advisor fraud, professionals, or salespeople masquerading?

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Postby admin » Fri Nov 24, 2006 10:28 am

you MIGHT be dealing with a salesperson if he has the name "vice president" behind his title
you MIGHT be dealing with a salesperson if he is registered with the local securities cops as a "salesperson"
you might be dealing with a salesperson if he is unable to show several professional designations behind his name to show a continuous dedication to self education.........a pro says "I want to know it all", an amatuer says "I know it all"
you are dealing with a salesperson if he tries to encourage you to put the majority of your investments into his own "house-brand" of mutal funds, wrap accounts, or managed products
you definitely are dealing with a saleserson if all your mutual funds were sold to you with the DSC option (the highest paying choice to your salesperson)
you might be dealing with a salesperson if your entire portfolio consists of income trusts
you might be dealing with a double dipping salesperson if you are in a fee based account, and you hold any DSC mutual funds, or new issue securities
you might be dealing with a salesperson if you have no written investment policy outlining roles, rules, responsibilities, risks, potential or targeted returns and related benchmarks
you might be dealing with a salesperson if you have no engagement letter outlining fees, process followed, any conflicts of interest, investment discipline

I will expand this list as time permits. If readers have any comments or suggestions, feel free to shoot them at me.

For clients who may have been misled into thinking they were dealing with a professional, and now to find out that they were in fact misrepresented, there is probably legal recourse if you pick the proper lawyer who understands that the salesperson, the firm who allows this misrepresentation and the regulators who look the other way at it are all perhaps legally responsible for this oversight.
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Postby admin » Thu Oct 12, 2006 10:47 pm

so the latest scam it seems, is to represent a person legally registered as a product salesperson under the securites act represent with millions of dollars of advertising, that this person is instead of a salesperson a "trusted professional advisor". If this sounds familiar to you, relax. It has gone on for years now, and with full knowledge of securities commissions.

Nope, that is not the scam. That is just the setup. The latest scam (besides packaging up every piece of junk asset in the entire country, telling clients they will get a yield from it, and calling it an income trust.................) the latest scam is gaining the trust of clients, having them buy into the set-up that salespeople are to be trusted as "advisors", and then convince the client to place all or a majority of thier assets into your own, home grown investment products.

Lets look at it this way and see if it makes any sense. Imagine going to your doctor, medical specialist or whomever. Imagine needing a prescription for medicine. Now imagine finding out your doctor has decided to "manufacture" his or her own house-brand of medications. He or she tells you how much better they are that those old products from Bristol Myers, Eli Lilly, Merck and the like. His in house product will work much better for you....... Are you starting to get a wierd feeling yet?

This is the story I seem to be seeing lately, the latest and greatest method of abusing the clients and securities law "just a little bit".
I even see securities commissions participating in this by granting "exemptions from securities law" to firms who want to play this game. Firms who openly state in filings that increasing proprietary (house brand) products in thier clients portfolios can increase revenues to the firm by twelve to twenty six fold.

When I was still in the business, the harder pushing salespeople were just churning DSC funds, and making sure that clients got the investment product that had the highest comp. (I hear Portus paid 10% commission, geez, no wonder it sold like hotcakes............and it should tell any reader in a flash just how large of a percentage of investment salespeople will "sell anything") (50% to 80%)

If I am sadly late in my conclusions, and if you are already aware of this bit of client abuse, sorry. I am slow in everything I do, and I take a bit longer than the next guy to pick up on things.
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Postby admin » Sat Apr 29, 2006 10:50 am

Royal Mutual Funds Inc. eliminates all sales charges on third-party funds

On April 10, 2006 Royal Mutual Funds Inc. (RMFI), the mutual fund distribution arm of RBC Royal Bank, announced it is eliminating sales charges on third- party funds sold through its retail branch network, effective immediately. RBC branches currently provide customers with access to virtually every major fund family in Canada in addition to offering a broad proprietary no-load fund line-up from RBC Asset Management Inc. ... c3291.html Investors will have to use the services of RBC's in-branch planners to be able to buy third-party funds with no sales charges. As well, clients must have at least $50,000 to invest. RBC's no-load proprietary fund family, RBC Funds, has never been subject to sales charges. The availability of third- party funds began approximately 2 years ago. They are available through Financial Planners and Investment & Retirement Planners. RBC has also offered third- party funds within a fund of funds offering (RBC Select Choices) since June 2000. Discount brokers and mutual fund dealers have offered this service to do-it-yourself investors for years, but RBC claims to be the first to sell funds this way while also providing financial planning services through individual advisers.

When a fund is bought at a branch the client is dealing with Royal Mutual Funds, Inc. (the mutual fund dealer). RBC branch employees are dually employed by both RBC Royal Bank and RMFI. When discussing investment advice, they are acting as employees of RMFI. All mutual fund salespeople must be registered with the appropriate provincial securities commission. Mutual funds sold are not insured by CIPF or CDIC. The Mutual Fund Dealer's Association has an Investor Protection Fund to protect against dealer insolvency. Trailer fees are paid by RBC Asset Management to RMFI on RBC Funds. RBC branch employees do not receive a "share" of trailer fee commissions. All Compensation to RBC branch staff is designed to be product neutral.

advocate comments........................If the discount arm of the royal bank can offer clients who DO NOT need or want full service "advice" the ability to have commission free mutual fund purchases.......and the Royal Mutual Funds Inc can do the same.....................why is it that the full service advisory side of the business (which is the side where they claim to deliver advice in the clients interest.........or "client first" advice) is unable to offer DSC free mutual funds.
In other words, why do the clients of royal bank or of rbc investments who seek FULL SERVICE advice, seeking and asking for the very best professional advice available to the public............why are they the poor souls who have to be given the higher cost mutual fund choice? (THE DSC sales option) They are the very people asking for the best advice they can get. Why are they getting the worst treatment of the bunch.

The basis of client first advice is to advise them of the class of mutual fund that is in their best interest, and not the one which pays the advisor most. To see 80% of mutual funds sold in the last ten or so years sold using the highest cost sales charge almost contradicts the meaning of trusted advice. It almost proves to me that these people selling these funds are salespersons interested in commissions and not advisors interested in clients.

I could be full of crap, and there is an argument that "they need to earn a living", ..........................but all I see is for them to call it what it is. It is "selling", and not "advising". As for the argument "they need to earn a living", that is also not accurate. I earned a very decent in excess of six figure income when I was with RBC, and I did it without misleading clients like they are doing with their promise of YOUR FIRST.

Everyone now knows that they say "YOU FIRST" to every one they deal with. When speaking to clients they promise clients that they come first. When speaking in annual reports or in shareholder meetings, they promise to the shareholders that they coee first. When speaking to employees at meetings they promise that employees come first. When designing the executive pay packages that compensate senior executives is the only time they deviate from the promise fo YOU FIRST thinking, and then they clearly attempt to put themselves first. Perhaps that is the most honest and coflict free they will ever become, is the attempt to line thier own pockets without saying the opposite. I found them to speak quite clearly in a manner opposite to their actions in too many instances and it is going to be quite interesting to see how the courts rule on some of these matters.

Thanks for listening
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Postby admin » Mon Jan 30, 2006 12:40 am

New rules pit advisers
Compliance standards taking effect this week

Saturday, January 28. 2006

Jerrold Dorfman, a Providence investment adviser, is required to steer his clients toward the lowest-cost and most suitable mutual funds he can find. It’s part of his fiduciary duty under the Investment Advisers Act of 1940, which requires him to put his clients’ financial interests first.

Brokers at companies such as Merrill Lynch often provide similar advice to their clients, but unlike Dorfman, they are not required to put their clients’ interests before their own.

Rather, they are held to a suitability standard that mandates they sell people appropriate investments, which, for example, may carry higher fees than other equally fitting options.

Registered investment advisers long have been irked by that disparity. But now, to their dismay, an amendment to the Advisers Act that goes into effect Jan. 31 has officially sanctioned brokers offering advisory services without adhering to the act – with some conditions.

The rules, which the Securities and Exchange Commission adopted last year, exempt brokers from the Advisers Act regardless of whether they receive fee-based or commission-based compensation, as long as:
*They provide advice in a nondiscretionary form, meaning they do not have the power to invest the client’s funds.
*Their advice is given in the normal course of brokerage services.
*They disclose to clients that they are in a brokerage account.
The SEC says the rules were created after the line between brokers and advisers had become blurry.

Under the 1940 law, investment advisers are required to place the interests of their clients before their own; in exchange, most are compensated with an hourly fee or payment based on amount of assets they manage for their clients.

Brokers, on the other hand, are compensated through commissions on trades, so their earnings depend on the number of transactions they execute. Under the Securities Exchange Act of 1934, brokers have no fiduciary duty toward clients, but are just required to sell them “suitable” investments.

“For example,” said Dorfman, “it may be suitable for you to buy a large-cap index fund and [brokers] can put you into an index fund – but they don’t have to look into whether their fund is more cost-effective.”

For years, brokerage firms have blurred the line between brokers and advisers by calling their representatives “advisers,” even though they operate as brokers, charging commissions, markups and markdowns on trades. The new rules say this is acceptable compensation, providing brokers disclose this to clients.

The SEC adopted the rules last April, having originally proposed the Advisers Act amendments, called “Certain Broker-Dealers Deemed Not To Be Investment Advisers,” in 1999. Opposition led the SEC to extend the compliance date from last Oct. 24 to Jan. 31. Three industry groups – the American Council of Life Insurers, the Securities Industry Association and the Financial Services Institute – filed separate petitions to extend the deadline to April 2006. They argued that their members needed more time to institute the required organizational changes to comply with the rules.

In fact, the securities association and insurers’ group have said that to comply with the rules – specifically those dealing with what exempts broker-dealers from the Advisers Act – requires member organizations to train their staff and update company data.

Mark Herr, a spokesman for Merrill Lynch, which calls its brokers “financial advisers,” said the firm does not allow reporters to interview its advisers or in-house compliance officers (whose work is most impacted by the upcoming standards). Instead, the firm released the following statement about the new SEC rules:
“We are working diligently to comply with the requirements of the rule and to make sure that clients fully understand the nature of our brokerage services and our financial plans.” Meanwhile, investment advisers continue to fight against the new rule.

In July 2004, the Financial Services Institute, which represents the interests of advisers, filed a lawsuit against the SEC in a U.S. court of appeals. The pending suit argues that brokers with fee-based accounts should be regulated under the Advisers Act.

Dorfman said he would like to see brokers, especially those holding themselves out as advisers, to be held to the same standards. “They should be playing by the same rules,” he said, “they should be held to the same fiduciary standard as registered investment advisers are.”

Published 01/28/2006
Issue 20-42

(advocate comment; the above article is written about United States rules. In Canada I have found nearly every salesperson registered in Canada, uses a form of "title inflation" and calls themselves an "advisor", even though they do not adhere to the fiduciary duties of an advisor, and do not meet the educaitonal qualifications required (see prior posts and in "competition act.... forum). This title inflation is purely marketing, and does not in fact accurately inform the client of the level of care they will necessarily receive)
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Postby admin » Sat Jan 14, 2006 11:43 pm ... 20duty.doc

the link above is to a really interesting site and the following report:

Fiduciary Duty

In the Canadian Financial Services Industry
January 2006

A must read for those interested in the duty of care required of your investment advisor.

Remember what all firms advertise and promise to clients. Something along the lines of "trust us, we are experts and we will look after you". But also remember when 92 year old Norah Cosgrove took RBC to task over $10,000 of alleged self dealing by the RBC advisor, they were able to wiggle out of the $10,000 by claiming that they did not technically meet the required kind of account where the client should have trusted the firm???

Even though the advisor was fired for her part in the alleged elder abuse, the firm still failed to be responsible to the client. Not a pretty scenario for a firm that claims "YOU FIRST" is all its advertising.
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Postby Dorcy » Fri Dec 23, 2005 8:37 am


"The fledgling firm also has created a new retail division by forming partnerships with three independent retail brokerages, which were not identified in the memo. The move gives Genuity access to 160 financial advisers across Canada who can help the brokerage sell retail securities, such as income trusts, directly to smaller investors.

Mr. Kassie told his employees that the firm is in discussions with several other retail dealers in an effort to "materially increase" its reach with small investors." (G&M) ... ng_st.html ... assie.html
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Postby Guest » Mon Oct 31, 2005 12:27 pm

The Securities Act allows salespersons to hold themselevs out as advisers. The firms lobbied their MPPs to allow this and the OSC can't do anything about it unless the law is changed.

Write to your MPP about this misrepresentation.

Postby Guest » Mon Oct 31, 2005 10:37 am

MR notice 349 refers to "employees of IDA member firms" which applies to officers, salespersons and non-registered individuals.
Wendyanne D'Silva
Director, Registrations
Investment Dealers Association
phone: (416) 865-3032 / fax: (416) 364-9177

(This response from the IDA director of registrations tells me that perhaps my suspicions were correct. That persons who are registered with the securities commissions as "salespersons" are using title inflation and violating this IDA rule to call themselves something they are not registered as.
This is not only illegal, which is one crime unto itself, but it is misleading to the public and portrays a bit of a "name game" by so-called professionals.

Professionals should not be pulling the wool over the eyes of the public on thier qualifications. Doctors are not allowed to get away with title inflation.

To have this ignored, or worse supported by the large, bank owned firms is in my opinion indicative of the level of greed and corruption they are guilty of.

Another link in the chain of the class actions yet to come.)

Postby Guest » Fri Oct 28, 2005 11:14 pm

to explain the above post a bit for newcomers, I submit that most people across canada selling investments for IDa firms are in fact registered with the IDA, OSC etc as "salesperson". Yet they are using title inflation, and calling themselves advisor or whatever title makes more marketing sense. the notice mentioned in the "member regulation notice MR0349" refers to officers and members of firms who call themselves a title that they are not in fact registered or entitled to call themselves. I am sending this a second time to wendy at the IDA to clarify if this applies to salespersons as well, and if not, why not. It will form partial basis for those who follow in these footsteps and reach a similar conclusion to myself. My conclusion is that title inflation is being used to mislead and misinform clients into believing they have a special trust relationship with thier advisor, when in fact they may be dealing with a salesperson in advisors clothing. See Norah Cosgrove verses RBC to watch this exact defense being used to deny the 90year old client the trust relationship by RBC.

Wendyanne D'Silva, Director of Registration, Investment Dealers Assocaition of Canada

re: member regulation notice MR0349 second request

I was just writing about MR 0349, notice of registration category verses title used . After reading an article in ADISORS EDGE REPORT, Sept, 2005, titled "NAMES PEOPLE PLAY"

Is there a reason that this notice refers only to officers etc, and not to persons registered as salespersons? Are they under a separate notice suggesting similar requirement to use title based on registration?

thanks very much for your clarification

Postby Guest » Tue Oct 25, 2005 12:28 am

Wendyanne D'Silva, Director of Registration, Investment Dealers Assocaition of Canada

re: member regulation notice MR0349

I was just writing about MR 0349, notice of registration category verses title used . After reading an article in ADVISORS EDGE REPORT, Sept, 2005, titled "NAMES PEOPLE PLAY"

Is there a reason that this notice refers only to officers etc, and not to persons registered as salespersons or registered representatives? Are they under a separate notice suggesting similar requirement to use title based on registration?

thanks very much for your clarification

Postby Guest » Tue Oct 25, 2005 12:20 am

I asked the following question at the OSC town hall, and was given the answer below. (which I am not sure answers fully how they are allowed to mislead clients............)

18. Why are investment salespeople who are officially registered as either "registered representatives", or as "salespeople", at the Securities Commission, allowed to represent themselves to the public as "investment advisors", indicating a different level of fiduciary duty to the public, when the Securities Act is clear on which titles are allowed and which are not?
The OSC registers individuals in the categories of salesperson, officer, director or partner. These categories are then further designated as trading or advising. The firm can be registered as either a mutual fund dealer, an investment dealer, or as investment counsel or portfolio manager (ICPM). The latter ICPM category is what we refer to as an adviser (spelled “er”). While advisor (spelled “or”) is widely used in the industry to represent a salesperson or representative, it is not a registration category. The OSC does not register job titles.

Before investing, investors should check the registration of anyone selling securities or offering advice with the OSC. They can do this on the OSC website, or by calling the OSC Contact Centre.

(advocate comment: (or question) If the Securities Act is clear on what is allowed or not allowed as a title, is the OSC answer just another example of them passing the buck? What am I missing?

Update October/05, after finding IDA and MFDA sending out notices to members to add clarification on this topic:

MR0349 - Officer and Business Titles
MEMBER REGULATION notice TORONTO Suite 1600, 121 King Street West, Toronto, Ontario M5H 3T9 Telephone: (416) 364-6133 Fax: (416) 364-0753 CALGARY Suite 2300, 355 Fourth Avenue S.W. Calgary, Alberta T2P 0J1 Telephone: (403) 262-6393 Fax: (403) 265-4603 HALIFAX Suite 1620, TD Centre, 1791 Barrington S

This PDF notice suggests that "employees of IDA member firms may not use an "officer" title (quotes mine) that suggests he or she is registered in a capacity in which he or she is not in fact registered.

(why only applied to "officers" of IDA firms? Is it perhaps due to the fact that nearly "every" salesperson in Canada who works in an IDA firm, is representing themselves by a title (investment advisor) that they are not in fact registered as?

To confirm, find the registration category of your own salesperson in the OSC or the IDA web site. You will find thier business card title is not the same as what they are registered as.

This info comes from a good article by Philip Porado in Sept 2005, ADVISOR's EDGE REPORT, page 6, titled NAMES PEOPLE PLAY.
(Title inflation by todays investment salespeople to (mis) represent themselves and market themselves better to trusting clients)
Well done Philip, good article, great title.

Postby Guest » Mon Oct 24, 2005 6:45 pm

Most advisors are "crooks" but don't blame all of them, they're just doing the job, sales, they were hired to do. The real crooks are the investment bankers who feed them bogus deals like business Trusts. Those institutional salesmen could just as easily market quality deals, really represent investors but don't often because of a system that breads corruption.

(Admin writes:
This post almost makes my argument for me perfectly:
they're just doing the job, sales,

if they only were properly representing themselves as "salespeople", instead of misrepresenting themselves as "trusted advisors", and then putting a sales pitch on clients, then they would be forgivable)
Just be honest about what you do, either for clients, or to clients.

Postby Guest » Mon Oct 24, 2005 5:22 pm

sorry to offend

when referring to evil pigs to user your quote (I won't resort to that) I guess I am referring to the 80% of mutual fund sales that are done using the highest charging method (the DSC) and the hoghest (sic) compensation to the advisor. You should be commended for not DSC'ing your clients.

I think that advisors who represent themselves to clients as professionals to be trusted, and then put them into the highest compensating investment choice.............are nothing but salesmen. Not advisors. Not greedy pigs (your quote again). Just plain unprofessional, and mis-representing to the client.

If you choose to defend them, yet you do not practice the sales abuses that they do that is fine with me. It makes you somewhat more ethical than they, yet you accept the unethical ones into the industry. I cannot accept the bad ones since they make everyone (including yourself perhaps by mistake) look like "evil pigs". (your quote)

I also agree with your comments about the offloading of most costs to you, the advisor, not to mention the offloading of all risks to you, the advisor.

Demonizing advisors will not help you in advocating for investors. I choose to advocate for investors by being a good advisor. I would appreciate the tiniest bit of respect for that.

I choose to demonize only those advisors who cannot display a "client first" method of operation. I take no offense from those who can demonstrate putting clients first. I choose to advocate for investors by helping to rid the industry of those who ruin the reputation of everyone with their greed. I respect your position. Will you respect mine? I got a hunch we are not even on opposite sides, just opposite paths.

Postby Advisor » Fri Oct 21, 2005 10:30 am

B.Comm Finance degree, and Certified Financial Planner actually, not that that matters to you and your lot.

I don't DSC my clients. I have some instances where we discuss a low load of 2% to cover my costs for an extensive financial plan or complicated pension workup. I discuss these options with my clients and we agree on them together. I do however have clients that have transferred DSC funds to me that I am trying to help them get out of as quickly as possible.

YOU have a problem in that you think that all advisors are greedy evil pigs. That is an insult and as you can imagine, impossible. I try to do the best job I can with the products I have on my shelf, and with the AVALANCHE of new costs because of the AVALANCHE of new forms and ineffective compliance being heaped on my by an ineffective regulatory body. Who should pay for those costs? Right now, it's me. Not the dealer, not the client, not the fund company. It certainly isn't the dealer (you would think that the dealer, being the member of the Mutual Fund Dealers Association would pay it's own assocation costs, but no, they charge those back to me, and I have to hire more staff to process more forms to put in more files that require more space and cost me more rent and leave me half the time I used to have available to spend helping my clients).

Demonizing advisors will not help you in advocating for investors. I choose to advocate for investors by being a good advisor. I would appreciate the tiniest bit of respect for that.

Postby Guest » Thu Oct 20, 2005 6:49 pm

what in god's name are you doing calling yourself an advisor if you put clients into the DCS option when advising them mutual funds?

Just because it pays you the highest commission you can get away with, hides the commission from the client on the trade confirmation, fails to disclose the liability to them on the account statement, and earns you a trailer commission on top of the sales commission, DOES NOT make you an advisor.
It makes you a salesperson putting your interests in front of those of your clients. While promising and advertising a duty to care for your clients first.

Apparently you are a tad behind the times. Check the NASD web site on the topic of class b mutual funds to see why they call this activity fraud in some courtrooms.

Will there come a day when professionals in the industry actually act like it instead of claiming the title without delivery?

I am sure you are a very nice person and all, but with a three month Canadian Securities Course as the major requirement to entrance into this industry, please stop pretending all advisors are professionals just because they say they are. Judge them by their actions for clients, not by thier name.


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