A True “Wild West” StoryA story of lawless financial services, and conflicted regulatorsA story of layers of deceptions that rob the public of fair financial services
Where we count the numerous examples of public deception as well as try to keep track of the number of layers of systemic-depth, that those deceptions penetrate in Canada’s self governing investment industry systems. A measure of the extent of industry and regulatory willful blindness which is used to harm the public, while unjustly enriching the already rich.
How millions of clients are cheated out of billions of dollars, simply by paying millions of dollars to the “right” regulatory layers. As experienced/revealed by a former industry insider.
It only requires the paying of a few hundred million dollars to handpicked, handmaid regulators…and for this money, investment product sellers are allowed to ignore rules and laws in Canada.
Laws which were put in place to protect the financial assets of all Canadians. Thus the return on investment, by picking and paying each regulator is roughly $200 dollars for every dollar “invested” into regulator salaries. It seems to be money very well spent…for the industry, not the Canadian public.
(The rough numbers indicate that spending a few hundred million on the regulator salaries each year, allows the financial industry to gain approximately 50 billion per year in unjust enrichment, from an unprotected, and misinformed Canadian public.) The numbers and examples used for these comes from a lifetime of industry participation, examples of actual investment costs/harms to the public, and the annual compensation reports of the various Provincial Securities Commissions.
In the second paragraph of a document (provided for reference at end of this article) from a mutual fund company, arguing in support of Deferred Sales Charges (DSC’s), as opposed to proposals to ban their abuses of the public, comes the following:
First Statement from the fund Co:"However, the DSC option provides two key benefits. “
This is a marketing claim and a false one at that. They count as public deception #1
because they are presented by an industry person, as if it were a true fact, to mis-inform the public. So many investors are harmed by persons whose salary is dependent upon making false claims to the public. Let’s continue to count some of the ways, and dive into some of the layers of depth of the misrepresentations.
Next Statement from the fund Co:“First, it allows modest investors the ability to invest 100% of their money in mutual funds. “
ANY mutual fund that can be purchased with a DSC also has several other, cheaper and otherwise-equal fund Class options, which more fully meet the suitability requirement of the industry as well as the IIROC rule requirements of “Fairness, Honesty and Good Faith” in dealings with the public.
The other options INCLUDE everything up to and including a FREE to the client, while brokers still can be getting paid out of management fees. This would be an equal but far fairer choice to benefit the investor if we are to adhere to the IIROC industry requirement of “Fairness, Honesty and Good Faith” in all dealings with the public.
The industry seems to do a good job of “Rule Shopping” for DSC fees case since they are still “suitable” (as in “this watch I just bought from my local Dollar Store is “suitable”) Public deception #2
….they still meet the “suitability standard of IIROC, even though they fail IIROC’s higher principles and requirements of “Fair, Honest and Good Faith”.
Public deception #3
Next Statement from the fund Co:“Second, it allows advisors the ability to service investors with small amounts to invest. “
This is another claim, and not a truth….but it does bring up questions of what the writer meant by the word “service”…THIS opens up a whole new level of hidden deception, beneath the surface and visible deceptions
How many Public deceptions can we count, under the guise of investment advisory “service”?
Next is the use of the word “Advisor” which is not a legal license category in Canada, and is used by most sales agents who hold the “dealing rep”(salesperson) registration and NOT the “Advising Rep” (Adviser) registration Public deception #4 allows fake advisers to pretend to be real advisers…to the public. This deception is a criminal matter when a Doctor or an engineer does it. We will soon see him many layers of protection the financial industry has in it…
Next Statement from the fund Co:“This is particularly important for advisors, both new and seasoned, …"
This statement is half-true and half-lie, since it is true that “it” (the DSC sales load option for mutual funds) IS very important for advisors, since it creates an instant 5% commission to them, upon processing of the sale of a DSC fund. Typically “advisors” (salespersons) need to generate between several hundred and several thousand dollars in commissions each working day, depending upon where they work. They are measured daily on their “production” of commissions and any other fees.
The “half-lie” is that in-excess of 96% of Canadian investment sellers, who refer to themselves as if they were “Advisors”, are in violation of applicable laws of the Provincial Securities Act of the province they are registered in. Some are registered in six or ten provinces and thus are in violation of the law in six or ten places. In Ontario the law dealing with such “Representation” is found in section 44, while in Alberta it is found in Section 100 of the Securities Act. Public Deception #4
The industry-spin that also applies to the half-lie, is that “all of our “registrants” are licensed and regulated”, which of course is true, but which of cousrse hides the cleverness of never, ever, EVER, letting the public know of the …..Public Deception #5
This industry-spun sleight of hand or “lie by commission” hides the real truth from the public (HOW their registrants are licensed behind the lie (by omission) which assuring the public THAT they are registered……while cleverly hiding HOW they are registered...
Simply suggesting that all their registrants are registered assures the public that “all is well”, without informing the public know that “all is well, but not for the investor…for the salesperson, the dealer and the regulator….yes, “all IS well” Public Deception #6 in layer of deception #2 (regulators beneath the surface of investment “service” providers)
This then allows the public to mistakenly assume that they have a licensed “advisor”, while the industry has accomplished a perfect bait and switch scam, of promising a licensed, trusted and regulated “advisor”, and THEN DELIVERING a sales agent with a sales agent license.
(The actual license category was “Salesperson, for the decade or two prior to 2009. In September 2009 the Canadian Securities Administrators (CSA) deleted the "salesperson" license category from the books and the Securities Acts across Canada. The “Salesperson” license category was deleted from history and replaced with the much clearer term (??) of “Dealing Representative”.
(Kidding,...it is not clearer in any way and that is Public Deception #7 in layer of deception #2)
The CSA web pages still contained a few remnants of the word “salesperson” on it however. For example the CSA still used the word “Salesperson” in the description of the license categories (what each license category meant), so if an investor was determined to understand what a “Dealing Representative” registration actually means… they could quickly learn if they had a salesperson…or not. Removing that was another billion dollar “gift” of deception given to the investment industry…..we are still at Public Deception #7 in layer of deception #2
So, in 2009, the CSA (which is 100% paid by the industry they “police” (still spin #7 in layer of deception #2) presents itself to the public as if there are an ‘un-conflicted” government regulator and protector of the public interest…..when nothing could be further from the truth. spin #8 in layer of deception #2 is that we now have industry created, industry chosen and industry paid (fake) “regulators” altering rules, ignoring laws and ensuring that fake advisors can prey upon a real public….Public Deception #8 in layer of deception #2, (fakes regulating fakes….is the third level or layer of depth of systemic financial abuse
Then, in January of 2018, the industry artifice regulator, the CSA took further steps to confuse, obfuscate and place obstacles before the public’s right to fair protection from predatory financial services…. the public who rightly deserve to be informed of the rather simple question that all investors deserve to know….and I dealing with a sales agent or a professional advisor…..yest that CSA which has so far placed many obstacles in front of the blind”…so to speak by helping the public be misinformed…by the investment firms which pay the regulators salaries……Public Deception #9 in layer of deception #3 (regulators altering documents/definitions to confuse public, regulatory malevolence?)
Where is the “KNOW YOUR ADVISOR” (KYC) form? There has always been a know your client form, but never has there been a know your advisor disclosure Public Deception #10 in layer of deception #3
Yes, the CSA….which is now in on scam, REMOVED the “salesperson” description in the license category page….
History is forever cleansed and no investor in Canada is now allowed to have a clear, fair, honest and good faith description of who handles their family’s entire life savings….(Client Relationship Disclosure??)
Stepping back within the very recent past, I recall the introduction of a new Client Relationship Model by the 13 Securities Commissions after years, decades of deliberation. Public Deception #10 in layer of deception #3 are the facts that the CSA and all “stakeholders. Again indications of regulator malevolence.
spin #11 in layer of deception #4 is the seen any time the CSA and all “stakeholders” get together to decide upon new directions in securities legislation or rules, they fail to invite, involve, include or listen in meaningful ways to members of the investing public….I have participated in a few conference calls where the word “stakeholder” is used as a euphemism for “everyone BUT the public. spin #11 in layer of deception #4
Here is how that looks from the inside of any sales manager meeting in any investment office….(only partially joking…banks can afford their own offices…:)
youtube advisor fake contest winner
Adviser vs. Advisor: There's a Difference
Written and Directed by Nora Novak
Sponsored by Small Investor Protection Association (sipa.ca)
https://www.youtube.com/watch?v=r0smCYv ... JvZNEqAt42 This video is indicative of the sales training/marketing deceptions that go deep inside nearly every investment product selling firm in both Canada and the US.
spin #12 in layer of deception #4
If you prefer CBC news for credibility here is what they found in 2017 on the topic of systemic deception of millions of Canadians, and their life savings:
https://www.youtube.com/watch?v=FlSLckMxMnw3 minute video from CBC News: The National
Published on 29 Mar 2017
click on image to enlarge
Now lets pause and check out this image from the BC Securities Act, section 54
Click to zoom in on image
representation requirements in BC (which are not followed) spin #15 in layer of deception #7 (seventh layer is revealed by how the deception is malignant enough to circumvent even the law of the land)
(e.g. BC Sec Act Sec’s 50 to 54 [url] http://www.bclaws.ca/civix/document/id/complete/statreg/96418_01#section50[/url] Similar Ontario law is found in sec 44 of its Securities Act and Alberta’s I believe is found in Section 100, if you wish to check those. In each province some 20,000 or more licensed “Dealing Representatives” merely ignore the law, to better deceive the public. This indicates that the same laws are across Canada and also indicates that the systemic scam pervades 13 provincial and territorial securities commissions.
Just the top FOUR of those commissions is paid approximately 250 million by the industry…to police the industry.
Therefore spin spin #16 in layer of deception #7 is revealed in the fact that some top regulators are being paid like millionaires…in return for helping the industry make money like billionaires…
there are over 100 agencies, offices, regulators, self regulators, ombudsmen, and so on in Canada, so the layers go farther than I am willing to imagine today.
In each province each regulator mentioned above simply ignores the law in each province…for those who violate the “representation” portions of the law...for salaries of up to $700k in salaries paid to “select” regulators at the top who direct the tone of all regulators in the system….
By lying to clients about being licensed advisors, improperly, they earn the trust of clients under a false pretense, and by earning trust under false pretenses they lower the level of caution or natural suspicion that Canadians would ordinarily have toward their bank “advisor”, Life Insurance “advisor”, or investment “advisor”. The lie is used to build trust on a falsehood. Public Deception #12
finally….the comment by a fund company person: ”...who make a living servicing the modest investor.” conjures up so so many ways that a falsified investment advisor is taught to “service” the clients of Canadian Banks, Insurance Companies and Mutual Fund Dealers
This lowering of caution and raising of trust allows the investment industry to pretend to be licensed like a “Doctor”, with certain minimum duties of care to protect you, whilst actually delivering to the public a licensed sales-agent, with a much, much lesser standard of protection, a falsified license and in some cases a 30 day training course since joining the “profession”. Lets call those Public Deception #13
They can then sell the most profitable crap investments for their bank, their life insurance company or their mutual fund dealer…..(because their license DOES day “Dealing Representative” on it doesn’t;t it……we just made sure that nobody had a chance in hell of figuring out what that ….means GOTCAH!!
Selling expensive, fee burdened investment products is not professional “advice” , and giving professional “advice” is not selling expensive, fee burdened products which make someone else rich…unjustly richer. That is not “Service” but rather “malevolence” dressed up as “service”. Public Deception #14
Expensive, fee burdened products sold to Canadian investors costs anywhere from about 2% extra to the client, all the way up to 5% extra. That is scam Public Deception #15
2% additional costs added to your investments will cut a retiree’s retirement capital by HALF, if compounded over a 35 year investment time frame. Public Deception #16
5% fees would be like killing Canadians retirement chances altogether. I won’t even begin to count how many brokers I worked with who could churn, fee, reverse churn, and DSC churn their trusting and vulnerable clients for 5% a year. Each firm called those people “Vice Presidents” and THAT is scam Public Deception #17
Then while publishing the book “ABOUT YOUR FINANCIAL MURDER…” (non fiction 2018 LuLu.com) a friend reminded me of the following which I had forgotten entirely: He said something like, “remember Larry that when you speak of an average “skim” of 2% cutting your retirement in HALF, that you are talking about the investor’s BEST CASE SCENARIO when dealing with a falsified investment “advisor”. This is a person who is selling all the company-most-profitable-product-crap funds etc…”
He was correct and he went on to point out: “What about the occasional false-advisor who goes beyond the sale of crappy and expensive bank or house-brand products? What if they put your money into a tech stock that explodes. What about if they “leverage” the clients like many Sun Life agents did to their customers? What of they do any of the hundred other stupid things to the client, but profitable things for themselves, under the guise of being a licensed, trusted, professional, regulated investment “advisor”? Money could be all gone.
+++++++++++++++++++
Below is the info from a mutual fund company: I was forced to stop reading at paragraph #2 (in red), as the misrepresentations were so grotesque, as to demand the entire article be cast aside as junk. Simple deception designed to attract, lure, and misinform the public, which is contrary to industry rules and requirements.
Deferred Sales Charges
Retirement savings in mutual funds were very small before the DSC was introduced in 1987 in Canada. Since that time, investments in mutual funds have grown dramatically because the DSC made mutual funds available to the average Canadian.
There is much debate around the ongoing viability of the DSC option to purchase mutual funds. It has become popular to argue that the DSC option should be banned.
However, the DSC option provides two key benefits. First, it allows modest investors the ability to invest 100% of their money in mutual funds. Second, it allows advisors the ability to service investors with small amounts to invest. This is particularly important for advisors, both new and seasoned, who make a living servicing the modest investor.The MFDA recently released a report which studied the potential impact of a ban on embedded commissions. It used real data from its members. The report concludes that a ban is most likely to impact non-bank dealers and will have the most impact on smaller asset advisors who are more reliant on DSC. Approximately 56% of advisors with non-bank firms rely on DSC to finance their operations. It also points out that most of these advisors are dually licensed (mutual funds/insurance products) and so the outcome may be that these advisors simply sell competing products that continue to have embedded commissions.
Many bank dealers as well as large dealers like IG have announced that they will no longer offer DSC. While eliminating the DSC for IG clients, it is interesting to note that features of the DSC will continue to exist. The amendment to the IG fund prospectus states that after September 30, 2016, IG Consultants may receive a sales bonus of up to 2.50% of the amount invested. Further, if the Consultant has been with IG for less than four years, he or she “may receive an additional amount of up to 40% to help establish their practice.” So while IG, a large and profitable organization, can afford to help these smaller advisors get established in the absence of the DSC, there is clearly a recognition that in lieu of a DSC, some kind of financial assistance is needed for newer advisors. It is unlikely that smaller dealers will be able to afford this kind of subsidization.
Arguments are made that the DSC is missold or is unsuitable for investors. And while that may have been true in the past, we see that the MFDA has made this issue a priority in its exams and bulletins. We believe that this issue has improved consistently and dramatically. If the main issue around DSC is misselling, as investor advocates and regulators alike claim, then we believe ongoing vigilance by dealers, UDPs, compliance officers and regulators is critical. It is important not to throw out a structure that serves a meaningful purpose both for modest investors and newer advisors.
There is evidence that the DSC is actually helpful for some investors. In a 2015 study by Argento, Bryant and Sabelhaus, the authors found that U.S. households under the age of 55 make $0.40 of taxable withdrawals from retirement accounts for every $1.00 of contributions, in spite of tax penalties imposed. This is a major offset for flows and has significant potential implications for retirement security. It also indicates that there is a real issue with self-control around retirement savings.
A 2015 study entitled “Self Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?” is also instructive. This paper studied illiquid financial accounts versus liquid financial accounts. It found that U.S. households have a behavioral bias known as a “present bias”. U.S. households place a disproportionately high weight on present consumption and low weight on the future. The authors of the study point out that in many countries, policy makers address this present bias in various ways, including mandating completely illiquid accounts (until a particular point in time, like retirement) or penalties for early withdrawals. The preference by policy makers around the world is to mandate completely illiquid accounts to address the present bias issue. But the second preference is to offer a partially illiquid account with a penalty to discourage present bias. However, this study argues that for social policy purposes, having a completely illiquid account is most useful for retirement savings, but does not take into account the need to address emergencies like loss of jobs, in which case, people do withdraw money from their retirement accounts.
In addition, this study found that for accounts that prohibit early withdrawal, investments into those accounts actually increase compared to accounts with no penalty or a modest penalty for withdrawal. The paper hypothesizes that investors who are aware of self-control problems are motivated to use accounts with penalties in order to ensure savings are retained.
In the context of DSC, this purchase option may actually be playing an important behavioral role in retirement savings in Canada. It helps people exercise the self-control needed to stay with their savings program.
The last point we would like to make about DSC is simply that it is widely used for smaller registered investments like TFSAs, RESPs and RDSPs. We have heard from advisors that the elimination of the DSC could and likely will have an impact on savings in these vehicles. These are longer term vehicles in any event and in most cases they are suitable retirement products.