advisor fraud, professionals, or salespeople masquerading?

Index of forum topics, talk to us.

Postby admin » Tue Jun 28, 2005 10:20 pm

Advisor? Or Salesperson Masquerading as Advisor? ... -headlines
Broker? Adviser? Difference is important
Jay HancockMay 1, 2005
ONLY 213 YEARS after the New York Stock Exchange's founding, the government has added regulation requiring many brokers to say this before they take your money: "Our interests may not always be the same as yours."
No kidding!
Besides enjoying commissions on stock and bond trades whether or not the trades help your portfolio, brokerages often receive what amount to legal kickbacks from sellers of mutual funds, variable annuities and other products.
A broker might be tempted to sell you a mediocre fund with a big referral fee instead of a great fund with no fee. No, his interest is not the same as yours.
The Wall Street scandal aftermath is littered with fine print that will soon be ignored and unappreciated except perhaps by Georgia-Pacific, whose paper sales surely must have soared. But the red flags hung out a couple weeks ago by the Securities and Exchange Commission - with assistance from Baltimore investors, which we'll get to - are worth remembering, especially because they are still inadequate.
They have to do with the difference between brokers and investment advisers.
Do you know which one your financial agent is? This distinction is fuzzy but critical, because investment advisers are held to different duties and disclosure requirements than brokers.
Under law, advisers must put clients' interests first. Fiduciary duty, the attorneys call it. Brokers are prohibited from selling "unsuitable" investments to clients, but that standard is held by consumer advocates to be less strict and offer lower protection to investors. (The National Association of Securities Dealers disagrees, saying the "suitability" rules are just as rigorous.)
Barbara Roper, director of investor protection for the Consumer Federation of America, puts it bluntly. Brokers, she says, are "salespeople" who may be more interested in moving the product than helping the client.
"People are out there who are salespeople who call themselves advisers, and there are people out there who are advisers who call themselves advisers, and you'd better know who you're dealing with," she says.
That has gotten harder and harder.
"Financial planners" are everywhere. Banks and insurance agents sell mutual funds. Brokers, once basically stock and bond order takers and presumed by regulators to give advice only "incidentally," now dispense counsel on how to reach life financial goals.
Some are advisers. Some are brokers. Some are either, depending on what they're selling.
The new regulation, which requires some brokerage accounts to be treated as "investment adviser" business and others to come with the "our interests may not always be the same" caveat, is supposed to toughen standards for some brokers and require better disclosure from the rest.
It followed focus groups in Baltimore and elsewhere that showed investors were clueless about financial-planner categories.
"I don't know the difference," one Baltimore investor told SEC consultants in February (the agency doesn't identify them). "I mean, I've got a guy that gives me advice. I don't know what he is."
From another: "How could you be clear when you've got brokerages calling themselves planners and planners calling themselves investment [advisers]? It's not clear."
Like other organizations seeking to gauge the consumer pulse, the SEC likes Baltimore as a marketing microcosm.
"It's not New York, and it's not Washington," says Susan Wyderko, director of the agency's Office of Investor Education. "We wanted to affirmatively avoid those two cities because we wanted to find out what real people think."
The real people in Charm City gave the SEC an earful. Among other things they successfully urged the agency to use "plain English," not jargon, in the new disclosures. Don't say "fiduciary," they said.
"Hey, we're lawyers. We think those words are clear," Wyderko joked to me.
Even with the changes, the words aren't clear enough. Disclosure standards and required duties are still weaker for brokerage accounts than for investment-adviser accounts, which require timely revelation of specific financial relationships and other conflicts of interest, Roper says.
The SEC is still working on refinements. Meanwhile, ask your financial agent whether your accounts are brokerage or advisory. If brokerage, ask more questions. Are they being paid to sell you a mutual fund or other product? By whom? How much? Is this really what you need?
Copyright © 2005, The Baltimore Sun
Site Admin
Posts: 3069
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Postby admin » Tue Jun 28, 2005 10:11 pm

have you ever seen a bank owned investment dealer advertise commission free mutual funds? Why not? Commissions on mutual funds were deregulated in about 1987, and some investment advisors have been moving towards offering commission free mutual fund choices to thier clients for some time now. They still collect a trailing commission, and they benefit from putting the interests of the client first, as well as the ability to be more agile, and make changes without costing the client money. Why is this option not advertised?
At RBC, where I worked, it was expressly forbidden to allow this choice to be publicly advertised. I could do it within my own clients, but not in any form of advertising.

I found this violated the firm code of ethics and mission statement to clients. I think it also violates the criminal, anti-competitive elements of the competition act of Canada.
I have absolutely no problem with making money, nor with salesmen choosing to charge the maximum amount of commission they possibly can. That is thier choice and thier right as salesperson to dictate what they charge. However I have a problem with those offering themselves as trusted, professional advisors making this same choice.

Disclose the choice of compensation you as an advisor suggests to your clients, and defend it. Rather than gag, attack and punish those who choose a more competitive manner of offering mutual funds.

I found the industry talked the talk, but was unwilling to walk the walk when it comes to putting the client first. I am now suing RBC for some $13 million (ten million payable to charity to compensate for hundreds or thousands of clients who cannot or would not be able to fight this fight for themselves). I look forward to seeing RBC prove in court that they have allowed commission free mutual funds (among other allegations of double dipping etc, allowed) to be publicly advertised. Have you seen the ads? They are in your interest if you are an RBC client. Are they suggesting to you that they are acting in your interest, or are they telling you more accurately that they are acting first for themselves?
Site Admin
Posts: 3069
Joined: Fri May 06, 2005 9:05 am
Location: Canada

Postby admin » Tue Jun 21, 2005 12:49 pm

Perfect logic by financially abused client
Sandra Gibson
Financial Post
Monday, June 13, 2005
Your comments are grossly unfair -- my broker conducted 18 trades in February, 2003, which resulted in significant losses for me.
I had written to the broker in January, 2003, regarding a minor infraction and in that letter I stated that "no further transactions were to be conducted without my prior knowledge." That letter went to my broker's compliance department.
I was in Mexico when the 18 trades were conducted in February and did not learn of them until my return.
What more could I have done to protect myself? If, in fact, the industry operates on a "buyer beware" basis, then IDA, OSC, etc., should declare same. (Advocate comment, "I agree 100%, anything less is misleading the public")
Many investors are intimidated (no matter what their level of intelligence or education) by brokers who imply that their knowledge is so specialized that the client could not possibly apprehend enough info to make an independent decision. (advocate comment, "yet when called into court, many bank owned dealers claim "no duty of care" to the client on a technicality, saying, in effect that the client was responsible."
I would also remind you that, unlike you, most investors are focused on other areas of knowledge with which they earn their living and many simply do not have the time to gain the know-how to make a truly informed assessment.
Who was flogging Portus? Were they all "grey" and "white" hats who grabbed their 8% to 12% fees? The problem is that corruption is the norm, not the exception. "I will say for sure that self dealing is the norm, rather than putting client interest first, and if that is corruption, then she is calling a spade a spade.
How can an investor protect himself when we have such a lack of transparency in so many areas?
"The vast majority of advisors" are being instructed to sell in-house wrap funds etc., in order to meet their $500,000-per-year quotas, so how can they "try to align themselves with the needs of their clients"? Brokers are afraid to speak out. (Advocate comment with twenty years in, TRUE)
Site Admin
Posts: 3069
Joined: Fri May 06, 2005 9:05 am
Location: Canada

OSC answer re salsepersons posing as advisors

Postby advocate » Sun Jun 19, 2005 9:49 pm

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?

Investment Industry codes of silence

Postby admin » Sun Jun 19, 2005 6:23 pm

similar to the forum on coverups, this forum is hoped to gather examples of the famous industry code of silence that still fourishes in the investment industry

let us know if you have any examples to illustrate this

My example, to be given as evidence in legal suit against RBC was the prohibition by the firm of allowing the public to be informed of commission free mutual funds

they realized it was a huge advantage to the client, but threatened and harassed me at ever turn when I was in the business when I advertised it. If anyone has experience in this or any other example of the code of silence in the industry, pass it on.

(please post it under the relevant topic, dont open and new topic on every comment)
Site Admin
Posts: 3069
Joined: Fri May 06, 2005 9:05 am
Location: Canada

US verses Canada

Postby advocate » Tue Jun 14, 2005 4:53 pm

check out the NASD (National Association of Securities Dealers) in the US for some interesting contrasts to Canada

There they actually measure advisor behavior that is not serving to clients and self serving to advisors, and place warnings on their site about them, enforce fines and cause investors to be compensated.

Canada it is still a buyer beware world, where the foxes are firmly in charge of the henhouse. I heard Sandra Gibson comment in the Post the other day, "The problem is that corruption is the norm, not the exception." Sadly I have to agree, after my twenty years experience in the industry. There will come a time when the public is as informed, but so far most are still under the impression that they are being protected in Canada.

advisor fraud, professionals, or salespeople masquerading?

Postby admin » Mon May 16, 2005 8:43 pm

lots to discuss here

Lots of mutual funds sold at highest possible cost to client, highest possible remuneration to salesperson

Larry believes the securities act does not even allow for those calling themselves "advisors" today to use this title. Misleading. More to come.
Site Admin
Posts: 3069
Joined: Fri May 06, 2005 9:05 am
Location: Canada


Return to Click here to view forums

Who is online

Users browsing this forum: No registered users and 2 guests