contributed to her change of heart. First, she had started putting money in tech stocks using a discount broker; the bubble was in full swing, and Conley enjoyed eye-popping returns. However, such stocks ran contrary to Steinhoff's value-oriented investment style, embodied in her "get rich slowly" philosophy. Then came allegations of discretionary trading. Conley claimed that in December 1998, she became irritated because Steinhoff was executing trades in her account without consulting her. Conley later complained in a letter to Grant that her "impression was that [Steinhoff] needed money for Christmas."

Conley applied to have her accounts transferred from Steinhoff to MD Management, a brokerage for medical professionals, in January 1999. Steinhoff was able to convince Conley to keep her Scotia accounts open, but the honeymoon was over. Steinhoff's dismissal, and the accompanying rumours, apparently exacerbated matters. In July 1999, Conley complained to the IDA that Steinhoff was aggressively soliciting her to transfer her account to UCS. "I feel that I am being harassed and want her to desist," Conley wrote. The IDA dropped the complaint as unsubstantiated. Conley filed a second complaint the following month stating that Steinhoff had executed unauthorized trades. Conley was also quoted in a local newspaper, the Business Examiner, alleging Steinhoff had left her portfolio "in shambles." Conley later retracted the allegation, which was demonstrably untrue.

Meanwhile, complaints were piling up against ScotiaMcLeod. One client complained about a broker's "somewhat aggressive tactics" to convince her to stay with the firm. Another wrote to the IDA: "There has [sic] been some very unprofessional things happening and we hope this matter will be looked into." The portfolio evaluations worried customers, too. In some cases, they painted an ugly picture. ScotiaMcLeod furnished some clients with "commission schedules" that reported Steinhoff had received certain commissions that in fact she had not.

Steinhoff began to drive around and visit clients at their homes. "Everywhere I went, clients had the same story: 'They gave us a portfolio review, and we thought we'd done better,'" she says. "By the third time I heard that, I knew there was something wrong."

That something included mathematical errors. For example, client Sheila Colwill confronted Steinhoff with one such review. Steinhoff pointed out erroneous calculations. "It would be immediately apparent to the broker that the review was false and understated the value of the account," she says.

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After discovering mistakes on his own evaluation, Van der Geest says he phoned ScotiaMcLeod broker Campion, who promised to look into the matter. He never called back. Earlier, Van der Geest adds, Campion had told him that a junior person at the office had prepared the evaluation. "Being in the computer industry myself, I understand the types of errors that can be made on these things," Van der Geest says. "But it left me with an uncomfortable feeling that they had someone inside their office who wasn't a professional in the systems industry preparing their reports for them." Van der Geest says he called Campion twice more, trying to better understand the problem, but received no response. "It was almost as if they were hiding something," he says.

Gradually, it became clear that ScotiaMcLeod's campaign was faltering. Some clients believed the firm had misled them to win their business; Colwill complained to the IDA about what she viewed as "the shameful misleading of investors with fear, innuendo and false information."

Meanwhile, Steinhoff had collected no fewer than 10 erroneous evaluations produced by ScotiaMcLeod's Victoria office. When confronted with them, Steinhoff says, ScotiaMcLeod's lawyers became eager to discuss an out-of-court settlement. Initially, Steinhoff says, she wasn't interested. "I was going to take it to trial," she explains. "I would have loved to let the world see how avaricious the banks can be. My lawyer said, 'You know, Carolann, if you take this to trial, it's going to cost you $1 million. Take the settlement, and the IDA will take care of Scotia.'" Her husband, urologist Dr. Gary Steinhoff, also discouraged her from going to court.

Steinhoff and her lawyer met with Bruce Maranda, the IDA's then head of member regulation in Vancouver. Steinhoff claims she told Maranda that she would settle with ScotiaMcLeod only if the IDA promised to sanction the firm for its alleged transgressions. She showed him copies of the erroneous portfolio evaluations. "He was alarmed," recalls Steinhoff, "and his exact words were: 'There will be severe disciplinary action.' I said, 'Great, we'll settle then.'"

Maranda has since moved on from the IDA. Contacted by Canadian Business, he disputed Steinhoff's account of this conversation. "Not only do I not remember saying the words ascribed to me, but they are quite contrary to the way I speak," he wrote in an e-mail. "Further, I do not believe that there was any talk of her possible settlement with ScotiaMcLeod being in any way influenced by any possible action by the IDA." Maranda added that he never formed an opinion on the merits of Steinhoff's wrongful dismissal suit against ScotiaMcLeod.

ScotiaMcLeod and Steinhoff entered into a settlement agreement, the terms of which have not been disclosed. It included a gag agreement that both parties never speak about the matter. As part of the settlement, ScotiaMcLeod's Angus wrote a letter to some of Steinhoff's clients, acknowledging that some portfolio evaluations and commission statements were incorrect. "There may be inaccuracies showing losses when in fact there had been gains," he wrote. "Dividend income may have been omitted or underestimated."

Angus did not explain the source of the errors. In an interview with Canadian Business, Scotiabank spokesman Frank Switzer declined to speak about the Steinhoff case specifically, but attributed the errors to software problems. In 1998, ScotiaMcLeod rolled out a supplementary program called Plaid Navigator, a portfolio and contact management software package designed to assist advisers. "This system was a supplementary tool for advisers to generate optional reports for clients," says Switzer. "That system, at that time, in some cases, did produce some errors in information on reports that were generated. It was a limited systems issue, and not the result of actions by any individuals who printed reports off the system." Other Scotia officials also said that investment advisers were unable to modify information churned out by the system. Further, says Switzer, "We would view any attempt to deliberately issue false or misleading information to clients as a serious violation of our standards."

The software problems were news to Steinhoff. "This is the first time they have offered [systems error] as an explanation," she says of Scotiabank's claim. "Since I was preparing accurate [reports] for my clients up until the day I left, the computer program must have conveniently malfunctioned the day I left and remained malfunctioning until my lawyer confronted them that we were on to them."

If Steinhoff believed that the IDA would punish Scotia, she was mistaken. The IDA investigated Colwill's complaint about false information. The response she received in August 2000 read:

ScotiaMcLeod Inc. does recognize that the information provided on the portfolio report presented to you by Mr. Simmons may have contained inaccurate information with regards to the performance of your portfolio. The aim of our members should be for complete accuracy and full disclosure when relaying data to clients. It would appear that your complaint to the Association was justified. While the Association will not be pursuing this matter further, a summary of this incident will be forwarded to the Association's Sales Compliance department for consideration in a future audit.

IDA policy prohibits discussion about investigations that do not involve a public hearing, so the reasons ScotiaMcCleod emerged unscathed remain a mystery. As Switzer reports, the IDA gave the firm "a complete clean bill of health." Some found the outcome disconcerting. Steinhoff wasn't pleased; today, she claims the IDA is "a pretty incestuous little club." Glorianne Stromberg, an investor rights advocate and former commissioner of the Ontario Securities Commission, says it seems unlikely ScotiaMcLeod did not know that its portfolio evaluations were incorrect. "Somebody--a fair number of bodies--had to know what was going on and had to be condoning the practices," she says. "There's good reason to question why the IDA has not taken action against her immediate supervisors, the branch managers, the regional managers."

Other critics claim that the IDA has a bias toward sanctioning individual brokers while treating firms more gently--a bias fostered by its dual role. "The implication of lower fines to brokerages than to their employees is clear: employees can walk away from the association and even the industry, but the association needs those member firms and the fees they provide," John Lawrence Reynolds wrote in his recent book, The Naked Investor. "Slap a million-dollar penalty on a member firm, however, and it might vote with its feet, preferring to operate outside the organization's bounds." (This criticism didn't hold in 2004, however, when a number of firms were heavily fined for market-timing offences; none of them cancelled their IDA memberships.)

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As for longtime Steinhoff client Hagell, he's still scratching his head. "Why didn't the IDA go after ScotiaMcLeod?" he asks. "Did they get their licences pulled? They should have."

ScotiaMcLeod may have escaped the IDA's wrath, but Steinhoff's regulatory nightmare was far from over. The IDA frequently takes disciplinary action against advisers accused of discretionary trading; last year, 311 of the 1,311 complaint files opened by the IDA dealt with that offence. The IDA investigated about half a dozen complaints against Steinhoff--a lot for a single broker. Even more remarkable, however, is the fact that all of them were eventually withdrawn or dismissed. Conley's complaint went the furthest: it took more than five years to resolve.

In numerous letters and phone calls, Steinhoff asked the IDA to speed its efforts to resolve the complaints, and at one time flew to Toronto to meet with a senior enforcement official. She was, by all accounts, extraordinarily co-operative with the IDA's investigations. But the organization's vice-president of member regulation for Western Canada, Warren Funt, later acknowledged at an IDA hearing that Steinhoff's case was "not the highest priority" of enforcement staff.

One possible explanation for the IDA's sluggishness is that the regulator had insufficient resources to deal with Steinhoff's case expediently. In a report about the IDA in 2000, the OSC noted that "a significant issue facing member regulation is the continued and growing backlog of files in both the Investigation (including Complaints/Inquiries) and Enforcement Counsel groups." At the time, the IDA lacked a plan to address the problem.

Conley's complaint was eventually considered during a five-day disciplinary hearing in February 2003. She testified that Steinhoff often executed trades in her account without prior consultation--and specifically identified 23 such trades (grouped in nine transactions). It was an unusual complaint, especially given her investments were profitable overall. Furthermore, before Steinhoff's dismissal, Conley had never complained about the transactions, even though she had received trade confirmation slips.

There had been mixed evidence about Steinhoff's trading practices prior to the hearing. One of Steinhoff's former assistants, Rebecca Packer, wrote to Conley's lawyer in 2000: "I am certain that there was a lot of discretionary trading that occurred." But another assistant, Marnie Williams, testified during an earlier trial that she was not aware of Steinhoff executing any discretionary trades. The IDA panel, too, heard conflicting testimony. Nanci Murdock, a former administrative assistant to Steinhoff, alleged that Steinhoff routinely engaged in unauthorized trading. But Kim Christiansen, who had worked for another Scotia broker and later with Steinhoff at UCS, testified that Steinhoff always obtained client permission before trading. Clients Van der Geest and Hagell said the same thing. And Steinhoff described in detail the procedures she adhered to, which included consulting with clients before every trade.

Some accused the IDA of bungling the case. But the regulator's worst enemy proved to be Conley herself; she inspired little confidence as a witness. "There are a number of reasons that require us to scrutinize the evidence of Dr. Conley very carefully," the panel observed. For one thing, members found it difficult to believe Conley could receive trade confirmation slips for six or seven years before registering a complaint. They also noted that Conley had developed "a strong animus against Ms. Steinhoff," and had "made several reckless and unsupported allegations" against her.

The three-member IDA panel threw out all but a single charge based on Conley's complaint. It determined that Steinhoff had executed one unauthorized transaction consisting of four trades, and was therefore guilty of conduct unbecoming or detrimental to the public interest. "We believe there is a high likelihood that from time to time Ms. Steinhoff operated her business in a discretionary manner because, despite her admirable work ethic, we doubt she could always effect as many transactions as she does and still respect specific IDA regulations," the panel's decision read. "Some approvals may have fallen through the cracks." Steinhoff was fined $5,250 and ordered to rewrite a basic industry exam.

But Steinhoff wouldn't tolerate any blight on her record. She appealed to the B.C. Securities Commission. IDA counsel Barbara Lohmann also appealed--she wanted harsher sanctions. The BCSC considered the matter last October, and threw out the IDA's decision. "In our opinion, the IDA panel erred in law, overlooked material evidence, and relied on speculation as to facts not in evidence," its decision read. It noted that the IDA, by failing to admit relevant evidence, had denied Steinhoff the right to a fair hearing. Andy Poon, a BCSC spokesman, says that he knows of no further actions outstanding in the matter.

Just a few minutes walk from the separate downtown offices where Steinhoff and her former ScotiaMcLeod colleagues work, the tranquility of Victoria's waterfront is a stark contrast to the internecine struggles and clashing egos of the brokerage industry. There, in the mist, you can watch boats and seaplanes come and go, and talk to local artists selling their works at the seawall. Grant is no longer the Victoria branch manager, but still works with Scotia. As for Angus, he was promoted to national sales manager in mid-2004.

If you think Steinhoff's battle with Scotia is uncommon, think again. At least five such cases have come before Canadian courts in as many years (see canadianbusiness.com for more). While details vary, the question of who owns the customer is central to all of them. With so much at stake, it's no wonder that few brokers honour the conventional practice of giving two weeks' notice.

Steinhoff, apparently, learned a thing or two from her years at ScotiaMcLeod. She estimates she has won back up to two-thirds of her clients, and has been able to continue building her book with new ones. In January 2004, she left UCS to join Wellington West, an independent investment services firm. "This time, nobody knew when I was leaving UCS to come here," she says, pointing out that the only people in the loop were two Wellington West executives and her husband. "We literally moved in the night."
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Postby admin » Thu Feb 02, 2006 9:49 am

Brokerage battles
Canadian Business Online, June 6, 2005
When a broker leaves his current employer for another, battles frequently erupt as the parties scramble to win over the adviser's clients. Such disputes often wind up in court, where judges must adjudicate which practices are acceptable and which are not. Here are a few such cases from Canadian courts.

Merrill Lynch Canada Inc. v. Pastro and Marshall

On Nov. 26, 1999, two longtime investment advisers with Merrill Lynch in Trail, B.C., suddenly quit and joined rival Nesbitt Burns. Darren Pastro and Scott Marshall promptly opened a new Nesbitt Burns office in nearby Rossland, and began wooing clients. It was bad news for Merrill Lynch: the two men were responsible for about one-third of the office's asset base and the same proportion of its annual revenue. However, it so happened that Pastro had a non-competition agreement that restrained him from soliciting clients for six months following his departure. Merrill Lynch successfully applied for an injunction against both men, and a later appeal by Pastro and Marshall failed. "The public has an interest...in free competition but there is also a principle of law that contractual agreements ought to be enforced," noted Justice John Hall of the Court of Appeal for British Columbia.

CIBC World Markets Inc. v. MacDonald et al.

The weekend of June 17 and 18, 2000, was a busy one at CIBC Wood Gundy's Kelowna, B.C., branch. Manager Daniel MacDonald and several employees busily accessed client portfolios and other electronic files and boxed up their belongings. At 6 a.m. the next Monday, the crew faxed their resignation letters to CIBC from the offices of their new employer, TD Evergreen. MacDonald said he was unhappy that CIBC had changed the scheme by which CIBC bank branches referred prospective brokerage clients to Wood Gundy.

The story continues below...
Broker wars: Whose clients are they, anyway?
Carolann Steinhoff was at the top of her game. Until she decided to quit ScotiaMcLeod. That's when an all-out rumble broke out over who would get her customers. Because, in the brokerage business, your book is everything.

Broker wars: Whose clients are they, anyway?
Carolann Steinhoff was at the top of her game. Until she decided to quit ScotiaMcLeod. That's when an all-out rumble broke out over who would get her customers. Because, in the brokerage business, your book is everything.


CIBC later noticed that certain documents were missing, including client lists. MacDonald's group was busily contacting clients; in fact, because one letter was dated two days before the exodus, it seemed that the group had begun soliciting clients days before they'd resigned.

As Justice Linda Loo of the Supreme Court of British Columbia noted while granting a temporary injunction preventing members of MacDonald's group from contacting former clients: "MacDonald was at the starting line and took off before Wood Gundy knew they were in a competition. That surely cannot be described as a fair race."

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al.

For much of 2000, discontent wafted through the corridors of the Cranbrook, B.C., office of RBC Dominion Securities and its satellite in nearby Nelson. Senior investment advisers were worried that their flexible and generous compensation packages would be reduced. Unbeknownst to his employer, branch manager Don Delamont had decided to take action: he entered discussions with James Michaud, regional manager with Merrill Lynch, about employment opportunities. Michaud himself had left RBC the previous year amid much acrimony, and happened to be both fast friends with Delamont and related to him by marriage.

Delamont walked out the door on Nov. 20 to join Merrill Lynch, taking with him all of the experienced advisers and their assistants. He left ready for battle; several weeks before leaving, his group seized or copied lots of client documentation, from both computer and paper files. This placed Merrill Lynch in an excellent position from which to seize RBC's clients, while leaving RBC few resources to protect its business. Merrill's new advisers were able to convince between half and 90% of their former clients to move their accounts, while RBC managed to keep just 13.5% of the assets under management. Its Cranbrook branch nearly collapsed.

RBC failed to obtain an injunction. But the Supreme Court of British Columbia found that Delamont's group had breached various terms of their employment contracts with RBC, and competed unfairly with their former employer. Madam Justice Heather Holmes, who observed that Delamont had been less than forthcoming to RBC officials in the months leading up to the exodus, came down hard on the man. "In all these circumstances, it is difficult to conceive of a more fundamental breach of the duty of good faith as branch manager." A complex judgment saw Delamont and Michaud pay $10,000 each in punitive damages; Merrill Lynch paid $250,000.

Research Capital Corp. v. Yorkton Securities Inc.

In November 2001, Research Capital Corp. and Yorkton Securities Inc. entered preliminary discussions aimed at selling a portion of one company to the other. As is typical in such talks, confidential information changed hands. Both companies agreed that the information would be used only for the matter at hand, that it would not be copied, and that both parties would refrain from recruiting each others' employees for six months.

The talks went nowhere. In July 2002, however, two employees from RCC's Calgary office met with a Yorkton executive and former colleague. This meeting eventually resulted in seven RCC investment advisers joining Yorkton in September 2002. Combined, those employees represented 63% of RCC's business in Calgary. The departees took with them client lists and other information, which they used to solicit clients.

RCC applied for an injunction to prevent its former employees from soliciting clients. The application didn't get very far. Justice Peter Martin of the Court of Queen's Bench of Alberta found that most of the clients in question had come to RCC in 1998, when RCC pulled approximately the same manoeuvre on another brokerage, CM Oliver. Indeed, the clients were in some cases close friends or relatives of their advisers. Furthermore, according to Yorkton, RCC had also attempted to recruit Yorkton brokers in violation of the agreement. "I find it particularly damning that one of the Yorkton managers was recruited with an offer of remuneration based largely on the number of Yorkton employees he could recruit to follow him to RCC," Martin noted. "I am left with the impression that RCC engaged in the same practice about which it now complains." Needless to say, RCC didn't get the relief it sought.
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Postby admin » Mon Dec 12, 2005 9:35 am

CANADIAN BUSINESS MAGAZINE

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BY MATHEW McCLEARN

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June 06-19, 2005

Carolann Steinhoff was at the top of her game. Until she decided to quit ScotiaMcLeod. That's when an all-out rumble broke out over who would get her customers. Because, in the brokerage business, your book is everything


WHOSE CLIENTS ARE THEY, ANYWAY?

JAMES LABOUNTY


It was a rude awakening. Bert Van der Geest, an IT consultant in Victoria, learned in May 1999 that his investment adviser of seven years, Carolann Steinhoff, had just left brokerage ScotiaMcLeod Inc. Weeks later, he met with the new broker assigned to his account, Ron Campion. Campion had some bad news: contrary to Van der Geest's understanding, his portfolio had performed badly under Steinhoff's administration.

Campion handed him a portfolio evaluation. "He said I'd lost quite a lot of money in all these stocks," Van der Geest recalls. "I looked at it, and it just didn't seem right to me. It was very disturbing. I felt, geez, I hadn't been paying close attention."

Confused, Van der Geest took the portfolio evaluation home. That night, he compared it to the official monthly statements he had received over the years. Several things struck him. First, the book values of his securities (the prices paid at purchase) on Campion's evaluation did not match those on the statements. For example, the book value of a mutual fund he had bought for $879.45 was listed as $4,593.57. What's more, columns on ScotiaMcLeod's report didn't add up. That left Van der Geest even more baffled. "I didn't know whom to trust at the time," he says.

Though he hadn't realized it yet, Van der Geest had become a pawn in a no-holds-barred struggle between Steinhoff and her former employer. Steinhoff, one of ScotiaMcLeod's top brokers, had been fired, ostensibly due to concerns about her trading practices. She had since joined a small independent brokerage, United Capital Securities Inc., and tried to convince her clients to move their accounts with her. ScotiaMcLeod had other plans. It divided Steinhoff's accounts among her former colleagues, who tried to persuade clients to stick with the firm. Much was at stake: Steinhoff had been, by a wide margin, the Victoria office's top-performing broker.

In the financial services game, squabbles over high-net-worth clients can get rough. The baffling portfolio evaluation presented to Van der Geest was just one sign that this one would be particularly nasty. The fight would generate numerous complaints, an out-of-court settlement and a lumbering disciplinary process that dragged on for years.

If Van der Geest and other clients thought they'd be shielded from the flying fur, they were sorely mistaken. Steinhoff's expectation that the Investment Dealers Association of Canada would rein in her former employer was similarly misplaced. Though she fought for--and eventually received--complete exoneration, a dark cloud hung over her reputation for more than five years. ScotiaMcLeod, meanwhile, would come away largely unscathed, but with fewer clients than it had probably hoped for. The enduring lesson is that when disputes erupt in brokerage boardrooms, they have a way of spilling out onto public streets.



Carolann Steinhoff believes in good and evil. She is equally certain of her own morality. She is extensively involved in philanthropy, and in an interview with Canadian Business at a Victoria restaurant said she was "incapable of doing anything wrong." But perhaps her most distinguishing feature is an unflinching combativeness. That, coupled with her considerable financial resources, made her a less-than-ideal target for ScotiaMcLeod's aggressive tactics.

Originally from Montreal, Steinhoff headed west as a pharmaceuticals sales representative for Johnson & Johnson. She entered the brokerage industry in the late 1980s, and landed her first job at ScotiaMcLeod in Victoria. As part of her efforts to learn the ropes, she spent a week with one of the firm's top producers, Jacques Maurice, studying how he conducted his business. Steinhoff took to her new job like a fish to water. "From Day 1 in this business, I went, 'Thank you, God, I have found something I absolutely love doing,'" she says. Former colleagues say Steinhoff regularly worked 12-hour days, and weekends. From the outset, she set her sights on lawyers, surgeons, professors, wealthy retirees and other high-net-worth clients. "I didn't know anyone in Victoria, so I used to sit in the boardroom and do cold calls," she says. "I'd just pick up the phone, night after night until 11 p.m., call people and get money into T-bills."

But Steinhoff did not relate well to her fellow brokers in ScotiaMcLeod's Victoria office. "I was the only female broker," she says. "When I joined, another broker came up to me and said, 'We had a female once, and she married one of her clients and she lasted six months.' I dug in my heels and said, 'It doesn't really matter.' I worked my guts out. And as I became more successful, they became more resentful."

The industry's top performers are awarded in numerous ways. One is membership to a brokerage's President's Council, reserved for the best salespeople; the elite wind up in the sanctified Chairman's Council. While Scotia does not reveal the terms of admission, these clubs are exclusive. By any measure, Steinhoff outshone her colleagues. She made ScotiaMcLeod's President's Council in her first year; every year after, she was on the Chairman's Council. By 1999, she had about 500 clients. She says she was raking in more than $4 million a year in commissions for the firm and was one of its best-performing brokers, not only in Western Canada, but nationwide. In August 1998, Scotia Capital Markets chairman and CEO David Wilson sent her a letter celebrating her 10th anniversary with the company. In a handwritten postscript, he wrote: "You have made an outstanding contribution to the firm over 10 years! Keep Going!!"




That same month, Steinhoff got a new boss, when Nola Grant became branch manager at the Victoria office. The two women clashed. Steinhoff claims Grant tried to revoke terms of her employment negotiated years before. (Citing the matter as a human-resources issue, Grant declined comment for this story.) At the same time, Steinhoff did things that didn't exactly endear her to Grant. Steinhoff says she told regional sales manager Hamish Angus that Grant was too young and immature for the job. "You've hired the wrong person," she remembers telling him. "You have to fix this situation."



On Dec.17, 1998, a dark cloud formed over Steinhoff. According to ScotiaMcLeod, she received a memo from her superiors alleging that she may have engaged in discretionary trading. It was a serious allegation. If a client wants his broker to trade on his behalf, he must apply in writing for what's known as a "discretionary" account. The application must be approved in writing by a senior brokerage official. Otherwise, before executing a transaction, brokers must obtain client instructions on the security to be traded, at what price, in what quantity, and the timing of the order. Failure to do so could be construed as discretionary trading, an offence most brokerages consider grounds for termination.



That same month, Steinhoff claims, one of her assistants came into her office in tears. As Steinhoff tells it, the woman related a conversation she had just had with Grant, whom she claimed had told her: "If Carolann leaves, we'll make it worth your while to stay on." Steinhoff concluded that Grant was planning to punt her, and wanted the assistant (who had good relations with clients) to help keep customers happy. Recalls Steinhoff: "I said, 'You know what? It's time to leave.'"



Steinhoff put word out on the street that she was looking for a new employer. It wasn't long before brokerage houses - including Merrill Lynch and TD - were soliciting her. "Pretty soon, they were fighting over me," Steinhoff says. During lunch with senior executives at Merrill Lynch in Toronto, she adds, they asked: "What do we have to do to get you onside?" There was one problem: despite precautions, Steinhoff believes, news of her job hunt managed to get back to her ScotiaMcLeod superiors.



By looking for employment elsewhere, Steinhoff had raised one of the brokerage industry's most important questions: Who owns the client? Investors, after all, are the industry's lifeblood. The commissions they pay are split between firm and adviser, according to a grid structure that typically changes each October. Top producers get as much as half; Steinhoff received up to 51% of trading commissions from large client accounts by the end of her tenure. When firm and adviser part ways, however, the client is in play.



Brokerages have a variety of options when attempting to retain customers. Some insist advisers sign non-solicitation agreements barring them from contacting clients for a specified period after their departure. Firms can also apply for court injunctions to prevent former employees from soliciting customers, - a common tactic, particularly when the ex-employee was a manager and therefore has a greater fiduciary duty.



Advisers, however, typically have the upper hand. That's mainly because they interact directly with clients, and tend to build stronger personal relationships. There are no industry-wide statistics. But one B.C. Supreme Court judge estimated that a "competitive recruit" from another brokerage firm could bring 50% to 75% of his clients with him; "a senior broker with a long-term clientele" could bring as many as 90%. The attitude of Philip Hagell, a longtime Steinhoff client who has followed her through two job changes, is typical. "Whether Carolann had worked for ScotiaMcLeod, Royal Bank or Sam's Loan Sharking, it wouldn't matter to me," he says. "I deal with Carolann because I like Carolann."



Not all broker departures turn into the sort of free-for-all experienced by Steinhoff's clients. But Steinhoff was no ordinary broker. With about $250 million in assets under management in 1999, her "book" represented more than half of the total at ScotiaMcLeod's Victoria office. When a brokerage office loses that much business, it could he forced to close its doors.



While Steinhoff considered her job options, more storm clouds gathered. According to a document generated by ScotiaMcLeod, she received two memos - and attended two meetings - in late 1998 and early 1999 in which her employer admonished her to cease executing discretionary trades. "I knew the heat was on, and I had to get out of there," Steinhoff says. "But I couldn't - because my father was dying."



Steinhoff's father died in April 1999. After she returned to work about a week later, she received a letter, dated April 30, from James Werry, a ScotiaMcLeod managing director and head of brokerage. It informed her she would be placed under "close supervision" for one month due to client complaints about discretionary trading. That meant her superiors would review and sign off on every trade she executed. The letter further warned that Steinhoff could be fired "for cause without further notice or warning" for future transgressions. "This is a serious matter and it must be dealt with by you in that fashion," Werry stated. (Ironically, nearly two weeks later, he sent a warm congratulatory letter to Steinhoff for winning the company's 1998-99 RRSP campaign and awarded her a $1,000 marketing allowance.)



Steinhoff mounted an internal defence and denied executing a single discretionary trade. The same day Werry's letter arrived, she sent a missive of her own to the human-resources department complaining about how Angus and Grant were treating her, She also made it clear that she believed Grant was making plans for her departure. "Recently;" Steinhoff wrote, "she approached another senior assistant of mine, Kathy Allen, and offered her a job as an associate with another broker in the office."



Steinhoff argued in a follow-up letter to Werry that each of the five client complaints was without merit But her arguments seem to have had little impact. Steinhoff was called into a boardroom at around 10 a.m. on May 18. Waiting for her were Grant and Angus. Steinhoff instantly knew something was wrong - the Vancouver-based Angus wouldn't regularly be there. But she had little time to ponder where things were headed. According to Steinhoff, Angus stood up, strode over and handed her a letter.



Steinhoff opened and read it. It tersely explained that her employment had been terminated for failure to comply with the terms of her supervision. "My legs went wobbly," she says. "My vision went blurry, and I almost fell down - the physical impact of that betrayal was so huge."



Steinhoff recalls Angus telling her: "The door is there." Disoriented, she turned to leave - and walked straight into the wall.



Word of Steinhoff's firing spread quickly. ScotiaMcLeod did the obligatory paperwork, filing a Uniform Termination Notice, which lays out the reason for an adviser's dismissal, with the Investment Dealers Association. Steinhoff's UTN showed that she had been fired for "violation of terms of close supervision." (Exactly what aspect of supervision she had violated was not disclosed.) The form also observed that she was subject to unresolved client complaints and internal discipline for regulatory infractions.



ScotiaMcLeod wasted no time. On the same day it fired Steinhoff, Grant wrote clients a letter notifying them that Steinhoff was no longer with the firm, "ScotiaMcLeod values your business and would ask your support as I personally review your investment portfolio(s) and objectives in order to appoint the appropriate investment executive to meet your needs," she wrote.



It was a feeding frenzy, as Steinhoff's former colleagues divvied up the action. "They'd indicated during our meeting that because her account was so large, it would take a number of people to manage it," says client Hagell. "They were giving us the impression that the account was so busy that she couldn't have possibly paid attention to everything."



Steinhoff suddenly discovered her currency was on the wane. Granted, she still had defenders. Among them was Merrill Lynch's Thane Stenner, who had left ScotiaMcLeod some years earlier and claimed that after his departure "the rumours they floated were vicious." He sent a memo to senior Merrill Lynch officials suggesting Steinhoff's dispute with ScotiaMcLeod presented an opportunity to pick up a top broker on the cheap. Under normal circumstances, Merrill Lynch would have to follow standard industry practice of paying a big signing bonus or offering other incentives to acquire Steinhoff. That, Stenner observed, wouldn't be necessary. Stenner's memo acknowledged that hiring Steinhoff would involve risks - including unwanted media coverage. But, still, he threw his support behind her. "I've known C.S. for 10 years and I believe strongly that C.S. is worth the risk of at least investigating further," he wrote.



Ultimately Merrill decided against recruiting Steinhoff. She recalls asking one Merrill Lynch executive," You don't think I've done anything wrong, do you?' He said, `Well, we'll have to wait and see." TD also backed off. "I phoned around to the other firms I'd done some interviewing with, and it was just click, click, click," Steinhoff says, "Everything was on ice, and that gave Scotia's brokers time to go after my clients."



With help from former ScotiaMcLeod veteran and friend Chris Hodgson - who has returned to the company and is now executive vice-president of wealth management at Scotiabank - Steinhoff began negotiations to find work at a smaller brokerage. In June 1999, she joined United Capital Securities Inc., a Vancouver-based firm. UCS did not have a Victoria office, but Steinhoff's book was sufficient to justify opening one. "I have decided that an independent (rather than bank owned) full service, money management firm is more compatible with my investment philosophy," she wrote in a letter to clients. "You are all very valued clients to me and I would very much like to have you here with me to move into the new millennium on a very positive, personal and professional platform." She encouraged clients to sign documents transferring accounts to her.



ScotiaMcLeod representatives immediately set out to undermine confidence in Steinhoff and her new employer. "The innuendo was horrendous," Steinhoff claims. She alleges that ScotiaMcLeod officials told clients her house was for sale. (In fact, her neighbour's was.) ScotiaMcLeod officials also expressed skepticism about UCS. One letter to clients from Grant read: "Many clients have asked us about this new firm. As we had not heard of them before, we researched the internet and were able to determine that they are a Vancouver based investment firm. On June 15, 1999 we were able to download some information from their website, however this site is no longer active. If you would like a copy of this information, please do not hesitate to call." Grant added that most clients had told her they would stick with ScotiaMcLeod.



Steinhoff claims that her former colleagues were also soliciting complaints against her. Hagell, for one, says ScotiaMcLeod investment adviser Mark Stoker asked him and his wife to sign a letter indicating that Steinhoff had misrepresented the value of his accounts and had executed unauthorized trades. Hagell had no such complaint. "I recall telling them point-blank that we would not sign anything until we had researched ourselves, and we'd asked them for a copy of the letter," he says. He became suspicious when ScotiaMcLeod refused to provide a copy.



Steinhoff's boss, UCS's Brian Worth, was taken aback. "This kind of behavior in our industry is unfortunate," he wrote in a letter to Steinhoff. "In a business where trust is the key link between advisor and client ... misinformation will lead them to certain failure. I suspect that if the core management of ScotiaMcLeod knew what was going on in the Victoria office they would be as unimpressed as we are."

While Steinhoff grappled with ScotiaMcLeod, a new opponent arrived on the scene: the Investment Dealers Association. The IDA advances the interests of its 208 member firms, all of which are investment dealers like Scotia Capital, ScotiaMcLeod's parent. It also has a self-regulatory function: it licenses brokers and brokerages, requires firms have adequate capital and enforces bylaws and rules of business conduct.



No fewer than nine client complaints were outstanding against Steinhoff at the time of her dismissal; most were for unauthorized trading. But the most damaging were yet to come. They originated from Mary Conley, a Victoria physician who had been a customer since 1992. Conley was a happy client until 1998, but several factors appear to have contributed to her change of heart. First, she had started putting money in tech stocks using a discount broker; the bubble was in full swing, and Conley enjoyed eye-popping returns. However, such stocks ran contrary to Steinhoff's value-oriented investment style, embodied in her "get rich slowly" philosophy. Then came allegations of discretionary trading. Conley claimed that in December 1998, she became irritated because Steinhoff was executing trades in her account without consulting her. Conley later complained in a letter to Grant that her "impression was that [Steinhoff] needed money for Christmas."



Conley applied to have her accounts transferred from Steinhoff to MD Management, a brokerage for medical professionals, in January 1999. Steinhoff was able to convince Conley to keep her Scotia accounts open, but the honeymoon was over. Steinhoff's dismissal, and the accompanying rumours, apparently exacerbated matters. In July 1999, Conley complained to the IDA that Steinhoff was aggressively soliciting her to transfer her account to UCS. "I feel that I am being harassed and want her to desist," Conley wrote. The IDA dropped the complaint as unsubstantiated. Conley filed a second complaint the following month stating that Steinhoff had executed unauthorized trades. Conley was also quoted in a local newspaper, the Business Examiner, alleging Steinhoff had left her portfolio "in shambles." Conley later retracted the allegation, which was demonstrably untrue.



Meanwhile, complaints were piling up against ScotiaMcLeod. One client complained about a broker's "somewhat aggressive tactics" to convince her to stay with the firm. Another wrote to the IDA: "There has [sic] been some very unprofessional things happening and we hope this matter will be looked into." The portfolio evaluations worried customers, too. In some cases, they painted an ugly picture. ScotiaMcLeod furnished some clients with "commission schedules" that reported Steinhoff had received certain commissions that in fact she had not.
STEINHOFF WAS SO STUNNED BY HER DISMISSAL THAT HER VISION BLURRED AND SHE WALKED INTO A WALL

































BRUCE STOTESBURY /

VICTORIA TIMES COLONIST




Steinhoff began to drive around and visit clients at their homes. "Everywhere I went, clients had the same story. "They gave us a portfolio review, and we thought we'd done better," she says. "By the third time I heard that, I knew there was something wrong."



That something included mathematical errors. For example, client Sheila Colwill confronted Steinhoff with one such review. Steinhoff pointed out erroneous calculations. "It would be immediately apparent to the broker that the review was false and understated the value of the account," she says.



After discovering mistakes on his own evaluation, Van der Geest says he phoned ScotiaMcLeod broker Campion, who promised to look into the matter. He never called back. Earlier, Van der Geest adds, Campion had told him that a junior person at the office had prepared the evaluation. "Being in the computer industry myself. I understand the types of errors that can be made on these things," Van der Geest says. "But it left me with an uncomfortable feeling that they had someone inside their office who wasn't a professional in the systems industry preparing their reports for them." Van der Geest says he called Campion twice more, trying to better understand the problem, but received no response. "It was almost as if they were hiding something," he says.



Gradually, it became clear that ScotiaMcLeod's campaign was faltering. Some clients believed the firm had misled them to win their business; Colwell complained to the IDA about what she viewed as "the shameful misleading of investors with fear, innuendo and false information."



Meanwhile, Steinhoff had collected no fewer than 10 erroneous evaluations produced by ScotiaMcLeod's Victoria office. When confronted with them, Steinhoff says, ScotiaMcLeod's lawyers became eager to discuss an out-of-court settlement. Initially, Steinhoff says, she wasn't interested. "I was going to take it to trial," she explains. "I would have loved to let the world see how avaricious the banks can be. My lawyer said, "You know, Carolann, if you take this to trial, it's going to cost you $1 million. Take the settlement, and the IDA will take care of Scotia." Her husband, urologist Dr. Gary Steinhoff, also discouraged her from going to court.



Steinhoff and her lawyer met with Bruce Maranda, the IDA's then head of member regulation in Vancouver. Steinhoff claims she told Maranda that she would settle with ScotiaMcLeod only if the IDA promised to sanction the firm for its alleged transgressions. She showed him copies of the erroneous portfolio evaluations. "He was alarmed," recalls Steinhoff, "and his exact words were: 'There will be severe disciplinary action,' I said, 'Great, we'll settle then."'



Maranda has since moved on from the IDA. Contacted by Canadian Business, he disputed Steinhoff's account of this conversation. "Not only do I not remember saying the words ascribed to me, but they are quite contrary to the way I speak," he wrote in an e-mail. "Further, I do not believe that there was any talk of her possible settlement with ScotiaMcLeod being in any way influenced by any possible action by the IDA." Maranda added that he never formed an opinion on the merits of Steinhoff's wrongful dismissal suit against ScotiaMcLeod.



ScotiaMcLeod and Steinhoff entered into a settlement agreement, the terms of which have not been disclosed. It included a gag agreement that both parties never speak about the matter. As part of the settlement, ScotiaMcLeod's Angus wrote a letter to some of Steinhoff's clients, acknowledging that some portfolio evaluations and commission statements were incorrect. "There may be inaccuracies showing losses when in fact there had been gains," he wrote. "Dividend income may have been omitted or underestimated."



Angus did not explain the source of the errors. In an interview with Canadian Business, Scotiabank spokesman Frank Switzer declined to speak about the Steinhoff case specifically, but attributed the errors to software problems. In 1998, ScotiaMcLeod rolled out a supplementary program called Plaid Navigator, a portfolio and contact management software package designed to assist advisers. "This system was a supplementary tool for advisers to generate optional reports for clients," says Switzer. "'That system, at that time, in some cases, did produce some errors in information on reports that were generated. It was a limited systems issue, and not the result of actions by any individuals who printed reports off the system." Other Scotia officials also said that investment advisers were unable to modify information churned out by the system. Further, says Switzer, "We would view any attempt to deliberately issue false or misleading information to clients as a serious violation of our standards."



The software problems were news to Steinhoff. "This is the first time they have offered [systems error] as an explanation," she says of Scotiabank's claim. "Since I was preparing accurate [reports] for my clients up until the day I left, the computer program must have conveniently malfunctioned the day I left and remained malfunctioning until my lawyer confronted them that we were on to them."



If Steinhoff believed that the IDA would punish Scotia, she was mistaken. The IDA investigated Colwill's complaint about false information. The response she received in August 2000 read:

ScotiaMcLeod Inc. does recognize that the information provided on the portfolio report presented to you by Mr. Simmons may have contained inaccurate information with regards to the performance of your portfolio. The aim of our members should be for complete accuracy and full disclosure when relaying data to clients. It would appear that your complaint to the Association was justified. While the Association will not be pursuing this matter further, a summary of this incident will he forwarded to the Association's Sales Compliance department for consideration in a future audit.

IDA policy prohibits discussion about investigations that do not involve a public hearing, so the reasons ScotiaMcLeod emerged unscathed remain a mystery. As Switzer reports, the IDA gave the firm "a complete clean bill of health." Some found the outcome disconcerting. Steinhoff wasn't pleased; today, she claims the IDA is "a pretty incestuous little club." Glorianne Stromberg, an investor rights advocate and former commissioner of the Ontario Securities Commission, says it seems unlikely ScotiaMcLeod did not know that its portfolio evaluations were incorrect. "Somebody - a fair number of bodies - had to know what was going on and had to he condoning the practices," she says. "There's good reason to question why the IDA has not taken action against her immediate supervisors, the branch managers, the regional managers."



Other critics claim that the IDA has a bias toward sanctioning individual brokers while treating firms more gently - a bias fostered by its dual role. "The implication of lower fines to brokerages than to their employees is clear: employees can walk away from the association and even the industry, but the association needs those member firms and the fees they provide," John Lawrence Reynolds wrote in his recent book, The Naked Investor. "Slap a million-dollar penalty on a member firm, however, and it might vote with its feet, preferring to operate outside the organization's bounds." (This criticism didn't hold in 2004, however, when a number of firms were heavily fined for market-timing offences; none of them cancelled their IDA memberships.)



As for longtime Steinhoff client Hagell, he's still scratching his head. "Why didn't the IDA go after ScotiaMcLeod?" he asks. "Did they get their licences pulled? They should have."



ScotiaMcLeod may have escaped the IDA's wrath, but Steinhoff's regulatory nightmare was far from over. The IDA frequently takes disciplinary action against advisers accused of discretionary trading; last year, 311 of the 1,311 complaint files opened by the IDA dealt with that offence. The IDA investigated about half a dozen complaints against Steinhoff - a lot for a single broker. Even more remarkable, however, is the fact that all of them were eventually withdrawn or dismissed. Conley's complaint went the furthest; it took more than five years to resolve.



In numerous letters and phone calls, Steinhoff asked the IDA to speed its efforts to resolve the complaints, and at one time flew to Toronto to meet with a senior enforcement official. She was, by all accounts, extraordinarily co-operative with the IDA's investigations. But the organization's vice-president of member regulation for Western Canada, Warren Funt, later acknowledged at an IDA hearing that Steinhoff's case was "not the highest priority" of enforcement staff.



One possible explanation for the IDA's sluggishness is that the regulator had insufficient resources to deal with Steinhoff's case expediently. In a report about the IDA in 2000, the OSC noted that "a significant issue facing member regulation is the continued and growing backlog of files in both the Investigation (including Complaints/Inquiries) and Enforcement Counsel groups." At the time, the IDA lacked a plan to address the problem.



Conley's complaint was eventually considered during a five-day disciplinary hearing in February 2003. She testifies that Steinhoff often executed trades in her account without prior consultation and specifically identified 23 such trades (grouped in nine transactions). It was an unusual complaint, especially given her investments were profitable overall. Furthermore, before Steinhoff's dismissal, Conley had never complained about the transactions, even though she had received trade confirmation slips.



There had been mixed evidence about Steinhoff's trading practices prior to the hearing. One of Steinhoff's former assistants, Rebecca Packer, wrote to Conley's lawyer in 2000: "I am certain that there was a lot of discretionary trading that occurred." But another assistant, Marnie Williams, testified during an earlier trial that she was not aware of Steinhoff executing any discretionary trades. The IDA panel, too, heard conflicting testimony. Nanci Murdock, a former administrative assistant to Steinhoff, alleged that Steinhoff routinely engaged in unauthorized trading. But Kim Christiansen, who had worked for another Scotia broker and later with Steinhoff at UCS, testified that Steinhoff always obtained client permission before trading. Clients Van der Geest and Hagell said the same thing. And Steinhoff described in detail the procedures she adhered to, which included consulting with clients before every trade.



Some accused the IDA of bungling the case. But the regulator's worst enemy proved to be Conley herself; she inspired little confidence as a witness. "There are a number of reasons that require us to scrutinize the evidence of Dr. Conley very carefully," the panel observed. For one thing, members found it difficult to believe Conley could receive trade confirmation slips for six or seven years before registering a complaint. They also noted that Conley had developed "a strong animus against Ms. Steinhoff," and had "made several reckless and unsupported allegations" against her.



The three-member IDA panel threw out all but a single charge based on Conley's complaint. It determined that Steinhoff had executed one unauthorized transaction consisting of four trades, and was therefore guilty of conduct unbecoming or detrimental to the public interest. "We believe there is a high likelihood that from time to time Ms. Steinhoff operated her business in a discretionary manner because, despite her admirable work ethic, we doubt she could always effect as many transactions as she does and still respect specific IDA regulations," the panel's decision read. "Some approvals may have fallen through the cracks." Steinhoff was fined $5,250 and ordered to rewrite a basic industry exam.



But Steinhoff wouldn't tolerate any blight on her record. She appealed to the B.C. Securities Commission. IDA counsel Barbara Lohmann also appealed - she wanted harsher sanctions. The BCSC considered the matter last October, and threw out the IDA's decision. "In our opinion, the IDA panel erred in law, overlooked material evidence, and relied on speculation as to facts not in evidence," its decision read. It noted that the IDA, by failing to admit relevant evidence, had denied Steinhoff the right to a fair hearing. Andy Poon, a BCSC spokesman, says that he knows of no further actions outstanding in the matter.



Just a few minutes walk from the separate downtown offices where Steinhoff and her former ScotiaMcLeod colleagues work, the tranquility of Victoria's waterfront is a stark contrast to the internecine struggles and clashing egos of the brokerage industry. There, in the mist, you can watch boats and seaplanes come and go, and talk to local artists selling their works at the seawall. Grant is no longer the Victoria branch manager, but still works with Scotia. As for Angus, he was promoted to national sales manager in mid-2004.



If you think Steinhoff's battle with Scotia is uncommon, think again. At least five such cases have come before Canadian courts in as many years (see canadianbusiness.com for more). While details vary, the question of who owns the customer is central to all of them. With so much at stake, it's no wonder that few brokers honour the conventional practice of giving two weeks' notice.



Steinhoff, apparently, learned a thing or two from her years at ScotiaMcLeod. She estimates she has won back up to two-thirds of her clients, and has been able to continue building her book with new ones. In January 2004, she left UCS to join Wellington West an independent investment services firm. "This time, nobody knew when I was leaving UCS to come here," she says, pointing out that the only people in the loop were two Wellington West executives and her husband. "We literally moved in the night."




More on Carolann Steinhoff's Case.

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for registered reps, whose clients are they anyway?

Postby admin » Thu Jul 28, 2005 10:42 pm

You might be under the impression that your clients belong to you, and if you have changed firms, your new firm will most certainly expect you to bring your clients with you in as much as you possibly can. That is why they write recruitment cheques to hire reps.

But are you aware that while your firm is telling you that you are running your own business, if you were to decide to leave, they may change their tune, claim you were merely an employee and pursue you relentlessly.

If you follow court cases of reps who change firms there seems to be a common theme of doing as much as possible to hurt your business in an effort to retain as many clients at the old firm as possible. It is a nasty game, and well documented. (see recent article about the nasty deeds alleged at Scotia when Carol Ann Steinhoff left for greener pastures, i think in Canadian business mag)

Today's Financial Post July 27, 2005 contained an interesting (I thought) article titled "BECAUSE IT's IN WRITING, DOESN'T MAKE IT SO", by employment lawyer Howard Levitt. In it he looks at other things many large firms try and bully employees with, that are not in the book of employment regulations. One I am familiar with is asking employees to sign employment agreements containing employment concessions after they have been hired. If I had a dime for every time my bank owned firm gave me paperwork to sign and was told, "sign it or you will not get paid", I would be a rich man. I was not told this by anyone with authority to know what or what would happen, they were just blind employees following orders. But they were right one one count. If you did not sign the papers, you did not often get paid.

The papers included all sorts of legal obligations, and the article in todays paper discusses that these types of "agreements" obtained after the fact, or under duress etc, are possibly not worth the paper they are written on. It was nice to see that I am not the only person offended about this manner of treating employees.

Anyone else have a post on the industry topic of who owns the client, the firm or the rep?
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