advisor fraud, professionals, or salespeople masquerading?

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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Thu Jul 09, 2009 7:37 am

---- Original Message -----
From: WhereDoesAllMyMoneyGo.com

Sent: Thursday, July 09, 2009 7:04 AM
Subject: Asset Gathering Quotas For Advisors

Asset Gathering Quotas For Advisors

Asset Gathering Quotas For Advisors
Posted: 08 Jul 2009 06:59 PM PDT

You may not be aware that some financial advisors have asset gathering or commission quotas (not all do, it depends on their firm). For example, new investment advisors at the big bank owned brokerages will typically have asset gathering targets of around $5 million per year (some are higher, but $5 million is roughly the average from what I have seen).

Every firm is different, and some will assist you by providing referrals from the bank branch network - when a client has perhaps outgrown the mutual funds and GICs offered at the “bank branch level” they may get referred up to the brokerage. Others (most) expect you will source the assets entirely on your own.

I don’t know the exact stats, but a large number of advisors do not stay with their first big brokerage firm after the first two years. You see a lot of them crossing the street. That means they switch firms and bring their clients and assets with them as best they can. The new firm may pay them a bonus on assets they bring in, or treat them as rookies again (with a base salary plus reduced commissions). When their new base salary expires, they will probably have more assets under their belt (what they brought with them, plus what they sourced at the new firm). They will keep on switching until the next time their salary runs out they have enough assets to support themselves from commissions alone.

Branch managers have “new hire” and “competitive hire” targets as well. At the end of the day, the brokerage business lines contribute to the bottom line of the overall companies, so what they do is in theory driven by maximizing shareholder value - but there is something about this advisor turnover that just seems odd don’t you think?

For those who would argue that those who hit their quotas won’t have any problems and those who don’t hit their targets don’t have what it takes to be financial advisors, I would say that if you replace “financial advisor” with “salesperson” then I couldn’t agree more.

(advocate comments...........I agree with this comment, and it forms the basic foundation for a charge of misrepresentation against the investment industry, when they claim professional status for employees who are nothing more than salespersons. I feel it justifies a call for refunds and compensation for anyone who has been damaged by relying on this misrepresentation. See GET YOUR MONEY BACK topic)
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Fri May 15, 2009 11:56 am

“Churn the old ladies, To buy the Mercedes”--ex fund salesman
Financial advice makes the brain 'follow blindly'

The research, published in the Published Library of Science One, studied the brains of 24 volunteers who were asked to make several financial choices. They were asked to choose between a guaranteed payment and gambling on the lottery and received advice at different stages of the process. When the volunteers were advised to follow a certain course of action, they tended to follow that advice, even if it was not the best solution. Brain activity was notably different on the occasions a person received an "expert opinion" and when they made a decision on their own.
Author of the study Gregory Berns, Professor of Neuroeconomics and Psychiatry at Emory University in Atlanta, said: "This study indicates that the brain relinquishes responsibility when a trusted authority provides expertise."The problem is that it can work to a person's detriment if the trusted source turns out to be incompetent or corrupt."He went on: "Seeking advice from experts is common practice. The most prominent situations in which people turn to experts for advice occur under conditions of enhanced uncertainty, such as an economic recession. "During such times, people may feel unfit to predict the consequences of their choices, and may seek the counsel of experts to reduce the enhanced perception of risk.”Our behavioural results indicated that the expert's advice significantly influenced behaviour." HYPERLINK "http://www.telegraph.co.uk/news/uknews/5043174/Financial-advice-makes-the-brain-follow-blindly.html"http://www.telegraph.co.uk/news/uknews/5043174/Financial-advice-makes-the-brain-follow-blindly.html

story source www.canadianfundwatch.com

(advocate comments ....when we finally call a spade a spade, and refer to financial "sales" as financial sales, and not call it "advice"........then we will truly understand all of the various conflicts. Only then can we begin to resolve them with a move towards "best practices". Until then we are still following "worst practices" in Canada.)
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Sun May 03, 2009 4:34 pm

advocate says, "here is the deal. financial salespeople "steal" the moral right to call themselves professional advisors. (this occurred just after the crash of 1987) They then use this false information to lure, entrap and misinform vulnerable investors that the salesmen and women are indeed there to help them, are indeed working in the customer interests. This is the first step to success as an investment salesperson, that of earning the trust of your customer so that they will follow your advice. Step two (about 80% of the time) is to then abuse that trust, and violate the customers interests in favor of the investment firm and the salesperson. Pretty simple, pretty common, pretty illegal. When will the class action lawyers step in and take some of this lost money back"?

www.Telegraph.co.uk
Financial advice makes the brain ‘follow blindly’
Expert financial opinion can make a person’s brain disengage
from any
decision-making and blindly agree with the advice being
given,
a new study suggests.


Photo: GETTY

Financial advice makes the brain ‘follow
blindly’
By Caroline Gammell
Last Updated: 2:46PM GMT 24 Mar 2009
The brain “offloads” its normal calculations if faced with
an authoritative figure because claims of expertise were found to suppress
activity in the neural circuit linked to decision-making.
It means that people who make decisions after speaking to a
financial adviser or a bank manager may be helpless to avoid following their
lead.
The research, published in the Public Library of Science
One, studied the brains of 24 volunteers who were asked to make several
financial choices.
They were asked to choose between a guaranteed payment and
gambling on the lottery and received advice at different stages of the
process.
When the volunteers were advised to follow a certain course
of action, they tended to follow that advice, even if it was not the best
solution.
Brain activity was notably different on the occasions a
person received an “expert opinion” and when they made a decision on their
own.
Author of the study Gregory Berns, Professor of
Neuroeconomics and Psychiatry at Emory University in Atlanta, said: “This
study indicates that the brain relinquishes responsibility when a trusted
authority provides expertise.”
“The problem is that it can work to a person's detriment if
the trusted source turns out to be incompetent or corrupt.”
He went on: “Seeking advice from experts is common practice.
The most prominent situations in which people turn to experts for advice
occur under conditions of enhanced uncertainty, such as an economic
recession.”
“During such times, people may feel unfit to predict the
consequences of their choices, and may seek the counsel of experts to reduce
the enhanced perception of risk.”
“Our behavioural results indicated that the expert's advice
significantly influenced behaviour.”
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Tue Apr 28, 2009 5:25 pm

<http://business.theglobeandmail.com/servlet/story/RTGAM.20090427.wcarrick04
28/BNStory/robColumnsBlogs/home>

ROB CARRICK
Tuesday, April 28, 2009
Between them, lawyers Harold Geller and John Hollander of
the Ottawa firm Doucet McBride LLP have handled a hundred or so cases over
the years for investors seeking compensation for bad financial advice. In
the second instalment of a two-part conversation, Globe and Mail personal
finance columnist Rob Carrick talks to the two at their Ottawa office about
advisers, the investment industry and the remedies for bad advice.
Q: You two hear only from unhappy investors, but there are
satisfied clients out there, too. What's your overall take on the investment
advisory profession?
Mr. Geller: I think there are some excellent financial
advisers out there, those who go through a planning process, who disclose
risk. They're excellent and they're a really important part of our economy
and our community. Problem is, they're a very small minority. Of all the
professions I know, this one is by far the lowest in terms of qualifications
to entry. You don't have apprenticeship years, you don't have residencies,
you don't have articling.
Q: When confronted with bad advice provided by its people,
how amenable is the financial advice industry to making things right?
Mr. Hollander: Defences come up, they circle the wagons.
They will not deal with you, they will not communicate with you unless they
absolutely have to.
Mr. Geller: The whole industry is built against owning up to
mistakes. They have errors and omissions insurance that requires that they
not make admissions. And if it's an [investment] dealer, chances are the
first thing they're going to do is circle the wagons and turn it into a
filibuster.
Q: What about the internal ombudsman offices at the
bank-owned firms - how useful are they?
Mr. Geller: We don't see any settlements coming out of the
internal complaints process - I've never seen one. But the real problem is
that anything you say can, and will be, held against you.
Mr. Hollander: In two of the [four] cases I took to trial,
the judge spent a tremendous amount of time focusing on admissions made by
the clients without counsel during the complaints process.
Q: And then there's the Ombudsman for Banking Services and
Investments. Given that OBSI offers a free service and will look at claims
of up to $350,000, would you consider it a worthwhile option?
Mr. Hollander: The jury is really out on OBSI. They've
changed policies and procedures. The problem is that in order for you to
avail yourself as a victim of this non-litigious process, you have to go
through the bank ombudsman first. So you've already committed hara-kiri to
get that far.
Q: You've said it's only worth pursuing legal action if
you've lost in the area of $100,000 or more. What should you do if you've
lost less than that?
Mr. Hollander: You have to go through the ombudsman process
and hope that it works.
Q: You'd think that representing wronged investors would be
a growth business these days, given the bear market. How many lawyers are
doing investor loss cases right now?
Mr. Geller: It's a very small marketplace and there are very
few of us who do cases like this in any volume. The biggest problem is
people finding us. Most referrals come from other professionals - advisers,
lawyers, that sort of thing.
Q: How do you two invest - do you have an adviser and, if
so, are you happy with the service?
Mr. Geller: Yes, and yes. My adviser had a letter out to me
in late September or early October about where my investments were and why;
even with the radical changes occurring, my plan was on line. Imagine how
many people didn't get that kind of contact. Except when they were asked for
their RRSP contribution, of course. Salt in the wound.
Mr. Hollander: I'm self-directed, self-administered.
Q: What advice would you give someone choosing an adviser?
Mr. Geller: Go to the investor Education Fund website
(investored.ca) - it has some very good information on what to look for.
Inform yourself, interview a number of advisers and make sure it's someone
who is not only knowledgeable, but someone who communicates with you and
understands your goals, needs and fears.
Mr. Hollander: The relationship is very important. You need
someone who will relate to you in the way that you want.
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Sun Apr 05, 2009 8:26 am

IS YOUR ADVISOR A FIDUCIARY?

ADVISOR DILEMMA: FIDUCIARY OR EMPLOYED?

I have poked a sharp stick at some Advisor behavior in past blogs. But it may be time to show my more mellow side; after all, most Advisors are just good folks following the direction of their employers! They do not often intentionally destroy portfolios and kill retirement dreams, it is just an almost unavoidable result of how they make a living.

Fiduciary:

What is a fiduciary and who is a fiduciary?

Definition from Investopedia is as follows:

“The fiduciary manages the assets for the benefit of the other person rather than for his or her own profit.”

Fiduciary 360 defines a fiduciary as

“Someone who stands in a special relation of trust, confidence and/or legal responsibility”

Since fiduciary comes from the Latin fiducia which means “trust”, one would think an Advisor would naturally be a fiduciary but, alas it appears they are not all up to the task. In fact for most, being a fiduciary would make life much more difficult. Simply put,

· if an Advisor puts the clients interest in front of their own interest they will find that their real employer is not very happy!

Compensation:
Advisors, in general, need a firm where they can hang their cap, gather research, find admin support, and benefit from the marketing packages of large securities firms. The advisor works on an income split with the parent company for the most part. The quality of office, support, income split, and even job title is dependent on the Advisor making the firm happy by bringing in big revenue!.

Double Dilemma:
Advisors face a double dilemma: doing what is best for the client will often mean doing what is NOT best for the company that employs the Advisor and it will also reduce the income the Advisor makes from both the investor and the company. So what is an Advisor to do?

The 10% Who Are Fiduciaries:
Okay, I made up the number! I am optimistic that perhaps 10% have got it figured out! They actually just do not care all that much about titles, internal recognition, or the fast buck approach to wealth. Any Advisor can act as a fiduciary by just putting the customer first!

How do I know if I have a fiduciary:

I am blessed to have an Advisor Fiduciary who handles my security selection. G.G. and his team came from the pension and investment counseling side of the world where a fiduciary, discretionary approach is much more the norm. In short, he was trained as a fiduciary, hired his team as fiduciaries, and has enough clients to be able to dictate his approach to his bosses without repercussion.

The Fiduciary Difference:
Here are some of the clues that an Advisor takes the fiduciary duty seriously!

When income trusts were all the rage and paying fantastic fees my Advisor watched his peers earn fat pay days selling every new issue they could get their hands on. His stature (think total revenue to the company) took a hit but GG felt over exposure to income trusts was a bad move in what was really a tax dependent strategy. We all know how that ended!

The next Fiduciary difference came with Index Linked Notes (PPN’s) that were sold at the top of the market and earned huge fees for Advisors. GG’s approach was that people too nervous to invest in equities should just not invest as much in equities! Wow, what a novel approach! Getting your own money back in 10 years with no inflation protection just did not seem to be worth a huge fee, never mind the “protection event” clauses that most Advisors forgot to read!

An ongoing sign that my Advisor acts as a fiduciary is the fact he has never sold me a fund with a back-end load (DSC). The DSC hinders your ability to manage your investments on a going forward basis. Any penalty that restricts your ability to move in and out of investments will eventually cause you to face a choice between the right strategy and the cheapest strategy.

Why so few fiduciary Advisors:
The security firms that employ Advisors pay big money to Advisors who can attract large amounts of money and keep it invested in expensive securities. They run the industry and that includes the Self Regulatory Organizations (SRO’s) that provide oversight to the industry. They have a lot of political clout and can ensure the Advisors who play ball will have an easy ride from the legal and regulatory side of the business.

HOW CAN THEY DO THAT?

The industry has created an environment where just about anything goes. The fox is not only in the hen house, they are running the joint.

1- Advisors are not likely, nor encouraged, to disclose the commission they receive from selling a security. They also will not disclose the various sales options available on the same product with investor costs directly linked to which option is chosen.

2- Advisors are not to provide alternative investment options and the comparative prices and fees on the comparative security. For example if you are sold a Canadian Equity Mutual Fund you are not to be told the relative price or performance of the equivalent Index Fund.


3- Ever notice that you never receive the cost of your investments each year on a statement? My apology to the 1% of you who do! Fees should be tax deductible on your non-registered accounts but it is not if you own mutual funds. Of course if you could deduct the fund fee you would actually know what you paid in fees and that is not the way to make big commissions going forward. Best to let dormant clients remain dormant.


4- Point of Sale disclosure: After significant lobbying, the industry had two small parts removed from the document: Fees earned by your Advisor and the benchmarks to measure performance. Sounds like the fox just swallowed a couple of more hens? (P.O.S. Profits Over Service)


5- Ever buy something and not have the vendor disclose the GST ? Funny thing about investments in Mutual Funds; you never see any tax info that might provide a hint to the total fees being charged. Hmmmmmmm


Solution:

Ask the tough questions!

The best of breed Advisors will love the questions and the average Advisor will have a snit about how you can ask such harsh questions after all you have been through together! You might remind the Advisor that what you have been “through together” is about 30% of your total savings!!!

There are good Advisors out there but you need to ask the tough questions if you are going to find one!

Thankful for GG, but still a skeptic,
SOIS Mike http://unbiasedportfolio.blogspot.com/
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Sat Feb 28, 2009 8:27 am

We were distressed at this court decision In a recent British Columbia Supreme Court
case, Longstaff v. Robinson and IPC Investment Corporation, the plaintiff alleged that his
broker had a fiduciary duty to him which had been breached, in addition to breaching
contractual and tort duties. In the spring of 1999, Mr. Robinson (the broker) sold Mr.
Longstaff (the unsophisticated client) load mutual funds and pushed him to borrow
$200,000 in order to leverage his mutual fund investments ( and maybe to enhance
commissions!?) . Because of a dramatic downturn in the stock market, Mr. Longstaff
suffered financial losses, which he sought to recoup from Mr. Robinson. The “esteemed”
court stated that to establish a breach of fiduciary duty, more is required than the mere
fact that the advisor earned commission income on a transaction. So, while the court did
find that there was a fiduciary relationship, the broker did not breach his fiduciary duties
and thus was not liable to his former
client.
http://www.canlii.org/en/bc/bcsc/doc/20 ... sc1488.pdf
What
can we say? from http://www.canadianfundwatch.com
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Thu Feb 26, 2009 11:49 am

Here is how the head of the OSC refers to investment people in Canada...............

Mr. David Wilson: As Mr. Flynn said, we've painted a picture of the world as we would like to see it. My guess is that the world, in 99% of the cases, does function that way-with proper compliance and oversight of registered sales people in the various institutions. (David Wilson, chair of the Ontario Securities Commission, speaking in the Ontario legislature STANDING COMMITTEE ON GOVERNMENT AGENCIES

Tuesday 2 December 2008

My question is to the rest of us, and particularly towards the media. Why do we still refer to investment salespersons in Canada as "advisors". We are doing the public a dis-service and we are perpetuating a misleading scenario. A scenario where trusting and vulnerable investors are being abused.

Please stop referring to investment salesmen in Canada as "advisors", "professionals", "wealth managers", whatever works for marketing reasons. This level of misrepresentation is illegal by many measures (Competition Act, Criminal Code).

Media, do your job properly. You would not refer to a nurse as a doctor, nor a paralegal as a lawyer.
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Tue Feb 24, 2009 11:13 am

Advocate comment....my advice is this. If your "advisor" lies to you and misleads you into thinking he or she is acting in your best interests...........and you pay too much, take too much risk, or are damaged in any way. Go get your money back. It will not happen easily, nor quickly, but if you have the patience to hold them accountable for their advertising, their code of ethics and their industry promises, you will find that they probably did not act in the same manner that they promised. Therefore, you deserve a full refund or your investment. Good luck, they are pretty cunning and clever. See below.


tp://www.mondaq.com/article.asp?article ... _access=on

Canada: Fiduciary Duties And Commission Income

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23 February 2009
Article by Rob Edger
In a recent British Columbia Supreme Court case, Longstaff v. Robinson and IPC Investment Corporation, the plaintiff alleged that his broker had a fiduciary duty to him which had been breached, in addition to breaching contractual and tort duties.

In the spring of 1999, Mr. Robinson (the broker) recommended that Mr. Longstaff (the client) borrow $200,000 in order to leverage his investments. Because of a dramatic downturn in the stock market, Mr. Longstaff suffered financial losses, which he sought to recoup from Mr. Robinson.

Mr. Longstaff argued that Mr. Robinson had breached his fiduciary duties in recommending that Mr. Longstaff switch to a leveraged investing plan. Mr. Longstaff submitted that Mr. Robinson promoted this plan and frightened Mr. Longstaff into borrowing $200,000 for the purpose of purchasing investments so that Mr. Robinson could earn a substantial commission. Mr. Longstaff argued that the advice was motivated by self-interest and was given in breach of Mr. Robinson's fiduciary obligations to provide comprehensive and selfless advice.

The court found that the advisor/client relationship could be elevated to a fiduciary relationship if the client reposes trust and confidence in the advisor and relies on the advisor's advice to make business decisions. In considering whether there is a fiduciary relationship in an advisory situation, the courts consider whether the relationship included the presence of vulnerability, trust, reliance on the advisor's discretion, and the existence of professional rules or codes of conduct.

The court found that, in this particular case, a fiduciary relationship existed because the client was an unsophisticated investor with a limited education who had minimal experience in making financial investments and had placed his complete trust and confidence in his broker. The client had relied on the broker to properly advise him and had followed all of the broker's recommendations.

A fiduciary relationship requires the investment advisor to act consistently with the trust reposed in him by the client and not to betray the trust out of self-interest. To succeed on the claim for breach of fiduciary duty, the client must establish that the broker placed his personal interests before those of his client and took advantage of the relationship for his direct or indirect personal advantage. In this case, the court found that there was no evidence to substantiate the allegation that Mr. Robinson recommended a leveraging strategy to earn higher commissions.

The court stated that to establish a breach of fiduciary duty, more is required than the mere fact that the advisor earned commission income on a transaction. So, while the court did find that there was a fiduciary relationship, the broker did not breach his fiduciary duties and thus was not liable to his former client.

Edited by Kara L. Beitel
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Wed Jan 21, 2009 7:20 pm

Madoff Scandal May Lead to New Rules on Adviser Accountability

By Jeff Plungis

Jan. 21 (Bloomberg) -- The Bernard Madoff scandal has intensified efforts to hold investment advisers more accountable for their clients’ interests, as the Obama administration considers an overhaul of financial regulation.

Madoff was an investment adviser with a fiduciary duty to act on behalf of his clients and a broker-dealer, subject to oversight by the Financial Industry Regulatory Authority and the Securities and Exchange Commission.

None of it mattered. Madoff allegedly betrayed his clients’ trust, and regulators didn’t catch what prosecutors describe as the largest Ponzi scheme in history. In a speech last month, then President-elect Barack Obama said the scandal shows “how badly reform is needed.”

Investment advisers and brokers are squaring off as Washington turns its attention to rewriting regulations. Financial planners are pushing for greater accountability by making more advisers fiduciaries. Wall Street brokerages are seeking to preserve a growing business of offering advice without subjecting their employees to a new layer of regulation.

“It’s not just an industry spat,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “If we’re going to reform financial regulation, it makes sense to develop a common-sense, pro-investor approach.”

Some brokerages have marketed their professionals as advisers without following the requirements of the 1940 Investment Advisers Act, Roper said. The problem is that average investors aren’t able to distinguish between a broker earning income from commissions on products from someone who doesn’t have a monetary interest in the financial decision, she said.

Making Money

Underscoring the debate are two very different ways of making money. Financial planners typically are paid a fee, usually a fixed percentage of managed assets, to watch over a client’s money. Brokerages make most of their money from charges for buying and selling customers’ securities. They also profit when customers buy the firm’s own offerings.

Adviser groups like the Financial Planning Association and the National Association of Personal Financial Advisors have teamed up to make sure any new post-Madoff rules have a “consumer-first” focus.

The Securities and Exchange Commission has allowed brokerages to offer limited advice on fee-based accounts, as long as the information was a part of its business of buying and selling securities. There were approximately 1 million fee-based brokerage accounts worth $300 billion as of May, 2007, the agency estimates.

‘Merrill Rule’

Merrill Lynch & Co., the largest U.S. brokerage, was one of the first firms to offer the accounts. The SEC regulation that governs them is known informally as “The Merrill Lynch Rule.” The firm employs both brokers who buy and sell securities and financial planners. “The firm’s advisers are in compliance with the relevant regulatory requirements,” said Mark Herr, spokesman for New York-based Merrill Lynch.

The average registered investment-adviser firm, typically made up of between one and 10 employees, manages $200 million to $250 million in assets, according to an October report from Citigroup Global Markets. Industry wide, there is about $2.4 trillion under management by 10,000 to 15,000 advisers, the report said.

Michael Muhm, a small-business owner in Colleyville, Texas, said he found himself questioning his TD Ameritrade broker after having lost access to more than $150,000 in Reserve Management Corp.’s Yield Plus Fund. Yield Plus accounts were put on hold when financial markets seized in September until a distribution worth 69 percent of account balances went out Dec. 30.

‘Snake Oil’

Muhm said that when he complained about the broker’s recommendation of Yield Plus as a liquid, safe place for cash -- reading a transcript of the call to a company representative -- he was told it was his word against the broker’s.

“They should have a fiduciary responsibility to give you information that is accurate, unbiased and true, because if they’re not, they’re snake-oil salesmen,” Muhm said.

Kim Hillyer, a spokeswoman for TD Ameritrade, declined to comment, citing company policy of not responding to individual customers in the media.

The Financial Planning Association won a 2007 legal challenge to the SEC’s decision to exempt fee-based brokerage accounts from rules followed by other investment advisers, such as a requirement that they must act in the investors’ best interest. The SEC enacted a temporary rule enabling the accounts to continue through 2009.

The accounts offer investors a choice, price certainty and “access to a wide range of services that are typically not available through an investment advisory account,” Merrill Lynch Vice Chairman Robert McCann wrote to the SEC in July 2007.

Well Regulated

The securities industry argues that brokerage accounts are well regulated. Brokers must meet a legal “suitability standard” for investment advice, and their conduct is subject to enforcement by both the SEC and Finra. Problems with investment advisers must be settled after-the-fact, in court, they say.

The Securities Industry and Financial Markets Association would like “more consistency” in the regulation of broker- dealers and investment advisers, said Travis Larson, Washington- based spokesman for the group.

“The Madoff scandal has put the spotlight on these different business models, and the debate in Congress is likely just beginning,” Larson said.

The financial planner organizations think a new watchdog may emerge in Washington. It may be a private-industry body such as Finra, or it may be Finra itself. A professional standards board or stepped-up oversight by state agencies are also possibilities.

“The fear is any standard of regulation would be lower,” said Marilyn Capelli Dimitroff, chairwoman of the Certified Financial Planner Board of Standards, Inc. “If you provide any kind of financial advice, you should put the client’s interest first.”

To contact the reporter on this story: Jeff Plungis in Washington atjplungis@bloomberg.net.

Last Updated: January 21, 2009 00:01 EST
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Re: Are advisors professionals, or salespeople masquerading?

Postby admin » Mon Dec 01, 2008 11:47 pm

I was sent an interesting -mail about MFDA Notices to members on registration matters, and I took it upon myself to send a question to the person in charge of this at the MFDA. Her name was Paige and I wanted to discuss and better understand how persons licensed and registered as "salespersons" under the Securities Act were able to represent themselves as anything but salespersons to the public. Here is the first reply I received in short order:

"I am writing in response to your email to Paige, in which you asked about the position of the MFDA in respect of the practice of "title inflation / misrepresentation of the license category under which a salesperson is licensed and registered.

This issue is addressed under MFDA Rule 1.2.1(e) (Business Titles).
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"shhhh, lets not tell people that we are licensed as salespersons...........it will be our little secret"

MFDA Rule 1.2.1(e) generally prohibits Approved Persons from using any business name (or title) or designation that deceives or misleads, or could reasonably be expected to deceive or mislead, a client or any other person as to the proficiency or qualifications of the Approved Person. In addition, business titles that deceive or mislead clients or the public as to the Approved Person's category of registration are also prohibited (i.e. "portfolio manager"). Also, the business names or titles used by Approved Persons must be relevant to the financial services provided.

Dealers may establish additional requirements for their Approved Persons in respect of the use of business titles that are specific to their organizations and consistent with or exceed the minimum standards set out in the Rule. Approved Persons must be aware of and in compliance with any such additional requirements."

Aamir
Aamir Mirza, LL.B.
Senior Legal & Policy Counsel
The Mutual Fund Dealers Association of Canada
email: amirza@mfda.ca / Tel: (416) 945-5128


I took it upon myself to further the discussion since I was still not clear, and I sent back this e-mail:

From: larry elford [mailto:lelford@shaw.ca]
Sent: Monday, December 01, 2008 1:34 PM
To: Aamir Mirza
Cc: Paige Ward; Membership Services
Subject: Re: MFDA position on license category / title representation of those licensed as "salespersons"


Thank you for your reply.

I am going to need some educating Aamir. I am having a difficult time understanding how the MFDA allows persons who are registered and licensed in the category as "salesperson" to use all the various title combinations and permutations that do everything possible to not convey to the client that they are indeed salespersons? This strikes me as the exact deceit and misleading that the rules prohibit?

What is the license and registration category of the average mutual fund salesperson? Where is this information found?

Can you let me know what it is that I am missing, because I see this as a fundamental violation of the spirit, and perhaps the letter of this rule. Why is it allowed?

Thanks much

Larry Elford


The response I received, again quite promptly was this:

From: Aamir Mirza
To: larry elford
Cc: Paige Ward ; Membership Services
Sent: Tuesday, December 02, 2008 7:52 AM
Subject: RE: MFDA position on license category / title representation of those licensed as "salespersons"


Hello Larry,

The MFDA does not register individuals as mutual fund salespersons and this responsibility remains with the various provincial/territorial securities regulatory authorities. Both MFDA and IIROC Members are required to be licensed as salespersons pursuant to provincial/territorial securities legislation and the MFDA does not have any additional categories of registration.

As noted in my previous email, the use of business titles by Approved Persons is governed by MFDA Rule 1.2.1(e), which prohibits Approved Persons from holding themselves out to the public in any manner that deceives or misleads or could reasonably be expected to deceive or mislead a client or any other person as to the proficiency or qualifications of the Approved Person under MFDA Rules or any applicable legislation. MFDA staff assess compliance with the requirements of Rule 1.2.1(e) through compliance examinations.

Aamir


My reply for those of you with no life, like myself, and are still following along:

From: larry elford [mailto:lelford@shaw.ca]
Sent: Wednesday, December 03, 2008 11:29 AM
To: Aamir Mirza
Subject: MFDA position on license category / title representation of those licensed as "salespersons"


Aamir, I admit ignorance. I just do not understand how persons registered in the category of "salesperson" can misrepresent this title and call themselves something else, and not be in violation of MFDA rules as I read them.


I read what you sent me, and it appears to me to say that "while we know that we are registered as salespersons, and while we have rules saying we should represent ourselves as such, we see nothing whatsoever unusual in the fact that we do not do so..???? What am I missing?

thanks
larry

His prompt response:

Larry,

With respect to the registration category of "salesperson" within provincial/territorial securities legislation and the use of business titles as regulated under MFDA Rule 1.2.1(e), I note as follows.

The category of registration contained within the various provincial Acts for an individual licensed to trade on behalf of a dealer is "salesperson". Generally the provincial commissions and SROs do not limit individuals to using "salesperson" as a business title. Rather, we allow Approved Persons to use business titles as long as they are not misleading with respect to proficiency or qualifications. Individuals licensed in the category of "salesperson" may also have other qualifications, designations or experience that they disclose to clients. This, as noted, is governed by Rule 1.2.1 (e) which is monitored through our regulatory activities.


Finally I send him this:

Thank you Aamir,
From a previous MFDA e-mail comes the line below:

"business titles that deceive or mislead clients or the public as to the Approved Person's category of registration are also prohibited"

My belief is that allowing people who are licensed as "salesperson" to use any title that does not convey this registration category to the client, is likely to mislead the client about the relationship that they should be expecting, and also appears to be prohibited based on the above line.

Given that financial advisor or advisor, is an entirely different registation and licence category under the provincial securities acts, is it fair, legal or proper for the MFDA to allow persons who are licensed in the "salesperson" category, to be informing the public that they are instead "advisors" of some kind?

Is this something that is likely to lend itself to accusation of misrepresentation, or misleading the consumer, or am I reading it incorrectly.

I liken this to becoming qualified as a pharmaceutical salesperson, who then informs the public that they are instead a "doctor", because the marketing advantages are obviously better. Would this be an accurate comparison?

Thanks again for continuing to bring clarity to the issue.

Best Regards
Larry


So far I have no response to this. I am not sure whether this means I have worn out my welcome with this gentleman, stumped him into being unable to clarify things properly, or annoyed him with my ignorance. I still do not understand how letting those licensed as "salesperson" represent themselves as something "other than salesperson" to the public is not fraudulent misrepresentation in spirit.
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Postby admin » Wed Nov 26, 2008 2:11 pm

When I gave my presentation to the "unconflicted" "Expert" Panel, I was told by David Murchison [ Executive Director of the Expert Panel ] that the OSC was going to solve that problem: they were in the process of amending the Act to strike the term "salesperson" and replace it with "investment advisor"...

If true, doesn't that make you feel a whole lot better? Same people but now the title "Investment Advisor" that the financial industry has been using all these years will no longer be in violation with the Act. I mean if the public really knew that the Act referred to them as salespersons then the public would be more more on guard and more critical. So for years the financial industry chose to ignore the Act and instead used a title that would better mollify the public with a nice title that suggests trust and professionalism...

Jim.
Best wishes.
Jim MacDonald MBA
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Postby admin » Mon Nov 03, 2008 7:12 am

A good commentary on how the systemic conflicts within the industry combine to protect its members instead of protecting the public.
When I think of the investment industry now, it helps me to think "worst practices", and the I do not have my expectations let down.

Mike Macdonald's TheUnbiasedPortfolio blog:
Sunday, November 2, 2008
P.O.S. = Profits Over Service
81- 406 POINT OF SALE DOCUMENT:


To quote U.S. politics; You can put lipstick on a pig, but it is still a pig!

I recently reviewed the POS document from the Joint Forum of Financial Market Regulators. Given the makeup of the group I will admit I was worried they would gloss over the key points and produce a lame document. I could NOT have been more wrong!


They did not gloss over the key points when they produced the LAME document. They flaunted the fact they knew what should have been in the document, and told you why they don’t really care! It was a bold and clear statement that investor’s rights are well back of industry rights!

It looks like Joe Killoran, the over-energized investor advocate, is proved correct. His POS alternative may provide way too much information, but at least he starts from the viewpoint that investors often can read above a grade 6 level! (I can’t make this crap up; it is a requirement of the Joint Forum that the POS be written for no higher than a grade 6 level of reading. Thanks for protecting us dumb investors from all those big words like “capital loss” and “hidden-commission ”.

I began to copy sections that concerned me but quickly realized I was copying most of the document. I was reminded of a statement by Warren Mackenzie, of Second Opinion who stated “the industry is always pleased to move the investor slightly forward so long as it does not impact commissions”. But you get the point; investors get a story instead of facts and any concrete practical requirement gets so watered down it becomes irrelevant by the time you read it.

But a poor blogger like I can’t do this justice, so let’s let the Joint Forum speak for themselves.
To those who are sarcasm challenged, no such interview took place,

BUT the all the quotes do belong to the Joint Forum (J.F.).

The witty dialogue is all mine.

Fundsellor: What's the secret to remaining so vague that this document does not give any real information to those masses of mutual fund investors?

J.F.: “It does not outline specific requirements for the new regime. Rather it sets out concepts and principles agreed upon by members of the CSA and CCIR. The framework will form the basis for implementation.”

Fundsellor: Huh?.... anything I can actually understand?

J.F. “In response to comments, we have also revised the framework to include less frequent updating and filing of the Fund Facts…. Other aspects, including the specific content under some items, will be left to fund managers and insurers to determine.”

Fundsellor: Is there any way we could make it easier to just pretend investors have the incriminating….er, necessary information to evaluate the fund?

J.F. “Electronic delivery could include, for example, sending directly to the investor an e-mail with an electronic copy of, or link to, the Fund Facts, or directing the investor to the relevant Fund Facts on the fund manager’s or insurer’s website.”

Fundsellor: So they do not actually have to give and explain the document to the investor…..slick! How did you come up with this neat dodge…er, option?

J.F.: “Many commenters were opposed to the requirement to deliver the Fund Facts before or at the point of sale for subsequent purchases because of the potential disruption to the purchase process. “

Fundsellor: Obviously we can’t have lack of vital information slowing down the sales commissions or the industry will really have a crisis to deal with!


Fundsellor: With all this asset backed paper making people nervous how are you going to deal with short-term investments?

J.F. “We have therefore excluded money market funds from the point of sale delivery requirement because they are generally of low risk..... In these circumstances, the adviser may go back to the client after the initial recommendation of a money market fund and resume the e discussion of what fund or funds may be more suitable as a longer-term investment. “

Fundsellor: I get it; no big commission equals no disclosure. That will teach investors to buy low fee products! But seriously, if I really want to sell a juicy commission product is there any way I can set it up to avoid all this?

J. F. “. If the investor initiates the purchase” (bolding by the writer not the J.Fer’s)

Fundsellor: That’s easy enough to arrange. It’s not like anybody else was in the room with us. How do we sell this gigantic loophole?

J.F. “We agree that investors who initiate the initial purchase of a fund through an adviser should be able to decide whether they want to receive the Fund Facts before or after the point of sale. “

Fundsellor: How about the prospectus. A few clients read that and then give me some flack when I maybe glossed over a few fees or risk factors. Can I escape that problem too?

J.F. “ Dealers will have to deliver the simplified prospectus to investors only on request. “

Fundsellor: Have we been able to hide any other fees?

J.F.: “A few commenters suggested adding the trading expense ratio (TER). We considered these comments, but for simplicity, we have kept the reference to the MER only.”

Fundsellor: How about the real basic stuff? I assume there is no way to get around providing meaningful benchmarks now?

J.F. “A few commenters wanted to see benchmarks added to the performance information. We considered these comments, but based on our principle of simplicity, we have not included benchmarks. “

Fundsellor: You can do that?.....I mean, well done! I don’t suppose you got rid of the risk disclosure as well?

J.F. “The framework contemplates use of the IFIC risk scale at least until an acceptable alternative is developed. “

Fundsellor: Wow, we get to use the risk ranking designed by the companies selling the funds. You guys are amazing! Next you will tell me we can still hide my fees from the investors! Sorry, that might be expecting a little too much. You folks can’t work miracles…..can you?

J.F.: We have removed the adviser compensation section and changed references from “adviser” to “firm”.

Fundsellor: so you mean I can hide behind the firm and not disclose my skim on the fees, great! Hang on. Are you sure the investors won’t figure out that they are paying all the costs for everybody? How did you word that section?

J.F.: “MER: YOU DO NOT PAY THESE EXPENSES DIRECTLY….”

Fundsellor: Wow, you guys couldn’t do better if you had all worked directly for the fund companies and advisors. Just kidding!
I noticed that the asset allocation does not show the split between fixed income, cash, and equities. How can that even be considered asset allocation?

J.F.: “Flexibility will be permitted in certain areas to allow fund managers and insurers to describe their funds accurately.
These include:
the description of the fund’s investments
providing up to two pie charts for investment mix
the type of allocation used for pie charts "
Fundseller: Well, thank you to the J.F.er’s on the committee for the great job. I haven’t seen so thorough a review since the Warren Commission looked into the grassy knoll! I only wish I could have smoked the “joint” your committee was named after!

Soismike: Well folks you heard it straight from at least one point-of-sale end of the horse!
No full fee disclosure by advisors,
no benchmarking,
no clear asset allocation, and
no proper risk ranking!
Thank goodness the industry has regulatory oversight to protect us……Say it ain’t so Joe, say it ain’t so!
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Postby admin » Fri Oct 31, 2008 9:12 am

although i may already be posted elsewhere on this forum, I recently dug up the education requirements......to become licensed as a financial salesperson verses to become a hairstylist, to give you some idea of how badly the misrepresentation might be when your licensed salesperson calls themselves a trusted professional advisor.

Accoding to a former OSC lawyer who comments in Investment executive magazine, your local investment professsional is likely to be, "a high school graduate with a three month correspondence course". The course, by he way is from the Canadian Securities Institute. If you choose to sell only mutual funds, I am told by industry insiders that 30 days will earn you the course in mutual funds.

To become a hairstylist in my province (Alberta) you must complete a 37 week course, in attendance at a school of hair design. Hours are 9:00 to 5:00 daily, and the student is required to train no less than 1400 hours.

Further, once you become licensed as a hairstylist, you will not be allowed to self inflate your title and call yourself a doctor, even if your company desires for marketing reasons. No such restriction (well the restrictions are there, but no such enforcement rather) in the financial industry.

After your one of three month correspondence course, you will be licensed as a salesperson, and out there with business cards, representing yourself and your firm as a trusted financial professional. Codes of ethics will back you up. Codes of conduct. Fiduciary standards. All of it.
Unfortunately none of it needs to be adhered to in financial services. Why?

Because we police ourselves thank you.
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Postby admin » Sat Oct 11, 2008 10:22 am

Based on this, I explect OBSI and regulators will have a busy year.

kk
http://www.wisebread.com/9-signs-you-ne ... al-planner

9 Signs You Need to Fire Your Financial Planner
They never asked you about your personal goals and time frames before recommending investments.
Only one company’s products are recommended.
You received no written financial plan, prospectus, or documentation.
You are pressured into making investments
Your planner’s recommendations don’t match your financial goals
You can never reach your advisor when you want to, and they don’t return your phone calls.
They constantly change your investments
The plan given to you seems too good to be true
They tell you they can time the market.
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Postby admin » Wed Sep 24, 2008 12:49 pm

Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry
http://papers.ssrn.com:80/sol3/papers.c ... _id=616981

Daniel Bergstresser
Harvard Business School

John M.R. Chalmers
University of Oregon

Peter Tufano
Harvard Business School; National Bureau of Economic Research (NBER)


October 1, 2007

HBS Finance Working Paper No. 616981
AFA 2006 Boston Meetings


Abstract:
Many investors purchase mutual funds through intermediated channels, paying brokers or financial advisors for fund selection and advice. This paper attempts to quantify the benefits that investors enjoy in exchange for the costs of these services. We study broker-sold and direct-sold funds from 1996 to 2004, and fail to find that brokers deliver substantial tangible benefits. Relative to direct-sold funds, broker-sold funds deliver lower risk-adjusted returns, even before subtracting distribution costs. These results hold across fund objectives, with the exception of foreign equity funds. Further, broker-sold funds exhibit no more skill at aggregate-level asset allocation than do funds sold through the direct channel. Our results are consistent either with substantial non-tangible benefits delivered by the broker-distributed sector or with conflicts of interest between brokers and their clients.

Keywords: mutual funds, distribution channels
http://papers.ssrn.com:80/sol3/papers.c ... _id=616981
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