Financial Abuse by "Trusted Professionals"

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Postby admin » Mon Sep 17, 2007 10:31 pm

“..Seniors also may be less suspicious of a telemarketer’s spiel. They were raised at a time when it was believed a person’s word was their bond .The most frail and lonely seniors are often open to anyone who will chat with them. They are vulnerable because of that loneliness and these guys know it - they become a senior’s new best friend. ”. - Kim Hubbard, director of elder abuse prevention programs for WISE & Healthy Aging, a national group based in Santa Monica, Calif.
Source: Cross-border crookery: Canada increasingly the source of scams on U.S. seniors Fraudsters can usually count on seniors having more savings and being at home when they call, Mutual fund salespersons have an established track record in thus regard.

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Postby admin » Mon Aug 13, 2007 10:17 pm

Is white-collar crime non-violent? 8/14/2007 2:13:47 AM

Is white-collar crime non-violent?

The Investor Advocate
Ken Kivenko’s column is all about investor protection. Ken fights for investors’ rights and exposes violations and malpractices. He also runs an advisory business, Portfolio Analytics, assisting investors obtain restitution due to sales or broker abuses.

Is white-collar crime non-violent?

By Ken Kivenko | Tuesday, August 07, 2007

We always hear it’s only money and nobody really gets hurt. That is not true. “.. Mr. Diekmeyer, 73, says he lost $800,000 - his life’s savings - when Bre-X collapsed. He also saw his personal friend and stock broker kill himself in 1997, riddled with guilt about his clients’ losses."I survived with great difficulty and a friend of mine committed suicide over it," says Mr. Diekmeyer, who lives in a modest apartment in Beaconsfield, west of Montreal. "I only know this story. I’m fairly certain there are others that are equally disastrous…” -- J. McFarland, No winners in this case, Globe and Mail, Aug. 2, 2007

White-collar crime is a generic term for crimes involving commercial fraud, cheating investors and consumers, insider trading, embezzlement and other forms of dishonest business schemes. The term comes from the perception that these fraudsters wear white shirts and don’t use physical force in effecting their devastating schemes. Someone who mugs a victim on the street by threatening to knife them, and steals $300, might very likely be punished with a more severe sentence than a Bre-X executive who cheats shareholders out of billions of dollars. There is an impression that white-collar crime in Canada is rare. We’ve all heard of Enron but how often is Nortel cited as an example of thousands of innocent people losing a large share of their life savings? The last few years, thanks to the media, Canadians are now hearing about home grown penny stock scams, Hollinger, YBM Magnex, Atlas Cold Storage (accounting fraud) and of course the infamous mutual fund market timing scandal. Lately, we’ve all witnessed the tail end of the Bre-X fraud that cost hapless investors $6 billion with no one held accountable.

Many more examples could be cited including the numerous business income trust implosions like FMF, the Portus hedge fund fiasco and the infamous Norbourg funds disaster. About 9,200 investors in mutual funds managed by Quebec based Norbourg Asset Management Ltd lost their money due to management malfeasance. Allegedly, $130 million was misappropriated. Retail investor’s lives were turned upside down.

There were huge losses but was violence involved? We’re always hearing that white-collar crime is non-violent, no one is actually hurt-it’s “only” money. Punishments should be minimal; it’s not as if someone was beaten or knifed. Well, we use the term financial assault to describe the unsavoury actions of fraudsters, scam artists, devilish corporate executives, stock promoters and greedy salespersons that knowingly put investors at huge financial and personal risk for economic gain. The toxic combination of financial loss coupled with the corresponding psychological and physiological impact often makes the assault an unbearable experience.

We’ve become conditioned to reading about the billions of retail investor dollars unduly vaporizing each year in Canada. Unfortunately we’ve also grown accustomed to a lack of enforcement by regulators and the success stories of perpetrators who walk away “Not guilty” Well, we think, at least nobody was killed or required 20 stitches. It is “only” white-collar crimes. So even if these culprits are caught, they should get wrist slap penalties, easy bail and maybe short jail terms. These are not thugs that should be incarcerated. No real harm done, right?

Think again. White-collar crime is a devastating form of financial assault

Take these two examples:

1. A woman in her early seventies had been sold some internet infrastructure and e-business technology funds in 1999. The salesman had befriended her while she was recovering in hospital from heart attack. Within the year, the funds were down 85% and most of her life’s savings with them. When she found out, she had a relapse. She was dead within a month.

2. An engineer in his fifties was on a five-year assignment in Africa, assisting local authorities develop a mine. His trusted adviser back in Montréal was sent the tax-free earnings and given the authority to invest in conservative securities. When he returned, his $1.5 million had been melted down to $146,000. He ended up getting divorced and suffered from depression for the rest of his life. He was never able to trust anyone again. He died a broken man existing month –to-month in a tiny one-room apartment.

Stan Buell, president of the Small Investor Protection Association likes to refer to financial assault cases as adverse life- altering events. The loss of one’s nest egg is a shock that leaves many small investors stunned and immobilized. For seniors and retirees the loss is irrecoverable as time is not on their side. The real negative impact is the physical and emotional collateral damage that white collar crime causes.

Some examples from a variety of interviews, media reports and victim impact statements:

One man, who lost $400,000, had to return to work at age 72 to a physically demanding job working the night shift.
"I believe my first reactions were shock, disbelief and denial, followed by rage, resentment, guilt and then utter depression," one elderly woman observed.
"To know these people used our hard-earned money - they even took money so far back as when I was 10 years old on a paper route. The pain and hurt and always thinking of what was done to you just don’t go away. I have nightmares"
One man and his wife were using the $2,500 interest paid out monthly on their investment to make a special vaccine from his wife’s blood to fight her leukemia. But soon the payments dried up and the investment was gone. "We tried for as long as our finances would allow the treatment. It was impossible to keep up financially". His wife has since died.
“We have been honest and trustworthy people and expected the same from others," one couple wrote. "We have many sleepless nights thinking about how we would not be able to retire as soon as we wanted."
One man, who lost his life savings of $175,000, said his golden years are shattered. "It hurts to look at your wife and tell her that we cannot afford to do much but sit around and wait for the end of our lives."
Several experienced nervous breakdowns and chronic illness since losing their nest eggs
On July 6, 2006 Madam Justice Petra Newton sentenced the 63-year-old swindler, Earl Crackower, a former financial planner at Toronto-based Worldsource Financial Management Inc., to a 5-year term behind bars and ordered him to pay $3.4 million in restitution to 43 former clients and their families. "Your conduct deprived these people of dignity and respect and the ability to care for their families and themselves in their sunset years." Crown attorney Donna Gillespie told the court that the veteran financial planner artfully manipulated and plotted "the financial, emotional and physical destruction" of his clients, including many elderly women, from 1989 to 2003, Newton told a packed courtroom filled with seniors. Besides losing their life’s savings, how were the victims affected by this life-altering event?

Adversely impacted their health and accelerated their ageing
Eliminated their capacity to trust other people
Destroyed their sense of self-respect and their dignity
Created a sense of hopelessness--an abyss of shame and self-doubt
Paved the road for many of them to near destitution.
Caused terrible stress within families
Caused them to have to get part-time jobs to help make up for the losses, despite their ill-health
Made it impossible to ever buy any gifts for their grandchildren –living with a broken heart
Destroyed any hope of leaving a legacy to family members
In other cases we’ve also heard of marital breakdown, severe emotional distress, nervous breakdowns, heart attacks, drug over-dose and even suicide.

Former Enron employees who thought they’d be well off have abandoned retirement visions that included taking pleasure trips and financing philanthropic projects. Some, at the end of their careers, have started over again in new jobs -- but working harder to keep up with younger co-workers. They’ve turned to churches and food banks to eat, sold homes they could no longer pay for and endured financial stresses that frayed and ultimately destroyed their marriages. One Enron employee lost it all: his job, the money in the stock and his pension plan that held Enron stock. He was laid off, and he and his wife got by on $1,200 a month in unemployment until that ran out after six months. His wife, a hairdresser, was disabled and couldn’t work. He was out of work for more than two years. The family house was put into foreclosure, a home they had owned for 25 years. He remains a bitter man. A number of cases have been documented involving suicide resulting directly from the Enron collapse.

The pain is amplified should a determined investor seek to obtain restitution.

"I don’t know if I’ll ever be able to recover my life after losing $800,000. I feel I have been living in hell for the last few years. The determined defense of the firm’s ombudsman wore me down emotionally. After 3 years I decided to back out but it has taken a terrible toll on me. I’m now on a permanent pill popping regime to keep me from depression. After losing my home and my wife, I now live in a tough neighbourhood and fear for my safety”

The journey to a successful complaint conclusion can be aggravating, time consuming and add stress to an already stressful situation. Restitution claims require diligence, persistence, determination and a thick skin. You’ll be made to look stupid or greedy by the financial institution. The case will be drawn out with carefully crafted letters that make you look unreasonable. If the firm drags out the proceedings long enough you could lose your right to civil litigation thanks to shortened statute of limitation periods introduced in 2004.

Regulators will refer you to the MFDA and IDA. They in turn will advise you that they may be able to fine or sanction those involved but they can’t get you your money back. If you attempt civil litigation, expect to spend thousands of dollars in legal bills with an uncertain result. You can try industry-sponsored OBSI but don’t expect a quick answer or a high probability of ever seeing your hard earned money back. Assuming all has gone well, a rare event, you’ll have to sign a settlement release order in order to receive compensation. Part of this may be a “gag” order preventing you from discussing the case or the terms of settlement with anyone else including others damaged by the scam. The entire process is designed to deter claims and frustrate resolution .It thus adds further to the pain and amplifies the anger and despair. No wonder so few bother to complain.

Insurance fraud, a variant of financial fraud, can have a devastating effect in that a person’s life can be disrupted, expected insurance is not there when needed or when seriously ill people who purchased phony health insurance find their credit ruined when they couldn’t pay large medical bills after their policy refused to pay ( The effects can be traumatic.

The horrific Eron Mortgage fraud is encapsulated in a classic study of the impact on victims-it’s a must read ... _Study.pdf

To learn more about the issue visit and read the Fraud Victims Manual at ... /index.htm A U.K. Report worth a read isResearch of impact of mass marketed scams (A summary of research into the impact of scams on UK consumers). December 2006; 83 pgs ... oft883.pdf.

And what makes robbers bold but too much lenity? [leniency] --William Shakespeare, Henry VI, part III

White-collar crime really does prove that the pen is mightier than the sword and its swath just as lethal. Hopefully, our broken justice system will soon catch up with this reality.

Ken Kivenko
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Postby admin » Mon Jul 09, 2007 12:36 pm

Communiqué for Immediate Release
Collingwood, Ont., July 9, 2007

Thirteen organizations from across Canada announced today that they have officially formed the Common Front for Retirement Security (CFRS). The organizations are
CARP, Canada’s Association for the Fifty Plus and
Small Investor Protection Association SIPA
The Royal Canadian Legion
Air Canada Pionairs
Response: A Thousand Voices (RTV)
Allstream Retirees
Bell Pensioners’ Group BPG
United Senior Citizens of Ontario USCO
Alliance of Seniors – the Older Canadians Network - Toronto
Canadian Activists for Pension Splitting/Regroupement des Canadiens pour le partage des pensions
Retired Airline Pilots of Canada RAPCAN
Older Women’s Network

The Common Front for Retirement Security (CFRS) succeeds the Common Front for Pension Splitting and will continue to safeguard the hard-won legislation that allows married and equivalent spouses to split pension income starting in the 2007 taxation year. This legislation received royal assent on June 22, bringing six years of advocacy to a successful conclusion.

The CFRS will advocate for better governance of pensions, investments and retirement savings. It supports the initiatives outlined in Finance Minister Flaherty’s June 27 speech to a Conference on Securities Law Enforcement (see link: His speech embraces concepts for a single national securities commission but we believe he should engage representatives of ordinary Canadians in these discussions.
The CFRS also supports Finance Critic Judy Wasylycia-Leis’s demands for more detailed disclosure of executive perks and compensation, better policing of what the NDP calls the "Wild West" of financial markets, and protection for whistleblowers.
We generally share the concerns that our governor, David Dodge (Bank of Canada), expressed in May 2007 concerning defined benefit pension plans. The Canadian Institute of Actuaries succinctly describes its prescription for Canada’s ailing pension system in its website: ... 07061e.pdf

The problems have been clearly identified. Solutions are available. What are federal and provincial governments waiting for? It is up to us ordinary citizens to empower our politicians to take action.

The CFRS believes these issues are interlinked. Pension funds, RRSPs, stocks, bonds, mutual funds and other private investments drive the economy. All are dependent on the integrity and effectiveness
of capital market regulations. It is imperative that resident and foreign investors have confidence in the system. Pension plans need insolvency protection.

Canadians need competent law enforcement that protects them from swindlers and abusers involved in white-collar crime. According to the Small Investor Protection Association, Canadians lose $18 billion a year to fraud and excessive fees.

All Canadian workers deserve retirement security - but 40 percent of workers are not covered by employment related pension plans. A national contributory pension plan, similar to the Canada Pension Plan and the Quebec Pension Plan could solve this problem.

Pundits, politicians, financial institutions, regulatory bodies and the media are all calling for reform.
Politicians of all stripes have advocated for a national securities commission since 1932. Streamlining the system would enhance the economy, increase job security, pay for itself—and reduce costs to investors.

It is time to put petty jurisdictional squabbling aside and get on with reforms. Canada needs a central agency with sufficient enforcement teeth to protect individual and pension-fund investments within the framework of a system that is efficient, effective and competitive.

The CFRS is determined to represent ordinary Canadians to this effect.
See below and for contacts and more information.

Dan Braniff
Chair, Georgian Bay CARP Chapter
Liaison, Common Front for Retirement Security 519 363 2552

Stan Buell
President, Small Investor Protection Assoc. SIPA
Liaison CFRS 905 471-2911

Duane Frerichs
Air Canada Pionairs
Liaison CFRS 905 877 5809
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tainted products sold by salesmen giving tainted advice

Postby admin » Tue May 22, 2007 11:57 pm

It strikes me that no other industry could get away with knowingly selling tainted products to consumers. Financial providers get away with it due to being able to count on the fact that there is "risk" in any investment, and therefore it is (according to them) "not their fault", when things go bad.

But consider for a moment if they actually begin to manufacture "poor" investments since the poorer the investment, the easier it can be slapped together and sold. (think Portus, Crocus, too many income trust products, and proprietary ((house brand)) mutual funds)

When those poor investments fail, they have an automatic out. Market risk, they will say, plus the backing of several hundred pages of fine print disclosure (which no one can follow) in something called a prospectus. Legal? Yes? Ethical? No.

They can use this "risk" argument to sell the worst possible junk to the public and never get caught. Add in the bonus that the industry "regulates" itself, and you have the makings of the perfect crime. Make that crime spree.

No wonder the national seniors organization in another post is asking for criminal charges regarding the failure in duty to care on things like income trusts etc. The industry is in perfect position to actually get away with delivery of a duty to NOT care.

Now if the product in certain cases is knowingly tainted, damaged, junk. (call it what you like) What are the responsibilities of a salesperson (who calls him or herself an "advisor"? Are they adding insult to injury when recommending a known bad product.

The documentary film, BREACH OF TRUST actually finds some investment products that are so self serving, that exemptions to the law had to be granted to allow them to proceed as planned. And now thirteen (13) separate securities commissions refuse to answer the question of "what public interest was served by granting legal exemptions" to this firm trying to sell it's pig in a poke. Have you ever thought that your trusted provincial securities police were giving passes to financial firms so they could skirt the law.

I cannot imagine where it will end. Stay tuned, and for God's sake, write a letter to W5, CTV Whistleblower, CBC News, and your member of parliament to get Canada's financial house in order before it is too late. Ask, no, demand a Royal Commission into white collar or financial crime in Canada.

The annual damages are in the order of the entire budget for the province of Alberta, and that is being conservative. Canadians are truly being robbed financially.
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Postby admin » Wed May 09, 2007 10:35 am

Two more damning research studies are publicized in the Toronto Star today that support the The National Pensioners & Senior Citizens Federation (450 clubs and chapters with 1,000,000 members), the United Senior Citizens of Ontario (1000 clubs with 300,000 members) and the Small Investors Protection Association request for a national inquiry on the malfunctioning of Canada's securities and accounting regulation and white collar crime enforcement system [NPSCF-USCO-SIPA Media Release - National Inquiry on White Collar Crime and Excess Mutual Fund Fees 4262007].

James Daw writes in the attached Toronto Star article, "Fund Sector Still World's Most Expensive," dated May 8, 2007 about:

(1) "Mutual Fund Fees Around the World" prepared by Ajay Khorana of the Georgia Institute of Technology, Henri Servaes of the London Business School, and Peter Tufano of the Harvard Business School.

"Total shareholder costs in the Canadian industry in 2002 were higher than those in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, the United States, and the so-called offshore-domiciled funds from Dublin, Luxembourg and the various island offshore locations. [in 2002, the asset-weighted average expense ratio for equity funds worldwide was 1.29%, ranging from 1.05% in Belgium and 1.11% in the US to 1.92% in Japan and 2.56% in Canada]"

(2) "Losing Ground" prepared by Keith Ambachtsheer of the Rotman International Centre for Pension Management at the University of Toronto, and Rob Bauer of the University of Maastricht in the Netherlands.

"[Canadian] Low-fee pension funds beat stock market returns by an average of 1.2% while high-fee mutual funds lagged market returns by an average of 2.6% points a year [between 1996 to 2004]".

"the poor investment performance relative to pension funds is depriving Canadians of 22 percent to 64 percent of their potential retirement income."

The NPSCF-USCO-SIPA Media Release - National Inquiry on White Collar Crime and Excess Mutual Fund Fees 4262007 concludes:

Investor losses caused by white collar securities crime and excessive mutual fund fees are estimated to be $18 billion annually.
Over $110 billion of aggregate damages since the mid 1980's due to white collar securities crime

Another $55 billion of damages in the last 10 years from excessive mutual fund fees relative to the rest of the world, since Canadians do not have free trade in mutual funds with the U.S.

Of $18 billion estimated annual investor losses, $13 billion is due to white collar securities crime and $5 billion is due to excessive mutual fund fees

$18 billion of annual investor losses is 1% less annual investment return on total investment assets within individual RRSP's, RRIF's, pension plans and investment assets held outside of retirement plans

About 15% of expected investment returns are being skimmed by white collar securities crime and excess mutual fund fees every year!

Seniors suffering catastrophic losses from white collar securities crime suffer the second abuse of stonewalling by the financial industry Self Regulatory Organizations, provincial securities commissions and the RCMP, who address less than 5% of the complaints received.

A national inquiry must now be called so that ordinary Canadians can restore their ability to earn a fair return on their savings for retirement. Canadians' retirement security is being pillaged by a financial industry charging the world's highest mutual fund fees and by our malfunctioning white collar crime enforcement system in Canada that enables billions of dollars to be effectively stolen from ordinary Canadians.

Diane Urquhart
Independent Consulting Analyst
Mississauga, Ontario
Telephone: (905) 822-7618
Cell: (416) 505-4832
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excellent site page on investment abuse

Postby admin » Mon Dec 11, 2006 9:13 am ... 0abuse.htm

Andrew Teasdale's excellent site for proper investment management.

I had the opportunity to speak to Andrew once and I was impressed with his ability, his understanding of how to follow top fiduciary rules with investing, to produce "best execution" pricing to do same, and to not only understand the conflicts involved, but to have a process to balance them properly for the benefit of the client.
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Postby admin » Mon Nov 27, 2006 9:06 pm

By Paul B. Farrell, MarketWatch
Last Update: 7:51 PM ET Nov 27, 2006

ARROYO GRANDE, Calif. (MarketWatch) -- Some things never change. This script was written long ago, in Fred Schwed's humorous 1940 classic about Wall Street's insatiable greed. The message rings as true today as back then, when America was still smarting from Wall Street's disastrous 1929 crash. Schwed explains the origin of his title, in an "Ancient Story:"
"Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. "Look, those are the bankers' and brokers' yachts. 'Where are all the customers' yachts?' asked the naïve visitor."

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So now, my dear friends, you know how Schwed got the title for his enduring classic: "Where Are the Customers' Yachts?" I was reminded of Schwed's intriguing question by a recent photo in Fortune magazine of "Utopia," the aptly named new megayacht owned by legendary fund manager Bill Miller.
Likewise, "naïve" is an apt term for investors: It was apt in 1929, apt in 1940 and is still apt today. Actually more so: Despite the flood of high-tech data sources now available to America's 95 million investors, they're becoming more vulnerable, gullible and naïve by the day.
Schwed's story perfectly captures the relentless daily transfer of billions from the pockets of Main Street's naïve customers into the pockets of Wall Street's clever insiders: More than $200 billion annually is siphoned off the top of the $10 trillion we have invested in mutual funds.
And thanks to the protection of their buddies at the SEC, most of that $200 billion in fees, commissions and other payments is secretly hidden in bank accounts, undisclosed to Wall Street's naïve customers.
Occasionally, however, their egos get the best of Wall Street's finest, driving them to flaunt their wealth on the world's stage; perhaps an art collection, sports team or yacht. Then, the news breaks for competing managers and naïve customers alike to admire and envy, like the mounted trophies of wild animal heads displayed by big-game hunters.
Actually the photo of Miller's yacht in Fortune does little justice to this magnificent ocean-going vessel, paid for thanks to his winning streak as manager of the $11.5 billion Legg Mason Value Trust fund (LMVTX : Legg Mason Value Tr;Prm
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6:06pm 11/27/2006

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LMVTX71.10, -1.26, -1.7%) . As everyone knows, Miller is the only fund manager in America who's beaten the S&P 500 every year for the past 15 years, a record achieved despite a high 1.68 expense-ratio handicap.
Fortune calls Miller "the greatest money manager of our time." Yet as Wall Street's frantic race to the finish line heats up, Fortune asks the inevitable question that makes for exciting drama in financial journalism as well as sports: "Will The Streak be broken?"
The answer, says Fortune's new managing editor, Andy Serwer, is not encouraging: "It's likely to be a rather glum New Year's Eve this time around for Legg Mason Capital Management. The Streak is probably over."
Not so fast, Andy! I'm still betting on Bill. Every year-end we hear the same mock race-track dramas: "They're rounding the final turn! Heading into the home stretch! Will Bill win again? The crowd roars! He's closing on the outside rail, closer, closer ..."
Folks, Miller's run this race enough times before, he's likely to beat the odds again. How? Very simple, to mix metaphors, he's not racing some fleabag thoroughbred, he's racing his new Utopia superyacht this year, for which he "recently plunked down tens of millions." It has a heliport, gym, 12 guest cabins and a crew of 20. Anyone can charter it, providing they don't mind shelling out maybe $750,000 a week.
Utopia is a powerful incentive, so I'm betting he'll win again, although he's about 10 percentage points behind the S&P with a month left. Still, he's a brilliant come-from-behind finisher. And even if 'The Streak' is broken, the yacht is still a great perk for insiders and institutional customers, and some naive customers might even get to work on the crew while dreaming of their own utopian retirement.
Utopian tastes vs. mutual fund expenses
Miller would disagree emphatically with financial consultant Laszlo Birinyi's latest Forbes column: "Mutual Funds Stink," Birinyi's retelling of Schwed's "Ancient Story" from a not-so-naive customer's point of view. Here's why Birinyi says "funds stink:"
"As the recent scandals showed, some mutual fund managers count on sticking it to the small investor. The vast majority of mutual funds lag behind the S&P. Some are way, way behind. At a time when the S&P is showing double-digit gains, large-cap growth funds are barely in the black." Then Birinyi asks a brutal question: "What do you get for the fees you pay to your fund manager? Herd investing!" His solution: "You don't have to pay a mutual fund manager a fee to follow the herd ... Buy stocks on your own."
Do it yourself! Birinyi picks stocks. But any naïve investor can beat the S&P with a simple, well-diversified portfolio of low cost, no-load index funds. See previous Paul B. Farrell.
Birinyi's indictment is not news. Jack Bogle has been saying it for decades. Two years ago former U.S. Sen. Peter Fitzgerald told Congress that the "mutual fund industry is now the world's largest skimming operation, a $7 trillion trough from which fund managers, brokers and other insiders are steadily siphoning off an excessive slice" of America's savings.
Schwed's "Ancient Story" will be replayed to the end of time. Sure, "history is a great teacher." And "those who do not learn the lessons of history are doomed to repeat them." But experience tells us that naïve customers rarely learn.
Schwed's humor has drawn many laughs since 1940. But they're nervous laughs and the humor is dark because nothing changes. Efforts by Bogle, Fitzgerald and friends merely provoke opposition, forcing Wall Street and the fund industry to fight back, and grow stronger. And next week, Birinyi's indictment will be forgotten, like the 68 columns I wrote about fund reform a few years ago.
Nothing changes. Naïve customers will never own yachts. Their portfolios average less than $100,000. Imagine a customer "plunking down" their entire retirement nest egg to charter one short day on Utopia, the superyacht! More likely, they'll be left standing on the dock with bewildered eyes and a childlike innocence in their voices, asking once more: "Where are all the customers' yachts?"
America is breeding an infinitely renewable supply of naïve customers that will forever be chasing the herd, giving away billions in unnecessary fees and commissions that help herd-driven fund managers buy more yachts. Meanwhile, insiders do get the punch line in Schwed's gallows humor ... as they sail the high seas, laughing all the way, thankful and secure in knowing that every new generation of customers will be as naïve as the last, never learning the lessons of history
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some thoughts on what has to change

Postby admin » Fri Nov 24, 2006 11:17 am

on thing that has to change before Canada will have a safe financial system is:

Canada's financial firms have to be "incented" in some way to drop the current tactics of driving complainants into financial and emotional bankruptcy rather than admitting and correcting cases of wrongdoing and abuse in the financial system.

Canada's financial firms must be prevented from forcing confidentiality agreements on clients who can live long enough to get through the "delay, deny, defend", legal process put on them by financial institutions. My firm's (RBC) code of ethics promised that "each and every activity we are involved in will stand the test of open public scrutiny". Confidentiality, gags, or veils of secrecy placed upon staff or customers are contrary to those nice words.

It must be admitted and recognized that "self regulation" is a failure. That allowing those who handle and manage and advise on our money should not be allowed to set the rules, enforce the rules, judge which rules to enforce and which to ignore, and decide on the guilt or innocence of the rule breakers. This system hsa simply allowed those with the largest legal budget to manipulate the system to self advantage.

What does an 800 lb gorilla do? Any damn thing it wants to do.
Our top financial players are 800 lb gorilla's, and to make it even easier for them by giving them the authority and ability to make their own rules through their own self regulatory associations. (clubs)
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Postby admin » Fri Nov 10, 2006 3:37 pm

I have in my hand a recent copy of the ADVOCIS magazine for its members

I am surprised that the entire focus of the mag, including the front of the cover is in SALES techniques. SALES, SALES, SALES.

Selling mutual funds. Selling life insurance.

It should come as no surprise from an organization that was written up recently as losing members, having difficulty balancing its finance, and having to borrow to finance its operation.

Also comes as no surprise given some of the unique characters who have been associated with this organization.

Do we really need another, money grabbing, sales cultured, "regulatory" organization, which simply lives to sell life insurance with some attempted legitimacy??
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Postby admin » Sat Oct 28, 2006 10:53 am

News Release

IFIC 2006 Investor Survey wins Lump of Coal Award

Toronto, Nov. 1., 2006-the Fund OBSERVER today announced the winner of the 2006 Lump of Coal Award for Canada’s most baffling Survey.

Lumps of Coal Awards recognize managers, executives, groups, companies and regulators for attitude, performance, action or behavior that is offensive, duplicitous, disingenuous, reprehensible or just plain stupid. Based on an idea from Chuck Jaffe.

To win the Award the Survey must meet stringent criteria:

1. Must have significant controversial media and investor advocate attention
2. The most obvious questions should be missing
3. Questions must contain sly wording and be self-serving
4. The timing should be in a bull market
5. Assertions need not be traceable to survey facts
6. Conclusions should be dramatically at variance with prior independent surveys

The Award goes to. …the 2006 IFIC Investor Survey for achieving the highest bamboozlement rating, beating out strong competitors from banking, insurance, regulators, SRO’s and other trade associations.

Here’s some of the unique winning features :

• First –ever published Client Survey was performed in a strong market
• Details of sampling process left undisclosed-only ppt presentation on website
• No direct question on fee levels e.g. Do you know what you paid in advisory fees last year?
• Mutual funds cunningly portrayed as an asset class
• Soothing imprecise words like “comfortable” used
• Blatant attempt to mask facts and divert attention from a research study finding Canada’s fees the highest in the world
• Leading questions like “…Would you prefer to receive a detailed annual report that tends to be about 50 or more pages or a two page summary annual report?(
• Stunning conclusion : “The numbers confirm our belief that confidence and knowledge levels among mutual fund investors are strong”

Despite fierce competition from other organizations , our Jurist Panel believes these factors places the IFIC Survey in a league of its own.

CONTACT: Ken Kivenko, President Kenmar
About the Fund OBSERVER: A free bi-weekly industry-independent e-publication devoted to investor protection and education
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Postby admin » Thu Oct 12, 2006 10:53 pm

is abuse really abuse if you only abuse the person "just a little bit"?

Stupid question, I realize, but take a look at some of the mutual fund schemes that just increase costs to clients by 1%, or less than 1%. How about the ones where they sell you house brand products that are only 2% above the average mutual fund?
Or the sales pitch for DSC funds where the salesperson avoids filling in the details about the liability? Or packaging up the feeble-ist of business propositions into a new stock or trust issue just to obtain a few million in underwriting fees.

Abuse is abuse, is abuse. Until the Canadian financial services industry gets some federally regulated teeth or independant investor protection, I see no end to the "tiny abuses" that will continue to attack the public interest to the benefit of a few dealers.
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Postby admin » Thu Oct 12, 2006 10:04 pm

The things that jump out at me from the recent study on mutual fund fee’s are this:

From the site

1. Mutual fund fees appear to be inversely related to the amount or the quality of investor protection in each country.
“countries with stronger investor protection charge lower investment fees”.

2. The above supports what some investment advocates and industry experts have been saying for years, but is strongly contradicted by those who retain a vested interest in the industry.
3. The study also found evidence of higher fund fees in countries where banks were more concentrated, or where banks were allowed to enter the securities markets.
4. Costs to investors in Canada are anywhere from “2.7 times higher to 4.3 times higher” depending on which of various cost factors to clients are measured.
5. Investment fees are a cost to the client, but a stream of revenue to the investment seller, thus creating a conflict of interest for those who represent themselves to be trusted and professional advisors.
6. Salespersons have no problem with the conflict presented in six above. Advisors, or those who hold themselves out as such, may in fact be liable for misrepresentation if it turns out they acted in self interest rather than in client interest.
7. Canada is the “single highest fee country by far”.

To those in the know, it seems self evident that Canada is one of the poorest regulated investment regimes in the developed world. In the “race for the bottom, we are winners in this category.

When one factors in the thousands of legal exemptions granted by provincial securities commissions over recent years, so that friends and firms can easily avoid even following securities law in Canada, combined with the trend toward “house-brand” investment products, it can be said that clients are getting poorer and poorer treatment while heads of the thirteen securities commissions get closer and closer to the magic million dollar salary figure.
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Postby admin » Thu May 11, 2006 7:29 am ... 4656511815

As soon as I see RCMP, OSC, IDA or MFDA in a story like this, I go into snooze control....unless one of these poor people [victims] finds out about me and gets in touch.

Then I (or some other so-called investor advocate) have to tell them the truth about Canada, our financial services system, our politicians at all levels, our legal system (civil and criminal), our regulators and that their money is gone. There is nobody but us to help or understand but us. And our money is gone too. One of us has been jailed, and is looking at even more time. But that's Canada 1966 - 2006 - 2056 and beyond.

It is difficult to explain why someone they trusted didn't need anything but a good suit and a big smile to ruin them.There are others whose job it is to fix what's broken or at least to tell people the truth.

Yet it falls to ordinary citizens like us to do it - and to face the blowback, the venting, the screaming and then hope there won't be suicides, personal bankruptcy, psychological and emotional collapse, broken marriages, stress-related pre-mature illness and death.

That we risk having to live with anything unfortunate that happens because we might not have said or done the right thing or the timing was wrong or because we ought to have realized that many people can't bear facing the truth is something we have to live with every day. We do this because nobody else will! Ironically, people only listen after they have been financially destroyed, never before.

Our critics, usually the perpetrators or those who make their crimes possible by commission or omission, will say, we should have referred them to an expert. What expert?

The PM, their Premiers, their MPs, the police, a lawyer, a regulator, an ombudsman, a support group --- like a church, social club or professional organization --- the happy hunting ground for these slugs?!

The Harper government speaks of cracking down on crime. I have written him and his Ministers and told them flat out "they are cracking down on stupidity."

How stupid do you have to be to pick up a gun and rob a bank, run an escort busiess or strip club, or to smuggle and distribute drugs???

All you have to do is buy (or steal) a good suit and follow the well choreographed path to wealth -- to other people's money -- which you send to an off-shore tax haven using a Canadian financial institution -- all in the blink of an eye.

How do you get that mansion in the Caymans or Turks and Caicos? Take a course or study up on how our system works in Canada (or rather doesn't work). A rocket scientist -- you don't need to be -- just a little smarter than a gunman, pimp, drug pusher, politician, crown prosecutor, cop or regulator. How smart is that!?

Then, just do the what every bad apple has done from Bre-X to Hollinger, including the mutual funds that have market timed or crashed like the Hindenburg in recent years. Now, if you lack a conscience, you might think -- income trusts -- worse than junk bonds in many cases -- unheard of in most other first-world countries. They are virtually unregulated because they are "new" in Canada, as if their being regulated would help anyway. They might be just the ticket - they have been for many others -- get in early, get out and take a limo to the airport. But there are many other ways to go and not one requires a gun -- just a pen.

You don't even need a new idea. Simply do the same old things others have done over and over before -- and the usual suspects will paint by number as they always do -- just like clockwork -- and you can jet away without a care.

Really cheeky, stay, ignore the commotion, re-invent yourself through bankruptcy and reincorporation or under a flag of convenience (someone else's company or name) and just keep doing what you do. Re-list on an exchange or flog a new fund family or income trust and you're all set.

Simply destroy the paper trail like the RCMP did in the Adscam scandal. Or get an Anton Piller Order in civil cases against you to seize as much evidence as you can, put it with a well known forensic accounting-auditing firm for safekeeping, and wait til the lawyers and judges decide to release it to the public. Ever heard of a motion -- your lawyer will be spitting them out like a photocopier. We'll all be dead before the case is heard or closed on a technicality.

Just sell, sell, sell and hang on to your one-way ticket to Paradise where there will be plenty of Canadian ex-pats who should be on the run, but hey, they're Canadian -- there's nobody chasing them. Buy a cold one and relax. If you are filthy rich, hire a good law firm and stay here. Nobody will ever bother you.

These little gems (income trusts) are falling from the sky around us like turkeys dropped from a police helicopter (I mean the birds here -- not the uniformed ones).

In the middle of the election Campaign, the soon-to-be-elected government came out forcefully in favour of income trusts. Remember the leak? Remember the flutter in the stock market that resulted? Have you watched these things perform (crash) before and since, checked their yields to clients who were promised and need income (a fair rate of return) not the loss of all their capital (that's money)? Have you seen the money made by major banks and other institutions who underwrite these issues and the bank-owned brokerages who market them to the public at the retail level?

Any way you look at it, these "income trust vehicles to financial nirvana" (yeah right!) are too often just what they appear to be....junk. And if you want to dump your life savings on an alternative investment -- there are countless "little guys" winging about like black flies at a spring picnic in North Bay. At least when they steal millions, they might be fined $50 thousand or have to take a holiday from selling for a few months. Jail time -- as rare as a small investor making a buck in the markets! To see that, you'll have to watch an American Channel on TV.

And the government is going to crack down on crime? I guess the two top people at the Bank of Canada, the former Chairman of the SEC, several senior jurists and, you guessed it, the advocacy community, must all be crazy. There is nothing wrong in Canada. The economy is booming. The government has full confidence in the industry and in income trusts -- those pesky Yanks and Brits should mind their own affairs!

Hundreds of thousands of ordinary people sold a complete bill of goods though mutli-million dollar ad campaigns and mumbled reassurances by politicians, regulators, ombudsmen, have been, are and will be forced to rely on government for support in their old age or illness. The kicker is, you are the government.

You, reading this in the comfort of you home, will pay to support people just like you who have been double-crossed by the government, our institutions, the police and regulators, the ombudsmen and, at best, will live out their lives as "greeters" at Walmart. And the slick with the expensive suit -- well, he'll be ensconsed in his mansion counting his (your) money while the games go on and the bad guys always win because in Canade they have carte blanche!

Oh Canada!


The RCMP, Provincial Police, OSC (and it's counterparts and the SROs, the Courts (Criminal and Civil)) are all totally consistent and predictable --- they can't catch a bus that isn't on their schedule.

Worse, they are even embarssed about it. They are defensive - the list of excuses and explanations is endless. Lawyers for the smart one who bought the expensive suit will employ war by attrition and defense by delay tactics to keep the so-called "suckers" at bay. Politicians can't interfere with "due process". The fact that it is their process, their laws that make this possible never occurs to them becaue they can't accept it; they too are defensive.

Jim Roache, MBA
Ottawa, ON
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Postby admin » Sun Feb 26, 2006 9:07 am

to Jim

In addition to your observation that the RBCDS marketing letter is contrary to IDA club rule 29.7(1)(c), more significantly it would also appear to be a breach of the federal Competition Act. Good article.

R. ... =1312&lg=e

Competition Act

Part VII.1

Deceptive Marketing Practices

Reviewable Matters

Misrepresentations to public

74.01 (1) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,

(a) makes a representation to the public that is false or misleading in a material respect;

(b) makes a representation to the public in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product that is not based on an adequate and proper test thereof, the proof of which lies on the person making the representation; or
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Postby admin » Sun Feb 26, 2006 9:04 am


Adviser's claims raise many questions

Investors would be well off ... if ...

Feb. 25, 2006. 01:00 AM


A stockbroker trolling for clients sent out letters to boast about his company's record of investment advice.

"The RBC Dominion Securities Strategy Focus List has returned 18.2 per cent since its inception in 1984," the President's Club investment adviser wrote in a letter addressed "Dear Investor."

A graph showed that $100,000 invested in a selection of 20 favourite companies, each reviewed quarterly in light of economic conditions, would have become $3.3 million over a period of 21 years.

That sum is four times what buying the entire S&P/TSX Composite Index would have produced by slogging along at an average annual return of 10.1 per cent, the graph showed.

Wow, I thought when the letter arrived in the mail, I would love to meet an actual client who followed that advice.

He would surely prove some sort of axiom, such as: The rich get richer, or it pays to get good advice.

Even the luckiest of us could not have chosen a mutual fund back in 1984 that would have equalled the advice available at Dominion Securities, bought by Royal Bank of Canada in 1987.

So far as Morningstar Canada's records show, no mutual fund in the country returned more than the 13.7 per cent a year that the McLean Budden American Equity fund earned over the same 21-year period ended last Nov. 30.

Only one in five funds still available has managed to beat the main Toronto stock market index.

Eric Kirzner, a professor at the University of Toronto's Rotman School of Management, says that the margin of superiority claimed by RBC Dominion would be "statistically significant."

In other words, he says, such a superior return could not be explained by luck. The return would be evidence of skill on the part of the firm's investment committee and analysts.

One RBC client I know, a semi-retired engineer with advanced analytical skills, has calculated that he earned an average return of 19 per cent a year over the past 12 years by investing in the recommended stocks.

"I think their analysts do a good job," he says, but he noted some reasons his individual return might be higher than what other RBC customers earned.

He did not buy every stock, or invest equal sums. He loaded up on a recommended oil sands producer when oil prices were low. He did not pay full-service brokerage fees for most of his trading. He started with far more than $100,000.

Kirzner recommended I put some questions to RBC to determine how closely its advertised returns would have approximated what a real client investing $100,000 could have achieved.

Was this return actually achieved? Can you produce audited records to prove it? Did someone design the strategy in 1984? Was it possible to put $5,000 into 20 different stocks back then? Does the reported return take into account brokerage fees? What sum of money would be required to follow the same strategy starting today?

Katherine Gay, a spokesperson for RBC Dominion, says the published return is figured out the same way Standard & Poor's Corp. calculates the composite index of the Toronto Stock Exchange, using externally verified sources.

But these are pre-tax returns, like the composite index, and they assume the stocks were bought and sold and dividends were reinvested with zero brokerage fees or management fees.

Fees would have reduced the returns that an actual investor could have enjoyed. So the advertised return of 18.2 per cent is not comparable with a mutual fund return, and would not comply with the Global Investment Performance Standards set out by the CFA Institute.

The return is calculated as though an investor's holding of shares was adjusted every three months to bring it in line with any revisions in the recommended list, and to keep an equal weighting among 20 stocks.

It is further assumed that all sales and purchases occurred at the closing price on the day before the revisions to the list of 20 shares was released to clients.

RBC Dominion's Gay was not able to find the answers to all of my questions before our deadline, but offered to get further answers Monday.

In the meantime, I would point out that the Investment Dealers Association of Canada has a rule [29.7(1)(c)] that members should not permit advertising that "uses unrepresentative statistics to suggest unwarranted or exaggerated conclusions, or fails to identify the material assumptions made in arriving at these conclusions."

It seems to me that RBC should reconsider using the return figures for its Canadian Focus List in its advertising, or start to provide considerably more information to clients and its own advisers.

See also Competition Act
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