Mutual funds, financial elder abuse, investor protection

april 2011 update

2011-04-30T09:13:00.000-07:00

So here it is, April 2011, and I have not updated this for some time. Most of my writings, (or rantings) is posted on facebook now under my name, or inside www.investoradvocates.ca . I have recently added a great deal of industry insider material to the most recent topics, the ones about GETTING YOUR MONEY BACK, and ADVISOR FRUAD etc. In there you will see much of the trail of securities commissions using leagues of lawyers to basically lie their way into the wallets of Canadians. It is a twisted, convoluted journey that I hardly expect anyone to follow, except other lawyers. In fact some of it was prepared and provided to other lawyers who are interested in holding crooks to account.

That is probably my biggest motivation, to see if anyone in Canada can be held to account for about one trillion dollars that I have seen disappear from consumers into the pockets of the trusted fraudsters that we all have to deal with. We have to deal with the big banks, even if they are preying on us, and we have to deal with the current crop of regulators, even if they are helping to violate us financially. I wont even go into the rest of the systemic 'bottom feeders" who support and condone financial violence on Canadians......for money. It will come out.

In the last two years, probably the biggest thing I have seen securities commissions in Canada do to "protect the public interest", is to remove the word "salesperson" from each and every securities act in Canada, and replace it with the word "dealing representative". Follow along the trail at "advisor fraud" topic at www.investoradvocates.ca if you like, but believe me when I say it was "not in the public interest" to do this. It was a blatant exercise in ass covering by securities firms and regulators, who finally got the concept called "BAIT AND SWITCH". That is the illegal practice of telling the public, that they were getting s professional service from an "advisor", when in fact the guy they were hiring was in 99.99% of cases simply registered and licensed as a "salesperson". Holy lawsuits Batman, we have to change this!! It is the first time I have seen securities commissions act so quickly. Anyway, it is on the record (sept 28, 2009 CSA announcements) so lawyers for the public interest will be able to find it and use it to prove the intent of those persons in power who fiddle with the system to suit themselves.

I have to say thanks to our younger population, and thanks to the Egyptian people, for showing us that we can actually stand on our own two feet and demand better from our leaders. It is the weekend before a Federal election in Canada, and it will be very interesting to see how it turns out. For the first time in my life I am seeing Canadians, (yes Canadians) actually stand for something and voice thier concerns. I hope it is a sign of things to come.

We have recently seen the most flagrant theft from the middle class, from the taxayer, and from the economy, in perhaps modern history. I am not aware of such large scale systemic theft (systemic using law, the courts, the regulators, the trusted criminals among us, the politicians) other than some History channel stuff I learned about the Roman empire. An entire, systemic co-operation to stuff as much money as possible into the pockets of the top 1% of rich people, and to sprinkle just enough millions along the way to ensure the co-operation of media, courts, accounting professionals, legal, regulatory, financial, political, whomever. Sorry if I am repeating myself, but I have to look at this and express nothing less than amazement. I have gotten a front row seat at an event where the entire economy has been stolen or skimmed, in an effort to do trillion dollar deals and earn billion dollar fees. What a ride, what a show, what an eye opener.

Gold is at $1500, silver just over $40. US currency is looking less and less credible every moment, but the world is awash in it, so to try and get away from it safely is tricky for most countries. Default is a monthly debate in Congress, needing emergency measures to keep the government from being shut down. Funny, there are millions and millions who feel that shutting down the government might actually make society work a bit better. But, again, there are just under 10 million people employed in the federal govt, so they have to be saved somehow.

The US is spending trillions on war, and that is not helping. Multiple wars. 700 to 1000 military bases around the world. While I was on a beach in Hawaii recently, I got the pleasure of watching very large military aircraft doing practice circuits overhead, in flight training exercises. The thousands and thousands of dollars per hour, (or is it per minute?) to operate just one of these aircraft, was multipled many times that day, by many aircraft, and then again, in many countries, in many parts of the world. Who can pay for that kind of spending? Who can profit from that kind of spendng? Follow the money and you will many crimes against society.

Enough for now. www.albertafraud.com is one "accountability project". Send me the name of a lawyer with courage and social conscience.

www.fraudtalks.com is planned for september in calgary

hopefully, if we are allowed to bring topics of abuse and theft (by our trusted leaders) out into the open, we will learn how to walk like an Egyptian.

cheers
larry

2010-12-25T18:28:00.000-08:00

Advocis is a national professional association that prepares, promotes and protects financial advisors in the public interest. We do this by providing a professional platform including career support, designations, best practices direction, education, timely information and professional liability insurance. This strengthens the relationship of trust and respect between financial advisors and their clients, the public, and government. The Association’s website is . http://www.advocis.ca.

(advocate comments.......I found this posted recently and thought it deserved a few comments for honesty and clarity:

1. "Advocis is a national professional association" Actually Advocis is "attempting' to appear as a professional association, but is actually a group of life insurance salespeople who are trying to alter their image from "life insurance salespeople" to something other, something with the word "advisor" in it and something to make the public trust them more. A name change more than a substance change. Some might call it marketing spin. Some might even call it misrepresentation.

2. "promotes and protects financial advisors" This would be correct.

3. "in the public interest" This would generally be bull.

4. "strengthens the relationship of trust and respect between financial advisors and their clients, the public, and government" Again, marketing and profits would suggest that getting the public and others to "trust" life insurance sellers, so they can sell more is correct. As far as actually delivering on the honest disclosure and professional standards required to earn this trust, that is quite debatable. The name change is something akin to putting lipstick on the pig, and your financial wellbeing would be best protected by not assuming there is anything behind it other than sales motivation.

(As with all other "self proclaimed" organizations, or those who work their way into self regulation positions, when push comes to shove and they are taken to the supreme court, the customer will learn the hard way that these organizations work 100% for their salespeople members and they "owe no duty of care for the public")

Buyer beware bigtime.

The image on the top is a cover for the Advocis magazine, while the image below is the page with the cover exposed by folding back a half flap to reveal the true motivations, SALES.

Biggest Defrauder of the Federal Government

2010-12-16T14:37:00.000-08:00

This media release took me by surprise and I thought you might like to see it.

FOR IMMEDIATE RELEASE
December 16, 2010
1:16 PM

CONTACT: Public Citizen
Phone: 202-588-1000

Pharmaceutical Industry Is Biggest Defrauder of the Federal Government Under the False Claims Act, New Public Citizen Study Finds
Civil, Criminal Settlements Have Increased Dramatically; Off-Label Promotion Largely Responsible
WASHINGTON - December 16 - The drug industry has now become the biggest defrauder of the federal government, as determined by payments it has made for violations of the False Claims Act (FCA), surpassing the defense industry, which had long been the leader, according to a new Public Citizen study released today.

The study found that pharmaceutical cases accounted for at least 25 percent of all federal FCA payouts over the past decade, compared with 11 percent by the defense industry.

The fraud results were a key finding from a Public Citizen analysis of all major pharmaceutical company civil and criminal settlements on the state and federal levels since 1991 and found that the frequency with which the pharmaceutical industry has allegedly violated federal and state laws has increased at an alarming rate. Of the 165 pharmaceutical industry settlements comprising $19.8 billion in penalties during the past 20 years, 73 percent of the settlements (121) and 75 percent of the dollar amount ($14.8 billion) have occurred during the past five years.

Many of the infractions, and the single largest category of financial penalties, stemmed from the practice of off-label promotion of pharmaceuticals - the illegal promotion of a drug for uses not approved by the Food and Drug Administration (FDA). Off-label promotion can be prosecuted as a criminal offense because of the potential for serious adverse health consequences to patients from such promotional activities. Another major category of federal financial penalties was purposely overcharging for drugs under various federal programs, which constitutes a violation of the FCA.

On the state level, the largest category of financial penalties has come from companies deliberately overcharging state health programs, such as Medicaid. Public Citizen's study found this to be the most common category of violation among state settlements.

The increase in payments for fraud is likely attributable to drug companies engaging in more wrongdoing and better enforcement at the state and federal level, said Dr. Sidney Wolfe, director of the Health Research Group at Public Citizen.

"Desperate to maintain their high margin of profit in the face of a dwindling number of important new drugs, these figures show that the industry has engaged in such activities as dangerous, illegal promotion for unapproved uses of drugs and deliberately overcharging vital government health programs, such as Medicare and Medicaid," said Wolfe. Wolfe compiled and analyzed the data with physicians from the Johns Hopkins General Preventive Medicine program, Drs. Sammy Almashat and Charles Preston, as well as Columbia University public health student Timothy Waterman, all of whom worked at Public Citizen.

Public Citizen's study also found that more than one-half of the industry's fines were paid by just a few companies - GlaxoSmithKline, Pfizer, Eli Lilly and Schering-Plough. These four companies accounted for more than half of all financial penalties over the past two decades, paying $10.5 billion in fines collectively. These pharmaceutical companies were among the largest in the world. The two largest criminal penalties ever assessed by the U.S. government against any companies were against Lilly ($515 million) and Pfizer ($1.2 billion), both in 2009.

To conduct the study, Public Citizen created a database of information about pharmaceutical companies' civil and criminal settlements, including information about the type of alleged violation and the amount of money paid in settlements. This study is the first to attempt to document and analyze all major pharmaceutical company settlements with both federal and state governments, the authors said.

Nationally, former pharmaceutical company employees and other whistleblowers have been instrumental in bringing to light the most egregious violations; they have initiated the largest number of federal settlements in the past decade. The number of federal settlements arising from whistleblower cases has more than doubled over the past five years, yielding total payouts more than two and a half times higher than in the previous 15 years combined.

Needed remedies include imposing steeper financial penalties and criminally prosecuting company leadership, including jail sentences, if merited.

"The danger to public safety and loss of state and federal dollars that comes with these violations require a more robust response," Wolfe said.

To read the full report, visit http://www.citizen.org/hrg1924.
###
Public Citizen is a national, nonprofit consumer advocacy organization founded in 1971 to represent consumer interests in Congress, the executive branch and the courts.

"Yes" Men are a Dime a Dozen

2010-12-09T13:12:00.000-08:00

I just sat in what one person in the audience called an "infomercial" for the Alberta Law Society. Put on by a very experienced, knowledgable and ethical member of the society, but an infomercial none the less.

His talk repeated the words "in the public interest" enough times to almost make one believe it was intended to make us believe that to be so. It also pointed out to us how "no one is above the law", a point which was scoffed at around our small table of eight very ordinary people.

It came across as a self serving cheerleading session intended to build public support for the idea of lawyers policing lawyers. Or self regulation. I am not an expert on the law society but I am an expert on self regulation and it usually turns out to be a great deal for the industry seeking to police themselves, and a less great deal for the "public interest". That is my own experience. I think of the young finance industry whistleblower who took his own life after learning the hard way that some people "are" more above the law than others. (see www.breachoftrust.ca video chapter six ) He found out the hard way that the law society is actually there more to protect lawyers interests than the public interest. At least that is what I found out when I complained about the lawyer who misled a calgary judge and had him sign off a private search warrant (Anton Piller order) that took away the young man's rights to even talk to police. I am sure the law society did not want that to get out when they dismissed the complaint.

Others at my table had similar feelings, one 70ish lady gave me her favorite quote about the law, which was this, "The law can be used to keep justice away".

Another pointed out the obvious which was that "of course some people are above the law". The speaker had no response to this other than to say his system is not perfect but that it had to strive for perfect ideals.

Then he should have not shown up to mislead us with his infomercial. He could instead of been an honest, candid speaker of the problems, and the initiatives they undertake to try to solve those problems. Instead he appeared as a simple 'talking Yes man" for the industry, rather than attempting to create sound, helpful discourse.

The world already has enough "yes" men. They are the most common human on the planet. When will we see an industry participant who actually questions his industry, questions poor practices, solves self serving issues?

When will we be able to listen to a speaker who has something to say, beyond how great they are, how great their profession is?

What a waste. Still. Nice guy. He just does not even know that he has assigned himself a role, an "actor" if you will, in a stage show where his is more on the side of the problem, instead of being on the side of solution.

below is a link to a 15 year old child who is doing a far better job for society:

http://dailybail.com/home/and-a-child-shall-lead-them.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheDailyBail+%28The+Daily+Bail%29

middle class angst

2010-11-26T22:47:00.000-08:00

While we are talking about financial abuse, I have just started to notice a long term trend of late.
It is only my own observation and is extremely unscientific, but it strikes me as interesting info to file away in the old noggin.
It goes like this:

When my dad was raising his family, the times allowed a single spouse to support an average middle class life. When I was raising a family, it seemed necessary for both spouses to work in order to support the average middle class life. Looking at my children now grown and on their own, it appears as if some may need to hold more than one job to support their middle class dream.

How far will it go before the middle class is eliminated, or simply enslaved economically to those at the top of the food chain?

I could be very wrong, but I am starting to suspect that government, taxation, financial schemers, bankers and such, are those people who are riding in the wagon. The middle class is pulling the wagon. Those in the wagon, keep taking more and more from those pulling the wagon, seeking greater and greater riches and ease. We keep paying for their leisure.

It is just my impression. I could be wrong. But I also see others writing things on blogs etc, like "never before in history have so few people, taken so much, from so many", referring to recent economic pillage we have undergone to make wall street and bay street richer. To think that this pillage has been helped by financial regulators or people who pose as regulators, and ultimately by politicians who back the regulators. Sad.

I hope the Industry of Accountability will develop far enough and strong enough to start holding some of these crooked folk to account, before it is too late.

My effort at the Industry of Accountability is found at www.albertafraud.com
check it out to see how billions get stolen each and every year by "trusted criminals" who do not have to follow the same rules as you and I. Join my facebook group and lets hold a few of them to account. Even if just "name and shame".

Getting away with financial murder, financial rape and other crimes against the public

2010-11-24T15:27:00.000-08:00

What a set of headlines to find today. I just got back from a 1000 km journey to Grande Prairie and back, and found my newspapers stacked up for me to read.

From Nov 21, 2010 Lethbridge Herald cover story came this headline "PM TARGETS AFGAN CORRUPTION"
I had to take a few breaths and slow myself down from getting upset and angry at the thought of our prime minister working to prevent corruption in a foreign land, while I spend my time here in Canada trying to make the public aware of the extent of corruption at home. It seems bizarre, dishonest and misleading, but I am slowly learning that the job of our leaders is to lie to us and to distract us from the major issues. Like a pickpocket who has an accomplice "bump" or distract you so another can pick your pocket, I am starting to feel as if that is the role of our government.

Then , further into my reading a photo of a homeless man sleeping on the sidewalk in downtown Toronto, in front of the major bank towers. I found the photo striking since I made a video journey film titled BREACH OF TRUST, The Unique Violence of White Collar Crime. One of the premises of the film is that predators (mostly financiers) take advantage of those lower than them on the economic or political food chain, thereby causing financial violence which knows no end upon those poor victims. They have zero recourse against their abusers (somewhat like an eight year old child verses the Catholic church circa 1960) and the net result is a lifetime of self sabotaging behaviours. I will try to obtain the image and post it.

Then as I went shopping at my local supermarket, speaking to the meat counter guy about a certain cut of meat, I saw the posters and photos near the back about "meat thieves". Never seen or heard that term before, but here is was, big as life. Photos of surveillance camera shots showing people who were known meat thieves. All I can say here is pure profanity. The frustration of seeing our system so able to "see" crime at the bottom of the food chain, and "see no evil" for those at the top of the economic and political food chain. Pure profanity. Pure Profanity. (even as far as me saying "George W Bush" which to me is like saying the fuck word)

I will end with this: "I want to live in a country where predators and abusers (from any station in life) can be held to account for the damage they do to other humans, to the economy, or to the planet". Today I do NOT live in such a country. I live in a so called free country where politicians and bankers and a few others (corporations, resource companies, drug companies) from the highest echelons of society can nearly get away with any abuse they happen to specialize in. They do not have to follow the same rules as you and I, and the laws of the land are not strong enough to reach upwards against gravity high enough to reach their stations in life. George W. Bush, George W. Bush, George W. Bush

Billions Stolen annually by people who don't need to follow rules or laws

2010-11-20T16:13:00.000-08:00

The web site linked here lists just one example of persons who are exempt from following rules and laws designed to protect consumers.

Imagine a special class of people who can get permission to violate the law. To do things that are ordinarily illegal. Now imagine that they can do this to your investment advice and products, to taint the advice and the products that they sell you.

Now imagine that this happens about 500 times a year in every province in Canada.

Now imagine that they get to do this in secret, so you may never find out who they are and how they violate you financially.

Welcome to the Canadian predatory financial system, and 13 Canadian Securities Commissions.

Get busy, get a class action lawyer, and get all of your money back if you have lost due to negligence, gross negligence of conscious wrongdoing of a Canadian regulator.

Where do you invest?

2010-06-01T09:44:00.000-07:00

With the economy turned bad, CEO's turned bad in many cases, regulators turned corrupt or morally blind in far too many cases, banks turned from financial servants to financial predators, and so on...........what is an investor supposed to do to protect their future. Where do you invest safely?

One expert answered this to me by saying "Invest in what you know and are familiar with larry. Whether that is land, business inventory, things where you have some expertise etc. This expert went on to explain how the best and brightest company in the land can be brought down today with "financial weapons of mass distruction" (quote by Warren Buffet) like credit default swaps, and a host of other derivative type instruments that wall street and bay street alchemists use to try and generate new and larger fees for themselves. Whatever stock you invest in can nowadays be subject to failure due to the creative use of these instruments.

The other risk that we have begun to see far too much of is the internal raping of the company by the very management hired to run the place for shareholders. Think Nortel, think Conrad Black type of managers, as well as the many names in the US.
So while stocks are historically considered one of the safest long term investments (for buy and hold people like Warren Buffet, who stick with quality), there is a new move afoot that brings white collar crime and derivative speculation right into that security type.

Which brings me to one of the most important suggestions I can give: Invest in regions where securities laws are enforced and where independent police investigations are allowed to proceed into financial crime. The largest pension fund in Canada used to be run by Claude Lemorouix, and his quote in the National Post a few years back suggested that he would not buy any Canadian company unless it was listed on a US exchange, since buying it there placed US authorities in a position to prosecute crimes by CEO's etc.

In Canada, all financial markets and securities are "self regulating" which means we are trusting our clever, cunning financiers to police themselves. While they have set up more than one hundred "protective" organizations and agencies, there is so far not one single, recognized agency in Canada that is not getting it's salary (and it's people) from the investment industry. What that means is that if you have a compliant against a large Canadian player like a bank for example, you are screwed, to use a technical term. If you have complaint against a small player, sometimes the self regulators will take that organization down to help their larger supporters (not to help you, the abused investor) but the end result is that the self regulators will keep your money if any is recovered. I shit you not, that is how they operate. Research it yourself. These people are not working for the benefit of the public interest.

So buyer beware with even the best stocks in Canada, from the top dealers in the land.

Speaking of dealers, do they owe you a duty to place your interests first and foremost? Their marketing material would suggest yes. Their behavior suggests otherwise. For example:

Over 80% of mutual funds sold by these "reputable dealers" have in the past been sold using the highest cost commission structure possible, despite lower cost choices available. It that trusted professional advice? No.
More recently (2009 I believe) 92% of all funds sold in Canada were sold into something called WRAP accounts, usually funds of other funds, or proprietary funds. (house brands) These cause fees upon fees, or fees kept in house in the case of the house brand, so profits can be up to 26 times greater if they sell you the house fund. Who cares if they perform better, worse, or even, if the company is getting up to 26 times more profit, it is about them and not about you. Otherwise why the 92% of sales capture rate.

Speaking of sales, did you know that your trusted advisor has less training to be licensed that your hairdresser or your plumber? Or that their license with the government was officially listing them as "salesperson" up until sept 29, 2009?

No you did not know this because despite securities Commission laws saying they must tell you this info, they never do and the laws never get enforced. Remember that bit about self regulating?
After Sept 29, 2009, your financial seller is now listed as a "dealing representative", but you can bet they will also never properly disclose this to you. Fraudulent misrepresentation is the simplest description I can apply to what your financial seller does to you in Canada.

So where are we at choosing what to invest in? The banks have turned predatory. The CEO's are corrupt at worst and self serving at best, despite being professionaly paid to behave otherwise. 80% plus of sellers are predatory sellers, trying to fool the public into the belief and the trust that they are professional and their to help. Wrong.
The markets are subject to some financial manipulations by some of the craziest financial products ever invented, ie, credit default swaps allow them to do the equivalent of buying insurance on the neighbors home, then burning the home down to collect the insurance.

Regualtors are on the take and paid 100% by those very same financial wizards.

Politicians (like Ted Morton, Alberta Finance Minister, and twelve others) feel they owe a greater duty of loyalty to their kingdoms., er their securities commissions, thus the politicians seem also to be owned by those with the money, and not serving those they are sworn to serve.

I hate to sound so pessimistic, but that is the way it works........or does not work, depending upon which side of the fence you are on.

I keep the solutions to myself, as well as the types of investments where your money cannot be taken from you by fast talking, self policing shysters in suits. Other than some ranting here and there on the web, and elsewhere, it is too difficult to tell people where to invest unless one is face to face, and fully informed as to what each persons individual situation is. It occurrs to me that this world should employ "financial bodyguards" and I hope to find myself fully employed in that capacity at some point. For now I am quite happy to work like this where I can, and the rest of the time give my experience away freely to governments, legislators, media, public speaking and helping abused investors.

I have a section on my film site titled "private financial investigator", which is something available to those who wish to hire someone with thirty years of hard earned experience, combined with not a single product to sell, nor a single bank or other institution to have to misrepresent to my clients.

Thanks for reading this far along.

CIBC exposed in defrauding elderly clients

2010-04-22T19:31:00.000-07:00

From Maisonneuve Magazine, comes this fearless article to illustrate complete failure in Canada to regulate and protect investors. The story speaks to a captured culture of deceit that Canadians should be aware of to protect themselves against predatory financial behaviors.

"The Incredible True Story Of Mr. Markarian"

http://docs.google.com/fileview?id=0BzE_LMPDi9UONzY5NTk3YjktZDlmZi00MWM3LWFlNDMtNTY1NDczZjk4Yzhi&hl=en

2010-04-15T20:56:00.000-07:00

I think there will be an entirely new industry created in the next decade or two. I call it the "industry of accountability", and it will be an entire system of specialties created to instill ethical behavior and integrity into a world which today is run on the premise that the man who lies the best wins. Or the man who steals the best wins. Or the man who destroys others the best wins.

Any number of situations, financial, political, business enterprise, all run the best by those who lie, cheat and steal the best. That simply must change. The industry of accountability is my hope for that change.

After our next great depression (which we are now creating) I hope that people in North America will have learned enough about letting foxes run the henhouse. I hope there is a huge backlash against people who choose self interest over the public interest. Yes, I know, we all do that, and there is no stopping it. But where it is done by our political leaders, business leaders, etc, we have the right to enforce breach of trust and negligence laws and put them in jail.

That is the industry of accountability. Instead of employing lawyers and accountants to help crooks to cheat the system, there will be an entire workforce of professionals employed in protecting the public interest, monitoring public servants, and holding them accountable and responsible for their lies and for their damages.

Just like today, we no longer accept and remain quiet about types of abuses. Just like today we question the Catholic church and how they hurt people. I believe that given time, north americans will have had enough of lying cheating stealing and "organized crime" by our trusted leaders. When we start to put these people in jail and take away their money and property, then we will begin down the road to a safer, more prosperous society.

That is my story and I am sticking to it. I am Larry Elford and I work in the industry of accountability. I am a financial investigator, specializing in investment abuses, and my work on behalf of the public interest can be found freely at www.investoradvocates.ca (industry tricks of the trade)

and

www.breachoftrust.ca (investment industry abusing employees and customers)

2010-04-15T20:52:00.000-07:00

Alberta Finance Minister (new) Ted Morton, just cannot come any cleaner than his predecesor Iris Evans.

Ed and Ted’s Adventures

Recent news revealed a world renowned institution caught “protecting itself”, instead of “protecting its victims”. I see identical hubris with our premier and finance minister.

Over one billion dollars of Albertan’s money is missing in toxic investments. Two western Canadians are dead by suicide. You would think that Ted and Ed would be honest with the public, but no. They act similar to how my two year old nephew does when he has a bathroom “accident”. First try to hide it. Then deny it. Then perhaps put on an angry face of indignation. This forgiveable behavior for a two year old, but for Ted and Ed? It seems evident of persons who should not be in leadership nor trusted with money.

For those who are out of the loop, this investment paper turned out to be junk that was sold by investment salesmen, and the assets were then pledged to foreign banks (Deutsche bank in our case), in a complicated insurance process called a credit default swap. Not many people know or care what a credit default swap is, but imagine if you and your friends could buy insurance on your neighbors home. Then imagine if someone were to burn that home so that you and your friends could collect the insurance money. Apply that pathology to finance and you know the basics and the dangers of credit default swaps. They can be financial weapons of mass destruction.

$32 million of city tax revenues were lost in these by our city treasurer. Another billion or so from other Albertan’s.

Ed and Ted’s excellent financial regulators gave investment firms permission to sell this toxic junk in Alberta. It granted them permission to violate Alberta Securities Laws to do so. It has given several thousand such permissions without a single notice to the public. And neither Ed nor Ted is willing to tell us why. After all it is only billions of your money. Ted has not lost a nickel so why should he care? Ted now informs me that he will not answer this question of “why”. Nor will he tell why secret deals like this are done without any public notice. An accident Ted? Hiding something from the public?

Contact the writer at lelford@shaw.ca if you would like to become part of the solution.

Larry Elford

2009-10-02T17:34:00.000-07:00

The industry of accountability would pay for itself. An entire league of accountants, lawyers, police, investigators., etc, would be employed to rein in rampant and runaway damage to our planet and the people on it, by those who are a bit over-enthusiastic in the accumulation of money. Overenthusiastic to the point where they will hurt others in order to get ahead. That must be curtailed. The industry of accountability would pay for itself in savings by those who today get away with rampant greed, and rampant destruction of the environment. We are now paying billions if not trillions to support an industry of greed, of fraud, of ruin. We just need to take this excess "energy" and see it spent on positive, proactive and protective measures, rather than on selfish, self destructive measures.

On the other hand, people who want to help others, make a fortune, improve the planet, etc, are welcome to become as wealthy as the world allows. No limits. Complete freedom, just as Milton Freidman would have wanted. It just has to be done without making others suffer.

That is my wish for capitalism today. Not, as Michael Moore might suggest, that it needs to be put to sleep. Not that we need convert to socialism, communism, alcoholsim or any other form of ism that might make us feel good for a day. We might just start with the part that Milton left out. With freedom.......comes responsibility. Starting now.

Humanism. A new form of capitalism

2009-10-02T17:23:00.000-07:00

The name is HUMANISM.

The game is how to improve Capitalism so that it can function as it should, without resorting to so much financial cannibalism of each other. So much greed, and so much financial abuse.

We have seen Communism. We have seen Socialism. We have seen Capitalism. They could all be defined this way:

In the first one, man is allowed to exploit his fellow man. In the other two it is just the opposite.

Humanism, on the other hand, is where human beings and human lives are given a place of importance. A priority if you will. How?

Humanism is Capitalism with accountability. With responsibility for ones actions. Not simply the kind we have now were the man with the most lawyers beats up the other man with the least. But real, societal support for fairness, and accountability. Where when one man is beaten or abused by another by capitalistic means, the entire society acts in a manner to correct this. Where predators are not simply allowed to prey on the weakest members of society at will.

Milton Freidman, the Nobel winning economist, with his "FREE TO CHOOSE" motto, left only one small item out. That item is the fact that with freedom comes responsibility. As we all tell our 16 year old when we first give him the keys to the family car. We need to put together a world where every one of us is told the same thing; "with economic freedom, comes a responsibility to behave in a manner appropriate". If you do not, you will be held to account.

Greed is good.......but not it if is used to hurt others. It all too often is allowed to.

Accountability means an entire new industry being introduced. An industry to ensure responsible humane behavior. To curtail the financially insane. To hold them to account for the damage done to other humans, or to the planet. It is an attempt to make our economy sustainable, and sustainable for more than just the top 1% of the population.

Finance Minister Iris Evans "sees no evil", protects her job

2009-03-22T09:12:00.000-07:00

The economic meltdown is being analyzed to determine what caused it and how our preventative systems failed us. After three decades of working inside, or studying the financial services industry I offer the following as what I have discovered along the way.

Of course a human tendency towards greed is an obvious cause, that includes the people who took the money that they may (or may not) have known was impossible to repay. I blame those persons to a certain extent since we are always responsible for our actions. However lets go up one level and see if there is a greater duty of care with the service providers.

The folks who pushed, promoted, or "gave away" the farm with mortgages to those who were not qualified are in the business of lending. They are supposed professionals, and as a result of this I hold them to a higher standard, a higher duty of care, to the public they serve. They cannot say that they did not know better, as is the case for some of their customers. They are a huge cause of what went wrong.

Next up the scale of accountability we look at the financial "meth labs", investment firms who are always on the lookout for the next great product to sell. Like the original lenders, these banksters and brokers also had no interest in whether the investments were any good or not, they were simply interested in the commissions from selling them to the next poor soul. This is a pretty good indicator of whether or not your investment firm is truly trying to place your interests first, as they promise. They too, should be held to account, since their constant promise to the public is that they are "professionals", and not merely "hucksters". It looks like they lied to us.

Then comes the bond rating agencies, who were hired and paid (by those investment firms) to fudge the ratings on tainted products. They have sold their souls for short term profits and have thus lost the moral right to be considered professional.

Remarkably, our own financial watchdogs are next on the list of those persons or agencies who participated in the public fraud. Here, with thirteen provincial and territorial securities commissions, all thirteen of those agencies granted "approximately 20" passes to investment firms to violate the Securities Act in each jurisdiction. No public input. No public notice. But when we learn that each commission is paid by the investment industry, based on fees and charges for such "work" as granting legal exemptions, it should come as no surprise.

Finally we get to the level of government ministers, who are responsible for those government agencies, which are responsible for inspecting, protecting and preventing investment fraud towards the public. The federal government passes the buck back down to the provinces, saying that each province is responsible for matters of investment in their jurisdiction.

That gets us to Iris Evan, the finance minister for my province of Alberta. The second from the top person who is supposedly responsible for all of the acts of those agencies and persons beneath her jurisdiction. How does she react to the systemic failures? By looking the other way unfortunately. By ignoring the entire event as if nothing happened and by protecting her job, rather than protecting the public. She joins the list of all of the so called "professionals", who choose their own self interests over the interests that a professional is supposed to be serving.

Failure at nearly each and every level, by nearly each and every person in a position of control or authority.

My strongest shock registers to those in government, who are charged with protecting us. Our finance minister, and our securities commission. Instead of getting rich by failing to do their jobs professionally, they simply stand to "not lose face", over their lack of ability to perform the job. Maybe that is the same thing as money to a politician.

Either way, it is a breach of trust. A criminal offense. An offense punishable by jail. As is criminal negligence.

If we cannot hold our public officers accountable and responsible for their acts against the public.........and if the police cannot hold financial firms accountable or responsible for frauds against the public then we are due to repeat financial fraud over and over and over. until our country can no longer tolerate the abuse and our economy fails. All due to the people at the top who cannot do their job. Iris Evan, will you please do your job? Or premier Ed Stelmach will you please place someone in the position of Finance Minister who can do this important job?

www.investoradvocates.ca

www.investorvoice.ca

web.me.com/lelford

legal exemptions handed out by crown corp

2008-03-07T00:10:00.000-08:00

How to exempt yourself from the law………and win!
Lately the Ferguson (RCMP officer tried three times) case and the motorcycle riding Sikh fellow who wished to be exempt from the law on wearing a helmet, were in the news. Most people I suspect are not well informed on how to obtain an exemption to the law. None, in fact can imagine asking the police for an exemption to, lets say, drive from Lethbridge to Calgary at 200 kilometers per hour, no matter how important your trip is.

What I found amazing, however, is that any bank, investment dealer or investment sponsor, is able to approach our provincial securities commission and apply for an exemption to the law. Want to sell house brand funds to all your clients? Apply for an exemption to the laws that protect them from such predatory practices. Need to give commission kickbacks to get clients to move to certain products? Get an exemption from the laws against commission rebating. Have a poorly selling income trust or other new issue? Apply for exemptive relief from the law so that the firm can use (or abuse) client’s mutual fund assets, and dump the offensive product into their funds without their knowledge. Want to change the title of thousands of licensed “salespersons” and make them instantly appear as “advisors”? Apply for an exemption to the laws against misuse of registration and license. Viola! Solve nearly any little problem with some paperwork and an application to the securities regulator.

It has all been done, and according to the largest database in Canada on the topic, done thousands of times in recent years. I had no idea that something like this was even possible. I suspect that clients are even less well informed.

How, you ask? Because investments are handled by another set of laws, called the Securities Act, and the police are not always informed of criminal violations in this other area. I have seen forgery brushed aside as “not always forgery”, fraud dismissed, breach of trust ignored. The police are assuming, perhaps incorrectly, that your provincial securities commission has matters in hand. Or they are never even notified.

The site that contains the most comprehensive data on exemptions to the law is found at:
http://www.osc.gov.on.ca/Regulation/Orders/2008/ord_2008_index.jsp or you can just go to the OSC (Ontario Securities Commission) site and look at the section on “orders, rulings and decisions”. It includes exemptions passed in Alberta and other provinces.

All of these exemptions were granted without public input. No involvement of a judge, no public notice, and no consumer representation in the decision making process. If you browse, you just may find an investment you own that was sold to you without this disclosure. You may be entitled to know why.The various Securities Commissions refuse to answer how some of these exemptions are in the public interest. They feel they do not have to tell you. Some have been badly abused to hurt the interests of consumers. In Alberta, our provincial commission, a crown corporation, which is responsible to the legislature, recently spent over $1 million dollars on legal fees to try and avoid public audit by the Alberta government auditor. It was discovered that they had something to hide. Yet this practice continues to this day.As a consumer you will get more notice if your neighbor plans to build a garage too close to your property, than you will get if your financial firm chooses to dump certain investment products on you using a legal exemption. Because of hidden legal games such as this, Canada is damaging its reputation by allowing the manufacture and sale to the public of known “tainted” or bad products. Former Bank of Canada governor David Dodge was quoted as saying that Canada has a “WILD WEST” reputation globally on matters relating to investments. Legal exemptions and self-regulation are two root causes. They are part of a flawed foundation upon which our system is built. Some folks think they have been gouged by electrical industry de-regulation. Just try and imagine what goes on behind the curtains in the financial industry where they are allowed to self-regulate? This is just part of many reasons why Canadians suffer from “One Million Frauds”, (Globe and Mail Oct 3, 2007) with only one person convicted until the end of 2007 (Canadian Business editorial Aug 13/27 2007). It also may help explain why ex RCMP IMET commercial crime experts say that Canada is a “A Good Country for Crooks”, (Canadian Business Sept 24, 2007) The United States is coming to grips with sub prime mortgages, mortgage fraud, Enron, WorldCom, Tyco, etc., which are repeatedly costing the United States more than the entire 1929 market crash and resulting depression. Similar investments, frauds, crimes, and damages reside here in Canada. The difference is that in Canada we have effectively no enforcement. What possible agency would there be to bring enforcement action, when our own securities commission is assisting firms to skirt the law? This is the ultimate example of having foxes guarding the henhouse. It is the ultimate example of self-regulation turned into “self serving”.Please ask your local MLA to show me where I may be wrong on these matters by bringing about a Provincial Inquiry, to see if these claims have merit? I can assure you that a Provincial Inquiry will turn up issues that are costing Albertan’s billions.
Larry Elford
Lethbridge

busy busy busy

2008-02-28T22:45:00.000-08:00

you might find me out of touch for lengthy periods.

Working on BREACH OF TRUST has taken some of my time. You will find a web site devoted to this project at web.mac.com/lelford
(just type it in like that and it will take you there)
Doc films take longer that one would think to prepare.

Another site with a few clips and a few questions the film will try and answer is found at http://www.breachoftrust.ca/

check them out and keep in touch

Four out of five financial advisors agree. "Screw the client"

2008-02-28T22:31:00.000-08:00

From the Investment Funds Institute ( http://www.ific.ca/ ) we see that mutual fund wrap accounts consist of only 17% of total mutual fund industry assets. That makes sense since they are the new kid on the block, and most people have their money in tried and true, regular, independent mutual funds.

Recent sales statistics, however, indicate that 91% of today’s sales are moving client assets into wrap accounts……..presumably a large percentage of which consist of “house brand” or proprietary products. Are these the new fad, fashion, or are they a such a vast improvement over the old?

The answer is yes and no. No for clients. Yes for salespersons. The Ontario Securities Commission has produced studies which show that by advising clients to purchase the “house brand” fund, (wrap accounts included) the firm and the salesperson share in increased revenues of between twelve to twenty six times. (OSC Fair Dealing Model, Appendix F, on compensation bias in mutual fund sales)

If you have recently been "advised" by your financial professional to move your assets into a house branded product, you have to consider the conflicts they have lept over to get you there. One, they have placed themselves (not you) in a position where twelve to twenty six times more profit goes to them and their firm. Is this good for you? Maybe. Maybe not. Time will only tell. Is it good for them? You bet. 100% guaranteed for them.
Two, they have crossed the line from being your financial "doctor" who prescribes the best solution for you, and they have also become your financial "pharmacist", the person who dispenses the solution. When the doctor and the pharmacist start prescribing to you only house brand medicines, that they are mixing up in the back room, rather than independant products with proven track records, you can be sure your interests have "left the building". Unfortunately that may be what is happening today to 90% plus of Canadians. Time will tell.

Of course the industry made sure that the Fair Dealing Model was never put into place. It was felt that it was too…………..well um,………..fair.

It is factors such as this (among several others) which lead me to conclude that four out of five investment “advisors” are misrepresenting this title and are in fact acting with a selfish sales interest.

This misrepresentation is illegal, unethical, and not in the public interest. Further evidence to this argument can be found by searching for the exact registration category of each “advisor” registered in Canada. Four out of five of these will be found to be also using the “advisor” title improperly, and they are in fact licensed and legally registered in the category of “salesperson”.

Bank Robs Client! Gets permission from the law

2008-02-28T22:27:00.000-08:00

If I rob a bank, I find myself in conflict with the criminal code of Canada.

If a bank or financial institution wishes to rob consumers in some way, they can go to our own Crown Corporation, The Alberta Securities Commission, and apply for an exemption to the law.
Why? Because investments are handled by another set of laws, called the Securities Act, and the police are not always informed of criminal violations in this “other” area. The police are assuming, perhaps incorrectly, that the provincial securities commission has matters in hand.

There were thousands of “exemptions to the law” granted in Alberta over recent years. Many of them involve investments you hold. Stocks, mutual funds, Royalty Trusts., etc. All of them granted without public input. No involvement of a judge, no public notice, and no consumer representation in the decision making process.

The Alberta Securities Commission refuses to answer how some exemptions are in the public interest. Some have truly hurt the interests of consumers. This same crown corporation, which is responsible to you, the taxpayer, and supposedly answerable to the legislature, recently spent over $1 million dollars on legal fees to try to avoid audit by the Alberta government’s auditor. It was discovered that they had something to hide.

As a consumer you will get more notice if your neighbor plans to build a garage too close to your property, than you will get if your financial advisory firm chooses to dump tainted products on you using a legal exemption. Because of legal tricks, Canada is in second place behind only China, in damaging its reputation by allowing the manufacture of known tainted products. Investment products are the tainted goods specialty of Canada. Legal exemptions and self-regulation are two major causes. (If you think you have been gouged by the electrical industry “de-regulation”, just try and imagine what goes on behind the curtains in your financial industry where they are allowed to “self-regulate”?) If you are having a hard time picturing it, just imagine the your money and the “honor system” handed to men like Conrad Black.)

This is part of the many reasons why Canadians suffer from “One Million Frauds”, (Globe and Mail Oct 3, 2007) with only one person convicted until the end of last year (Canadian Business editorial Aug 13/27 2007). It also may help explain why ex RCMP IMET commercial crime experts say that Canada is a “A Good Country for Crooks”, (Canadian Business Sept 24, 2007)

The United States is coming to grips with subprime mortgages and mortgage fraud, Enrons, Worldcom, Tyco, etc., which are costing the United States more than the entire 1929 market crash and resulting depression. These investments, frauds, crimes, and damages are long infecting Canada as well. With no punishment here. Remember, we are on the “honor system”.

Will your new role government now help bring about a Provincial Inquiry into violations of the public trust by our Alberta Securities Commission, to see if these claims have merit? I can assure you that a Provincial Inquiry will turn up issues that are costing Albertan’s billions. I can also assure you that if you fail to call for an inquiry, that the conditions that allow this will live on.

From: Larry Elford, (former CFP CIM FCSI Associate Portfolio Manager, retired)
founder of http://www.investoradvocates.ca/ Representing the interests of several hundred ethically proven investment industry professionals, and several hundred thousand investment consumers.lelford@shaw.ca

Alberta Securities Commission helps out fraud?

2008-02-28T22:23:00.000-08:00

Feb 25, 2008

Media Release and key question for Alberta Provincial Election Candidates

From: Larry Elford, founder of http://www.investoradvocates.ca/ Representing the interests of several hundred ethically proven investment industry professionals, and several hundred thousand investment consumers.

Fact #1 Financial industry dealers are allowed to self regulate (police themselves) in Alberta.

Fact #2 Financial industry participants are allowed direct access to the law and to the Alberta Securities Commission (the ASC). In contrast, consumers are directed to a non-government body.

Fact #3 If you were to approach the ASC with a complaint, you would be referred to “self-regulatory” agencies, which are private, funded, paid, and responsible only to the industry the consumer is complaining of. Consumers are not only denied access to the protection of Securities Law in Alberta, they are forced to report financial abuse directly to the association of dealers that they are complaining of.

Fact #4 If consumers wanted to rob a financial institution, they would not be allowed to alter the law to make their robbery “legal”. When financial institutions wish to rob consumers, they are allowed to go to the Alberta Securities Commission and apply for “exemptive relief” from the law. This makes anything they do to you, under this exemption “legal”.

Fact #5 There have been several thousand such exemptions to the law in Alberta over the years. All done with no public input, no involvement of a judge, no public notice, and no consumer representation in the actual decision making process. The Alberta Securities Commission refuses to provide reasons to show how those exemptions are in the public interest in any way. As a consumer you will get more notice of your neighbor’s plan to build a garage too close to your fence, than you will get if your financial advisory firm chooses to dump bad products on you using a legal exemption.

Fact #6 The Alberta Securities Commission is partially funded by financial dealers, and part time commissioners earn $180,000 per year. Top-level salaries at our ASC are above $500,000. Does this explain why our securities law gets “adjusted” for dealers?

Fact #7 Police are rarely invited to prosecute these kinds of financial crimes or frauds. Other criminal code violations get treated and handled by police agencies, while Securities Act violations are handled by an industry policy of letting the “financial industry look after the financial industry”. Fraud, forgery, breach of trust, etc., are among the types of illegal acts which fall under the “we look after ourselves” category. These acts will continue to occur unless we do something about it.

I ask candidates to call for a public inquiry under the Provincial Inquiries Act. An inquiry into failure to protect Albertans and failure to give the public access to the law. One case alone consists of an alleged $800 million dollar abuse of customers. Would you support such an initiative, and will you ask for public inquiry into these failures on behalf of all Albertan’s?

Larry Elford, (former CFP, CIM, FCSI, Associate Portfolio Manager, retired, 2004 after twenty years of trying without success to improve conditions in the industry)

lelford@shaw.ca

Adam Smith had "best practices" figured out 200 years ago

2007-10-14T18:10:00.000-07:00

"The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.

To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they would naturally be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.

The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it."

The above comes from ADAM SMITH (1776) over 230 years ago. From "THE WEALTH OF NATIONS"

As I continue to research how and why the investment industry is the way it is I am struck by the lines above by Adam Smith. They are so simple, and so obvious, and yet so far from how the financial system in Canada is operated.

I guess I am just upset and amazed at how far smart men will stray from known best practices when pushed or pulled by self interest. By my calculations (with help from Harvard, Osgood School of business, Georgia Tech, London Business School and others) Canada is being taken advantage of by between $30 billion and $60 billion each and every year due to financial people serving themselves. Not accidently serving themselves over the clients they promise to serve. "Knowingly" serving themselves first. Knowingly selling products and advice to clients which is false, misleading and not in the interests of the clients who are paying for the advice in good faith. The bargain they are getting in return is that they are being taken advantage of. Abused financially. That is what self regulation in Canada has given us, and it will not be corrected by one securities commission or one hundred. Correcting self dealing, self serving, self regulation requires taking away the priviledge of regulating themselves. It means no longer being able to "babysit" themselves, now that they have demonstrated they are not responsible enough. It means having independant oversight placed upon the industry.

Failure to follow known best practices. Failure to identify known conflicts of interest. This leads to a failure to place client interests first, and self regulation allows this to flourish time and time again. Witness the recent Asset Backed Commercial Paper crisis, which turned out so differently in Canada, than in other countries.

So the bog here will relate to best practices, as compared to not so good practices, and will try and look at a few examples to let you decide which category gets more business in Canada. Why am I bothering? Because this was my industry, my career, my passion. What is my motivation now? I tried for ten years to work within the industry to embrace best practices, and to encourage the industry to live up to its wish to be called a profession. I failed. I was punished for trying to place the interests of clients first. I am here to try and prove that it is still the right thing to do, to place clients interest first. That is my position, that is my bias. If I need a label placed on my mission it is that.

My first awakening that something was wrong, occured in the early 1990's. The Globe and Mail was writing about a mutual fund industry practice of sending the big seller's of funds off on free trips to exotic locations. From my position within the industry this was clearly a conflict of interest in the game of giving envestment advice. I thought that others would agree and want the bad practice revealed and removed. I was wrong. My manager at that time, was attending the Indy 500 each year, courtesy of Mackenzie mutual funds, and he told me that "anyone who talks about this is fired". Not only him, I learned later, that the entire company was on alert against letting the press find out about this practice, including internal telephone record monitoring of calls to the Globe and Mail etc. It was my first eye opener that told me the industry did not necessarily walk the talk they promise.

I began to campaign quietly within the company to separate the roles of "salesperson" from the role (and the title) of "investment advisor". This separation was not welcome. In fact, rather than help move toward any form of higher education requirement, and higher duty of care for the client, I found that my bank owned firm was moving in exactly the opposite direction. They had internal plans to keep the 1000 or so, "advisors" that they already had, but to also convert the 15,000 or so, bank employees who were acting as account mangers over to financial planners and investment advisors. They were "renaming" the entire workforce as professional advisors, without so much as meeting the educational or the experience requirements. In a self regulating industry this is not so much of a problem.

Today, we find from web site http://www.osc.gov.on.ca/ on the topic of "registration", that about 90 plus percent of people in Canada calling themselves investment advisors, are actually (and legally) registered with the government as "salespersons". This is an illegal and unlawful practice according to the law, as well as the self regulatory standards, not to mention that it misrepresents to the public (illegal to misrepresent under the competition act of Canada). None-the-less, it is accepted in an industry where self regulation allows it to occur.

This is example number one of 'knowingly" using poor industry practices when best practices are overlooked in favor of profits.

Perfect Storm

2007-09-06T10:39:00.000-07:00

I think I am starting to figure it out. Self regulation in Canadian financial, legal and accounting professions have allowed conditions to grow to the point where these three entities can control a pool of capital in excess of a trillion dollars in Canada.

While doing this, they are given the keys to the kingdom in the form of self regulation powers. It is not exactly the same, but similar in principle to allowing the Hells Angels organization to be self policing in matters of crack cocaine. The reasoning is that they are the largest market participants and therefore the best qualified and most interested in maintaining an orderly market.

The article in todays Post about Spinrite Income trust being bought back for cents on the dollar, by the same good folks who earlier bought them for "cents on the dollar' the first time, then dressed them up and sold them to the public for "tens of dollars on the dollar", helped bring it all into perspective. The public is being abused financially to the tune of $30 to $60 billion dollars each year, and in large part this is being done "knowingly" in the reckless pursuit of "more" by professionals who are allowed to abuse the system.

With support from the various interested parties, the accounting, finance and legal professions, anything can be packaged up and sold to Canadians. Knowingly tainted investment products can be compounded with knowingly tainted investment advice, and between the self policing accounting and auditing industry, the self policing legal industry, and the self policing financial services industry, riches will abound.

The fact that all too often the public is the "victim" of these financial services is just a side issue.

YOUR Retirement cut in half

2007-06-15T08:46:00.000-07:00

It has been a year since I last updated this blog. I have been busy working on BREACH OF TRUST, a documentary film about the systemic abuses of the public by the financial services profession. I know more now than I ever did while working inside the industry.

I have worked with RCMP IMET on one particularly devious case, talked to numerous politicians, agencies, and concluded that a Royal Commission into white collar fraud in Canada is needed to even fully understand what is going on. The public is being gouged in Canada.

Below is a letter to the Toronto Star in response to a good article by them:

June 15, 2007

To: The Toronto Star

Editor: Mark HeinzlPhone: 416-869-4811 Fax: 416-865-3630 Email: business@thestar.ca

Here are some comments learned while doing research for a documentary film on Canada’s financial services industry. It relates to your good article “MILLIONS FACE OLD AGE POVERTY”, by Rita Trichur.

Breach of Trust, the documentary, continues to grow and get closer to becoming something. It is starting to look like it will provide an “Ontario Lottery Corp” style of disclosure to an industry badly in need. See www.breachoftrust.ca site for some preview material.

Also clear, from the research and study, is that Canadians are being badly gouged by our financial services system. Enough to fund the entire budget for my home province of Alberta each year. I am not talking about, nor am I interested in run of the mill criminals, who break the law and obviously steal things they should not steal. Those should be no-brainers for a seven year old to figure out.

Breach of Trust, is concerned with fraud and systemic abuse of clients, by professionals, by entire industries, major corporations, and at times with apparent assistance from financial regulators.
These things cause lives to be altered, persons to be used and abused, without the recourse of a normal crime. Police look the other way, since it "appears" that all is well. Politicians are not properly informed. Regulators in Canada try and make the record “look good” by not allowing proper investigations to take place. Ever wonder why every major case of securities fraud, or Conrad Black style of case, is investigated by U.S. authorities?

Breach of Trust, the film, is getting around to understanding some of the numbers, but for now, and to be rather conservative, facts would appear to support this statement:

"Abuse of clients, in subtle, often invisible self serving ways by financial service industry professionals, or those claiming professional status in this industry is responsible for enough cost to pay every man, woman and child in Canada at least $1000 dollars." "Each year."

Think about this the next time you hear of the quarterly profit figures announced by your favorite financial institution.
Here are some of the violations of professional conduct that occur daily in Canada’s financial industry:

Self dealing
Misrepresentation………..salesmen calling themselves advisors to mislead consumers into greater trust
Self policing………….(we police ourselves)………any wonder there are no Canadian investigations?
Double dipping……..charging fees on top of commissions, or vice versa
Acting on both sides of underwriting transactions (dual agency) without clear disclosure or understanding by the public.
Underwriting of "please dump this crap" products like some income trusts, ………Eatons...............$25 billion on some income trust analysis.
Intentionally tainted research to support underwritings……………..Nortel?
Mutual fund fees found to be 2% to 3% higher in Canada than world average costs......$15 to $22 billion each year
Proprietary funds....(selling your "house brand" funds)........$1 billion each year
DSC "HIGHEST COMP" selling of funds..........$1 billion each year
Legal exemptions granted to help move junk off the shelf........$X billionlions per yr……..(hundreds of exemptions each year are granted in private to financial firms so they can skirt the law)

Securites Act, industry rules, codes of conduct, mission statements all notwithstanding, these things occur daily inside Canada’s financial industry and are so systemic, to be thought of as “standard industry practice.”

It would be rather easy to find $33 billion in annual costs to Canadians for this kind of "intentionally tainted" investment product. The product is advice, and when the advice given is in the interests of the giver and not the person asking for, paying for, or receiving the advice, it is tainted.

No other industry in the world (outside of China) is allowed to get away with putting so much "tainted product" on the market knowingly for the public to consume.

Canada needs a full Royal Commission into white-collar crimes, frauds, and financial abuses by the industry that promises to serve Canadians.

Last, but not least, this fact. Each mutual fund survey done this year by independent universities from around the world suggests that Canadians pay the highest mutual fund fees in the world........BY FAR..........here is the cost to you.

Squeezing just 2% more profit from each client's mutual fund portfolio (which is included in every investment firms unwritten marketing strategy) will do the following two things:

1. It will cut IN HALF the amount of money each given dollar you invest can grow to after 35 years time.

2. It will place the other half of this cut in the hands of your trusted financial firm.

Results. If your personal retirement target was $1 million dollars, and you were on track to obtain that amount.........this simple 2% trick (which every firm is working hard on) will cut your future nest egg in half and put the other $500,000 into the hands of your retirement planner.

Now you know how those firms announce billion dollar profits.

Ask, no, TELL your member of parliament you want to see a public inquiry into the matter of Canadians being abused by white collar crime, fraud and financial abuse. Or vote for the party that acts like they care about this topic. The very rich of this country no longer need to be subsidized by average hard working Canadians.

Larry Elford (former CFP, CIM, FCSI, Associate Portfolio Manager, retired)
Investor advocate
Lethbridge, Alberta
403 328-0391
http://www.breachoftrust.ca/

Millions face old-age poverty
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RICK MADONIK/TORONTO STAR FILE PHOTO

Jun 14, 2007 12:52 PM
RITA TRICHUR BUSINESS REPORTERTwo out of three Canadians expecting to retire in 2030 are failing to save enough money to cover basic household expenses in their golden years, says a new study released today by the Canadian Institute of Actuaries.
The report, “Planning For Retirement: Are Canadians Saving Enough?,” warns the greying baby boomer generation to either scramble to sharply increase their annual savings or plan to work past age 65 to avoid financial hardship.
"The message for most Canadians in their early to mid-40s is they will need to save more if they expect to enjoy an independent retirement," said the Institute's president, Normand Gendron.
"Governments need to provide Canadians with more education about the role that different savings vehicles can play in generating retirement income, and provide tools and incentives that encourage more households to save."
Canada’s public pension system is not intended to provide all the income needed for an independent retirement, the study said, noting it is only geared to replace about 40 per cent of gross income for households earning the average industrial wage, which was about $40,000 in 2005.
Canadians must act fast to build on this income through some combination of workplace pension plans, registered retirement savings plans, home equity and personal savings, it added.
In fact, actuaries determined a 40-year-old single person earning about $40,000 would need to save as much as 20 per cent, or $8,000, of his or her gross income every year for the next 25 years to cover necessary expenses in retirement. The study found that only a third of Canadian households are currently on track.
The study's findings stand in sharp contrast to a recent opinion poll by Pollara Inc. that found 55 per cent of Canadians aged 40 or older feel some level of confidence that they will have the financial resources to retire comfortably.
Those with retirement savings feel more confident, as do those with a workplace pension plan. Three out of four people surveyed said they plan to retire at or before age 65.

Class Actions for "no class" actions

2006-07-08T16:04:00.000-07:00

We may have to change the name of the documentary. At very least it is turning into several stories of interest, with different information streams.

Class actions are being mentioned at every turn we take.
As we interview industry people, ex-industry people, clients, ex-clients, regulators, ex-regulators, journalists, politicians, wanna-be politicians..........one theme keeps repeating itself:
1. The system is busted up pretty bad, and needs repair.
2. Those who are responsible for it's condition are not about to be the ones to repair it.
3. Lawyers, class actions, huge penalties and similar amounts of shame and disclosure are likely to descend upon various aspects of the industry if what many people say is true.

We are currently in Toronto, but have meetings scheduled back in Saskatchewan, Alberta, British Columbia with more of the above.

Too much to describe. Too much to even grasp right this minute, but I will try and update what I can when I can. Thanks to all those stand up people who truly "stand up" and make thier voice heard about the types of financial abuse we are witness to. Elder abuse. Client abuse.

Abuse of any kind is the responsibility of every single one of us. If any one of us were to stand by without standing up when someone is being abused, I think we would have some serious work to do on ourselves.

The film is starting to be a who's who of people that not only "stand by", during financial abuse, but manage to profit from financial abuse of the public.

film at eleven

FREE RIDER PASSPORT

2006-06-24T20:26:00.000-07:00

further to the last post where I hinted at a free ride Passport system being already in place and already failing to protect the public interest.......................

(by the way, if you can obtain a copy of FREE RIDER, by John Lawrence Reynolds, you may never trust the Canadian financial system again. No it is not a consiracy theory book, no it is not fiction and no I am not shitting you when I say this)
but I digress

I checked on the OSC web page at
http://www.osc.gov.on.ca/Regulation/Orders/ord_index.jsp

and found out just how many PASSPORT type orders etc, that all thirteen of our securities teams have co-operated on

The number of rulings, orders, exemptions to deadlines, exemptions to securities law, etc, etc etc, amounted to SIXTY FOUR listed under the letter A alone, in the year 2004 alone.

If I mathematically extrapolate how many fall under the entire alphabet, for the last ten or so years I come up with a zillion. They may or may not all be Passport approval situations, but enough of them are to ensure that we are being misled by provincial commissions and or ministers when they say a passport system is a new solution. It is not new, and it is not a solution. Unless we want to continue to have our top securities police in each province still able to sleep on the job and be paid for it.

below is the actual exemption that all canadians deserve a royal commission on:

IN THE MATTER OF
NATIONAL INSTRUMENT 81-105
MUTUAL FUND SALES PRACTICES
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
ASSANTE CORPORATION

MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of of British Columbia, Alberta, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Nunavut, the Yukon, and Northwest Territories (the "Original Jurisdictions") and Saskatchewan and Quebec (collectively with the Original Jurisdictions, the "Jurisdictions") have received an application from Assante Corporation (the "Filer") on behalf of itself and its current and future affiliated distributors and their respective representatives from time to time for a decision under section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices ("NI 81-105") that the prohibitions on certain rebates contained in section 7.1 of NI 81-105 shall not apply to rebates paid by representatives to clients who are switching from third party products to mutual funds managed by, or by an affiliate of, the Filer;

http://www.osc.gov.on.ca/Regulation/Orders/2004

documentary shockumentary

2006-06-24T19:16:00.000-07:00

here i sit in toon town. saskatoon to be exact. nice place, very pretty, modern, kind of a calgary without the stressed out SUV drivers, smaller, kinder, slower, and with trees. And that river flowing through town. Wow! Simply beautiful.
Sad that I am here to find out if toon town is home to the country's most desperately greedy financial salespeople. All the signs point to one firm. I got a return phone call from a former worker at that firm today, and it felt like many were in on the pork fest at client expense.

What pork fest?

Well it begins with an application in 1999 for an investment firm to bypass a little securities law. The law is on something called commission rebating, and it is intended to protect clients. It prevents investment firms from paying extra incentives and or kickbacks to clients to incent them to buy crap they would not ordinarily buy.
Extra incentives are usually given to salespersons, and kickbacks to clients to unload dead stock on clients, and by dead stock I am not talking cattle. I am talking about proprietary mutual funds or other less than competitive investment products, but products which make the owners of the firm rich if they can unload them on clients.

The original crime is obvious. Well not obvious, actually, it is quite carefully hidden. But once it is out in the open it becomes obvious to anyone who looks at it.
The backup crime then becomes whether or not the self regulatory agencies will catch this and punish it. Anyone familiar with the industry knows that the self regulators are really and truly trade and lobby groups for the industry, so the answer to this is a definite NO. Whether MFDA, IFIC, IDA, or whatever they are called, the public interest is SOL and the industry is AOK.

Then in steps the crime fighting crew at the provincial securities commissions, right?
Right?.............................................................Hello? Is this mike on?...........................

Turns out the crime fighting crew at the provincial securities commissions have been sleeping at the switch like a late night guard at the water treatment plant. They have a number of "problems", facing them that might make it "difficult" for them to "engage properly". Such as??

problem numero uno: They, ah, how do I put this delicately? They "delegate" all matters of IDA or MFDA involvement down to the self regulator. Let me be clear on this. The provincial securities commissions, of which we have some thirteen in Canada, and people at them earn in excess of a half million dollars a year..........they do not act on the securities act, but delegate many matters to self appointed, self serving, self regulators. Well, not totally self appointed, but these self regulators only have jurisdiction over membership, education requirements, etc., etc. Stuff like that. They DO NOT have authority over, under, or inside the Securities Act of each province. So how do the provincial commissions justify delegating securities act violations to the self regulator? Ask them yourself. They will amaze you at the amount of obfuscation available to their lawyers.

problem number two: There is the small matter of the local commission having GRANTED this firm the legal exemption that allowed them to increase client accounts by some mill...............................sorry, scratch that last line and replace it with, GRANTED this firm the legal exemption that allowed them to increase thier firm's share value to hundreds of millions.

So why would provincial securities police, charged with protecting and serving the public do such a thing you ask? Keep asking? Not one of the gang of thirteen I asked have spoken publicly about it. When I walked into Justice Minister Frank Quennell's office this week, he jumped up to pump my hand like I was a voter. When I broached the subject of my visit, which was, "Frank, why won't the head of your securities agency (David Wild) answer questions on this, and why does he refer me to a lawyer instead of replying? What are these guys trying to hide?"..............well he kind of shriveled up and sank away from me like I was the antichrist.

It felt like I was in school, except I was the principal this time, and he was the poorly behaved child. In my scenario it was always the child who knew he had behaved poorly, but did not have the maturity, or the good sense to admit it, and start to make everything "all better". Instead the child does the Bill Clinton defense of Deny, Deny, Deny, not knowing what else to do. I actually felt sorry for him, watching him squirm. So the entire thing may have actually been inadvertantly CAUSED by the securities commission, in an unwitting and ironic (read PASSPORT) kind of way.

Third little problemo: is the fact that provincial securities commissions are desperately trying to hang onto highly paid employment, despite having been caught sleeping on the job more than once. With the top guys paid over $500,000 per year in several provinces, it comes as no surprise that they feel Canada is better served by having them around. If word gets out that they are useless at investor protection...........and in fact they have become rather incestuous with the industry they regulate......well, anything could happen. They may have to go back to working inside the industry, which is another reason they are soft on anything industry related.

Related to problem number three is the issue of a Niagra-on-the-lake meeting with Frank of saskatchewan, some ministers of finance, some minsters of justice, all those in charge of provincial securities commissions.............to help decide how to "institute" a solution that will allow all those provincial guys to keep their jobs. "Jeez, guys, cant we all co-operate, and maybe approve each others work or something? Lets call it a "passport" system or something, so it sounds as if we are doing something new."

The problem with a "passport" system, where all the commissions will reduce the burden of having to comply with useless paperwork in thirteen jurisdictions...........thirteen jurisdictions in an economy the same size as that of Texas.............................this problem is compounded by the fact that they already have this passport in place. It is called a "free ride passport", and it is exactly what happened with the commission rebating exemption in saskatchewan. As I was talking to Frank, Minister of Justice of Sask, and he was trying as hard as he could to "wish" me out of his office, he gave me the excuse that, "we did not initiate that approval, it was initiated in another province". Yup, I had to give it to him, he was fast. Frank was trying to avoid millions of dollars of damage to thousands or tens of thousands of clients under his care by saying "johnny did it", or perhaps the analogy is better put that, "johnny did it first".
I said, " at the beginning and the end of the day, you still have YOUR department approving something that they now refuse to answer to. How it could possibly be in the public interest".

He said he would "look into it", and get back to me. I can hardly wait.

I got a funny answer from the Alberta Securities Commission. Well, not an answer so to speak, but more of a "go screw yourself". What else would I expect from an agency that spent $1.2 million dollars of industry money (did I mention that our securities commissions, as well as the self regulators are funded by industry?), simply to legally fight whether or not they should be subject to audit by the government auditor??? These guys are not hiding a thing!

So the score is securities commissions thirteen, and public accountability zero.

Talk to your MLA, and ask them if they will find an answer to the burning question?
"In what possible public interest would our provincial securities commission find it to grant a commission rebating exemption to one single investment firm, so they could turn client accounts over to proprietary products (move the dead stock)??"

If they can bodge together an answer for this one, ask them if there was any follow up, or any process to ensure the client protective conditions on this approval were followed up on or investigated?
I intend to ask as many as I can put myself in front of.

Better yet, ask an opposition party to start asking, no demanding answers to these questions.

I will keep you posted on the process and the progress as I go along.

cheers
larry

whistleblower experience

2006-03-07T22:11:00.000-08:00

I got a call from J today. He is moving out of his house due to his obsession with the crimes he has seen and the total inability of the regulatory agencies to get involved. They all choose to look the other way, rather than get involved in a fight with a multi million dollar company. I guess they value the paycheque too much.

I personally think and hope that criminal charges for breach of trust will be in order for those offiicials who have abrogated thier duties for the sake of safety and convenience.

His move is another blow in the process of being witness to clients being abused by financial predators. Our financial system allows for "self regulation", which can sometimes mean "no regulation". It can mean that financial firms police themselves, or have a self appointed lobby group police them. Both cause a not so healthy overdose of the "see no evil", syndrome.

Clients get abused first for thier money, by the predators of the industry. Then they get abused again by the refusals of the self regulators to recognize and punish the financial abuse, then again by the government agencies who are charged with overseeing it all. Government agencies defer all inquiry to the trade association and wash hands of it.

Then, if ones complaint gets as far as the RCMP, they will either not have a clue about financial matters, or refuse to get involved if the firm is large and powerful enough. Some (RCMP) will even refuse involvement without an "invitation to investigate" by securities regulators.

In this case the securities regulators are now on paper as having given the firm a free ride around securities law, so they have themselves become suspects in assisting, aiding and abetting. This is going to make a great book some day.

If after all this, an honest man is not driven to insanity, he is stronger than I. When one whistleblower came up on this kind of bureaucratic failure and indifference he took his own life. Number two has been jailed, humiliated, and treated like a criminal himself. Where will it end? I will do my best to keep taking notes.

2006-02-13T18:01:00.000-08:00

"The IDA is a private organization and can set its own rules.""...the IDA is not an arm of the government. We are not acting as an agency or a delegate of the securities commission." Brian Awad, IDA Legal Counsel

Now the Sask Financial Services Commission has ruled that the IDA does not have the statuatory authority to levy fines on brokers who have departed the industry. It appears that everyone is now willing to distance itself from the IDA now that they have spent all credibility they once had.

The MFDA will not consider merging with them and rightly so. They have had to vote recently to split apart their conficting and contrary roles of industry trade association and industry regulator, before pressure from a more informed public, media and legislators forced them completely out of business.

It is yet to be seen is similar pressure will force the provincial securities commissions out of business, in favor of a better system of one national regualtor Canada-wide. A new regulator might also be more cognizant of the need for investor protection from a rather strongly armed industry. The provincial commissions are in my opinion guilty of delegating (wrongly) all IDA investment firms matters to the IDA itself. This is a bit like convincing the local police to recognize the local biker gang, as a "self regualtory agency", and legitimizing them further by referring all public complaints about biker gang crime, over to the same people.

The commissions have been making this exact mistake for years, and doing it with rather feeble or non-existant legislation to back them up. They get away with it in the same way the ASC gets away with total dysfunction. There is simply no watchdog. They feel they are above the law.
The SFSC decision that they do not have proper statuatory authority supports this. It will be a matter of time before law suits, and perhaps breach of trust criminal charges are considered against "self appointed, self serving regulators", and those government agencies who let them impersonate regulators to thier own personal gain.

From Gomery to...........investments

2006-01-03T22:06:00.000-08:00

It occurs to me that Gomery told the tale of a cancerous level of corruption that spread from the Liberal party out into the industry of advertising. Now I feel we are seeing a tale of a cancerous corruption within the investment industry that perhaps has spread to the government.
The investment industry corruption is many orders of magnitude larger in dollar size and in damage to the public and the country. Peoples money has been used as pawns in financial games that the pro's play. Trust has been abused. Credibility has been spent.
Whether we look deeply into the:
1. income trust issues, (issues of investor suitability, or issues of inside information leaked to those in priviledge)
2. mutual fund abuses like double dipping, DSC self dealing, the corporate lottery of proprietary funds,
3. or basic simple issues like, does your advisor owe you a duty of care and trust or are you on your own or are you in a buyer beware relationship? Does industry owe you an accurate explanation of this?
4. Does your industry even owe you an accurate explanation of what an "advisor" is, and what professional duty they owe you?

When we look carefully into any or all of these and other issues, we find an industry bent on greed, bent of serving itself regardless of the advertising and ethics promises made. Don't believe me? Pick up a copy of THE NAKED INVESTOR, read any newspaper, check out the Small Investor Protection Association at sipa.ca.
Other sites of interest include http://www.investorvoice.ca/, one of the best resources in Canada to shed light on what the industry actually does. Not what they say they do, but what their behavior has given us.
Finally, if you still need convincing, go to http://www.canlii.org/ site of the Canadian Legal Information Institute and type in any investment company by name in the search box. You might be surprised to find dozens, if not hundreds of legal actions underway against any bank or institution. Does this mean they are guilty of anything? No, but where there is smoke, somone better be at very least checking for fire.

Which leads us to the firemen of the country's financial institutions. First line of defense is the Provincial Securities Commissions. When I spoke to a senior investigator at the BCSC about a 90 year old Kelowna man who lost his home to an RBC broker in 2004, they did not want anything to do with it, telling me to, "take it to the IDA". When I informed him politely that some people who know the system feel that the IDA is more of a trade body than a regulator, his reply was "that is how it works".

The problems at the Alberta Securities Commission could perhaps fill a book. My experience with them certainly gives me the impression that they are a dysfunctional organization that at the very least, have no clue or connection to thier role of investor protection. At the very worst they are nothing but industry rubber stamping puppets.

The Sask Financial Services Commission, was faced with 142 pages of testimony by former investment employee Kent Shirley about allegations of wrongdoing he was witness to during his eight years in the business. They chose to refer the file to the OSC, for reasons only they can justify. The employee was left high and dry, his evidence was seized by the very person he complained against (using hundreds of thousands worth of legal muscle), his defense of himself was prohibited by overhanded court orders barring him from even speaking to police or authorities about his complaints. When this occured (it appears) the SFSC dropped his file like a hot potato, saying it was an Ontario problem. The OSC (Ontario) said it was not thier problem. The employee killed himself the next month, and we still have no "competent" inquiry that I know of into his allegations of wrongoing. Wrongdoing, which if true contains abuses of Canadians of an "Enron" size. One other person who dared to speak about the case spent ten days in jail in Calgary this past December. That is how inneffective the SFSC has turned out to be.

The Ontario Securities Commission could probably do with a good book about them as well. Between collecting salaries well over $500,000 at some levels of the commission, doing little to nothing for average members of the investing public, turning a blind eye to the Kent Shirley death and allegations, and turning away legal complaints to a self appointed industry trade organization.....................well, where does one stop the catalogue of failures to serve the public interest?(by the way, in the whistleblower death mentioned in the paragraph above, the OSC was the initial securities commission that granted the firm involved an exemption around the laws against "commission rebating" that was subsequently practiced on many many clients according to the allegations. What are securites regulators doing granting firms the right to go "around the law" to make more money?

Turning to the IDA (Investment Dealers Association) go back to http://www.investorvoice.ca/ if you need a refresher on the IDA, who they are, what they do and what they do not do. Do not go to the IDA web site, as there you will find them talking with a rather forked toungue. Forked from trying to sell two conflicting stories to the public. Story one (where they started) was that of in industry dealers association, much like the Calgary Auto Dealers Association. They were created to protect and preserve the interests of the industry, like any trade association. They even are registered in Ottawa with the Federal government as a lobby group representing the investment industry.

Story two is less clear. Somehow, without clarity to this writer when and how, they "became" annointed as an industry self regulatory agency. Meaning what? They have agreed to grant themselves ability to register, vet, supervise and kick out members as they see fit. They also claim responsibility for standards of behavior of their members. Again, just like your local auto dealers group, although both could probably be guilty of doing much of this with the real motivation of making entry into their business more difficult for newcomers and thus make business a bit easier for themselves.
How they turned this smoke and mirror show into having provincial securites commissions and others actually believing that they were a credible regulator is anyone's guess. I still have yet to have my questions on this answered, and the IDA itself is on record as saying they have nothing legally to offer as a regulator.
See IDA official quotes below from investorvoice.ca.

"The IDA is a private organization and can set its own rules.""...the IDA is not an arm of the government. We are not acting as an agency or a delegate of the securities commission." Brian Awad, IDA Legal Counsel

"First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement." Paul C. Bourque, IDA SVP., Member Regulation, "Penalties needed", Financial Post November 1, 2004

It is like these guys have talked their way into a mormon dance, because they know there are pretty girls inside. How they have continued to fool everyone up to and including the RCMP, IMET commercial crime guys is beyond me. Perhaps, now that they have involved themselves in an insider trading problem (Income trusts) during and involving an election, perhaps this will be the trigger that allows a clear look into these and other parts of the Canadian financial system. It is a system that badly needs a good checkup. It is a system that is so riddled with the cancer of corruption and self dealing that either the patient needs to be shot and put out of her misery, or some farily radical, and aggressive treatments are required.
I look forward to a positive outcome.
investor advocate
http://www.investoradvocates.ca/

investoradvocate@shaw.ca

fourth crime added

2005-10-28T17:48:00.000-07:00

now that the auditor general report on the Alberta Securities Commission is public, we can see the lineup of how many people co-operate to cover up regulatory failures.

First crime is within the industry, when a client, a whistleblower, or an employee is abused.
Second crime is when the regulator brushes aside the complaint without reason, without process, and without realizing that the law has been broken.
Third crime is when said regulator fools their bosses above them that everything is fine, that the complaints you are hearing from the public are unfounded.
Fourth crime is when the bosses above, in this case Alberta Finance Minister Shirley Mclellan buys into the "see no evil" line, and parrots it back to the public.

Each and every one of them has a motive and a self interest in hiding or covering up the problem. Regardless that they also each have a duty to act professionally and in the best interests of those they represent. this does not appear to happen.

If it means that claimants or complaints, made in the last decade or so to the regulator, have to join into a class action and demand recourse for the many failures documented by this regulator, then so be it. It would be rather unfortunate to have to take this step, but it appears as if those in charge just might choose to bury the issue, rather than address it head on.

(on a related issue for but one example of regulatory failure, it has become more and more obvious that the IDA is simply a industry trade body. People have complained of this false role, or "title inflation" when the IDA has tried to proclaim itself a regulatory agency of some kind.
Now it appears ever more obvious that the IDA has the mandate to regulate it's "membership" (registration, behavior etc) only, and not Provincial Securities Acts. With provincial Securities Commissions across the country having delegated (abrogated) thier responsibility for the securities act to this trade association for years now, it is time they are held responsible for the lives, the finances, the careers and the rest of the ruin they have allowed by not doing the job they purport to do.

see IDA and ASC forums at www.investoradvocates.ca for public discussion and progress towards accountability.

2005-09-30T11:06:00.000-07:00

I am beginning to figure out (I think) the cause of what investor advocates find offensive inside the investment industry. The underlying causes are not limited to this industry only, but can be seen in many, many ethical failures. The tainted blood scnadal, accounting scandals, medical, phamacuetical, nuclear power, you name it. Lets take a look at the common themes.

Three essential ingredients and three separate crimes are typically found.

One ingredient is corporate and or personal greed. Found everywhere. Not difficult.

Second ingredient is beaurocratic indifference. Workers etc who just dont care enough to do their jobs correctly. Also fairly prevalent.

Third ingredient is regulatory failure, which may be related to number two above, but more likely is not just laziness. Most regulators find it difficult, if not impossible to admit large systemic problems exist under thier watch, so they become co-conspirators instead. They become part of the problem instead of part of the solution.

First crime is the actual abuse of trust, whether it be a financial advisor taking advantage of his client for personal gain,, child abuse, malpractice, embezlement, bribe, whatever.

Second crime is the cover up, involving individuals of considerable power or influence who were not involved personally in the initial wrongdoing, but whose sense of loyalty is stronger than their attachment to honesty and openness. Since exaggerated loyalty may be the very quality that gives such people power and influence (think Liberal party hacks and Adscam), it is hard to know what can be done about loyalty as self serving weakness.

Third crime is the hoodwinking of police and the public with false assurances that all is well.

(last three crimes taken from the book "DARK AGE AHEAD", by Jane Jacobs, from recommended reading list of Nick Murray, one of the self styled gurus of investment advisor behavior. The book points to the "failure of professionals to self regulate properly" as one of the five pandemic symptoms of a society that is in dangerous decline

2005-09-28T15:50:00.000-07:00

From Wed, Sept, 28, 2005 Globe and Mail article titled, "Ontario ruling clears path for police-misconduct suits".

This article suggests that residents of Ontario can sue agencies for misconduct when substandard performance of important (police) duties. The ruling may have impact on various government agencies that have regulatory rules to follow, and have been accused of ignoring them in the name of convenience or other reasons.

Names that come to mind include the ASC, OSC, IDA, the Competition Bureau and I am sure others will come up over time. Any agency that has a mandate of protection of the public interest and following the rule of law, may be accused of regulatory failure if it is found that they did not follow their own process, or if they followed them arbitrarily and selectively. This story follows a recent news item of a citizen initiative to act as watchdog over police in Ontario, when complaints are made against them.

In the past the police were the ones responsible for investigating the police, and this was found to have some obvious conflicts of interest. In due time many are hoping that this same level of reason will be applied to the betterment of the investment industry reputation in Canada. So far, members of the Securities Enforcement Coalition are saddened to say that Canada is earning a well deserved reputation for being a buyer beware game, as far as consumers are concerned, and the United States is the only player that is enforcing ethical rules. They are even the only player enforcing the rules here in Canada, while we stand by and watch our rep go down the drain.

Motley Fool a valuable Tool

2005-09-27T10:52:00.000-07:00

I found this advice and commentary from the MOTLEY FOOL to be accurate. After many years inside the industry, I find myself agreeing with much of the comments they make.

read along and learn:

NEVER ACT ON RETIREMENT ADVICE FROM ANYONEWHO EARNS A COMMISSION AT YOUR EXPENSE!

Totally independent, practical, realistic help and advicefrom an honest, trustworthy -- if sometimes unpopular -- retirement authority.

Is there anybody out there that's not totally full of it? Not simply trying to put their hand in your wallet?
I understand that when it comes to planning and managing your retirement, you'd probably welcome some honest and authoritative help. After all, most people feel overwhelmed by the future and tend to get bogged down wondering what steps to take now so their retirement lives up to their dreams.
But, to whom dare you listen? Who the heck can you trust, given that the stakes are so high?
Stockbrokers? Ha! They wrecked more retirement plans than anybody when they pushed lousy stocks like Enron and WorldCom right up to the crash.
Financial planners? Estate planners? Nix that too! Most work for big banks and financial firms and are nothing more than insurance or annuity salesmen in disguise. They're after a fat commission that will come out of your pocket.
Your brother-in-law? Probably not! Let's face it -- to really be on top of everything that impacts how well you live in retirement, you'd need to be a tax expert... Medicare benefits guru... stock picker... economist... senior's law expert... and Social Security advisor all rolled into one.

In case you don't remember, while the financial world was trying to convince everyone that they needed help -- that managing a portfolio was more difficult than brain surgery -- we made ourselves thoroughly unpopular by proffering a shocking opinion: "You are the best person to manage your money."
In case you've forgotten, The Motley Fool derives its name from Elizabethan drama where...
Only the court Jester (the "Fool") could tell theKing the truth without getting his head lopped off.Granted, there are mutual fund managers... insurance agents... thousands of stock brokers... annuity peddlers... fancy estate planners... and big-fee financial consultants who would just as soon lop off our heads because we dare to question their results, integrity, ethics, and motives.
(advocate says:
Yes, I was once one, butI found myself not agreeing with so called advisors who took advantage of clients trust instead of respecting clients trust. I was not very welcome in my industry for my views and found myself drummed out of the business as a result.
I am suing RBC, my former employer for practices I found distastefull and not in keeping with their published codes of conduct, as well as for making my work life rather difficult and risky. So far they have not been able to answer the charges very well, and their strategy so often appears to be "drag it out with legal tactics". I will happily wait for my day in court, and find solace in the fact that each day they delay, only adds one more news story about greed, corruption, and irresponsible corporate behavior to the list.

What is wrong with Securities Commission enforcement?

2005-09-15T00:33:00.000-07:00

What is wrong with this picture?
NEWS RELEASE
[Print]
2005/51September 14, 2005
White Rock mutual fund salesperson who committed fraud in stealing clients’ money hit with maximum $250,000 penalty
Vancouver -- The British Columbia Securities Commission has issued the maximum penalty it can against a former White Rock, B.C.-based mutual fund salesperson who defrauded his clients of about $1.6-million during a six-year period.
Paul Robert Maudsley has been banned for life from trading securities, being a director or officer, and engaging in investor relations. He must also pay a $250,000 administrative penalty – the maximum fine the commission can impose on an individual -- as well as almost $60,000 in costs related to the hearing.
A commission panel found that Maudsley and his company, Shaylor Management Ltd. violated the Securities Act in committing fraud when Maudsley convinced 23 clients to redeem about $1.6-million in mutual fund holdings to invest in other securities. Maudsley did not invest any of the money, instead taking the clients’ money for his own use to fund his personal and lifestyle expenses, including, a self-admitted substance abuse problem described by a witness as “his cocaine and gambling habit and alcohol addiction.”
The panel also found that Maudsley failed to deal fairly, honestly and in good faith with his clients – nearly half of whom were elderly or vulnerable.
“He simply took their money, or caused Shaylor to do so – about as stark an instance of deceit as there can be,” said the panel.
“The evidence provides clear and convincing proof that Maudsley had subjective knowledge of the deceit, and that it would result in the deprivation of others.”
Maudsley committed his violations when he was a mutual fund salesperson at Investors Group Inc.’s South Surrey Regional Office in White Rock between 1996 and 2003. He was fired from the firm on Mar. 3, 2003.
The commission panel also permanently cease-traded Shaylor’s securities in the sanctions decision. The firm is permanently banned from trading securities and must also pay an administrative penalty of $500,000 -- the maximum that the commission can order against it. Shaylor must also pay costs of the hearing.
The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province. You may view the decision on our website www.bcsc.bc.ca by typing in the search box, Paul Robert Maudsley or 2005 BCSECCOM 577. If you have questions, contact Andrew Poon, Media Relations, 604-899-6880.
© BC Securities Commission 2004

Here is what Ken K thinks is wrong:

Here's the point. He stole a lot of money and doesn't spend even 5 minutes in jail. Note the low limits on fines in BC.His employer isn't even sanctioned or given a wrist slap fine.Investors don't get a nickle back. Soon , abusive provincial limitations Acts will swing into action putting tight time pressures on investors for civil action.This is the kind of regulatory enforcement regime that simply does nothing to protect investors.ken kivenko http://www.bcsc.bc.ca/release.asp?id=2748

Here is what Larry thinks is wrong:
These Securities Commissions do nothing for investors, and white collar criminals have to practically kill their clients to get any sanctions whatsoever. The crimes described above are so very very obvious that third grade children could do an improved job of sanctioning them and providing some recourse to investors. Where the commissions fail is in the more subtle, more cleverly crafted methods of duping clients of their moneys, by "trained, trusted and professional", salespeople who take advantage of the clients faith and trust.
The securities commissions cannot even make a dent into the various frauds, deceits, misrepresentations in 99% of cases. I feel they do not even have the will to do so, since it would reflect so badly on how they have run the system under their watch. It seems they can only stand by and watch now, while the smarter or more ethical among them are leaving.
Even if they had the ethics to address white collar frauds, they have nowhere near the strength. the RCMP is on record as saying they only have manpower to investigate 5% of the commercial crime reported to them, and I suspect the Securities Commissions are similar.
It is still "buyer beware" for clients and white collar crime heaven for fraudsters here in Canada.

Mutual Fund Industry Sales Practices Study

2005-09-13T08:46:00.000-07:00

Canadians tired of high fees, lack of transparency in investment industry, survey finds
Sep 8, 2005 - Canada Newswire
Investors seeking low fees, transparent pricing, unbiased advisors
TORONTO, Sept. 8 /CNW/ - Canadian investors believe they are paying too much in fees to those who manage their money, and many find the complex fee structures of the investment industry confusing, according to a new survey by Decima Research.
The survey, commissioned by Stratos Wealth Management (Stratos), a division of MD Management Limited, reveals a troubling picture of frustration and dissatisfaction among Canadian investors when it comes to understanding and receiving value for the fees they pay for investment products and services. Stratos is a new business venture from the MD Financial Group, one of Canada's largest independent financial services organizations.
The survey also reveals that while many feel the investment industry lacks clarity and transparency in disclosing the fees investors pay, many have little or no idea what they pay - leaving a large proportion of investors in the dark when it comes to their personal financial management.
"It's clear that investors are dissatisfied with the fees they pay - and those who aren't should be, given the negative effect high fees have on investment returns," says Sandy Wilson, chief operating officer for CMA Holdings, the parent company of both MD Management and Stratos Wealth Management. "Canadians are looking for clear, competitive and transparent pricing - with no hidden fees."
Here are some key findings of the survey:
Investors tired of high fees, low transparency
- 48% of Canadian investors believe they are paying too much in fees, compared with just 40% who are comfortable with the fees they pay. A further 12% don't know one way or the other. Of those who offered an opinion, therefore, 55% believe they are paying too much.
- A surprising number of investors - 43% - believe that the investment industry lacks clarity and transparency in disclosing the fees investors pay.
Investors in the dark
- It seems that the information provided by investment firms is not doing the job. 44% have only "a vague idea" or "no idea" of the fees they pay on the management, purchase and sale of investments by their fund managers, securities dealers or investment advisors.
- Of those who do know what they are paying, 43% report paying 3% or more of their total investment portfolio in fees. Of that number, an incredible 6% claim they pay more than 10% in fees. This contrasts with data from Investor Economics, which show that, on average, Canadians pay between 2.2% and 2.8% of their portfolios in fees(x).
- Individual financial advisors seem to get a passing grade: 67% agree that their advisor or investment company has taken the time to provide information on fees. Still, almost one-third (31%) disagree, notwithstanding regulatory efforts to improve disclosure of fees.
Stratos Wealth Management is modeled on its highly successful parent company, MD Management Limited, part of the MD Financial Group, which manages more than $19 billion in assets. The company plans to leverage this experience by providing wealth management to all busy professionals seeking more customized, comprehensive and cost-effective services.
Stratos is based on a simple idea: offering quality investment products and ongoing financial advice and service - all for a low fee. The new company offers one other point of differentiation: its unbiased financial advisors are measured and rewarded based on client satisfaction - not sales commissions.
About the survey
This telephone survey was conducted with 376 Canadian investors between the ages of 25 and 64 between August 18 and August 21, 2005. It was conducted by Decima Research Inc., on behalf of Stratos Wealth Management. Results to the survey can be considered accurate to within plus or minus 3.1 percent, 19 times out of 20.
About Stratos Wealth Management (www.stratoswealth.com)
Based in Toronto, Stratos Wealth Management is a division of MD Management Limited, one of Canada's largest and most respected independent investment companies. With more than $19 billion in assets under management, MD Management has been serving members of the Canadian medical profession and their families for more than 35 years.
About MD Financial Group
MD Financial Group(TM), refers to various CMA Holdings Incorporated companies offering financial planning through MD Management Limited, mutual funds by MD Funds Management Inc. and MD Private Trust Company, discretionary investment counselling and portfolio management services through MD Private Investment Management Inc., executor and trustee services through MD Private Trust Company, banking referral services in collaboration and through National Bank and insurance products by MD Life Insurance Company and Lancet Insurance Agency Limited.
(x) For Canadian industry wrap products, "The Fee-Based Report," Investor Economics, Winter 2005, p. 87.

Advisor title misleading? Misrepresentation?

2005-08-10T22:24:00.000-07:00

Read this if you are interested in discussion, debate, or the exploring some legal aspects surrounding the question of whether investment advisors are really salespeople masquerading as something that they are not. I am quite willing to be proven wrong on the topic by healthy debate.

Taking a short tour of some of the rules and regulations surrounding the use and or misuse of the “advisor” title, as it is either used or misused by a large majority of investment salespersons in Canada.

Starting with this OSC web site:
http://www.osc.gov.on.ca/Dealers/RegistrantList/regcategories.html#857

This site gives us a glimpse into the more than one thousand (yes,1000) registration categories in the investment industry

1 Category number one, “advisor” is found in approximately NONE of the fifty five pages of registrants at the largest investment firm in the country.

2 Category number 1083 (salesperson)is by far and away the most common category of registration found at this same firm.

And yet, most of the registered salespersons at this firm are claiming the title of “advisor” on their business cards, their web advertising, and their promotions, and have done so since shortly after 1987 in an effort to improve or alter the public image and the marketing results of their sales job.

http://www.osc.gov.on.ca/Dealers/Requirements/OSA/rrq_20050401_osa-ac-securities.jsp

For each individual seeking registration in an advising capacity, we require confirmation of education and investment experience to demonstrate that the relevant proficiency requirements of OSC Rule 31-502 have been met; i.e. the requirements of either per s. 3.1 of Rule 31-502. The details should be provided in the proficiency and employment sections of the 33-109F4. The individual should include letters from previous supervisors, or, in the alternative, the contact information for those supervisors, to confirm the investment experience. This information should be provided in paper format to the Registrant Regulation Section of the OSC.

http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part3/rule_20000623_31-502rule.jsp

(From this page we see the proficiency requirements for advisors, in short, they need to be finished the CIM course or partly finished the CFA course etc. to call themselves this title)

PART 3 PROFICIENCY REQUIREMENTS FOR ADVISERS
3.1 Securities Advisers and their Representatives, Partners, Officers, Branch Managers and Compliance Officers
(1) An individual shall not be granted registration as a securities adviser or a representative, partner or officer of a securities adviser unless
(a) the individual has been granted registration previously as a representative, partner or officer or an associate partner or associate officer of a securities adviser, investment counsel or portfolio manager or as a securities adviser, investment counsel or portfolio manager;
(b) the individual has
(i) completed the Canadian Investment Manager Program or the first year of the Canadian Financial Analyst Examination Program, and
(ii) established that the individual performed research involving the financial analysis of investments for at least two years under the supervision of a registered adviser; or
(c) the individual has been granted registration as such by his or her principal regulator, as that term is defined in National Instrument 31-101 Mutual Reliance Review System for Registration, and that registration has not been suspended or terminated.
(2) An individual shall not be designated by a securities adviser as the compliance officer under section 1.3 of Rule 31-505 Conditions of Registration or as a branch manager under section 1.4 of Rule 31-505 Conditions of Registration unless the individual has been granted registration previously as a representative, partner or officer of a securities adviser, investment counsel or portfolio manager.

“After two decades, I have yet to meet a registered salesperson, calling themselves an advisor, who had actually completed the requirements necessary to lay claim to the “advisor” title. Yet it was used extensively, as mentioned above, for marketing reasons.”

“It was (and is today) misused, in my opinion, in order to lead clients into the false sense of security that they were not dealing with self-interested salespeople, but instead were dealing with client-interested professionals. It was used to lend credibility and trust to client relationships that were then often abused and used to pursue the greatest sales commissions for the occasional bad sales rep. In addition, most of the firms advertising and promotion supported this trusted professional stance.”

“However, when push came to shove, as it did when 92 year old Norah Cosgrove of Toronto took RBC to task in small claims court, their statement of defense spoke to the truth and spoke volumes about the misleading aspect of claiming trusted professional status:

RBC stated something to the effect that at no time were they acting in a fiduciary capacity and they felt they owed “no duty of care” to this and presumably all other RBC clients. See Norah Cosgrove V RBC DS, Ontario Superior Court of Justice, small claims court file no. 03-SC-083313 for the exact wording of their statement of defense.”

“In summary, firms may talk the talk (when talk is easy), but fail to walk the walk. And when called onto the carpet by this disgruntled 92 year old client, to use one public example, they may recant even the talk. I maintain that use of the title, “advisor” on investment salespersons business cards commits each and every one of them to a fiduciary level of responsibility to the client, and to claim anything less is misleading and damaging to the public interest. This fiduciary level of responsibility to the client should and could be used by class action lawyers to obtain redress and compensation for all clients over the past decade or two, who have received a sales pitch by sales people, rather than the professional investment advice, as the firm and the representatives promised instead.”

“For a look to the future, and the potential size of the actions possible towards these firms, see the NASD web site and investor alerts: http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975&ssSourceNodeId=1249

In July 2002, NASD charged a broker with securities fraud involving, among other abuses, purchasing large volumes of Class B shares that kept his customers from taking advantage of the lower sales charges available through different classes of shares.

see www.investoradvocates.ca for discussion forums on this and related topics

Full Price Disclosure (from my local auto dealer)

2005-08-09T17:43:00.000-07:00

"If only the mutual fund and investment selling industry would be as pro-active and forward thinking as the auto selling business". Today it appears investment salespeople are lagging behind auto sales in ethics.

Two points on this topic were recently noted:

My local Toyota auto dealer has begun to advertise that it's salespersons are now called, "product advisors". In much the same manner as stockbrokers and commission investment salespersons began referring to themselves as "investment advisors", a while back. Is the change in name backed by a change in methods? Time will tell, but in the case of the investment business, the commission compensation model is still paramount. It is still either an "eat what you kill" industry for most salespersons, and an "eat what you gather" industry for those who have converted to fees instead of commissions.

Second item, last weekend, I noticed a Cranbrook, BC, Toyota dealer advertising, "full disclosure" pricing on their vehicles. This is a welcome change after the decades of buyer beware pricing tactics found in the auto industry.
If the mutual fund industry were to follow this trend toward openess and honesty in the manners of compensation disclosure (instead of prospectus confusion), it would help considerably toward restoring the reputation of the industry. Without that, it will continue to drive the reputation of the industry into the ground.

The question is, will the auto sales industry step ahead of the investment industry as far as reputation goes...........or will the investment selling industry change course and come clean?

Glorianne Stromberg comments on advisors

2005-07-21T21:16:00.000-07:00

What “professional advisor” means
It usually brings on the legal and moral obligations of a fiduciary nature
By Glorianne Stromberg
Advertisement

There cannot be a financial advisor alive who is not having to deal with the changing expectations of clients and regulators regarding the provision of financial services. These expectations include a heightened emphasis on the advisory role and the need for professionalism. Given the controversy provoked by David Brown, outgoing chairman of the Ontario Securities Commission, when in a recent speech to the Toronto CFA Society he said that financial advisors are professionals with a duty to understand the products they recommend and the risks they entail, it is timely to look at what just what it means to be a “professional financial advisor.” The starting point is to remember that when you hold yourself out as providing advice, regardless of the descriptive words you use, you are representing to your clients that: > You have recognized expertise in your chosen field; > You are competent to provide the particular type of advice you are offering to your clients; > They can rely on you for such advice; and > You can be trusted to act and conduct your operations with integrity, objectivity and in the client’s best interests. This implicit representation normally gives rise to the legal as well as the moral obligations of a fiduciary, whether or not you are exercising discretionary authority. In the days when people simply called themselves mutual fund or insurance “salespeople,” the consequences of being in the advice-giving business didn’t arise. The public knew it was dealing with people whose job was to sell products and that any “advice” given was purely incidental to the sales transaction and usually didn’t create fiduciary obligations.One of the consequences of positioning yourself as a professional financial advisor rather than a salesperson is that you are exposed to being judged by standards that are applicable to professionals rather than salespeople. The common characteristics of a professional with a capital “P” include:> Successfully completing a common post-secondary educational program whose curriculum has been independently and rigorously designed to encompass independently and rigorously identified competencies and is delivered by institutions accredited to do so by an independent oversight body;> Being a member in good standing of a self-regulatory organization that sets standards of practice and conduct that are rigorously monitored and enforced, including standards that prohibit conduct and transactions in which the professional has a conflict of interest or in which the client is vulnerable to the influence of the professional;> Clearly disclosing in a written engagement agreement the services to be provided, who will provide them, what that person’s qualifications are, what reporting will be done, what form the reporting will take, how and when you will be compensated for your services and by whom, what conflicts of interest exist (if any are permitted to exist), and the like; and> Clearly disclosing to the client the amount of the fees and other compensation, including referral fees (if any), that you receive or are receivable in respect of the services you have provided.Professionals with a capital “P”, are not paid on a commission basis. They do not receive embedded compensation from third-party suppliers; they do not borrow money or receive financial assistance from clients or third-party suppliers who are hoping the “professional” will use their services or products. They do not accept incentives from such suppliers. Referral fees (if permitted at all) are strictly regulated, disclosed and flowed through to the benefit of the client, unless the client’s express consent to do otherwise has been obtained. Any deviation from these standards is looked on as being conduct that is unbecoming to the professional and exposes the professional to disciplinary action.These expectations of a professional financial advisor are reasonable ones for clients to have. The industry and the regulators need to work on making sure advisors meet these expectations. IE

(advocate comments...........in court with 92 year old Norah Cosgrove V RBC, RBC used as their defense that they did not owe a duty of care to this, and by similar logic to over 90% of their clients. Industry is still asking for the respect and trust of professionals and yet not able to deliver it so far.

I would go so far as to say that the use of the name "advisor" is misleading at minimum, and quite possibly illegal, (for most salesperson in Canada) according to the definition of who can use this title in the Securities Act.)

go to discussion forums at www.investoradvocates.ca for further

regulators in sympathy with those they regulate?

2005-07-18T16:09:00.000-07:00

A brief comment on “regulatory capture ”

Gabriel Kolko is a Marxist historian, who reworked his doctoral thesis into the The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 in 1963 and followed it up with a more detailed study of a single industry in Railroads and Regulation in 1965. The first thing to note here is those dates. This is not a recent development. "Regulatory capture" is the name Kolko and others applied to a particular phenomenon: when regulators serve the interests of those they're allegedly regulating in the general public interest. It was known before Kolko's work, but regarded as a dysfunctional aberration that sound policy reliably enforced could take care of. Kolko put the heyday of Progressive regulation under close scrutiny and argued that in fact regulatory capture wasn't just common, it was the norm. He found no important exception to it emerging, and usually emerging very early on in the history of a regulatory agency.

Over time, however, regulators and regulatees end up getting to know each other and working together, with or without any real sense of cooperation. Regulatees who provide information and make a show of cooperation earn the appreciation of regulators who find that endless crusade takes its toll in energy, enthusiasm, and efficiency. Regulators find that if they cooperate with their subjects in some areas, they'll get cooperation back on others.

In addition, regulatees who gain the sympathy of regulators as "team players", "responsible, cooperative enterprises", and the like get favors. There's nothing innately sinister about this - we pretty much all give extra consideration to the people we deal with who don't screw us over, help us out, and the like. The problem is that incremental small shifts can add up to big consequences. Over years and decades, the net effect of such tweaks of the course of regulation is to draw the regulatory agency in directions that the public is likely neither to understand nor to feel represents the original intent of the legislation that created the agency. More at Political: Regulatory Capture July 3/02 http://fortunewriter.blogspot.com/2002_06_30_fortunewriter_archive.html Bruce Baugh

this posting is part of the forum titled, "OSC makes is easier for issuers to get exemptions", at the forum discussion site www.investoradvocates.ca for further discussion

Investment Advocacy Discussion Forum Worth a Look

2005-07-10T06:37:00.000-07:00

I am finding less time to post blogs to this site, but the good news is that the forum at:

www.investoradvocates.ca

is reaching more people who either need help or are willing to be of help to abused investors.

Feel free to visit the forum. No registration necessary. Just jump in and give your best.

So far it is working to help educate the public and improve conditions for investors.
cheers
Larry

another OSC town hall question that does not hold true

2005-07-10T06:34:00.000-07:00

39. My financial planner was charging a yearly fee, plus must have been receiving commissions from the mutual funds, which he never disclosed. Is the securities commission scrutinizing this practice?
If your financial planner is a representative of a dealer, then there are rules that require that information about commissions paid for trades be disclosed to you. For mutual fund dealers, commissions charged for a trade as well as amounts deducted as sales, service or other charges are required to be disclosed in trade confirmations.

"this advocate questions whether there is anyone out there who has a trade confirmation that shows how much commission they paid, or the advisor earned, or they became liable to pay, or any trailing commission..............I have never seen one"

IS the OSC right on this one?

go to www.investoradvocates.ca for the forum on these topics and others

The OSC answers one town hall question, and raises more.

2005-06-20T00:06:00.000-07:00

After the recent investor town hall meeting, the OSC invited questions, and promised to answer all. I aksed them about a topic I feel is not only misleading, but contrary to the law as provided by the Securities Act. I think the answer I got confirmed my belief but brushed aside any need for the OSC to do anything about it.
my question:
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?

OSC answer:
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.

Did I get the brush off? Any thoughts out there? I still remain convinced that the use of this title is an abuse of the Securities Act that the OSC would find it easier to overlook. From a client perspective however, it is very misleading to let them believe they are dealing with trusted and professional advisors, onlly to find when push comes to shove that it was not the case.

White Collar Crime in Canada Less Criminal......

2005-06-16T08:33:00.000-07:00

White-collar criminals need own court: study
'Meaningful reform'
Theresa Tedesco, Chief Business Correspondent
June 15, 2005
Securities regulators should place greater emphasis on restitution for aggrieved investors and Canada should create specialized criminal courts specifically for white-collar crimes, concludes a study on capital market enforcement.According to the study, How Effective is Capital Market Enforcement in Canada?, the role of regulators needs to be re-evaluated because of a "disconnect" that exists between how they view their mandate and what investors expect."Securities regulators have historically interpreted their mandate as forward-looking and deterrence based," said associate law professor Poonam Puri during a presentation at the Joseph L. Rotman School of Management in Toronto yesterday. "On the other hand, individual investors who have lost their savings due to the misconduct of regulated market participants are most concerned about being compensated or made whole."

JEFF CHRISTENSEN / REUTERS
What if Martha Stewart had been prosecuted in Canada instead?
To bridge the gap, Prof. Puri recommended re-evaluating the role of securities regulators. "Moving forward, perhaps the securities regulator should act more as a facilitator or catalyst to assist investors in receiving compensation," she told the gathering of 200 investigators, lawyers and regulators.Among the findings in her discussion paper, Prof. Puri, who teaches at Osgoode Law School in Toronto, said securities regulators in Canada have historically been reluctant to pursue quasi-criminal sanctions through the courts - and that in turn has partially contributed to the lack of expertise among judges in dealing with white-collar cases.She referred to existing studies that indicate judges have historically imposed "disappointingly light" punishment on white-collar criminal offenders. According to Prof. Puri, these miscreants were less likely to be imprisoned, received lower average sentences and served less time than offenders involved in more traditional crimes.Although Prof. Puri argued many reasons explain the discrepancy, she suggested the main cause for this leniency is the lack of expertise among most Canadian judges to determine whether an offence adversely affects investor confidence or the stability of the Canadian economy."The Canadian judiciary needs to recognize not only the magnitude and impact of corporate misconduct on large segments of the population, but also the broader ramifications of corporate crime on the Canadian economy," she concluded.To that end, Prof. Puri advocated a two-pronged approach: "meaningful reform" for judges to help them better understand white-collar crimes, which should result in tougher financial penalties and imprisonment; and the creation of specialized criminal courts to deal exclusively with corporate and white-collar crime, similar to those that deal with young offenders and family law matters.Although Prof. Puri did not explicitly recommend the creation of a national securities regulator, she suggested the significant differences in enforcement trends among Canada's 13 provincial and territorial securities commissions "may have an adverse effect on enforcement."For example, Ontario is focused on registrant-related misconduct and prosecuting insider trading, while British Columbia has made it a priority to clamp down on the distribution of securities without a prospectus.At the same time, she said the commissions differ on how they dole out punishment at sentencing. To wit, Alberta does not take into account the personal circumstances of the person or company being disciplined, while regulators in Ontario, New Brunswick, Saskatchewan and Manitoba do make it a factor.As a result, the differences among the multiple provincial regulators "may lead to sub-optimal enforcement actions being taken on the whole, in contrast to a national or consolidated regulator, which would be more likely to act in the national interest," she said.As well, Prof. Puri said a national or consolidated regulator would enhance enforcement effectiveness in Canada because it would allow policies and priorities to be created at a national level and reduce costs to regulators and market participants.Not surprisingly, her paper reiterated the widely held view that when compared with their U.S. counterparts, Canadian regulators do not engage in enough enforcement activity and are less effective when they do.To support her assertion, Prof. Puri cited statistics that showed Canadian securities devote a smaller percentage of their total budget to enforcement than their U.S. counterparts. For example, the enforcement costs at the Securities & Exchange Commission represent 29% of the total budget. That compares with a range of 13% to 19% at each of the four major Canadian provincial securities commissions.As well, Prof. Puri found financial penalties are 10 times higher in the United States than the average Canadian fine.Furthermore, many of the high-profile white-collar cases in the U.S. have been pursued by attorneys general, such as Eliot Spitzer in New York - not the SEC. In Canada, Crown prosecutors have not embarked on a sweeping crackdown on corporate and white-collar crime.

Perfect logic by financially abused client

2005-06-14T18:17:00.000-07:00

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)
You belittle that which Stan Buell, Joe Killoran, Robert Kyle etc., have sacrificed so much of their personal lives to achieve.
Sandra Gibson, Toronto

Securities Regulators in Canada follow similar line

2005-06-14T12:10:00.000-07:00

At most times, investors feel they are protected. At all times, provincial Securities Commissions say they are doing thier job. However many within the industry feel otherwise, that most investment abuses are slipping through the cracks and that regulators are mostly "posing".

The below article sheds some light on the kind of information the public needs to learn about, so that they can stop being misled into a false sense of security in matters if investment protection. The article pertains to RCMP investigations not having the people power to do the job, and most securities commissions use the same excuse when seriously questioned............they just dont portray this truth to the public.

http://www.fin.gc.ca/news05/05-041e.html

How ironic???

Sun, June 5, 2005
Dirty money tips ignored
Mounties fail to pursue one-third of financial sleuths' files, report says

By DEAN BEEBY, CP

The RCMP did not pursue more than a third of the money-laundering tips passed on by Canada's financial sleuthing agency, largely because the force lacked the manpower, says a newly released report.
The Mounties did not open investigations on 45 files turned over to them by the Financial Transactions and Reports Analysis Centre of Canada, better known as Fintrac, says the document.
The agency was established in 2000 to gather financial intelligence from banks and other institutions on potential money-laundering schemes. After careful analysis, Fintrac forwards information on the most suspicious transactions to the RCMP and other police forces. The agency also monitors terrorist financing.
'LIMITED RESOURCES'
An internal Fintrac report, obtained under the Access to Information Act, found the Mounties did not chase 45 of the 131 high-quality tips the agency had produced to the end of 2003. Virtually all of the cases not pursued were suspected schemes in Vancouver, Toronto and Montreal, where the force places most of its proceeds-of-crime investigators.
And about three-quarters of the abandoned tips were not investigated simply because the RCMP had "limited resources."
"There is no shortage of evidence against these individuals committing crime, just a shortage of investigators to bring all the criminals to justice," says the 31-page report from 2004.
The findings suggest the extent of money-laundering in Canada, most of which stems from drug trafficking, far exceeds the ability of the RCMP to investigate.
Fintrac found that the Mounties were abandoning almost half of the tips they were given in Canada's three biggest cities.
The report also showed that cases were much more likely to be followed up if the suspects' names were already in the Canadian Police Information Centre database, which contains criminal records of known offenders.
The value of the suspected money-laundering schemes appeared to have no bearing on whether the tip would be followed up. Six of the abandoned files were worth more than $5 million.
CRIMES UNKNOWN
The Mounties also tended to avoid files where the original crime that produced the allegedly laundered money was not known.
A spokeswoman for the Mounties said even though some disclosures from Fintrac are set aside, the information may still be useful at some future date.

Illegal in US, Standard Practice daily in Canada

2005-06-09T20:41:00.000-07:00

NASD fines RBC in the United States $1.7 mil for mutual fund mishandling. Article from June 9, 2005 Financial Post describes the fine. The NASD web site is a wealth of information on investment abuses in the United States. Unfortunately, Canada's regulatory system still allows almost any and all abusive mutual fund practice to continue unchecked. I still do not understand how this occurs, but I am sure the class action lawyers will figure it out and eventually correct it in Canada. It is, after all, a multi billion dollar damage to clients if you look carefully at double dipping, triple dipping, churning DSC funds, moving clients to proprietary and higher comp funds, adding advisor fees to inactive accounts, prescribing the highest comp fund under the guise of "professional advice", etc., etc., etc.

ASC Hobbled, Edmonton Journal

2005-06-08T16:27:00.000-07:00

Fixing the hobbled ASC should be a priority:Alberta's powerhouse economy deserves first-class watchdogEdmontonJournal Saturday, June 4, 2005 Page: F1 / FRONT Section: BusinessByline: Gary Lamphier Column: Gary Lamphier Source:

The Edmonton JournalIf the Alberta Securities Commission was a publicly traded company, theevents of the past six months would have been crippling. In alllikelihood, the ASC's share price would have tanked, its shareholderswould be in open revolt, lawsuits would be flying, senior execs would bejumping ship (as indeed some are), and company directors would benervously checking their liability insurance. An independent committeeof the board would likely have been struck to explore the damagingallegations against senior management, contained in a report presentedto the ASC board in February. In the brave new world of corporategovernance, this is called transparency and accountability. But the ASCisn't a public company. It's an arm of the Alberta government. And as such, it is neither transparent or accountable, in any meaningful way.It is, in fact, subject to all of the usual meddling and politicalsubterfuge that afflicts any government body, especially in a one-partystate like Alberta. Most of the time, this wouldn't matter much to manypeople. Most are simply too busy making a living to care much about thearcane goings-on at the provincial securities regulator. Besides,compared to the stench exposed daily by the Gomery Commission, thesleazy vote-buying antics of the federal Liberals, or the possibility ofsex-killer Karla Homolka moving into your neighbourhood next month, theongoing soap opera at the ASC might seem more cartoonish thancataclysmic. After all, Alberta's economy is on wheels, the oil and gassector is booming, everyone is making money, and business is good. Sowhat if some disgruntled ASC staffers claim former chairman StephenSibold and exec director David Linder ran the ASC like a private club (aclaim they deny)? And so what if the ASC was seen by 10, 20, or 30staffers (sorry, I've lostcount) as a bastion of favouritism, bullying, intimidation, sexistjokes, and lax enforcement practices? What's the big deal, you mightask. Even if (as some say) relations between staff and ASC bosses remainpoisonous under interim chairman Peter Valentine -- an ex-provincialauditor who was brought in when Sibold's five-year term ended in May --you might see this as much ado about nothing. Every company has unhappyemployees, you may say. The kind of rapid staff turnover we're seeing atthe ASC -- where four executive positions are now vacant, including thatof former legal services director Patty Johnston, who left Tuesday -- ishardly unique. So what if a few people get fired, a few self-styledwhistleblowers get exposed, and the remaining staff learn to shut up andtoe the line, you may ask. You might even agree when Alberta FinanceMinister Shirley McClellan, who oversees the ASC, calls this strictly aninternal matter. Well, I'm afraid I don't. There are big issues at playhere. Alberta is an economic powerhouse, with world-class companies thatcompete for international capital. We can't afford a securitiesregulator that's so badly impaired by internal strife that it can't doits job. This isn't merely a messy in-house personnel spat between ASCstaffers and management -- a dispute that was first uncovered byFinancial Post reporter Theresa Tedesco in March -- it's also areflection of Alberta's parochial view of how to regulate the capitalmarkets. Like many other provinces, Alberta has long opposed thecreation of a national securities regulator. Forget the fact that theASC, like other provincial regulators, has far fewer enforcement staff,per capita, on its payroll than the U.S. Securities and ExchangeCommission. Or that scams like Bre-X and YBM Magnex were born right herein Alberta. For the provincial government, any talk of a nationalregulator is a non-starter. "Maybe a national securities commissionwould be ineffective too," says Toronto forensic accountant Al Rosen, avocal critic of the current regime of provincial regulators. "But Ican't imagine it being worse than what we have now. I think in general,investors should be very concerned." Amen to that, Al.

Ken Kivenko describes a complaint process

2005-05-31T15:55:00.000-07:00

When the ombudsman comes calling

You’ve filed a complaint regarding bad advice and unsuitable investments that cost you money. At some point the ombudsman (or customer service or compliance officer) will come calling. You should assume that they are an adversary trying to nullify your complaint or minimize the amount of restitution. Ombudsman use the same biased restitution decision criteria as the firms that employ them or fund their operation. Don't be taken in by comforting words or a friendly smile. Your goal is to get your hard earned money back. If possible, have a friend or relative accompany you on any visits to act as a witness. Frankly, we view prevailing dispute resolution mechanisms and practices as industry- biased and unfair to small investors, seniors, retirees and immigrants. It is not an exaggeration to classify industry malfeasance as financial assault. There’s a reason Ombudsman don’t conduct or publish client satisfaction surveys –less than 1 person in 20 wins and of those, very few get the full amount of the claim.

First off, you don't have to answer every question they ask. You do not need to provide information that will be harmful to your case or is not relevant to your case. For instance, if they discover that you have substantial assets elsewhere they may attempt to argue that you implicitly have a high loss tolerance. They can and will use any data you provide against you if it helps limit restitution

Second, don't let your ego get in the way. If you really don't understand what that e-commerce fund was all about don't fake it. Ombudsman often try to present clients as more investment savvy than they really are. This provides them an argument for disqualifying or reducing claims. If the advisor didn’t prepare a Investment Policy Statement {IPS] for you or he/she breached it, your case is enriched. An IPS is regarded as one of the most basic documents between clients and advisers. The lack of an IPS is a sign of unprofessionalism. Note too that an unsuitable investment could also include one with inappropriate leveraging, a DSC early redemption penalty or one that causes you to be unduly exposed to tax liabilities. An adviser’s failure to effectively disclose investment risks, hidden commissions and high fees are also part of the equation-inform the investigator if this is the case. If you discover the brokerage firm or dealer failed to tell you that it received extra payments or incentives for recommending specific funds, your claim position is enhanced. The Portus hedge fund scandal is a recent example .

Third, they will point out to you that your monthly client statements clearly indicated you were losing money. So, they argue, you should have mitigated the losses and not let them accumulate. If however the statements are hard to interpret, you were told to buy-and-hold or cautioned that a whopping DSC early redemption fee would be applied, you'll have a stronger case. If you or your spouse were in ill health during the period, make this known to the investigator-this highlights the reason that loss mitigation wasn’t your priority at a time of serious family distress. There is an inherent conflict between the advice that mutual fund and stock investors receive to ride out the market downturns and stay the course for the long haul, and their duty to mitigate their losses as asserted by Ombudsman. If the firm's marketing literature portrays them as professional advisers, you should hand a copy to the investigator. Don’t hesitate to cite any firm –specific or industry conduct rules such as those from the MFDA (www.mfda.ca) or IDA (www.ida.ca) that support your position. Advisors have a role in loss mitigation; in fact the industry emphasizes that investors with advisors achieve better performance than those without. The stated purpose of ongoing embedded trailer commissions is to provide investors with continuing advice with respect to their portfolio, so hold them to it since you’ve already paid for it. If they didn’t suggest disposing of unsuitable investments, their case is weakened. Financial advice isn’t only about buying –it’s also includes selling.

Fourth, they may concede that you were sold inappropriate investments but may unfairly attempt to limit your compensation. Specifically actual market losses, sales commissions paid, DSC early redemption penalty fees incurred, impact on taxes especially in RRIF’s [gross-up], account closing fees, account transfer fees and accumulated interest from the agreed date of loss to the time of restitution payment should be included. Some argument can also be made for recovering the costs to file the claim if it involved out of pocket expenses to independent third parties to assist in articulating the complaint.

Fifth, Ombudsman also believe that inaction is evidence of agreement. Thus acquiescence on disputed unauthorized trades, will be used to negate claims. There should be positive two-way communication between a consultant and client. Since the consultant is the one providing advice, the obligation is there for confirming a transaction and ensuring the client understands the rationale for the transaction .If you have any evidence you queried the transaction, bring it forward.
Sixth, they may attempt to encourage you to walk away or settle for a token amount. You will be given a take- it- or- leave- it date for a decision on their proposed restitution. You might counter by demonstrating a strong level of determination. Some cases have settled successfully perhaps because of the threat of complaining to superiors, informing regulators, contacting the media or even involving law enforcement. In a presentation to the Ontario Legislative Committee on Finance and Economic Affairs, August 2004, John Hollander, a litigator, with the Ottawa firm of Doucet, McBride LLP, offered some insightful comments about the IDA and the OBSI. Mr. Hollander stated:
“The IDA and the OBSI routinely provide legal advice with substantial consequences to the investor and without accountability to the investor for the accuracy of the advice given. They tell clients there is no validity to the claim. The IDA and the OBSI provide legal advice, with neither the safeguards nor the accountability that apply to my profession. They tell clients their claims are ill-founded. My settlements and experts prove these opinions were wrong. Simply put, the IDA and OBSI are practicing law without a license”.

Finally, be aware that your NAAF or KYC may be used to support their argument. that you were greedy and willing to take on substantial risk. The problem with NAAF’s is that the terminology is imprecise and too often the salesperson fills in the form and has the client sign them. We are also aware of cases where clients signed blank forms and advisers signing on behalf of clients to provide a paper trail to cover their improper actions. KYC’s are notoriously inaccurate and often outdated -sometimes they are retroactively fabricated or altered to legitimize them. If you can demonstrate that your risk and loss tolerance is less than they portray, your case will be enhanced and the controversial KYC moved off the evidence table.

It seems fundamentally wrong to put the onus on the small investor who has lost a significant amount of their savings to prove his case, and accept the commission motivated adviser's word rather than place the onus on the firm to prove that they had taken every precaution to prepare an appropriate investment strategy that would not place a senior, retiree or trusting investor at risk of unacceptable consequences.

If the financial services industry insists on investors being liable for ascertaining whether the investment products sold to them are in fact suitable for them, and that investors are solely responsible for mitigating their losses when they become aware that something is wrong, then it is indeed a BUYER BEWARE industry.

There is a lot more to cover when dealing with an industry- paid or industry -sponsored ombudsman and we'll discuss these points in future issues. For now, this little article should heighten your awareness of what you’ll face and how to deal with some of the ploys.

Ken Kivenko April, 2005

Eliot Spitzer does the job, where others fail to

2005-05-30T12:39:00.001-07:00

NY-AG Eliot Spitzer has explained clearly why he takes action in the U.S. securities marketplaces:
1. "if the agencies of the federal government—the SEC, the FDA, the FCC, whatever—abdicate their authority to protect that marketplace, Spitzer says, "I view it as my responsibility to twenty million New Yorkers who are investors, who work in the marketplace," to assume it."

2. "We need competition. . . . . I understand that a market needs to have rules by which it lives. If you have a marketplace unbridled by rules that mandate integrity and transparency, then the market will not work."

2005-05-30T12:39:00.000-07:00

"The Naked Investor" Tells It Like It Is

2005-05-30T06:42:00.000-07:00

Sunday, May 29, 2005Book reveals top investing pitfalls
By Michael Kane CanWest News Serviceâ€”Vancouver
John Reynolds is the author of The Naked Investor: Why Almost Everybody But You Gets Rich on your RRSP. CanWest News Service

Hans Merkelbach says he works in a business that stinks. Hans a financial adviser in an industry where most practitioners sell products instead of investment advice.
They do it because they can make a lot of money. More than many of their clients will make from the investments theyre cajoled into buying.
Merkelbach, of Bowen Island, B.C., is one of the real-life characters introduced in The Naked Investor, an explosive new book that chronicles the dark side of Canada's self-serving investment industry.
Disturbing experiences
By recounting a disturbing and sometimes moving collection of true investor experiences, author John Lawrence Reynolds dishes the dirt on how advisers can maximize their earnings, while leaving clients exposed to massive losses.
He also shows how regulators are failing to protect the ordinary investor.
Even when a few investors manage to win partial redress for bad advice, theyre prevented from alerting others by confidentiality agreements and gag orders designed to shield both the offending stockbroker or mutual fund salesperson, and his or her company, from claims by other victims.
Damning indictment
The book, sub-titled Why Almost Everybody But You Gets Rich on Your RRSP, presents a damning indictment of a system driven by greed and duplicity.
Its not about the different branches and techniques of the financial services industry, although it does show readers how they and their money are being manipulated.
Its about people and their personal experiences, coupled with practical advice that hopefully will convince many of Canada's six million RRSP investors that they can do a better job of watching over more than $400 billion in their accounts.
Rescues woman
Merkelbach, 71, enters the narrative when he comes to the rescue of a middle-aged woman who had helplessly watched her $400,000 retirement nest egg lose more than half of its value in the hands of a condescending Toronto insurance salesperson that she had considered her friend.
Most of the account was invested in abysmally performing segregated equity mutual funds carrying management expense ratios as high as four per cent or more. That meant the funds had to earn at least four per cent to pay annual fees to the adviser and the fund manager before they could earn anything for their owner.
As with all mutual funds, the adviser and the fund manager still got paid when the client was losing money.
To make matters worse, the funds were sold on a back-end load basis, which meant the adviser was paid about $20,000 up front just for placing the funds with a life-insurance company, while the investor faced exorbitant penalties if she chose to transfer her money to a better home.
The woman eventually paid $13,000 to correct a mistake that somebody else had made because the back-end load (also known as a deferred sales charge) applied to the original value of her investment, which was twice as high as the funds were worth.
Unlike many of the stories in The Naked Investor, this one appears to be on track to a happy ending. After three years with Merkelbach, the $140,000 left from the original $400,000 has grown to $330,000. The client is free to move her money at any time because Merkelbach does not sell deferred-load funds.
He is well compensated by trailer fees payments by fund managers to advisers typically amounting to one per cent per year of the assets under management and he says thats reasonable because he earns more when his clients earn more and less when they earn less. He doesnt scoop five per cent up front by saddling his clients with onerous penalties if they become dissatisfied with the way their money is being managed.
Unfortunately, many advisers do just that, often with the excuse that it helps to dissuade clients from bailing out on long-term investments when the market is in one of its periodic downturns. That kind of self-serving argument gives the industry a bad name, Merkelbach said.
When I see one of my clients, a very intelligent man, give $700,000 to an insurance broker in Vancouver who sells him six deferred-load funds and makes a $35,000 commission for writing up a bunch of papers, I think, boy, this business still stinks.
Industry shortcomings
Reynolds is inclined to agree. In a telephone interview from his home in Burlington, Ont., he said industry problems are probably equally divided between lack of transparency and the commission-based system which makes every adviser a salesperson.
He believes the industry doesnt want Canadians to know how it makes its money, or how basic the process of making investment decisions can be.
Somewhere along the line, we have to ditch the commission system, he said.
If you visited your doctor with the understanding that your physicians entire income is based upon the commissions that pharmaceutical companies pay him or her for the drugs he or she prescribes, how much faith would you have in your physicians advice? I think the parallel fits exactly with the financial investment industry.
Reynolds, the award-winning author of Free Rider: How a Bay Street Whiz Kid Stole and Spent $20 Million, isnt suggesting Canadians hide their money under the mattress. He says people need professional advice, and most financial advisers try to be professional and are as honest as any other group of Canadians.
The point of the book, frankly, is to alert people to the need for educating themselves where financial matters are concerned.
Pointedly, he says the average seven-year-old child in Canada knows more about sex than his or her grandparents know about investing. Thats a dangerous situation when vultures, jackals, ghouls and everyday thieves are after your money.
Vancouver Sun

Comments from Burgandy Asset Management

2005-05-29T07:03:00.000-07:00

http://www.burgundy-asset.com/feb-99.asp

Too Many Regulators, Not Enough Regulation
Some free market ideologues would have us believe that regulation of all kinds is evil, and that if markets are allowed to operate freely, in financial services as in everything else, the world would be a better place. Tell it to the Russians. In the case of stock markets and financial systems, intelligent regulation is essential. The financial sector, with its vast amounts of the public’s money sloshing around, attracts crooks like no other area. Stern and consistent regulation is necessary to protect the public and maintain its confidence in the country’s financial system.
Canada’s current regulatory regime is execrable. Ten provinces share the responsibility for regulating securities markets with five stock exchanges and the Investment Dealers Association, in a world where national borders, let alone provincial ones, are increasingly irrelevant. Penalties for violations of securities laws, which are rare as hen’s teeth in any event, are applied on a province-by-province basis, meaning that scoundrels can always find a new playground. The money that is used to support small, inefficient and ineffective provincial securities commissions could be much better spent in ensuring that the public is not defrauded and bilked by any of the legions of flim-flammers who are attracted to any financial market, but especially a badly-regulated one like Canada’s. The only law obeyed in Canada’s capital markets on a national basis is Gresham’s Law, as provincial regulators and stock exchanges indulge in “one-downmanship” and take their standards to the lowest common denominator.
There have been recent reports that the provincial securities regulators have agreed on a “virtual” national securities agency, to be called the Canadian Securities Regulatory System (CSRS). They will pool their scant resources to try to eliminate some of the waste and inefficiency that make the current system so burdensome to the law-abiding and so helpful to the others. More money would be available for such things as compliance and enforcement, and some standardisation would be possible for prospectus filings. It might be progress compared to the current system, but would still be less effective than a full national securities commission. The main reason for the “virtual” structure appears to be that Alberta fears the domination of Ontario in the securities field, and petty interprovincial rivalries are a poor basis for joint action. We doubt if the proposed CSRS will get us out of the bush leagues anytime soon.

Lessons Learned – Regulators
A national securities commission is by far the best way to go. It is also, in the Canadian political context, probably an impossible dream. Quebec has not been in the habit recently of releasing any areas of control to the federal level, and Alberta’s and British Columbia’s fear of Ontarian hegemony in securities regulation (despite the smaller markets’ lack of resources to do the job) has scuppered any recent attempts to centralise Canadian regulation.
We should point out that the problems with the Canadian regulatory system are structural in nature, and our remarks are not aimed at the many hard-working and well-meaning individuals who work for provincial securities regulators. We have had some exceptional people working at securities commissions in Canada, but they are usually people who are not career regulators. Often, they are fast-track lawyers, joining the securities commissions almost on a pro bono basis. What is needed is a seamless, national, full-time, fully-funded, tough and consistent regulator for the securities industry, someone to “kick butt and take names” in the memorable American phrase. If the proposed Canadian Securities Regulatory System is able to do the job, we will be the first to give three cheers and congratulate Canada’s provinces. But we hope we can be forgiven for a degree of scepticism.

Conclusion
If these lessons are applied by Canadian investors, auditors, regulators and stock exchanges, those of us who have suffered from our country’s loss of reputation in 1997-98 may be able to hold our heads up among our international peers, and our country will be able to start realising its full potential.
It’s time for the Canadian capital markets to grow up

Who is Telling the Truth? IDA, ASC, OSC, NFG?

2005-05-26T23:33:00.000-07:00

Having just received another carefully worded letter from the ASC, about how they feel they must delegate all matters concerning an IDA firm to the IDA itself........I am still stuck on the logic.

Why would a government securities regulator hand off securities regulation duties like enforcing the securities law to a bunch of industry trade representatives, a dealership association if you will. It appears a lot like a government consumer protection agency delegating auto dealer complaints (investigation and enforcement) to the local auto dealers association. It is neither practical nor possible to expect it to work, and in fact it is becoming increasingly clear that it is not working in Canada.

Only people who have six figure jobs in provincial securities regulation seem unable to grasp this. Perhaps they are a bit too busy figuring out how to outlive the changeover to a national securities regulator, to do the job of investor protection that they claim to. If so, that is understandable. Just not to me.

I also do not understand how a kind retired, single nurse, could write to the ASC, with evidence that her account had been not just double dipped, but turned into one more "advisor account" without benefit to the client, and thereby triple dipped.............and the ASC does nothing. Simply refer it to the dealership association. When insiders at investment firms write of elder abuse, investment abuse, double dipping etc., withint the industry, what does the ASC do? Investigate and get to the bottom of it? No. Refer it to the dealership association. End of career for anyone willing to tell the truth of investment abuses.

They turn it over to the IDA. Of course the IDA does nothing, since they are the representatives (dealer association) of the Investment Dealers. Set up and funded by same. they are the LAST folks in Canada who are going to blow the whistle on widespread abuses within the investment industry. They tend to only deal in matters of individual advisor wrongdoing, the rest is just not possible for them.

To view the best research anywhere on the IDA, and perhaps on the industry overall, go to the site www.regulators.itgo.com

There you will find enough information to convince you that Canada is a mostly unregulated, buyer beware investment climate. Your only hope is to find an honest investment advisor.

Here from this site by way of example are two different and conflicting stories from IDA executives, depending on whether they were in advance or retreat mode.

For the Record

Joe Oliver,
President, IDA
"The IDA is Canada's only national entity with delegated responsibility for securities regulation and investor protection." - Joe Oliver
Evidence given before the
Senate Standing Committee
on
Banking, Trade and Commerce
02 November 1998

6 YEARS LATER (almost to the day)
Paul Bourque
SVP Regulation, IDA
"First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement." - Paul Bourque
Penalties needed
03 November 2004

Given that the IDA appears to not even be clear on what they are, what they do, and what legislation they are following...........how are we to believe that the law is being followed when the Alberta Securities Commision (or Ontario, or others) reduce their own workload by referring all related complaints to the IDA.

The chickens (clients) are complaining of abuse in the henhouse, and their complaints are all referred to the Fox's Association (IDA). The ASC is in the job of doing..............what again? Protecting the public, or protecting their incomes? Shame.

Here is what is wrong with Brown's speech

2005-05-25T22:01:00.000-07:00

(see "What is wrong with this speech article previous for OSC chair David Brown's action on Portus)

In it, he dodges responsibility for hedge funds, by saying they do not fall under OSC jurisdiction. Despite the illegality of unsuitable investments under the Securities Act. Despite the number of improprieties it took to get this investment marketed to thousands of Canadian clients, he appears ready, willing and able to do...................nothing.

He told the Toronto CFA Society that advisors should be held accountable for any inappropriate investments made by clients they referred to the firm. Yet while he talks the talk, and collects the highest paycheque in the land as the top securities regulator in Canada, it seems as if the punishment he is metting out to advisors making innapropriate and perhaps self serving advice to clients is to do............................nothing. Perhaps a stern speech. A bit of a talking to.

I found this line funny: "Many advisors have said the focus on referral fees has been unfair, saying that if they were simply "in it for the money" they could have earned more by selling their client a DSC fund. "

Funny in that 80% of all mutual funds sold in Canada (by advisors) are sold to clients under the DSC option. Are they giving investment advice, or are they "in it for the money"?

See warnings about selling the highest compensating class of mutual funds at the NASD (National Association of Securities Dealers in the US) web site for possible clarity on this issue. http://www.nasd.com

Once again I ask the question: Why are investment practices that are immoral and illegal in the United States, considered, "standard industry practice", in Canada?
The problems are so widespread and so systemic, that the poor regulators are unable to even take the first steps in Canada. they just show up, take the $000,000 pay each year, misinform the public that they are protected, and then move on to leave the system no better off for average Canadians. Very misleading.

Pointing out that hedge funds are not regulated by the OSC, Brown urged all investors who are interested in such products to, "be sure they understand what they are getting into". Ouch! What a stern talking to. I am sure that bold action like this will change the world. This sounds to me like telling criminals to "be sure and remember to register your weapons".

This inaction is of no use and little value. Forgive me my bitter tone, but without serious action, we may have just witnessed another multi-billion dollar consumer rip off successfully done in Canadian style, under the view of the country's top securities cops. And off they ride into the sunset..............to do more good work.

What is wrong with this speech?

2005-05-25T22:00:00.000-07:00

Brown: You can't sell what you can't understand
Steven Lamb
(May 10, 2005) In one of his last addresses to the investment community before leaving his position as OSC chair, David Brown told the Toronto CFA Society that advisors should be held accountable for any inappropriate investments made by clients they referred to the firm.
"There may well be some issues to address in relation to the manufacturers of some of these investment products. But the responsibilities of the intermediaries involved are clear," said Brown. "They are professionals with a duty to understand the products involved and the risks entailed."
While refusing to answer any specific questions regarding the investigation into Portus, Brown concedes that the OSC is more focused on the advisors who sell complex products, than on the manufacturers of those products.
Some question whether there are gaps in the current regulations which allowed Portus to be sold to inappropriate clients in the first place. Brown disagrees, saying the "know your client" rule places the onus on advisors to understand the products to which they direct their clients. If they don't understand the product, they cannot possibly consider it to be suitable.
"In fact, the complexity of the foreign intermediaries involved in the international aspects of the transactions — and the lack of regulatory compliance by Portus — has made it difficult for investigators to understand this product after months of forensic accounting," Brown admitted. "You can't apply any particular investment recommendation to the client's needs, unless you have an understanding of the risk attributes of the investment."

Much of the furor over Portus is that as a hedge fund investment, it should only have been available to accredited investors. When asked if the industry has been able to sidestep such rules, Brown said it was too early to tell and he had seen no evidence of this.
"We're working with the two SRO's — the IDA and the MFDA — to make sure that our rules are adequate," he said. "We are quite prepared to look at our own rules and make sure they are explained well enough, but we also want to make sure they are being complied with by those who are out making these investment recommendations.
"What everybody involved in the recommendation of complex financial products needs to do is to reassess their understanding of the product, reassess their commitment to investors, to make sure that products are suitable for them and to make sure they are motivated with the best interests of their investors in mind."
Many advisors have said the focus on referral fees has been unfair, saying that if they were simply "in it for the money" they could have earned more by selling their client a DSC fund.
But Brown says the regulator is really interested in finding out how Portus products found their way into so many portfolios so quickly.
"The fees that were being paid were comparable to fees that are being paid on the sale of mutual funds, but these were fees being paid for referrals and we need to understand whether that indeed was a factor in such a broad penetration of this product in such a short period of time."
While advisors were comfortable collecting a similar payout as they would have with a mutual fund, they are accepting none of the responsibility that would have accompanied the transaction had it been a fund sale.
"When formerly elite investment instruments become more widely available, the industry has to take a good, hard look at them to determine their suitability for the average investor," Brown said. "We also have to make sure that the industry is clear on its responsibilities."
Pointing out that hedge funds are not regulated by the OSC, Brown urged all investors who are interested in such products to be sure they understand what they are getting into and how the product matches their own risk parameters.
"I'm asking all those involved in the distribution chain to ask themselves whether they are comfortable, whether they understand the products they are selling," he said. "It is really a call to the industry — to us as the regulators, to the SROs who are responsible for setting the education standards — to stay current."
Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

Putting Client First. Marketing spin, or fact?

2005-05-25T07:12:00.000-07:00

The Professional Financial Advisor
Toronto-based Financial Advisor John De Goey offers thoughts about fee-based advice, holistic planning and capital markets.
Corporate Mandate
By John De Goey Tuesday, May 24, 2005
A man (even if that man is a corporation) cannot serve two masters. Either he is serving shareholders or he is serving clients. Both are noble. Both are justifiable. But both cannot be served simultaneously.
I just finished reading Joel Bakan’s book “The Corporation”, which I received as a Christmas present. As a UBC corporate law professor, Bakan’s basic thesis is that since corporations are legally considered to be people, what kind of a personality type might reasonably apply to a corporation? The rationale put forward shows pretty convincing evidence that if corporations were in fact human, they would be seen by society as irresponsible psychopaths who lack empathy and are incapable of feeling remorse.
Corporations were brought into existence to make money. That is their overarching purpose. Senior executives, therefore, have a legal obligation to “maximize shareholder value” at the expense of all else. In fact, the law forbids all other actions and motives. When side-effects (something economists call “externalities”) do harm to society, corporations look for ways to avoid the blame. Think of the long history of harm done by corporations through time: Bhopal, Exxon Valdez, Thalidomide, Enron. The list goes on and the market timing scandal that pitted the interests of shareholders against those of unitholders is likely to go down as another fine example in a long line of externalities.
It is with this in mind that I reflected upon the re-assuring tone and content of all the web sites, newsletters and mission statements that so many investment firms (both those who create investment products and those who recommend them) show to their clients. Almost without fail, there will be a reference to the phrase “the client comes first”. Clients, always on the lookout for decent, high-integrity companies to work with, are presumably made to feel all warm and fuzzy when they read this- and to hand over their life’s savings as an expression of their unfailing trust in these reassuring words.
A man (even if that man is a corporation) cannot serve two masters. Either he is serving shareholders or he is serving clients. Both are noble. Both are justifiable. But both cannot be served simultaneously. In the majority of cases, the more money a firm makes, the higher the cost borne by clients. Conversely, the more prices are cut to benefit clients, the more shareholders will feel the pain. Profits derived from price changes, for instance, are a zero sum game. Whenever one party is doing well, it is as sure as the night follows the day that this comes at the expense of the other party.
What I found try astounding in the book is that one of the world’s re-eminent economists, Milton Friedman is of the opinion that corporate profit is a moral imperative. Friedman believes that corporate responsibility is both illegal and immoral if it compromises profits. He believes it is both illegal and immoral to put the client’s interests first.
Quite apart from the severe consequences if Friedman is right (jail time for installing SO2 scrubbers?), this could also lead to somewhat humourous situations. Imagine having a shareholder showing up at a corporate AGM brandishing a mission statement saying “It says here that you’re putting the clients’ interests first- what the hell is that about, Mr. CEO? If you don’t start charging as much as the market will bear and sending me the money in the form of higher dividends by the end of the next quarter, I’ll get you ousted.”
The simple lesson is that things are seldom as they appear. It is obviously disingenuous of corporations to suggest that they are simultaneously pursuing both agendas to the point where both sets of stakeholders’interests first. No one can have it both ways.
Even if CEOs said something like “we aim to balance the legitimate interests of all our stakeholders”, I would buy in, although Friedman likely would not. My view on the obvious disconnect is that the ubiquitous bumpf about putting clients first is really just another cynical attempt to get people to give you their money. Corporations don’t really mean it. Friedman says they would be breaking the law if they did.

What it feels like to be a whistleblower

2005-05-24T22:26:00.000-07:00

It feels like you are doing the right thing. When you see or suspect wrongdoing by someone, against the public interest, or against a trusting and vulnerable person or class of people.

Then it feels strange when your immediate supervisors dodge, deflect, or attack you.

Then it feels shocking when you realize that so many people have so much to lose by outing the abuse, that they will actually prefer to silence you than to fix the problem.

Then it feels scary, when they turn the tables and try to silence or eliminate the problem, instead of facing it and admitting the defects.

Then it becomes downright frightening when it becomes clear that no matter who you contact, which boss, regulator, ombudsman, government, they can all find numerous reasons for, "not getting involved", if the opponent is a powerful and dangerous opponent.

Then it becomes anger at so many who maintain they are there to serve and protect, and yet they refuse to serve and are afraid to protect, lest they become caught in the retaliation.

Then it becomes confusing, to realize that everything you were taught, told, and believed was just talk, and nothing else. That wrong is often considered "right", if it makes you rich enough.
That right is often wrong, if it affects people in positions of power and influence.

Then it feels as if your world is off kilter, that either you are upside down, or your world has turned itself upside down. It feels as if you are out of control, and you need to make some corrections.

Then, like a car where someone has reversed the steering controls, so that left turns take you to the right and vice versa, each and every move you make in this upside down world turns out to be wrong. Each move you make actually makes the out of control situation more out of control.

Then you start to do damage to:
Relationships.
Families
Spouses.
Children.
Finances.
Mental health.
Physical health.
Career.
Motivation.
Medication.
Addiction.

White collar crime is a crime of violence. It affects so many in so many ways.
(Kent Shirley took his own life this past x-mas eve, after making allegations about his former employer, a Mr Mallard of Assante Investments. He was subject to "police state" treatment at the hands of the legal staulking horses sent after him....and those who live on.

No help, nor action has so far some from any provincial securities omission, nor the RCMP commercial crime department. No one has shown the will or the willingness to simply investigate and or enforce securities law.

For those needing further reading on the history and retaliatory treatment of whistleblowers, see the following well documented public or corporate cases:

Gomery
Enron
Worldcom
Environmental Protection Agency
Federal Aviation Administration
Food and Drug Administration
Hooker Chemical
Dow Chemical
DDT, Agent Orange
Morton Thiokol (Challenger space shuttle explosion)
Ford Pinto (exloding gas tank)
General Motors (exploding gas tanks)
General Motors (Corvair)
Love Canal
Frank Serpico and the NYPD
Karen Silkwood and the nuclear power industry
Firestone Tire
Tobacco Industry
Cassandra Rowley and the FBI
Haliburton

Those with nothing to hide, hide nothing.

2005-05-24T22:22:00.000-07:00

Makes you wonder why the Alberta Securities Commission would hire fast talking lawyers to avoid having a peek into how they run their office. After all, it is the government approved and appointed auditor that is legally charged with this responsibility.

Lets let them take a look under the hood and see if any parts are indeed missing. She just ain't running right.

Assante client speaks to illegalities, while regulators turn a blind eye

2005-05-24T08:31:00.000-07:00

Jocelyne Robidoux
9-2210 Walnut St.
Thunder Bay, Ontario
P7C 1L1 (807)623-0160
jocelyne_robidoux@yahoo.com

May 18, 2005

Mr. David Brown
Chairman, OSC
Suite 800, Box 55
20 Queen Street West
Toronto, Ontario M5H 3S8

Dear Mr. Brown:

I wish to express my sincere disgust with your department’s dismissal of serious allegations against Assante. Based on my experience with the Mutual Fund Dealers Association (“MFDA”) and its conflict of interest issues, and the fact that the Saskatchewan Financial Services Commission has limited resources, I’m assuming these regulators will not proceed further. I know that there exists overwhelming evidence against this company for its widespread practice of converting third party funds to its more profitable proprietary product. Did you comb through all those boxes of evidence? Did you question witnesses who also worked at Assante and were familiar with its practices? I didn’t think so. You conducted your investigation much like the Manitoba Securities Commission (“MSC”) handled my case in 2002.

I am a former Assante client who was a victim of the company’s fund conversion, in my situation without my consent which is illegal and yet appears to be ignored by regulators. I represented myself in a civil suit against my advisor and Assante through the Court of Queen’s Bench of Manitoba in 2003 after the MSC closed my file. I believe I was successful in proving my claims while the MSC seemed unable to find sufficient proof to charge Assante. My case also involved unregistered trades, confirmed by the Ontario Securities Commission (“OSC”) and again ignored by the MSC.

The trades in my case occurred at the same time as the trades in cases by the OSC, the Alberta Securities Commission (“ASC”) and the British Columbia Securities Commission against Assante/Summit Aurum, when the company was promoting and selling its in-house funds. The OSC settled with Assante in November 2003 for unregistered trading by over 152 advisors. No penalties were assessed. Were in-house funds involved? Were the trades authorized? What were the resulting client losses? If these issues were not investigated, is it fair to conclude that your department is negligent or incompetent or maybe more likely, that certain companies are immune
to legal action? Regulators appear to have unwritten agreements with their corporate cohorts to ignore complaints possibly to protect each others interests.
- 2 -

Despite a history of allegations from former advisors, journalists, investor advocates and
investors, Assante has never been severely disciplined. The apparent enforcement problems at
the OSC sound eerily similar to those reported by whistle-blowers at the ASC. A brave young man who was very aware of Assante’s tactics died trying to expose the truth. Shame on you for allowing his efforts and his death to be in vain. It’s not surprising that you once said, “We don’t give awards to whistle-blowers.” You treated this “truth-teller” much like you treated a Hollinger whistle-blower a few years ago. The OSC has a tendency to act when forced to do so by its American counterpart. Unfortunately, investors cannot rely on the U.S. Securities Exchange Commission to take action against Assante as it did with Hollinger.

I did not sign a gag order when I settled with Assante. I’m not done speaking out against Assante and our regulatory bodies who continue to allow corruption to grow in the Canadian financial markets. A foreign journalist once commented that, “the Canadian stock markets are the most manipulated and controlled in the civilized world and that the only reason any experienced foreign investor puts money into Canada is to launder it.” You people are doing more damage to our financial system by protecting instead of disciplining the perpetrators just as poor parents would foolishly let their children do as they please and make society pay for their unruly behavior. In his book, The Naked Investor, John Reynolds refers to a “highly respected academic” who described the OSC as “probably the most poorly governed securities regulator among those of the OECD… countries.”

The OSC announced in the Toronto Star on May 13, 2005 that it was encouraging consumers to report wrongdoing in the industry. I find it interesting and timely that the article was released within days of the OSC announcing an end to its Assante investigation. Please explain how you plan to prosecute corporate crooks based on tips from anonymous sources while you disregard cases with heaps of incriminating documents and testimony from credible witnesses who you never bother to contact during your so-called investigations.

The OSC mandate is to “provide protection to investors from unfair, improper and fraudulent practices.” Your department has not only failed to protect investors but has actually promoted “fraudulent practices.” In April 1999, the OSC approved Assante’s request to convert clients’ third party funds to its proprietary funds and then neglected to monitor and enforce compliance. If mass class action suits are ever filed by investors and huge losses are uncovered, who should be liable? What will the OSC’s defense be after shirking its responsibilities and ignoring repeated warnings of corruption at Assante. What if numerous “truth-tellers” finally come forward having been inspired by the ASC whistle-blowers? The OSC claims it “recognizes the importance of setting an example in the areas of transparency and effective governance.”

A fine example you turned out to be!

Very sincerely,

Jocelyne Robidoux
- 3 -

Cc: Mr. James McCarter Joanne Fallone
Office of the Auditor General of Ontario Manager, Case Assessment, OSC
20 Dundas Street West Suite 800, Box 55
Suite 1530, Box 105 20 Queen St. West
Toronto, Ontario M5G 2C2 Toronto, Ontario M5H 3S8

Hon. Gerry Phillips Michael Hornbrook
Chair, Ontario Management Board of Cabinet CBC Fifth Estate
12th Floor, Ferguson Block P.O. Box 500, Station A
77 Wellesley St. West Toronto, Ontario M5W 1E6
Toronto, Ontario M7A 1N3

Hon. Coulter Osborne Linda Leatherdale
Integrity Commissioner, Ontario Business Editor, Toronto Sun
Suite 1803 333 King Street East
415 Yonge Street Toronto, Ontario M5A 3X5
Toronto, Ontario M5B 2E7

Gerald Lafreniere, LL.B. Michael Watson
Clerk, Standing Senate Committee on Banking, Director, OSC
Trade & Commerce, Senate of Canada Suite 800, Box 55
40 Elgin Street, Room 1039 Chambers Building 20 Queen St. West
Ottawa, Ontario K1A 0A4 Toronto, Ontario M5H 3S8

Hon. Michael Bryant Larry Waite
Attorney General of Ontario CEO, MFDA
803 St. Clair Avenue W. 121 King Street West, Suite 1000
Toronto, Ontario M6C 1B9 Toronto, Ontario M5H 3T9

Douglas Brown David Wild
Director, MSC . Chairman, SFSC
1130-405 Broadway Avenue 6th Floor, 1919 Saskatchewan Drive
Winnipeg, Manitoba R3C 3L6 Regina, Saskatchewan S4P 3V7

Amanda Downs Joe Canavan
Investigator, OSC CEO, Assante Corporation
Suite 800, Box 55 320 Bay Street, Suite 1100
20 Queen St. West Toronto, Ontario M5H 4A6
Toronto, Ontario M5H 3S8

Securities Omission

2005-05-18T11:06:00.000-07:00

When I read of McMaster University awarding an honorary degree to OSC Chairman David Brown for,"his distinguished public service in the field of securities regulation on the provincial, national and international stages", several thoughts come to mind immediately.

One that I will apologize in advance for, is that I expect Michael Jackson to be similarly awarded "father of the year".

As someone who has worked under the "oversight" of the OSC for many, many years I can only conclude that David Brown must have made considerable contributions to McMaster university over the years, because I am unaware of his contributions to benefit securities regulation.

I am aware that his salary during his tenure at the OSC exceeded that of the president of the United States, as well as that of the head of the SEC in the US. Bravo David. Well done on behalf of David. Once again, an apology for the bitter tone of this, but from the position of where I stand, I see only the lives ruined, the occasional suicide, the many forms of "violence resulting from white collar crimes" that have taken place under a regulatory system that ignored, passed the buck, or declined to investigate rampant industry fraud that hurt average Canadians.

I am sorry but I must have missed the memo where the Securities Commission solved something or improved conditions for Canadians.

Overcharging clients on mutual fund commissions

2005-05-17T19:18:00.000-07:00

Check out the NASD site at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975

for info on how selling higher cost DSC shares is considered a breach of fiduciary responsibility by a trusted professional. (National Association of Securities Dealers, United States)

In August 2002, NASD affirmed a hearing panel decision that a broker made unsuitable recommendations to a customer. The broker had sold $2.1 million in Class B shares in two mutual fund families to a customer. The amount invested in one fund family was enough to entitle the customer to obtain Class A shares with no front-end load. The amount invested in the second fund family would have entitled the customer to obtain the largest breakpoint discount on Class A shares. NASD's National Adjudicatory Council held that a broker's suitability obligation includes the requirement to minimize the sales charges paid for mutual fund shares, when consistent with the customer's investment objectives. The broker's recommendation was unsuitable because the customer's purchase of Class B rather than Class A shares resulted in significantly higher commission costs, including the payment of contingent deferred sales charges upon sale of the shares. The broker was fined $40,000, suspended in all capacities for one year, and ordered to pay restitution of $55,567, plus interest, to the customer's estate. See Department of Enforcement v. Wendell D. Belden (PDF 40 KB).

In April 2001, NASD censured and fined a brokerage firm, suspended a broker and his supervisor, and directed that restitution be paid to its customers for, among other things, recommending that each of 15 customers purchase over $250,000 in Class B shares when it would have been more cost-effective for those customers to purchase Class A shares. NASD found the purchases were unsuitable in light of the amount sold, the sales and distribution charges incurred, and because the customers could have purchased the Class A shares with much lower sales charges and brokerage firm commissions. The same firm also recommended to 29 customers that they liquidate another mutual fund and purchase over $500,000 of Class B shares, when Class A shares would have been the more cost-effective purchase at the time because a temporary marketing promotion offered by the fund eliminated the sales load. See NASD Regulation Censures and Fines Stifel, Nicolaus & Company, and Two Individuals for the Unsuitable Sale of Class B Mutual Funds.

This kind of behavior, unfortunately is considered "standard industry practice" for the time being in many offices in Canada.

Why are 80% of funds sold with a DSC option?

2005-05-17T19:10:00.000-07:00

Financial Post Article, Investors Miffed

2005-05-17T15:01:00.000-07:00

5/17/2005 5:54:58 PM
HOME : FEATURES : COLUMNS :

Financial Post

The Professional Financial Advisor
Toronto-based Financial Advisor John De Goey offers thoughts about fee-based advice, holistic planning and capital markets.

By John De Goey Tuesday, May 17, 2005
The litany of malfeasance occurrences over the past number of years has caused virtually everyone to become at least a little jaded about how the industry works.
It should come as no surprise that the financial services industry is less than credible in holding itself out as a true profession. The litany of malfeasance occurrences over the past number of years has caused virtually everyone to become at least a little jaded about how the industry works- sort of like politics. Rather than recount the track record of transgressions here, let’s consider the current opportunity to implement positive and meaningful change by making improvements to restore investor confidence.

For starters, the federal government has signaled a strong intent to press forward with a single national securities regulator. Most stakeholders agree. Still, it should be obvious that the larger concern is not the structure of securities regulation in Canada, but the efficacy. If regulators can’t protect consumers from misrepresentation and fraud, the structure hardly seems relevant. No matter what form our regulatory framework ultimately takes, there should be a clear focus on enhanced consumer protection.

Second, since an ounce of prevention is worth a pound of cure, disclosure at the point of sale needs to be overhauled considerably. This is especially true with regard to so called “manufactured” investment products: mutual funds, segregated funds, structured notes, universal life insurance policies and hedge funds. Most people don’t understand the risks they’re taking because the risks are couched in legal language in the middle of an imposing technical document called a prospectus. The cigarette industry dealt with this problem by putting stark wording about risks and limitations on product packaging. Investment products would be well advised to follow suit. That way, no one would be able to say they weren’t aware of the risks involved when buying one of them.

Third, and most important, politicians need to address the industry’s tarnished reputation head on. Concerned stakeholders, including the Small Investor Protection Association, the Consumers’ Council of Canada, Democracy Watch and the Canadian Association of Retired Persons have long been making actionable suggestions. Call them Mainstream Investors For Fair Disclosure (or MIFFD). These groups will be using their considerable resources in the upcoming federal election campaign to ensure that consumer interests are heard. A number of prominent consumer advocates are lending a hand, too.

One of the reasons consumer issues are seldom addressed in the political arena is that consumers are just too disparate and disorganized to work together. Often, the diverse hodgepodge of consumer concerns lacks sufficient focus to be clearly articulated and acted upon.

That’s not the case this time.
Previously, the industry has pointed to the lack of consensus regarding what ails it as a de facto expression of reasonable functionality. The logic is that if stakeholders can’t even agree on what’s wrong, then things must not be that bad. That has been the industry’s position for a decade now. In that time, we’ve had sales trips, inappropriate advice, market timing, Bre-X and Portus, to name only a few more recent debacles.

Nearly a decade ago, Glorianne Stromberg warned that this would happen if meaningful steps weren’t taken. There’s an old saying that “if it ain’t broke, don’t fix it”. The flip side is that if it is broke, you’d better get right to work or there will be hell to pay on Election Day.
John J. De Goey is a Senior Financial Advisor with Assante Capital Management Ltd., member CIPF and author of The Professional Financial Advisor. The views expressed here are the personal views and opinions of the author and not those of Assante and are not endorsed in any way by Assante. jdegoey@assante.com

Excerpts from Financial Post Editorial on Securities Regulators

2005-05-15T21:13:00.000-07:00

Here are some highlights from a recent Financial Post editorial.

The role of the OSC in Portus

Terence Corcoran
Financial Post
Friday, May 13, 2005

"A lot of stray dogs probably need to be shot over Portus, a few of which might even be hanging out at the OSC. Where were the regulators when the creators of these products brought them to market? What role did existing regulation play in making Portus's products, based on hedge funds, so alluring to small investors?"

"what could have accounted for [Portus's] tremendous sales record?" asked Mr. Brown. "Perhaps there is only one particular feature to speak of -- high up-front fees and trailer fees for referrals."

"That's it? More than 26,000 investors turned over $750-million to Portus solely because advisors were paid fees? This is convenient for the OSC, which has been riding the fund fee issue for more than a decade, with absolutely no benefit to investors. Rather than take a hard look at the regulated investment environment that created Portus, Mr. Brown has decided to take a quick, cheap shot at a dead hobbyhorse."

"Far more interesting and sophisticated would be an examination of the role of regulation in creating demand for Portus and the other hybrid hedge products."

"Regulations have a high price in the market. A big part of that price is to lull investors into believing that the market is safer and less risky than it actually is. Many small investors, ignorant of risk, should not be in these markets, but the air of confidence created by regulations draws them in. Failures then land on investors as stunning surprises. At that point, the regulators walk away from the victims and turn to imposing new regulations and lay the foundation for more stunning disasters in the future."

Cover-ups at the Provincial Securities Commissions?

2005-05-15T20:35:00.000-07:00

Seeing the headlines surrounding the Alberta Securities Commission, following the hiding of all material facts, denial of any involvement by the OSC around Assante allegations, reading official responses from provincial Securities Commissions lead me to wonder just how much wrongdoing is being hidden and covered over.

It appears the Alberta Securities Commission will spare no expense, and leave no avenue unexplored. In an effort to ferret out abuse of investors? No. In attempts to avoid full, clear and plain disclosure of ASC activities or audit of the ASC by the provincial auditor. After twenty years in the investment business, I was personally convinced that the ASC was nothing but a "paperwork tiger", unable to protect the average investor, yet unwilling to admit to this. Now I see they area actually a fairly strong organization, unafraid to fight........unfortunately not for small investors, but rather for secrecy and coverup of the job that they are doing.

Now as I watch them, run, hide, and hire lawyers to evade an open look into themselves, it makes one wonder just how large is the iceburg beneath the surface. I guess we will find out soon enough.

To see the OSC dodge, squirm, and avoid having anything to do with documents handed to them on obvious investment improprieties is akin to watching my son explain why he cannot do his homework.

To read the responses from both the ASC and the OSC to investors, industry participants etc, who write to them of wrongdoing, as these commission do everything in their power to justify why they are not the proper people to get involved. They point, they refer, they delegate to others, but I have yet to see them actually take on an investigation into investment abuses and I have yet to see a single abused investor receive compensation due to efforts from a provincial securities commission. That after twenty years.

This smells of regulators who have become so close to those that they are supposed to regulate, that they are unable to any longer recognize what it was they were put there for. This looks like total dedication to job protection instead of investor protection.

I wish to thank the forward thinking officials of the Alberta Securities Commission for doing such a forcefull job of evading a public audit. They are doing a better job of insinuating guilt than I could imagine. I thank them for not opening their books and their operations to audit, as it speak volumes about the kind of job they feel they are doing. Typically the people who evade accountability are those with something to hide. For public servants without something to hide, an invitation to audit is nothing but an opportunity to prove the job is being done correctly.

I look forward to the day when the disinfectant of sunlight is allowed to shine on the affairs at these commissions. Until that day I believe that Canadians are not covered by any effective securities regulatory agency whatsoever. It is very much "buyer beware".

Wolves in Salespersons Clothing?

2005-05-15T20:12:00.000-07:00

May 15, 2005
Who's Preying on Your Grandparents?

Illustration by The New York Times

By GRETCHEN MORGENSON
BACK in February, Jose and Gloria Aquino received a flier in the mail inviting them to a free seminar on one of their favorite topics: protecting their financial assets. As retirees, they were always on the lookout for safe investment strategies as well as tips on how to make sure they didn't outlive their savings. Besides, the flier promised a free lunch for anyone attending the workshop, so what did they have to lose?
Potentially plenty, they would soon discover.
On March 1, Mr. and Mrs. Aquino stepped into the Coral House restaurant, not far from their home in North Baldwin, N.Y., on Long Island. They found themselves surrounded by about 50 like-minded retirees, most in their 70's and 80's, they said.
Over lunch, the crowd listened to a presentation by two investment executives from Diversified Concepts Inc. of Manhattan. Using charts and graphs, the men gave advice on how to invest wisely during retirement. Then they passed out forms and asked the retirees to list all their assets and financial holdings.
The Aquinos filled out theirs and left. Two days later, they said, one of the executives came to their home and described an investment with the American Equity Investment Life Insurance Company that would provide 7 percent interest on their money - immediately.
"When somebody tells you he will give you a 7 percent upfront bonus on your money and that you'll get that 7 percent even if the market goes down, you get interested," said Mr. Aquino. He said he signed the necessary documents and the executive left, handing a brochure to the couple.
That evening, the Aquinos told their daughter, Caroline, about their investment. "She said, 'Oh, don't invest like that before searching farther,' " Mr. Aquino recalled. "Then she went on the Internet and found these lawsuits going on in California against the company and we realized that we were not making a good decision."
The investment the Aquinos had chosen was an annuity, an insurance product that not only tends to carry high fees but also requires that most of the money stay locked up for years, making it especially inappropriate for many older investors, regulators say. In fact, the one they bought carried a staggering 17.5 percent surrender charge if it was cashed in during the first year, their daughter explained. Exit charges were not scheduled to disappear until 17 years after the purchase.
This meant that Mr. Aquino, who is 65, and Mrs. Aquino, 63, could not cash in the annuity without paying a surrender fee until they were in their 80's. The executive had not told them about the lockup requirement, the Aquinos said, although the brochure he left with them described the fees in small print.
Thanks to their daughter, they were able to phone the company in time to cancel their purchase. Others, however, have wound up stuck in an investment that they cannot liquidate without severe penalties.
Meetings like the one attended by the Aquinos take place thousands of times a year in restaurants, American Legion halls and senior centers across the nation - and are a growing problem, securities regulators say. The seminars are usually described as a way for retirees to receive free advice on estate planning, asset protection and tax reduction. After a short presentation, the attendees are approached by a sales representative, who almost invariably encourages them to liquidate their stocks, bonds and 401(k)'s and to buy an annuity.
"We started getting all these complaints from children of seniors who found out that their stock portfolios or other investments had been transferred into these annuities," said Joseph A. Ragazzo, deputy attorney general of California. "We see this investment abuse as a real problem. These cases are metastasizing all over the country."
David J. Noble, chief executive of American Equity Investment Life Insurance, the company that wrote the Aquinos' policy, said: "I deeply differ with anyone saying we have serious problems. We have over 200,000 annuity policy holders, and the percentage of complaints we have is 0.002. We are extremely market-conduct aware."
Mr. Noble also said that annuities' guaranteed rates of return and protection of principal make them attractive to people worried about how they are going to pay their bills.
The president of Diversified Concepts did not return several phone calls.
WHILE prosecutors in New York and Washington investigate questionable accounting practices in the insurance industry, regulators elsewhere say they are fielding more and more complaints about aggressive sales practices by insurance companies that design annuity products and by the people who sell them. Under the guise of estate planning, regulators say, retirees are being pushed into annuities that carry commissions of up to 12 percent and that require their holders to keep them for as long as 15 years, or to pay big penalties.
It is easy to see why older people find such investments attractive. Annuities produce higher income than other investments and can provide payments for life. They are often sold as a way to allay retirees' fears of outliving their assets.
There are several kinds of annuities. Fixed annuities guarantee that a set amount of money will be paid regularly, regardless of how the underlying investments perform. Variable annuities, by contrast, are based on a portfolio of stocks that rise and fall, so their payments can fluctuate.
With interest rates near historical lows, the first-year rates of 7 percent to 9 percent on some annuities make them alluring to people on fixed incomes. And with the stock market going sideways, people are looking for investment alternatives, giving annuity sales representatives a ready audience.
But because of the fees associated with these products and the restrictions on cashing them in, they are hardly ideal for investors who may need the money quickly, or who die before the investment matures. In many cases, if the holder dies during the annuity period, the beneficiaries cannot redeem the annuity without paying a surrender charge.
Companies that sell annuities say that the higher rates they pay justify the surrender charges. Most investors, they add, are happy with their purchases.
But last February, Bill Lockyer, the attorney general of California, and John Garamendi, the state's insurance commissioner, filed a lawsuit against a group of companies and individuals that state officials said had tricked retirees into using their retirement investments to buy annuities. The suit said that the companies employed up to 300 sales agents and 80 telemarketers and sold annuities worth "hundreds of millions of dollars."
The defendants in the case included American Investors Life Insurance of Kansas, a unit of the AmerUs Group in Des Moines; and Family First Advanced Estate Planning and Family First Insurance Services, both of Woodland Hills, Calif. The complaint seeks $110 million in civil penalties, consumer restitution and damages.
AmerUs said that it does not comment on pending litigation; however, the company said that it was taking the accusations very seriously and that it has strong sales and compliance practices. The Family First companies could not be reached.
Increasingly aggressive marketing has made annuities one of the hottest investments around. Money invested in variable annuities totaled $994 billion at the end of 2003, up from $771 billion in 1998, according to the Insurance Information Institute. Although total annuity sales fell slightly in 2003, they have almost doubled since 1997.
The growing ranks of the nation's retirees are a main focus of annuity sales agents. Next week, the Senior Market Expo opens at the San Diego Convention Center. "Now in its fifth year, Senior Market Expo is the only place you'll find the powerful strategies and ideas you need to boost your sales of life insurance, annuities, long-term care insurance and more," its Web site says. "This sales-centric event focuses on giving you - the senior market adviser - sales and marketing skills to earn more money selling to seniors."
Annuity sales can be highly lucrative. Commissions can reach 12 percent of the money invested, far greater than fees typically generated on stocks and other investments. Mr. Ragazzo, the deputy attorney general of California, said his office had found that some companies selling annuities sponsored trips to Hawaii and Europe for top agents. "Some of these guys are former used-car salesmen bringing in $600,000 a year," he said.
Ads for asset-preservation seminars often use scare tactics. "Your family's assets are in danger!" reads one; "Trust me! You need a living trust!" goes another.
As sales of annuities have grown, so have investor complaints related to them. According to the N.A.S.D., annuities were at issue in about 600 arbitration cases in 2004, more than twice the number from three years earlier. Of the seven types of securities typically involved in arbitrations, annuities were the third most common last year, behind stocks and mutual funds.
Sellers of annuities are also the subjects of civil lawsuits. The American International Group, the insurance company whose accounting practices are under investigation by regulators and federal prosecutors, has been sued recently in California by elderly investors who bought annuities the company issued. The investors are also suing Estate Preservation Inc. of El Segundo, Calif., which sold the annuities.
One plaintiff is Beverly Buhs, 80, of Millbrae, Calif. In 1997, Ms. Buhs, then 73, and her husband Art, then 76, attended a seminar at an American Legion hall. Like the Aquinos, the Buhs filled out a form detailing their assets; it was supplied by the seminar leader, an agent from Estate Preservation.
Mr. Buhs had previously invested in mutual funds, but he and his wife had never bought an annuity. With the agent's help, the Buhs set up a living trust, which they believed would help them avoid probate costs, according to the lawsuit. Shortly after setting up the trust, according to the lawsuit, the agent came to their home and persuaded them to sell their investments and to put them into a fixed annuity issued by SunAmerica, a financial services company bought by A.I.G. in 1999.
In December 2002, Mr. Buhs died of complications from an aneurysm. Only then did Ms. Buhs learn that the living trust did not protect her from probate costs and that she could not cash in the annuity without significant penalties, she said.
Ms. Buhs said she had to hire an estate lawyer to restructure the trust and wound up losing $20,000 of a $90,000 death benefit. Now she is still dealing with tax problems associated with the trust. "I tried to talk to SunAmerica, but I get so stressed out," Ms. Buhs said. "I don't know how to talk the jargon and don't know where to go. It's sad to think the world is like this. How many other seniors are being taken and deceived?"
Ms. Buhs's lawyer, Ingrid M. Evans of Renne Sloan Holtzman & Sakai in San Francisco, said: "The majority of annuity policies are going to seniors because those are people who have the money and are scared of the stock market and most susceptible to fear. But over a certain age it's not acceptable to sell someone a deferred annuity because they are going to pass away before it annuitizes," or matures.
Ms. Evans said Ms. Buhs had sued A.I.G. because SunAmerica "implicitly or explicitly ratifies the sales agents' unlawful and unfair schemes."
Chris Winans, an A.I.G. spokesman, said that the company would not comment on the litigation but said that the claims in the suits were unfounded. Ms. Buhs' annuity provided good returns - almost 20 percent from 1997 to 2002, after surrender charges, he said.
Mr. Winans added that A.I.G. has suitability policies and procedures that it monitors and enforces and that it requires the same of the brokers who sell its products.
Estate Preservation did not return a phone call seeking comment.
A.I.G. is the nation's top seller of fixed annuities through banks and the fifth-largest seller of variable annuities, according to the Insurance Information Institute. The company sold $8.8 billion in fixed annuities in 2004 and sold $8 billion of new variable annuities in 2003, the most recent figures.
In the first nine months of 2004, A.I.G.'s life insurance and retirement services group, which includes its SunAmerica unit, accounted for 45 percent of the company's total revenue. Sales at the group rose 24 percent from the corresponding period a year earlier and its operating income rose 23 percent, the fastest growth registered by any of A.I.G.'s four business segments. Premiums from annuities sold domestically rose 20 percent in the first nine months of 2004.
TYPICALLY, the people pushing annuities are registered only as insurance agents and not with government securities regulators who have large staffs to root out dubious practices. As a result, many fall through the regulatory cracks.
Last July, the California Department of Corporations filed a "desist and refrain order" against the Gentry Group, a Dallas company that sells annuities. The company had induced an elderly woman in Oroville, Calif., to authorize the sale of $98,470 of securities without her knowledge and to buy two American Equity annuities with the money, according to the order. The Gentry Group, the American Equity Life Insurance Company and the saleswoman who sold the annuities were not authorized to conduct business as investment advisers in California, so the desist order was issued.
The Gentry Group did not return a phone call seeking comment. American Equity said that it was resisting the order in court.
Mary L. Schapiro, the vice chairwoman of N.A.S.D., said that her agency had proposed new rules related to the selling of annuities to the elderly; they await approval by the Securities and Exchange Commission.
"Some of the worst advertising we've seen has been in equity-linked annuities," she said, "very promotional, talking about growth without any risk, all the kinds of push-button expressions that really resonate with senior citizens." But, she said, she oversees only a small percentage of the firms and people selling these annuities.
Alas, not every retiree can rely, as the Aquinos did, on a daughter to help them steer clear of an investment they might later regret.

Democracy Watch Speaks of Client Abuse

2005-05-04T21:25:00.000-07:00

A Recipe for Cleaning Up the Investment Industry
(The following opinion piece, by Duff Conacher, Coordinator of Democracy Watch, was published in slightly different form in Corporate Knights magazine on April 28, 2005)
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Democracy Watch homepage
In the past several years, Canadians have had a front row seat in a classic corporate responsibility fight, this one between investors and the investment industry. And, as in all such fights, the key player is the referee, governments and regulatory agencies such as the Ontario Securities Commission (OSC) and the Toronto Stock Exchange.
Nortel, Bre-X, YBM, Hollinger, Royal Bank, CIBC, TD-Canada Trust AIM -- all these companies and many more in Canada's investment industry have been in the news, involved in insider trading, conflicts of interest, stock fraud, financial mismanagement, market timing by mutual fund companies and many other unethical, irresponsible business practices.
As many industries mired in scandal in the past have, the investment industry has countered these scandals by saying either "so there's a few bad apples, overall the industry is ethical" or "don't regulate us government, we'll clean things up ourselves."
And so Canadian governments and regulators find themselves once again faced with a familiar choice -- protect the industry from accountability, or protect individuals from the industry.
If this were a fair fight, the government/regulatory referee would have to:
be independent from both the industry and investors;
have full information about the practices of both;
have full powers to penalize both, and
have to follow clear rules.
However, as with all corporate responsibility battles in the past century, this is not a fair fight. The government is taking large donations from the industry; the industry gouges investors in part to pay for dozens of lobbyists to wine-and-dine politicians and regulators; the industry does not have to disclose key information; the regulator has inadequate resources and powers, and; the rules are full of loopholes.
Things are so bad that the industry actually is the referee for its own behavior in many areas through the Investment Dealers Association and the stock exchanges. On their own (although some have banded together in small, poorly funded groups), investors don't have a chance.
What is surprising is that anyone has found the scandalous behavior by the industry surprising ˆ the whole system is clearly designed to encourage repeated abuses.
The government/regulatory referee has so far responded in a typical way -- do as little as possible and hope investors will be fooled into thinking that they are protected.
Yes, there has been report after report (the Crawford Report, the Osborne Report, a Senate Committee Report, the Ontario Finance and Economic Affairs Committee Report) -- lots of words on lots of paper. Words on paper do not protect investors, however.
So what is needed to clean up the investment industry in Canada? The same things that are needed to clean up every industry in Canada:
strong laws (not voluntary guidelines) with no loopholes;
requirements that the details of every industry practice (including all violations) be publicly disclosed on searchable, government-maintained websites;
a fully independent, fully empowered, well-resourced enforcement agency (in other words, an end to self-regulation);
penalties that are high enough to discourage violations;
citizens empowered to hold the industry, the regulatory agencies, and;
governments accountable if they fail to enforce the laws.
True, the federal government has added a new offence of improper insider trading to the Criminal Code, and a rule that those who "blow the whistle" on wrongdoing can't be harmed (unfortunately without making it clear who will protect whistleblowers from harm), and increased the maximum sentences for financial fraud, and created special enforcement teams in the RCMP.
And true, the OSC has banned certain unethical practices, and Ontario Cabinet minister Gerry Phillips has promised to allow investors to sue in a class action for a broader range of violations.
However, all of these actions have been taken without any examination of three key questions: What was the chance of getting caught for investment frauds in the past? What will be the chance of getting caught after all of these changes? And, therefore, how high do penalties have to be in order to ensure that the effective penalty (the actual penalty x the chance of getting caught) will be high enough to discourage future violations?
These questions are consistently ignored by governments responding to corporate responsibility, as they pretend to clean-up problems and claim to protect individuals, communities, environments from abuse by corporations.
And so, beyond making penalties actually effective in the real world, empowering citizens is a key step for governments to take to clean up the investment and all other industries. Because the government/regulatory referee has shown time and again that they have to be watched as closely as the industry, the referee has a duty to help citizens build the capacity to watch closely.
A simple, no-cost method exists for building this capacity, and to their credit the Ontario Finance and Economic Affairs Committee recommended that this method be carefully considered by the Ontario government.
The method has been used successfully in U.S. states to create watchdog groups over utility companies (hydro, gas, water, telephone), and a national survey shows that a large majority of Canadians support using it here.
All the government has to do is require the investment industry (publicly traded companies and mutual fund companies) to enclose a one-page pamphlet in the same envelopes they use to mail their reports to investors. The pamphlet would describe and invite investors to join an investor association for an annual fee of about $40, an association run only by investors and dedicated to serving only investors.
Approximately 10 million investors would receive the pamphlet, and even if only 5% responded, a group with 500,000 members and a $20 million annual budget would be formed. The creation of such a group would make the corporate responsibility fight in the investment industry more equal, balancing the marketplace by giving investors an easy way to band together, combine their resources, and advocate their concerns.
There would be no cost to the investment industry, as they are mailing out the envelopes anyway. And the government would have no costs either.
If Ontario minister Gerry Phillips, OSC Chair David Brown, and federal Finance Minister Ralph Goodale do not act on this no-cost proposal, they will be making it very clear that they do not really care about the rampant abuse of millions of investors, and that they are quite happy to allow the investment industry off the hook, as so many politicians have let so many industries off the hook in the past.
Canadians deserve better.
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Jon Chereau Covers Investment Industry "Cover-ups"

2005-05-04T16:40:00.000-07:00

Grievances never see the light of day
Banks, brokerages use confidentiality pacts to great effect

Jonathan Chevreau
Financial Post
June 25, 2004

CREDIT: Yvonne Berg, CanWest News Service
Stan Buell, founded the Small Investor Protection Association after settling a dispute with a big bank several years ago: "The [financial] industry covers up this huge problem of investors losing due to industry wrongdoing."
Quietly, behind the scenes, investors who lost money the last few years are receiving settlements from Canadian financial institutions.
But you won't hear about them in the press because one of the stipulations made is to adhere to the terms of so-called "gag orders."
In return for financial compensation, these investors are put in a position where they would violate legal contracts if they tell the world specifics of their arrangements.
Several large banks or their brokerage arms are involved, including several cases once prominent in the press.
Some got nowhere going to industry ombudspersons, associations or regulators. Legal action and the threat of airing their grievances publicly seems to have been what motivated institutions to settle.
As they pay their hush money, high-priced lawyers add disclaimers that such settlement agreements do not constitute admission of wrongdoing by the firms -- though it's hard to draw any other conclusion.
"After five years, I'm beaten into submission," one such investor told me this week. "I'm not allowed to disparage the bank at all. We're living in fear of the might of the bank closing down on us and suing for everything we've got."
Even with the promise of anonymity, this source would not divulge the terms of the settlement. "We are not being made whole. It's just a cessation of hostilities."
But I was given a sample of the legalese in the gag order. He/she "will not disclose terms and conditions of the settlement offer to any third party except financial advisors or lawyers, except as required by law and excepting any communication with securities regulatory or other enforcement authorities and self regulatory organizations."
In other words, plenty of professional people know about these cases -- just not the press and the general public.
A confidentiality agreement for another case which reached the Ontario Supreme Court reads in part: "is not to be, and will not be disseminated or disclosed to anyone, whether individual, corporation or other entity, public or private ... the Undersigned covenant & agree that they will only state to any third party that they can not speak about the Action."
The only exceptions are for disclosures made to lawyers or accountants for tax purposes.
The agreement makes explicit reference to the payment made to the investor: "In consideration of the within settlement, this Release, and the payment of the said consideration, the Releasors shall not make a claim or take proceedings against any other person or corporation ...."
Investment Dealers Association vice-president of enforcement Alex Popovic says the latter agreement contravenes Member Regulation Notice 076, issued May 22, 2001.
That notice clearly states agreements "shall not contain language which would prevent the client from disclosing to securities regulatory authorities, self-regulatory organizations or other enforcement authorities the facts or terms of the settlement."
Popovic appends his personal view that "anything that chills a client from coming forward is not in keeping with the intent of this notice."
The Mutual Fund Dealers Association also prohibits confidentiality restrictions on settlements between IDA members and clients, says MFDA president Larry Waite. Any settlement above $25,000, and in some cases $15,000, must be reported, he says. However, he adds, these disclosure requirements do not extend to the press.
Investor advocate Joe Killoran (www.investorism.com) suggests settlements are being wrapped up in advance of the election because "the banks are hoping the Liberals get back in and allow amalgamation."
Another investor advocate who fought and won his own case before taking on others is Jim Roache. He says there was a "flurry" of settlements two months ago, when it looked like a re-elected Liberal majority was a slam dunk. Bay Street wanted to clear the decks for a new round of bank mergers and didn't want the dirty laundry of abused investor cases upsetting their cosy relationships with the ruling party.
Seldom do these investors recoup their losses, Roache says. Most are lucky to get 50 cents on the dollar five years after the fact. "Many get nothing. The vast majority decide to write it off to experience."
Settlements save both sides the costs of dragging litigation through the courts. The rule of thumb is it's not worth pursuing unless the amount involved is at least $250,000 and you have another $250,000 to chase it down, Roache says.
The "financial euthanasia" of Canadian retirees is as important an election issue as health care, Killoran says. Gag orders would never be tolerated in the health care system -- the public has a right to know about the spread of SARS or other diseases. Investors should receive similar warnings of financial industry practices that threaten investors' financial well-being, Killoran believes.
Stan Buell created the Small Investor Protection Association after settling a dispute with a big bank several years ago. Since then, a number of SIPA members have quietly settled out of court.
"The industry covers up this huge problem of investors losing due to industry wrongdoing."
Ironically, Buell suggests it may be better that these cases are covered up. "If everyone knew the truth there would be many fewer small investors."
He concludes regulators have failed to protect investors and it's "time for the government to step in." Buell has contacted leaders of all major federal parties and hopes investor protection legislation will be introduced after the election.
© National Post 2004

Advisor? Or Salesperson Masquerading as Advisor?

2005-05-02T18:43:00.000-07:00

http://www.baltimoresun.com/business/investing/bal-bz.hancock01may01,1,7246099.column?coll=bal-business-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

RBC sued for $13 mil, Breach of ethics alleged

2005-05-01T20:45:00.000-07:00

The Lethbridge HeraldFront, Friday, September 12, 2003, p. a1
Investment adviser sues RBC Dominion for $13 M
Gauthier, Gerald
By GERALD GAUTHIER
Lethbridge Herald
A local financial adviser, recognized for his business ethics, has filed a $13-million lawsuit alleging his former employer ignored its own ethical standards by secretly charging its clients millions in fees.
Larry Elford, an investment adviser in Lethbridge for 19 years, also alleges RBC Dominion Securities tried to muzzle him when he voiced concern to company management about the improper practices.
His refusal to be silenced, the suit claims, led to the company effectively firing him wrongfully last fall.
The information is contained in a statement of claim filed Aug. 26 with Lethbridge Court of Queen's Bench. Elford is seeking $13.1 million in damages, of which $10 million would be donated by the firm to a charity of his choice. Named as defendants in the lawsuit are RBC Dominion Securities Inc. and RBC Dominion Securities Ltd doing business as RBC Investments and RBC Financial.
The allegations have yet to be proven in court. The firm's Calgary lawyer, Jim Rooney, is preparing a statement of defence to be filed with the court later this month.
"This action will be defended, and we don't see merit in the claim," Rooney said. "It is ill-founded."
Lethbridge lawyer Jim Farrington is representing Elford in the suit.
Elford had been employed with the firm since 1986 when it was then known as Dominion Securities Pittfield. He left the firm Nov. 7, 2002 in what the suit refers to as a "constructive dismissal of the plaintiff which was wrongful" because of management's intimidation and harassment of Elford for raising ethical concerns and its refusal to approve his advertising and promotional materials.
In 2001, while with RBC Investments, Elford was one of two Lethbridge finalists named by the Better Business Bureau in its salute to ethics in business.
The lawsuit alleges the company repeatedly ignored the ethical concerns Elford raised about double dipping - the practice of charging clients transaction fees on top of flat fees when only one or the other should be charged. Those practices generated millions of dollars in transaction fees for the company, the suit alleges.
It also alleges the company and other investment advisers accepted inducements from mutual fund companies to place investments with those companies without notifying clients about those incentives - a practice which is illegal in Alberta.
"When (Elford) attempted to disseminate publicly the fact it was possible to purchase mutual funds without a sales fee, the defendant threatened the plaintiff with disciplinary action if he continued to make such disclosures," the suit alleges.
Failure to disclose such information to clients runs contrary to the company's own published ethical standards which state: "We must operate our business so that every transaction or activity that we are involved in will stand the test of complete and open public scrutiny," the suit alleges.
Also alleged is that the RBC's Lethbridge branch manager tried to intimidate Elford with two memos on May 29, 2002 which threatened sanctions as well as fines and revocation of his securities credentials.
Elford is seeking $3 million in general damages and $100,000 in special damages plus legal costs on top of $10 million in punitive damages, the last of which would be paid to a registered Canadian charity.
It's also alleged after he found employment elsewhere, RBC management and employees made false, derogatory remarks about the circumstances of his departure as well as his business practices.
Category: Front Page; NewsUniform subject(s): Financial products and servicesLenght: Medium, 453 words
© 2003 The Lethbridge Herald. All rights reserved.
Doc. : news·20030912·LH·0100903-Investment_1broker_1

Advocate Ken Kivenko speaks to broker coverups

2005-05-01T20:38:00.000-07:00

For investors who have legitimate complaints against their dealers/brokers, the IDA’s MR076 Notice to its Members offers limited comfort. It protects the ability of regulators to investigate cases of misconduct, but impairs other investors who have suffered at the hands of those same firms. The IDA does not condemn confidentiality - as long as it is immune from its effects. Fund dealers and brokerage firms can still concoct confidentiality provisions that prevent customers from sharing information with one another.

"After five years, I'm beaten into submission," one such investor told me this week. "I'm not allowed to disparage the bank at all. We're living in fear of the might of the bank closing down on us and suing for everything we've got." Source: Jonathan Chevreau, “Grievances never see the light of day: Banks, brokerages use confidentiality pacts to great effect “, Financial Post, June 25, 2005
Thus by keeping settlements secret, other investors with the firm are in the dark even though the malfeasance and the resultant settlement may also be applicable to them and may still be occurring.
“The "financial euthanasia" of Canadian retirees is as important an election issue as health care, Gag orders would never be tolerated in the health care system -- the public has a right to know about the spread of SARS or other diseases. Investors should receive similar warnings of financial industry practices that threaten investors' financial well-being” –Investor advocate Joe Killoran Source: Jonathan Chevreau, “Grievances never see the light of day: Banks, brokerages use confidentiality pacts to great effect “, Financial Post, June 25, 2005
Financial services firms aren’t the only one wanting to keep information confidential. Here’s the language from the current standard letter received by industry-sponsored OBSI www.obsi.ca clients.

“..Neither you nor [name of FSP] will surrender any legal rights by participating in OBSI’s process. It is critical to the success of this process that both you and [name of FSP] are able to deal with OBSI in a complete and open manner without the risk that you may prejudice your legal rights. Thus by signing this letter, you and [name of FSP] agree that OBSI’s correspondence and discussions with you as part of this process, and OBSI’s files, are confidential. You and [name of FSP] agree that in the event of any subsequent legal or other proceedings neither of you will use that correspondence or information. In addition, neither you nor [name of FSP] will seek to compel OBSI to produce its files and records, or seek to compel the Ombudsman or any other OBSI staff member or advisor to give evidence or testify in any such proceeding….”

Ironically, a bigger threat to investors is the new Ontario Limitations Act which requires investors to file for legal action within 2 years of discovery. This actually encourages financial services firms to drag out the complaint process and make low -ball offers. You won’t have to worry about the gag order-there may be no settlement at all. Seniors, retirees and small investors are truly disadvantaged by this Act making the signing of oppressive “ boilerplate provisions ” now much more likely.

Since the primary role of regulators is protect investors and act in the Public interest, how about the following ?:

Ban confidentiality Agreements unless desired by the investor
If a outright ban is not practicable, define industry –standard language for such agreements approved by regulators
If a outright ban is not practicable, include a maximum hush period of 1 year
Bound the penalties for an investor breach to the amount of restitution and define the remedies available to investors for a firm’s breach
Publish periodic statistical summaries of the hushed cases with trends and commentary so other investors can learn what type of cases are being settled
As Louis Brandeis said: Sunlight is the best disinfectant. The financial services industry needs to Walk the Talk. It’s time to respect and honor investor protection.
Ken Kivenko P.Eng.

White Collar Crime is a Crime of Violence. Diane Francis

2005-04-30T23:18:00.000-07:00

“..White-collar crime is a violent act. By my rough account, there have been at least half a dozen suicides by investors who are victimized and lost everything as a result of the Bre-X debacle. That's just the ones that came to my attention during a book research. How many people in other mining outfits lost their savings? How many marriages fail because of this? How many people lost their health because of the fraud? Or their houses and lifestyles? How many children's lives were affected? White-collar crime is violent because it mugs lives, livelihoods and self-esteem. That's why the American judges are correct in imposing tough sentences on these people. And yet no one has been charged or even investigated in Canada for Bre-X because the case would be too expensive for the cash-starved Mounties.... ” Source Diane Francis, “White collar crooks: U.S. hits them hard”, Financial Post, March 22, 2005 pgFP2[the Bre-X scandal cost investors an estimated $ 9 billion]

United States illegalities, sadly accepted in Canada

2005-04-30T12:38:00.000-07:00

This article could apply to mutual fund and proprietary fund practices in Canada, also double dipping. Regulators still failing to enforce the simplest rules of fiduciary behavior in Canada. Class action lawyers might have to make it right.
New York Times

April 30, 2005
Mutual Fund Firm Is Fined; Will Repay $11 Million to InvestorsBy JENNY ANDERSON
addell & Reed, one of the country's oldest mutual fund companies, paid $16 million to settle charges brought by regulators saying that it fleeced investors by switching them into financial products that benefited the brokers and the company at the expense of investors.
NASD, the investment industry's regulatory organization, said Waddell & Reed, which settled the case less than a week before it was scheduled to go to trial, would pay a $5 million fine and provide up to $11 million in restitution to clients who responded to a company campaign to move their investments from one variable annuity to another.
The switch earned the brokers more fees and commissions but cost customers more, NASD said. The company, which is based in Overland Park, Kan., and has $38.2 billion in assets under management, will also pay a $2 million fine to state regulators. The company did not admit any wrongdoing.
"What was most troubling about the case is what a concerted and aggressive campaign it was on the part of the company," said Mary L. Schapiro, vice chairman of NASD. "There was little regard given to whether this was good for investors."
In a complaint filed in January 2004, NASD charged Waddell & Reed with violating rules that dictate the steps brokers must take to ensure that investments are suitable for clients. From January 2001 to August 2002, the firm tried to switch customers from variable annuities issued by the United Investors Life Insurance Company to similar annuities from the Nationwide Insurance Company, after Nationwide agreed to a fee-sharing agreement that would benefit the company's brokers and bottom line.
The switches cost investors almost $10 million in surrender charges - fees paid for exiting a variable annuity contract early.
The settlement imposes six-month suspensions and $150,000 fines on Robert Hechler, Waddell's former president, and Robert Williams, the former national sales manager who is now senior vice president for public affairs. Neither man admitted guilt.
"This is a positive step for Waddell & Reed, our financial advisers, our employees and our clients," said Keith A. Tucker, the firm's chief executive. "These matters date back several years and their removal as an issue is an important action."

ASC carries out rapid investigation, well done

2005-04-28T22:50:00.000-07:00

despite allegations of impropriety and dysfuncion at the Alberta Securities Commission, you have to give them credit for acting quickly to investigate.

The problem is that they acted quickly to launch an investigation into catching the scared employees who actually risked their careers to speak out about management........................when they were supposed to launch the investigation into the improprieties. Oooops! Sorry guys.

Instead of hiring KPMG to do a complete check of who was saying what over the e-mail system, they should have used the time, energy and resources to reassure the public that they were looking into the allegations of impropriety.

Where do they get managers like this? At the school of sociopathic corporate climbing? To immediately initiate an internal witch hunt (sorry, but that is the appearance in the eyes of this observer) to feret out the bastards who dared to tell the truth as they see it, is so typical of bad management with something to hide.
What employees did is called blowing the whistle, and it is well documented in social studies and human behavior studies. Others call it telling the truth in the public interest. The reaction is all to often the same and the ASC does not dissapoint in this regard. They take well rehearsed and well documented steps to threaten, intimidate, scare, and otherwise bully and retaliate against those who dare speak out against them.

How sad.
How typical.

Holy government cover-up Batman!!

2005-04-28T14:36:00.000-07:00

Here is what the role of the provincial auditor is

“The Office of the Auditor General exists to serve the Legislative Assembly and the people of Alberta. Accountable to the members of the Legislative Assembly, we are responsible to the public who want assurances that the government's financial reporting is credible. Consequently, our core opinion work is performed to add credibility to the financial reports of organizations accountable to the Assembly. But our legislators want more, and rightly so. In effect, we are charged with making recommendations to improve the economic and operational health of the Province”.

http://www.oag.ab.ca/

Below is from Alberta Securities Commission part time Commissioners:

ASC sets conditions for co-operation
All information involving enforcement matters to be kept confidential

Thursday, April 28, 2005
By IE Staff

http://www.investmentexecutive.com/client/en/News/DetailNews.asp?Id=28572&IdSection=8&cat=8

“The Alberta Securities Commission has advised the Alberta Auditor General of the extent to which it will co-operate with his examination of the commission”.

?????????

Does this mean what it sounds like it means? An agency of the government is actually dictating to the provincial auditor, the terms of an investigation into themselves.
I will try to remember that line when Revenue Canada next needs to talk to me………………………or when I have something to hide. Do you think it will actually work?
Do they?

Did Ralph really say that? An elder abuse example.

2005-04-28T12:52:00.000-07:00

I was speaking to a reporter the other day, who was valiantly trying to understand just what all the fuss was about with the ASC. He wanted to know just who is hurt if indeed the regulator is lax, lazy, or other. By way of example he said that fedderal finance minister Ralph Goodale stated the other day that he has "not had any complaints" about securities regulators or lack of regulation from Canadian consumers. If this is true, here is my answer. If not true, then no worries.

My answer is that if you are the typical "good" investment client, you might fit this profile:

--older, perhaps in your 60's, 70's or older
--wealthy, as often happens when you have lived long and worked hard
--trusting, and respecting of authority and large corporations
--vulnerable, in that you are not aware of everything, and willing to take professional advice
--you may be alone, you may even be frail or in poor health
--Certainly there are other good investment clients, but if you throw ever good client into a basket, you will tend to come out with more who fit into these kinds of categories.

So if you are able to even half way agree with the above, keep reading. If you are not, please go to www.blogspot.com and build your own story.

So we now move ahead to the scenario, where this typical, older, vulnerable, trusting, perhaps frail client has been taken advantage of by a commission salesperson, posing as a professional investment advisor at a major IDA investment firm. Trust me, it happens. Perhaps even one owned by a big five bank, as they are the largest owners of dealerships in Canada.

What does the client do? First, and most often perhaps nothing. I have seen one 90 year old widow, with a $300,000 account, say about her trusted advisor, "he is such a nice young man". While the advisor was turning over her account (without consulting her) to generate some $30,000 in commissions each year.

What do they do if they are fortunate enough to clue in or have relatives to assist them?
They ask their advisor if everything is as it should be. This is a natural first step, and it is akin to asking Michael Jackson if he is really supposed to be touching you there. The answers will tend to support, or reassure the client that all is well, perhaps explain that markets are down, and there is nothing that can be done. I have even see some ego driven advisors get angry at elderly clients, and yell at them for mistrusting them, or questioning them.

This would constitute verbal abuse piled on top of financial abuse toward the elderly.

If the client has the energy, courage, and emotional strength to put up with more of that, they may be encouraged to write to the office manager, or to the firm in question. I have seen a few responses to letters like this, and they are not encouraging. Supposedly a company compliance officer looks at matters such as this, but I am not convinced they are not more interested in protecting the firm at all cost instead of protecting the client. I could be jaded on this, so ask a few opinions within the industry before you accept this opinion as true. End result in my experience is that the client is "handled", with letters minimizing, explaining away or brushing off the concern. The very last thing they will ever put in writing is that they agree and admit that the client was done wrong. That would be like asking Michael Jackson's lawyers to admit their client did something wrong.

So we now have taken up to a year or more out of an elderly persons life, trying to get straight answers on their life savings, and how it was handled.

If they have some real bench strength (support) in the family, they may get help and write a letter to the Provincial Securities Commission making their concerns or complaints known. Here they will meet with two beaurocratic (how the hell do you spell that?) obstacles rather than find help. Obstacle number one is that the commissions are so understaffed (and allegedly dysfunctional employers, .............but I digress) that they can only investigate cases "of importance". This means a yes to a few cases where they score media points (like a large or popular case for example), and "NO" to mom and pop investor cases. They will not tell you this however (misleading advertising), but will instead refer you to the Investment Dealers Association (IDA) , whom they claim do all the investigations for IDA registered firms. Never mind that the IDA is not powered by any law that allows them to do this, nor are they impartial. They are called the Investment Dealers Association because they represent and are paid by the Investment Dealers.
You can imagine the kind of response the client will now get to her concern or compalint...........if she is not dead or exhausted by the whole affair by this time.

So, a frail, trusting, vulnerable, elderly person, who may have been victum of a financial predator has spoken or written to four to six different people, departments, or organizations at this time, each one of which gave her a promise that they are, "there to protect or serve her interests". Each one has either ignored her, abused her further, or told her to go somewhere else, (without being honest enough to tell her that her status is "not important" enough to warrant the same treatment as other cases).

Just noticed, I took to giving this ficticious client a female gender. I should explain. In addition to living longer than males, females listen and accept advice from professionals better than males do (ever seen a guy ask for directions?) and thus in my story about the "ideal" client,and it is my story, my version of an ideal client is female in addition to the points above.

Where was I? Oh, so now this poor client has gotten the "runnaround" by almost each and every avenue they can think of (barring legal action, and when did you last meet a senior citizen that wanted to start a court case in their declining years?) and this includes government agencies, self regulatory agencies, and the largest and most trustworthy (advertising promise) banks in the country. I would not, do not, could not expect them to continue on. To continue to emotionally drain themselves fighting against what feels like an "entire industry", in denial that there is a problem.

To get to the punch line.............how are these people expected to continue on, and write another letter to ralph goodale, or ralph klien or ralph anyone. (and I am a huge fan of ralph klien, by the way) We already know the type of answer they would get. "thank you for your correspondence, I have passed your concern to the proper department and I can assure you...............blah, blah, blah"

If anything happens at all, their complaint may get handed back to the dysfunctional or incapable government regulator who has already dismissed it once.

I give up. And so do clients. And that Ralph, is why you are not getting flooded with letters from abused investors. Please consider this when (if) you say you dont think there are many abused investors.
Thanks to all the Ralphs out there who need to listen.

Securities Enforcement Accountability Coalition

2005-04-26T07:49:00.000-07:00

A group called the “Toronto Police Accountability Coalition” is making progress with the Ontario Government on the creation of an independent civilian body to investigate complaints from the public against the police. The Ontario Attorney General Michael Bryant and retired Superior Court of Justice judge Patrick LeSage are taking leadership on the issue of police not being permitted to investigate police. We will borrow the concept of a ” Canadian Securities Enforcement Accountability Coalition”. The objective of this coalition would be to promote integrity and accountability in the enforcement of securities and accounting fraud and offences. To ensure this integrity and accountability, the “Canadian Securities Enforcement Accountability Coalition” should demand that all Federal and Provincial Governments have bona fide independent audit procedures in place to validate the integrity of white collar crime policing, covering the RCMP, the provincial securities commissions’ enforcement operations, the SRO’s enforcement operations and the CPAB. These independent auditing procedures should be capable of receiving evidence of misconduct from whistleblowing employees and the investing public. The “Canadian Securities Enforcement Accountability Coalition” approach is an idea for packaging the various initiatives we have all been involved in during the past two years. The concept of enforcement accountability will be difficult for legislators to ignore in the face of the federal sponsorship scandal, the ASC scandal, and the growing body of document evidence available from the public on bad faith and favouritism exhibited by provincial securities commissions and the SRO’s. Stan Buell and Jim Roache have both drafted letters seeking an independent audit of the OSC enforcement operations (work in progress). Larry Elford, Stan Buell and I have sent similar letters calling for an independent audit of the ASC. Maybe, we can use these various letters as prototypes for the “Canadian Securities Enforcement Accountability Coalition” letter demanding the same integrity and accountability standards throughout all the white collar crime enforcement agencies and accounting oversight agencies across Canada. Does anyone agree that this narrow approach for a coalition could be timely and an effective first step for reducing corruption in Canada.

Diane Urquhart

Small Investor Protection Association comments

2005-04-24T17:03:00.000-07:00

The Holoday Story certainly illustrates most of the problems investors face today. John Reynold’s book Free Rider is well researched and discloses detail that should alert the public to the attitudes of industry that are the major risk that investors face. It may read like fiction but it is full of facts. I had the opportunity to attend the book opening November 26, 2001, and meet some of the people mentioned in the book including Albert Robinson.

Holoday’s misdeeds were not those of a “rogue” broker. His actions were known to management. When Midland Walwyn’s compliance officer, Albert Robinson, had the temerity to suggest that Holoday be fired for his actions because this would create problems for the firm, he was rewarded by being fired. He was also unable to find further employment in the investment industry. This is the problem those in the industry face if they are brave enough to come forward.

Kent Shirley came forward in February 2004 and reported to the Saskatchewan Securities Commission, the Ontario Securities Commission and others. The regulators failed to act and Assante exacted revenge by precipitating an Anton Pillar order to prevent Kent from speaking out. Joe Killoran (he came forward years ago to tell the truth much the same as Kent Shirley and that resulted in his career as a mutual fund salesman being destroyed) is valiantly carrying the torch passed to him by Kent Shirley and is now fighting a civil action launched by Assante. Have the regulators done anything yet?

Now several staff members have come forward with allegations of wrongdoing in the ASC. The ASC has responded by firing Grahame Newton who seems to be one of the “cowards” who made anonymous allegations. The Alberta Finance Minister is “concerned” and ordered an investigation. This type of industry response illustrates that corruption permeates industry and even the regulators. It illustrates that TruthTellers are intimidated and persecuted to discourage others to come forward.

We need TruthTeller legislation that protects all Canadians … particularly those in the investment industry and the regulatory system.

When will Government and the public recognize that financial services dishonesty and corruption is one of the biggest issues that Canadians face. Countless numbers are losing their life savings at the hands of a callous, dishonest investment industry.

Canadians are deceived by the industry and the regulators into believing they can trust the industry to look after their investment, and the regulators to ensure their investments are protected. The reality is that it is really an Investor Beware situation.

When investors lose their money they are faced with the response that they should have looked after their investments and that they should, have taken action to mitigate the losses.

If the regulators and the government accept that the investor is responsible in this manner then government and regulators have a responsibility to alert the public that it is indeed a Buyer Beware industry.

We are becoming alarmed by recent revelations and developments.
In December 2004 it was revealed that eight of our largest investment institutions were found to engage in mutual fund market timing that took from small investors and lined the pockets of industry. This reveals the investment industry’s widespread wrongdoing and a cavalier attitude towards the small investor.
Earlier this year the Gomery Commission testimony began to reveal that corruption is rife and extends into our Government. The former prime minister tried to stifle Justice Gomery and make a mockery of the inquiry.
Recently the Alberta Minister of Finance, the Hon. Shirley McClellan, has ordered an independent inquiry to investigate allegations of Alberta Securities Commission wrongdoing brought forward by ASC staff. The ASC has fired Grahame Newton, and he is believed to be one of those who dared to come forward.
Last year the Ontario government quietly reduced the Statute of Limitation from six years to two years. We are continuing to seek clarification on this issue.

In 1999 Robert Goldin wrote a book entitled “Investor Beware”. Maybe he is right.

Still there are some who believe it should not be an “Investor Beware” situation. Gerry Phillips said our financial services industry regulatory system should focus on investor protection and that a national regulator can best serve all Canadians. We fully support his opinion. We also believe that investor protection can only be provided by an independent investor protection agency, as recommended in the CARP/SIPA Report of September 2004.

However, we are concerned that investor protection is being eroded by an industry that lacks honesty and integrity and seems to have no sense of what is right and what is wrong.

Regulators confide that industry tries to justify all of their actions by saying “show me a rule that says it is wrong.” The industry maintains that market timing is legal. They do not see that robbing the poor to pay the rich is fundamentally wrong.

We are also concerned that the government is failing to realize that white collar crime is not a victimless crime. The seniors, widows and others, who spent a lifetime accumulating savings that are destroyed in a heartbeat by a callous investment industry, suffer in untold ways without hope of recovery.

On February 14th 2005, we made a submission to the Senate committee. Our submission concludes:
Government must take action to enable Canadians to trust. Canadians need:
· One national Financial Services Regulator
· A national Investor Protection Agency
· A national register of representatives accessible to the public

SIPA asks that the Senate call for an inquiry into this problem of investors losing their life savings due to investment industry widespread practices of wrongdoing.

In light of the market-timing scandal, Adscam, and the ASC scandal, Ontario should lead the way by ordering an independent inquiry into the provincial financial services regulatory system. A simple review of the findings of the regulators themselves would confirm the need for an inquiry.

The ASC scandal illustrates that there must be independent oversight of the activities of the regulators and that government must legislate TruthTeller protection immediately. We have already witnessed the death of Kent Shirley who came forward with allegations of wrongdoing yet the regulators are strangely silent on this issue. Now Grahame Newton has been fired. Government must act to provide protection.

With regard to the limitations period, most victims of financial predators take several years to realize that the reasons for their loss are more related to industry wrongdoing than market risks. Canadians tend to believe they can trust the investment industry and believe the hype they hear, and that they can trust our government to provide a regulatory system that provides investor protection. Indeed the hype suggests that investor protection is central to regulation.

With the fractured and complex regulatory system that exists today it takes small investors time to determine what the procedures are. Industry is slow to respond and most victims spend several years following industry and regulatory advised procedures before realizing that civil litigation is the only recourse. To reduce the limitation period to two years is prejudicial to the investor’s rights and this must be corrected.

We are particularly concerned that investors are not receiving fair treatment and that enforcement is either unwilling or unable to act to provide appropriate protection. SROs should not carry the mandate for investor protection.

We believe the most important issues include:
The lack of non-industry sponsored dispute resolution mechanisms
The lack of quantification of the extent of complaints and investor losses to enable this issue to be placed in proper perspective. Lack of transparency, industry cover-up and gag orders prevent the public from knowing.
The need for a regular audit of the enforcement regime by a government agency. The regulators investigating themselves leads to whitewashing and failure to disclose problems in a timely fashion.
The lack of TruthTeller protection that discourages those who would come forward to expose widespread wrongdoing. Witness: the ASC treatment of Grahame Newton, Assante’s treatment of Kent Shirley, and Joe Killoran’s treatment for coming forward years ago.
The reduction of the Limitation period for abused investors. Two years is ridiculous when most aggrieved small investors take several years to realize that their losses are due to industry wrongdoing and not just market risk, and that the industry and regulators do not provide fair an timely treatment.

We believe there are sufficient studies go back to the mid nineties when Ms. Stromberg, a securities lawyer and former OSC Commissioner produced two reports that not only defined the problems but recommended solutions that are still being discussed ten years later.

The Wise Persons Committee Report on December 2003 reviewed all of the studies to date and said “It’s Time” to establish a national regulator. Now there is talk of harmonization and Uniform Securities Law. In the meantime small investors continue to be robbed of their life savings to the tune of several billion dollars per year.

Reviewing regulations and recommending guidelines and practices is like Nero fiddling while Rome burns.

We need to focus on getting action that will effect change that does indeed provide investor protection that includes not only [preventative investor protection but also timely and fair restitution of investor’s disputes.

Making clients whole again should not be interpreted in giving them 10%, 30% or even 70% of their money back. When investors are robbed of their savings, whether by incompetence or deliberate wrongdoing by the financial services industry, there should be an authority with the power to order restitution.

The judge’s order that Holoday pay restitution of half the amount of the fraud is not good enough. Midland Walwyn and First Marathon should be held accountable for full restitution and required to make defrauded clients whole again. The Regulators should be required to ensure that the firms provide this restitution. If not, the regulators should be compelled to punish these companies and establish a fund to pay victims of industry wrongdoing.

At least that is my opinion.

Stan I. Buell, P.Eng.Small Investor Protection Association (SIPA Inc)P.O.Box 325Markham, ON, L3P 3J8e-mail: stanbuell@sipa.towebsite: www.sipa.to

Here is what one expert feels about the regulators.......and he is probably right

2005-04-22T11:40:00.000-07:00

(The below was sent to me by an industry expert who has worked tirelessly for a decade or more to improve conditions for Canadian investors, and who now lashes out at OSC Chairman Brown saying he is now prepared to "listen")

So all my letters, e-mails, telephone calls, formal complaints, appeals and media statements - plus political lobbying and participation in public hearings (federal and provincial) fell on deaf ears??? But now, on the way out the door, Brown wants to know my "tales of unfair treatment, lost savings and roadblocks to restitution"????!!!!

"Brown said he is responding to complaints brought forward by the Small Investor Protection Association and individual investors who appeared before an Ontario legislative committee last fall."

He didn't hear them (or know about the problems they had experienced) before then??? He didn't respond before then??? He didn't direct the IDA to do it's job better and correct the issues identified in audits and studies - as well as by individuals who appealed their arbitrary and capricious decisions to the OSC????

But hearing it all again in a townhall setting, it will finally register, and he will act in the month left in his tenure as head of the commission????

I, and many others, have referred complaints to OBSI - Lauber - what a joke. He has no power to force a settlement. And he is on the way out the door too!

The IDA is - as everyone should know - a bigger joke - because it makes bigger claims for itself.

My rule of thumb in life is to NEVER believe a word anyone says, but to believe everything they do (or don't do). What Brown, Oliver and Lauber - OSC, IDA and OBSI - have NOT done, speaks volumes.

I despise pseudo-consultation. I despise people who talk the talk, but don't walk the walk. And I am not alone. I have dealt with literally hundreds of abused small investors over the years - from coast to coast - many elderly or disabled - and their stories are the same. SROs are in the business of blowing smoke...not of addressing valid complaints.

The public and even investors at large buy into it because of multi-million dollar ad and "educational" campaigns and their innate trust of Canadian institutions...until it's too late. When they inevitably get gored, they wake up to the fact that there is no effective mechanism of redress - except in the most unusual circumstances.

If Brown doesn't know that by now, he has not been doing his job. To try to white-wash his tawdry performance over a number of years with one last PR "dog and pony" show is pathetic. That the media - thus far - seems to be buying in - uncritically - reflects their gullibility (some might say, culpability).

Yes the market (index) goes up and the market goes down; stock values go up and down. We are all adults here - we understand that. The result is acceptable and understandable - gains and losses to the investor.

It is the other stuff - the monkey business - that has made Canada the laughing stock of the world, the Switzerland of North America. When the Americans had to come up and force our regulators to do something about Hollinger, was I the only Canadian to be mortified????

Yes, a townhall show-and-tell by a "lame duck" OSC head will solve all of the well-known and well-documented problems in the financial services sector???!!! And I have several bridges over the St. Lawrence I'd like to sell you --- from Bre-X to Hollinger, nothing has improved. But this town hall charade will stand Bay Street on it's head - right :-( NOT.

ASC Review, Will it be public?

2005-04-21T11:05:00.000-07:00

I would wish for full, true, and plain public disclosure as to what happens at the ASC. This will be the very first step towards a better and more trustworthy investment industry in Canada.

No more hiding the truth behind closed doors. Does anyone remember the Gomery inquiry?

For example, if the truth is that 90% or 100% of complaints about IDA firms get referred to the IDA, I want it disclosed to investors. (The IDA is another story entirely and will be addressed in due time)

If from 10,000 complaints received the ASC has the time, money and resources to investigate only 90 cases, I would hope it is disclosed to the public.

I want the public to be informed, rather than misinformed, misled, and mistreated. They should know full well what they are getting into when they place their lives in the hands of a government agency that says it is there to protect them. This agency should have to be upfront with them just as investment dealers should have to be upfront with thier clients.

If the ASC selectively picks and chooses which cases get looked at, and which get passed over due to internal limitations or biases, I would like it known and stated that they are picking and choosing when to enforce the law, and when not to. I would also like full disclosure as to what constitutes a case valuable enough to them to decide to enforce the law, and how they justify the ruined lives left behind from small investors who do not warrant the "case time". Do they not deserve the same protection under the law?

It might be discovered that the ASC is like a police agency, where the only speeding drivers on deerfoot trail who are given tickets are those with Mazda's and Toyota's, and those driving Nissans, Honda's and Ford's are automatically given a free pass. I think the public deserves to know such information so we can know what the rules of the game are and what to expect out of our enforcement agencies.

They are today telling the public that they do a complete job of protecting the public, and I have in twenty years, yet to see a member of the public, made whole by the ASC, after being wronged by my industry. The law is the law, and some members of the industry are really tired of watching this agency speak of high standards while selectively enforcing (or ignoring) the law.

Union Tribune Nails the Problem

2005-04-19T16:58:00.000-07:00

SEC needs to protect investors, not brokers
UNION-TRIBUNE
April 17, 2005
During a time when the Nazis were bombing Paris and Allied forces were frantically fleeing across the English Channel, securities regulators in the United States were preoccupied with more prosaic financial concerns.
Thanks to their efforts, Congress passed the landmark Investment Advisers Act of 1940, which has been protecting investors like you and me ever since. The document is simple in its most basic premise. The legislation requires that investment advisers always act in their client's best interests.
While it might seem sad to think that legislation was necessary to mandate this, we're revisiting this historical act today because of who was not originally covered by its language. The act notably exempted traditional stockbrokers, who simply traded securities for commissions. At the time, the exemption made sense because brokers have historically been sales reps, not financial advisers.
But as anybody who has watched the recent commercials for brokerage houses knows, brokers aren't just pushing stock tips anymore. In fact, many of them would probably rather staple their mouths shut than admit they are stockbrokers. Instead, they are calling themselves financial consultants, financial advisers and wealth managers.
It's probably better for investors that many brokers have evolved beyond simply handling sales transactions in return for commissions, but that evolution has triggered a debate that's centered on this question: If a stockbroker is behaving like an investment adviser, shouldn't he or she be subject to the same higher standards that any financial planner must observe?
While the answer is certainly obvious to me and probably everybody reading this column, regulators have been agonizing over the issue for many years. In 1999, the SEC floated a proposed rule that would have extended the exemption to brokers, who had started charging fees instead of relying strictly on commissions. Brokers began switching to fee-based pricing when the increasing popularity of do-it-yourself discount brokerage firms caused commissions to plummet.
But as stockbrokers started repositioning their business to offer customers advice, they encountered a potential problem. The 1940 act states that any advice brokers provide to their clients has to be be "solely incidental" to their jobs as sales reps. Since 1940, the SEC had never defined what "solely incidental" meant or enforced the provision. Wall Street, however, pretty much defined the term to mean anything goes. In television commercials, magazine spreads, and marketing materials, stockbrokers promise to help investors meet their retirement goals, plan wisely for college and find ingenious ways to afford a second home. Does that sound like "solely incidental" advice to you?
The SEC must have been swamped with other really important things because five years later, the controversial decision to expand the exemption to include brokers charging fees – presumably for advice – still hadn't made it on the commission's agenda for approval.
I can understand how these things happen. Sometimes the laundry piles up at our house for an awfully long time. But plenty of staunch critics of the expanded broker exemption, including the Consumer Federation of America, which represents roughly 300 nonprofit organizations, the AARP and financial planning groups, weren't so understanding. And for good reason. Paradoxically, the SEC's inaction, procrastination, or whatever you want to call it, meant that Wall Street, for all these years, could act as if the proposed rule was in effect.
Clearly peeved, the Financial Planning Association, which represents certified financial planners and other professionals, filed a lawsuit last year to force the SEC to vote on the revised exemption. That got the government's attention. The commission solicited a new round of comments from interested parties on the proposed exemption. Only one major brokerage firm, T.D. Waterhouse, sided with consumer groups, who wanted the expanded exemption hacked to itty bitty pieces.
Which brings me to what happened a few days ago in Washington, D.C. The SEC commissioners unanimously voted to allow brokers to keep their prized exemption, but there were some changes. The SEC now says that a broker must register as an investment adviser if he or she maintains discretionary control over an account or engages in financial planning. That's a good thing, but at the same time the SEC only encouraged the anything-goes interpretation of that pesky "solely incidental" standard. The SEC now says financial advice will be considered solely incidental if it is in "in connection with and reasonably related to brokerages services." That could mean just about anything.
While planting a fat kiss on the brokerage industry's cheek, the SEC did acknowledge that investors are terribly confused about the differences between an investment adviser and a broker. No kidding. Consequently, the SEC announced that it would pay for an outside study to determine whether brokers and investment advisers should abide by the same regulations now that we're in the 21st century. So the SEC hasn't ruled out future changes. Thank goodness.
If you're on the verge of dispelling this controversy as a big stink about inconsequential wording, it's not. The regulatory language is important for many reasons. For instance, if you have a brokerage account with a stockbroker, you need to understand that the interests of the brokerage firm come before yours. This means that a broker, for example, could recommend a mutual fund, not because it's excellent, but because his brokerage firm is getting extra cash from the fund company to promote it. A broker could also urge that his client invest in a variable annuity because he could win a free vacation if he meets a sales quota.
Certainly not all brokers are going to conduct themselves in this way, but the point is, it's perfectly legal. In fact, even if a broker wanted to act as a fiduciary for his or her brokerage clients (and plenty would like to), the firm would forbid it. By the way, you won't necessarily ever find out about the behind-the-curtain investment motivations because the disclosures for brokers' conflicts of interest are weak. In contrast, investment advisers are prevented from behaving this way and their disclosure requirements are much stricter. Investment advisers are fiduciaries, who by law, are required to act strictly in their client's best interests.
When you're shopping for a new refrigerator at Sears and the salesperson is praising the latest Kenmore side-by-side model, you may naturally wonder if this refrigerator is really better than the Whirlpool or General Electric model displayed on the same aisle. Or is the salesperson just being partial to his employer's brand? Maybe he is, maybe he isn't. It's up to you to decide. If you have a brokerage account, you need to maintain that same sort of skepticism when a broker advises you. Too bad it has to be like that.
Lynn O'Shaughnessy is the author of "The Retirement Bible" and "The Investing Bible." She can be reached at LynnOShaughnessy@cox.net

Example of Securities Commission Watchdogs Sleeping?

2005-04-19T16:53:00.000-07:00

When the family of 92 year old Murdo McDonald of Kelowna BC found out that Murdo's trusted RBC investment advisor was assisting him in selling his home and moving him to a care facility they were at first relieved. When they later found that the advisor turned out to the be the person who purchased his home they were surprised. When they found he had purchased it from the elderly client for about $50,000 below market value, without supporting appraisal, and for no money changing hands they were rather upset.

When his son in law contacted the BC Securities Commission, he was told by them to take his issue to the real estate association. He found this disssapointing treatment and asked a second time, and received the same answer a second time.

When I was informed of this, I called Steve Plumber, senior investigator of the BS Securities Commission. His response was that they had no interest in cases like this and that all matters with IDA firms (like RBC) were automatically referred to the IDA. When I asked him if he found any conflict with an industry trade association policing and enfocing itself, he said no, that is "how the system works".

I then asked him, if the Provincial Securities Act allowed him to pass away matters of law such as this to other self interested parties, and he had no answer for me except to repeat, "that is how the system works". I was not informed if "the system" actually follows the legislation in place or if they (regulators) are following a system of greatest convenience to themselves and the industry. After twenty years of seeing cases like this I am convinced it is the latter.

Does the public deserve regulatory and industry participants who paint themselves as the highest providers of ethical and "client first"service, while in practice they are allowed to forget morals, ethics and client protection if they happen to get in the way of making money and convenience?

So for the 92 year old gentleman, the BC Securities Commission failed miserably. Only after vocal investor advocates from across Canada began to act on this gentleman's behalf did the company in question (RBC) make efforts to cause restitution to the client. Even then, corporate lawyers tried to hold the man to confidentiality agreements saying he would remain silent on this indiscretion. He had no interest in publicity, nor did his family have any interest in signing coverup agreements to protect the investment dealer, so none was signed. In order to receive his home back however, the fellow had to sign an agreement that began with the words, "for value received........".

What this means I am not sure, but what it meant to me when I read it was that the parties that took away this mans home in the worst possible abuse of his trust and vulnerability, were suggesting that in order to get his home back, he had to acknowledge that he was receiving some value or benefit in the contract he was signing. He was in fact receiving only his own home.

Financial elder abuse is all too common in the financial services industry, as are the financial predators who roam freely under the guise of investment professionals. The industry seems lacking in motivation to weed them out, since they are generally the top commission or fee producing agents for the firms. The elderly are often vulnerable, trusting, and without doubt some of the wealthiest members of society, and they are easy prey for financial predators.

From my twenty years of experience in the financial services industry, I can say that I am not aware of one single client who has received compensation and or satisfactory treatment from complaint to a provincial securities commission, and I have seen double dipping and other evidence handed to them in hard copy by clients harmed by financial advisors. Each case I have witnessed has improperly and perhaps illegally referred the client away from the law, and turned them over to the foxes who guard the henhouse in Canada, called the Investment "Dealers Association". This is nothing more or less legal a regulatory agency than your local automobile dealers association, and to allow a self appointed body such as this to act as judge and jury on cases against it's own member is nothing short of criminal. A full public investigation should be undertaken to reveal just how many trusting and vulnerable clients have suffered from failed enforcement of securities law, and then suffered insult on top of injury by being told to "go somewhere else" by the government watchdog charged with this. The inquiry will, in my opinon show that the watchdog died some years ago.

For information and resources on the web, go to:

www.regulators.itgo.com

www.sipa.to

Are 99% of consumer complaints to ASC delegated to the Industry trade Association??

2005-04-13T12:19:00.000-07:00

Enquiring minds want to know!

I certainly think so. It has been my experience with provincial Securities Commissions that they totally abrogate responsibility by delegating it down to a self regulatory agency, who in the case of the largest investment firms in the country, happen to be the IDA. (for a hint as to who they represent, think, "dealers association")

I found a quote about how SRO's, to earn the privilege of being self regulating, have to enforce rules equal to "or stricter" than those granted the provinces by law.

Page 33, of the Canadian Securities Institute Textbook, titled, CONDUCT AND PRACTICES HANDBOOK COURSE.

It is something every registered rep in Canada must study and pass an exam on in order to receive a licence to sell.

The full paragraph reads as follows:

As mentioned above, Self Regulatory Organizations (SRO's) are industry organizations that have the privilege of regulating their own members, whether as officially recognized "SROs" or under the "stock exchange" portions of their provincial Acts. SRO's are responsible for enforcement of their members conformity with securities legislation and have the power to prescribe their own rules of conduct and financial requirements for their members. The majority of participants in the Canadian securities industry are members of an exchange and/or the Investment Dealers Association, which are all SROs.

Self regulation is a privilege, not a right. SROs are delegated regulatory functions by the Administrators, adn SRO by-laws and rules are designed to uphold the principles of securities legislation. The commissions monitor the conduct of the SROs as the SROs carry out this regulatory function, and review the rules of the SROs in the province to ensure that the SRO rules do not conflict with securities legislation and are in the public interest.

SRO rules must set a standard equal to or higher than those imposed by the provinces.

I am of the opinion that this system of trusting the industry to police itself is not working in the public interests. It is, however, working very well in the interests of the industry. I will place a bet that when ASC complaint files are opened to an objective public inquiry, they will show that most (99%) of all complaints about the large IDA investment firms are simply referred to the industry, with little or no follow up to ensure the law is adhered to.

What do investors do, when they have written to the large investment dealer, written to the government agency responsible, and also written to the Industry Trade Association, and each response is to refer the client away from the law, and toward the fox on guard of the henhouse?

Alberta Securities Commission questioned about practices

2005-04-11T20:54:00.000-07:00

April 9, 2005

To: Mark Stott, CA
Forensic Accountant
Alberta Securities Commission
4th Floor, 300 – 5th Ave SW
Calgary, Alberta T2P 3C4
Sent by fax to 403-297-6156
Sent by e-mail to mark.stott@seccom.ab.ca

From: Larry Elford

Re: your file #I02028

My apologies for the delay in getting back to you. I have only now begun to understand, after some twenty years in the business, how the regulatory system operates in Canada. I am told there are some 43 regulators of the financial industry in Canada so perhaps you will forgive me for not getting it sooner.

I write in response to your reply to my complaint in file #I02028. In it you state that the complaint concerned “business issues”, and not violations of the securities act, and you referred me to the IDA with my complaint. I want to point out some oversights on the part of your commission that I hope you will take the time to now address.

In my complaint letter, which was also sent internally to RBC directors, was a complaint about an advisor who practices double dipping, or charging a fee based compensation model on top of mutual funds where a commission has already been earned. I see this as a direct violation of securities law or the securities act. There were other issues mentioned in the complaint as well.

The Securities Act states:

1. that investment recommendations must be suitable for each client
representatives have a primary obligation to act in the best interest of clients
2. that representatives have a fiduciary duty
3. that dealers must supervise representatives to ensure compliance with the above
4. that representatives have an obligation to act honestly, in good faith, and in the best interests of the security holder.

If I have any of the above wrong, please feel free to set me straight.

Causing a client to pay a fee based charge on top of already earning a commission on the same investment is to the advantage of the advisor only, (not the client) and it is a practice I now know for a fact was occurring at RBC as my original complaint suggested. I also now know that RBC misled the IDA when they told the IDA that an investigation into these allegations was undertaken at the time.

Similar behavior (unsuitable, not in client best interest, not meeting fiduciary duty transactions, even denying a fiduciary duty to clients) have been discovered through my research and through public court cases in Canada during the ensuing few years. This type of behavior has been found in several public securities cases in the States to be “unsuitable”, and “not in the best interest of clients”. In the reply to myself from Mr. Brian Peters of RBC, he says that double dipping is an unethical practice. RBC has since compounded the confusion by also stating that it is OK to charge a client an additional fee, “if they are given a deal”, on the additional fee. and finally by pointing to the fine print in their account opening documents that suggests they have every right to charge additional fees such as this on top of already paid commissions. I now do not know whether RBC is for, against, defending, or supporting the practice of charging clients fees on top of commissions paid. (Commonly referred to as the practice of double dipping) I would ask you to again consider whether your first reply to me was perhaps in error as to your obligation and the obligation to protect the public interest of Canadians by acting on the statutes, rules and policies of the Provincial Securities Act.

I also have a question of why my complaints were referred away from the Alberta Securities Commission (which appears to be charged with this responsibility) and referred to the Investment Dealers Association, when the IDA is not a government regulatory agency, but rather a self established industry trade association. I feel that by doing this you may have overlooked the mandate of your organization’s responsibilities and passed this to a group of people that not only have no legal mandate to deal with this in the proper manner, but that may actually wish to “not” deal with this in the proper manner. I would appreciate your thoughts on this or perhaps some correction if I am under the wrong impression. Otherwise I would need to take this matter up at another level.

The results of your failure to deal with this complaint have been rather predictable, now that we have the benefit of hindsight. The industry trade association (IDA) has stated (in writing) that no investigation was undertaken, contrary to what was reported by the firm in question in the press, as well as to courts in a civil action. I also find now that through my industry research on this matter, that this is typically the case. That complaints against the industry often get “brushed aside”, when given to the industry trade association (IDA). It seems obvious why this happens when you consider that you are asking the industry to investigate and police the industry. I will say it again for emphasis. You are asking the industry to investigate and police the industry. You must today answer the question of what specific legislation allows you to do this.

Are you the right people to be handling this? I am afraid it may have to be corrected through the court of public opinion, the political process, or a form of legal process that might hold government agencies such as your Commission to accountability. I am willing to ask the question once more, since it appears to indeed be an issue of securities act violations in contrast to your first letter. I am sorry it took me this long to find and understand the securities act. I was dealing with something I knew only to be unethical and immoral treatment of clients at the time, and I thought I was reporting it to the proper organization that knew the act and it’s responsibilities for the Securities Act.

I write this in the spirit of improving the industry that we work in, and maintaining the trust and the integrity of it by carefully questioning when indiscretions are suspected. I will not rest until this matter is properly, objectively and openly investigated to my satisfaction. It is in the public interest to do so.

I look forward to your reply.

Larry Elford
521 Fairmont Blvd S
Lethbridge, Alberta T1K 7G3

Cc: Alberta Finance Minister Shirley McLellan
Ralph Klein, Alberta Premier

Criminal Provisions of Competition Act and Misleading Advertising May Apply

2005-04-07T22:44:00.000-07:00

Guidelines
1. In order to proceed on a criminal track both of the following criteria must be satisfied:
(a) there must be clear and compelling evidence suggesting that the accused knowingly or recklessly made a false or misleading representation to the public. An example of such evidence is the continuation of a practice by the accused after complaints have been made by consumers directly to the accused; and

(b) if there is clear and compelling evidence that the accused knowingly or recklessly made a false or misleading representation to the public, and this evidence is available, the Bureau must also be satisfied that criminal prosecution would be in the public interest.
2. The factors to be taken into account in making this public interest determination will vary from case to case, and may include the seriousness of the alleged offence and mitigating factors.
3. The seriousness of the alleged offence will include a consideration of:
(a) whether there was substantial harm to consumers or competitors which could not be adequately dealt with by available civil remedies;
(b) whether the deceptive practices targeted or took unfair advantage of vulnerable groups (e.g., children and seniors);
(c) whether the persons involved failed to make timely and effective attempts to remedy the adverse effects of the conduct, or whether the conduct continued after corporate officials became aware of it;
(d) whether the conduct involved a failure to comply with a previous undertaking, a promised voluntary corrective action, or a prohibition order; and
(e) whether the persons had engaged in similar conduct in the past.
4. Mitigating factors will include a consideration of:
(a) whether the consequences of a prosecution or conviction would be disproportionately harsh or oppressive; and
(b) whether the company or entity has in place an effective compliance program.
5. If, on balance, the Bureau is satisfied that the circumstances of the case warrant criminal prosecution, a recommendation may be made to the Attorney General of Canada who will make the ultimate determination of whether to proceed.

One issue I can think of that the investment industry should start to worry about is the issue of claiming no duty of care, nor fiduciary duty to clients when the relevant Securities Acts of Canada expressly state that a fiduciary duty is owed to clients of investment firms.

Another misrepresentation is that of calling those persons legally registered under the Securities Act by a name that the securities act does not permit without further extensive qualifications. By way of example, although salespersons are only allowed to call themselves “salespersons” or, “registered representative”, they have since the market crash of 1987 begun changing the title of their business role in both advertising and business promotion materials to that of “investment advisor”. This forced the general public to fall into the misunderstanding that the large bank owned investment firms were in fact acting in the client best interest, when in fact, numerous industry statistics would indicate otherwise.

A third misrepresentation is to refuse to allow competitive pricing to be discussed publicly at the major firms. By way of example, although mutual fund commissions were deregulated and fully negotiable in about 1987, none of the advertising from any bank owned investment firm is found to have discussed or disclosed this fact. Further that there was in fact policy decisions made at firms to restrict or to disallow public advertising by any of it’s staff on the topic of deregulated mutual fund choices and methods of lowering investment costs to the public. This despite an industry promise to place the interests of the client “first”.

A fourth misrepresentation would be the act of placing the vast majority of mutual fund client investments into the highest compensating commission paying choice of funds according to industry statistics. With fully 80% of all mutual fund sales having been placed into the fund class that compensated investment advisors at the highest possible amount, it would appear again that the industry promise to place, “you first”, is not being met.

I would suggest that the criminal provisions of the competition act be looked into closely to determine where they apply to these practices. They can be found at http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/en/ct02868e.html#partVII.1
There seems to be a move afoot to uncover these issues and to force full true and plain disclosure into all things. I look forward to the increased benefit to the public interest when public inquiry is truly public, and large powerful vested interests are no longer able to silence thier stories of greed and corruption.
Alberta Securities Commission inquiry recently gagged is another example perhaps of the public interest being denied in the interest of whom? Stay tuned.

What the Investment Industry News is saying

2005-04-02T11:15:00.000-08:00

Fascinating issue of IE news for March, 2005 issue.

Here are the interesting highlights I found, with my two cents worth of commentary added in italics behind each:

Page 6, article by James Langton, who is probably the best informed writer in the country on the investment business. Titled, "Executives to be less immune to regulatory actions".
It describes how upper executives at major firms rarely if ever get punished for regulatory abuses. They are able to hid behind underlings to remain untouched. This allows them to sometimes , "look the other way", at some of the practices of big producing brokers.
I have to agree with the premise of this article. The upper executives are also compensated by the revenues brought in by the big producing brokers, so not only can they rarely be held responsible for client abuses, they are motivated by money to allow client abuses. It is a flawed system that will be addressed when Canada's regulators are separated completely from industry. It is time a few Investor Advocates took over in regulatory roles, instead of the revolving door of industry participants who help the status quo to remain.

Page 12, "advisors swing into Portus damage-control mode"
It is too bad that salespersons are allowed to represent themselves as advisors to the public. In my opinion, it was the commission merits and not the investment merits of the Portus product that allowed 26,000 Canadians to become investors in this scheme. There is still effectively zero investor protection or regulator action at the individual investor level in Canada in my experience.

Page 31, "Advisors turn to fund wraps, boosting growth". This article quotes members of industry speaking of how fast they are growing their proprietary and non proprietary wrap products. RBC Capital Markets spokesperson is quoted as saying that these kinds of products are growing three times faster than stand alone mutual funds in the nest few years. The unspoken but major underlying reason for the industry growth can be found in the OSC Fair Dealing Model, appendix F, page 10, that points out that by converting assets under administration into assets under management by the firm in a proprietary product, they can increase the percentage of revenues that flow to the firm by between TWELVE AND TWENTY SIX TIMES GREATER. (fourth paragraph on the page)
Some of the most abusive advisors I watched while in the industry even charged the client a commission, to move them into the higher paying proprietary products. Double and triple dipping made them some of the firms top producers and earned them a "vice presidential" title.

US regulators and courts are now starting to hold firms accountable for this, "self serving" investment advice. see:
Citigroup, Others Pay Fines Over Mutual Funds
By Brooke A. MastersWashington Post Staff WriterWednesday, March 23, 2005; 5:29 PM
In their continuing effort to clean up mutual fund sales, federal and industry regulators yesterday fined three large brokerage firms and a fund company a total of $81 million for improper sales practices and required them to make restitution to tens of thousands of investors.
The regulatory actions covered alleged abuses in two areas but shared a common theme: investors were steered into fund purchases that benefited their brokers, often at the investors' expense. The Securities and Exchange Commission and the industry regulator NASD have been investigating both issues for more than 18 months as part of a wide-ranging probe of the $7 trillion mutual fund industry.

Citigroup, JPMorgan Chase and American Express Financial Advisers paid a total of $21.25 million to the NASD, formerly known as the National Association of Securities Dealers, to settle allegations that they collected excess commissions from more than 50,000 households by selling high-fee "class B" mutual fund shares when the investors could have bought another class of the same funds for less. In addition to the fines, all three firms will convert the shares into the class that pays lower ongoing fees, and reimburse customers who have already sold the shares for the extra fees they paid.

In Canada this kind of thing is "standard industry practice" as the investment firms call it, despite being blatantly self serving to the revenues of the firm, and punishing to the public they serve.

Page 36, article by Glorianne Stromberg, the godfather of mutual fund common sense commentary in Canada. Whatever you read from her will eventually be proven to be true.

A PROFESSIONAL SHOULD ACT LIKE ONE

2005-03-28T21:19:00.000-08:00

This Post writer is well experienced with the industry, having written the definitive book on financial advisors, "THE PROFESSIONAL INVESTMENT ADVISOR".

A professional should act like one
Clients deserve to know how their advisor is paid (summary)

John De Goey
Financial Post
Monday, March 28, 2005

Having spent more than a decade as an extremely active member of what is now Advocis, I eventually despaired at the association's unwillingness to accept the notion of compensation transparency. To date, Advocis has fought the OSC's Fair Dealing Model at every stage of the process. This is largely, but not entirely, due to the FDM's desire to make advisor compensation more transparent for consumers. Advocis believes it is inappropriate to clearly disclose how and how much advisors are paid. The organization generally wants its payment structures to remain a mystery to the client.
When a person uses the services of a lawyer or accountant, that person knows how much the service costs because that person gets a bill for services rendered. Too many financial advisors think and act like sales agents; they believe it is none of their clients' business how or how much they get paid.

Four Questions Investors Deserve Answered

2005-03-26T10:26:00.000-08:00

As part of my continuing research into the financial services industry, I come up with a few questions that I hope can be posed to the Ontario Securities Commission at an upcoming town hall meeting they are hosting to try and improve conditions. I am encouraged by any and all attempts to do so, and I will try and update you as to any answers, or non-answers received to the following:

1. Why are transactions that are considered fraudulent or bordering on fraud in the United States allowed to continue as "standard industry practice" here in Canada? Specifically the practice of advisors recommending the highest compensating mutual fund class (the DSC class) to clients, despite there being lower cost alternative choices in the identical fund product that clients would be better served with.

see washinton post article [1]
see US court cases [2]
see IFIC and MFDA stats on Cdn fund sales practices [3]

2. Why are investment salespeople who are officially registered as "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?

3. Why are investment firms allowed to promise and advertise a high level of public trust, or as one firm's code of ethics states, "trust through integrity in everything we do", and then claim no responsibility to a 90 year old client who is mistreated by an advisor. The advisor was subsequently terminated by the firm, but still the firm denied any responsibility to the client. How is it that they are allowed to get away with this level of misrepresentation? [4]

4. Why are Canada's investment dealers allowed to, "buy silence" on matters, sometimes of a criminal nature, sometimes fraudulent, by offering to exchange money for silence from the victims of commercial crime. Is allowing the cover-up up of fraud in the spirit and intent of the Securities Act, or are steps being taken to disallow this type of criminal cover-up?

[1]

washingtonpost.com

Citigroup, Others Pay Fines Over Mutual Funds
By Brooke A. MastersWashington Post Staff WriterWednesday, March 23, 2005; 5:29 PM
In their continuing effort to clean up mutual fund sales, federal and industry regulators yesterday fined three large brokerage firms and a fund company a total of $81 million for improper sales practices and required them to make restitution to tens of thousands of investors.
The regulatory actions covered alleged abuses in two areas but shared a common theme: investors were steered into fund purchases that benefited their brokers, often at the investors' expense. The Securities and Exchange Commission and the industry regulator NASD have been investigating both issues for more than 18 months as part of a wide-ranging probe of the $7 trillion mutual fund industry.
Citigroup, JPMorgan Chase and American Express Financial Advisers paid a total of $21.25 million to the NASD, formerly known as the National Association of Securities Dealers, to settle allegations that they collected excess commissions from more than 50,000 households by selling high-fee "class B" mutual fund shares when the investors could have bought another class of the same funds for less. In addition to the fines, all three firms will convert the shares into the class that pays lower ongoing fees, and reimburse customers who have already sold the shares for the extra fees they paid.
Citigroup also paid $20 million to the SEC to settle similar allegations plus an additional charge that they took secret "shelf-space" payments from more than 70 mutual fund companies to recommend their products.
One fund company, Putnam Investments, agreed yesterday to pay a $40 million penalty for failing to tell its board and investors that it was rewarding brokerage firms for pushing Putnam products. That money will be put back into the Putnam funds for distribution to shareholders, the SEC said.
As is customary in securities industry settlements, the firms neither admitted nor denied wrongdoing.
Regulators have been investigating sales of class B shares since 2003 because of concerns that many investors did not understand how this kind of share worked. Unlike more common Class A shares, where investors pay a commission or "load" up front, Class B shares carry a "back end" load that must be paid when the investor sells. This arrangement, which is legal, allows investors to put off paying the commission, or avoid it entirely if they hold the shares for 6 years or longer.
Problems arose because some fund companies discount or waive commissions for Class A shares when the investment is large enough, usually $50,000 or more, but don't do so for Class B shares. According to allegations in the settlements, brokers sold Class B shares and failed to tell customers that Class A shares would be cheaper.
This is the largest Class B case the NASD has ever brought, said its enforcement chief Barry Goldsmith.
More cases are imminent, but most of the problems stem from past sales rather than ongoing abuses, the regulators said. Citigroup's Smith Barney brokerage unit now automatically flags class B transactions to double check whether investors would do better buying another class of shares, said spokeswoman Kim Atwater
"Since we've focused on this issue, we've seen positive changes at other firms in how these products are sold," said Goldsmith. "Practices have improved."
The SEC is trying to eliminate the problem of under-the-table payments by mutual funds to brokers by banning the most common method of payment, a practice known as "directed brokerage." Fund companies may no longer steer stock and bond transactions to particular brokerage firms in exchange for having their funds promoted by the brokers to their retail customers. Putnam paid directed brokerage fees, and Citigroup received them, the regulators said.
Investors who were harmed by B share sales practices do not have to take action to receive reimbursement. Under the settlements, brokerage firms must bear the costs of identifying and contacting investors, regulators said.
"The Commission's enforcement focus in the B Share area has improved the industry's self-policing," said Ari Gabinet, regional director of the SEC's Philadelphia office which spearheaded the investigation.
© 2005 The Washington Post Company

[2]
Jacob Zamansky, a securities lawyer in New York, represented the Huffs in their case against Prudential Securities (NEW YORK TIMES April 18, 2004, A BROKERS EMPTY PROMISE, A RETIREE's SHATTERED DREAM", by Gretchen Morgenson, view at www.regulators.itgo.com/PI/903.htm

"All the investors were placed in fee-based accounts, with annual charges of at least 1% going to the brokerage firm."

"Major Wall Street firms have targeted and preyed on unsophisticated 'buy and hold' Ohio investors, placing them in inapropriate fee-based accounts that generat huge annual revenue streams for the brokers," Mr. Zamansky said. "They put their own financial interest ahead of their customers'."

In a recent notice to members, the NASD warned that "it could be a violation of industry rules to put a customer in a fee-based account that costs more than an alternative".

"US brokers censured and fined for pushing DCS mutual funds"
By James Langton, Investment Executive, Thursday, April 19, 2001

"fines for improperly recommending deferred sales charge funds over front end load funds"
"which would have been more cost effective"
"The sales commissions would have been less than half this amount had they sold Class A shares"

NASD news release dated Wednesday, April 18, 2001, at www.nasdr.com/news/pr2001/ne_section01_026.html

"unsuitable recommendations of class B shares to customers..............when it would have been more cost effective for those customers to purchase Class A shares"

NASD INVESTOR ALERT, "Class B Mutual fund Shares: Do They Make the Grade?"
Speaks to DSC mutual funds. "The only differences among these classes is how much you will pay in expenses and how much your broker will be paid for selling you the fund." www.nasd.com/Investor/Alerts/alert_classb_funds.htm

[3]
When comparing two otherwise identical mutual funds, except for the compensation paid to advisor, a popular Deferred Service Charge (DSC) fund, which pays 5% to the advisor without disclosure on client confirmation or client statement, has grown over SEVENTY TIMES as large as an identical fund that has no hidden commission structure. This growth was achieved despite a higher management cost to the client, and a multi-year penalty to the client to exit the fund. (Source, Ontario Securities Commission Fair Dealing Model proposals, appendix F, "Compensation Bias", page 12)

Mutual fund industry association statistics (MFDA, IFIC) point out that approximately 80% of advisor assisted mutual fund sales in Canada have taken place using the higher pay to advisor, DSC choice, rather than using other less costly choices available since commissions became fully deregulated.

[4]
See Ontario Court Norah Cosgrove vs. RBC

Open letter to Investment Industry

2005-03-24T21:14:00.000-08:00

an open letter to Canada’s investment industry
PLEASE OPEN YOUR BUSINESS CONDUCT AND PRACTICES TO THE LIGHT OF DAY
We regret having to make this plea in public, but the practice of hiding financial irregularities behind confidentiality agreements, gag orders and industry codes of silence is far too prevalent and the undersigned have lobbied far too long with no result.

We are talking about examples where ordinary Canadians do not get treated with the professionalism they deserve, and rather than fix the problem, they are beaten down using legal methods and a seemingly inexhaustible imbalance of strength over the client. We wish to ask you to start to do the right thing, as all industry participants promise to do, but some fail to live up to.
Specific examples include

Please apologize to 92 year old Norah Cosgrove, an Ottawa resident who trusted her financial advisor, and was disappointed in this trust. Your firm terminated the advisor in question, but when Mrs Cosgrove took her claim for $10,000 to small claims court (case ???) your defense was that you felt you did not owe this elderly client a duty of care. Your entire industry promises a duty of care to a professional standard of conduct to it's clients, and to state less in a court filed legal document is simple wrong. Please allow this woman to understand why you would let her advisor go, supposedly with some cause, and yet deny, deny, deny any wrongdoing to her, the client. Please correct this.

Please cease your legal action against 80 yr old Pola Goldfluss of Toronto. She has already survived the loss of her husband, as well as her ordeal during the holocaust. She also has already been granted a settlement of some $250,000 from her investment dealer for investment advice that was supposedly not represented properly to her. To turn around, and then sue this client, for the same $250,000 on a legal technicality is simply harsh, unusual and unfair to the clients you serve. Why, pray tell did you agree to give her back her money in the first place if she did not have legitimate concerns, and now to say that the settlement agreement that she signed, was not signed by you, and need not stop you from pursuing her is simply irresponsible abuse of your level of power. Please cease and desist. (see TD Waterhouse vs Pola Goldfluss.

Please stop asking clients who have been abused by the industry to sign confidentiality agreements promising to never reveal details of the wrong they suffered, or the settlement they received. Asking them to do this is in violation of at least one firm's code of ethics which states, "each and every transaction we are involved in will stand the test of complete and open public scrutiny". All the other firms no doubt have similar promises of ethical behavior in the public interest. We simply ask that you now live up to them.

For example, when the 92 year old Kelowna, BC resident this last year was helped into an assisted living facility by his financial advisor, and told by his advisor that he would help him sell his condo, he was not aware that it would ultimately end up registered in the name of the advisor. Nor was he fully aware of much of the details of the transaction. The fact that it was done with no money going to the elderly client, no appraisal of value, at far below market comparable properties, and at a zero percent interest loan to the advisor was not only hidden from the client, but from his family, the public, and the regulatory authorities. It remained hidden for as long as possible, and was not properly revealed to regulatory authorities except by private industry advocates who expressed concern for this client. What were you thinking and where was your responsibility to act properly? This is not behavior appropriate to a business that claims, "the highest standards of trust and integrity".

Please stop using money to purchase silence and escape from prosecution over things that should be fully and openly investigated and properly prosecuted. Members of the public are not allowed to buy their way out of the situations they find themselves in, and nor should our most trustworthy financial institutions. For the gentleman in Kelowna to receive title to his own condominium back, he was required to sign an agreement that started out, "for value received". I consider giving the man his home back after removing it from his fraudulently, and calling it giving him something of value is adding insult to injury. Please immediately reconsider and remove all future bans on open and honest transparency in your company and your industry. It will assist in restoration of public trust in our financial firms.

Please remove internal rules that prevent industry employees from speaking out on issues in the public interest. This is holding back the move towards trust and integrity that this industry so loudly proclaims. How can we possibly expect complete trust and integrity when there still exist internal rules forbidding employees from revealing indiscretions without approval of management. This internal code of silence has acted in the past kind of like asking an abused child to take his complaints to his abuser. Until this policy of keeping everything "inside the firm", is updated to our times, violations of trust and integrity will be an ongoing problem.
If you will recall when mutual fund sellers used to be able to obtain free vacations if they sold enough dollars worth of one fund or the other.

When Bud Jorgensen of the Globe and Mail started to investigate this practice many years ago, I was told by my then manager, "anyone who talks to the press about this is fired immediately. I found that a rather unsettling and startling comment to come from someone in and industry of trust. I have since learned that this same manager was enjoying his annual trips to the Indy 500, courtesy of a mutual fund company. Please remove internal codes of quiet, codes of silence or gag orders on ethical irregularities. they belong with the Cosa Nostra, not one of our most important industries.

Please remove the internal policy, written or unwritten of not informing clients of the most economical methods of investing. The promise made to most clients is to place their interest ahead of those of the industry, and to do otherwise is a failure of this promise. How many clients have been told that mutual fund commissions were deregulated in 1987, and that clients now have choices as to whether or not to pay commissions when buying most mutual funds? If the industry is truly in the business of serving as trusted professional advisors serving the client interests, I am at a loss to understand why no full service investment dealer that I am aware of has advertised this fact to clients. Is it because they are stuck in the uncomfortable position of claiming the status of trusted professional advisor, while having to act out the role and earn a living as commission salespersons?

Do clients realize that fully 80% of the mutual funds sold in the last five years were sold utilizing the highest choice of remuneration available to the advisor? Is this service in the client interest or in the industry interest? For data source view the sales figures on mutual funds at the Mutual Fund Dealers Association of Canada website.

If you multiply the 5% commission earned on every DSC (deferred sales charge) mutual fund choice by the amount of sales, it will partially explain the ease with which some members of your industry are able to earn billions of dollars each year. Perhaps it is time to address the details of those many mutual fund choices available to your trusting clients before class action parties force you to do so.

improper mutual fund practices lead to $81 mil fines

2005-03-23T21:09:00.000-08:00

From Wednesday, March 23, 2005 Washinton Post newspaper comes the following:

By Brooke A. MastersWashington Post Staff WriterWednesday, March 23, 2005; 5:29 PM

"Citigroup, JPMorgan Chase and American Express Financial Advisers paid a total of $21.25 million to the NASD, formerly known as the National Association of Securities Dealers, to settle allegations that they collected excess commissions from more than 50,000 households by selling high-fee "class B" mutual fund shares when the investors could have bought another class of the same funds for less. In addition to the fines, all three firms will convert the shares into the class that pays lower ongoing fees, and reimburse customers who have already sold the shares for the extra fees they paid."

Here in Canada we have yet to awaken to the similar sounding and acting sales practices, being disguised as professional investment advice. The fact is that 80% of the mutual fund sales in Canada for many years now have gone into the higher compensating (and higher penalty to client) DSC funds, which have the deferred sales charge.

Further, when comparing two otherwise identical mutual funds, except for the compensation paid to advisor, a popular Deferred Service Charge (DSC) fund, which pays 5% to the advisor without disclosure on client confirmation or client statement, has grown over SEVENTY TIMES as large as an identical fund that has no hidden commission structure[1]This growth was achieved despite a higher management cost to the client, and a multi-year penalty to the client to exit the fund. [1] . (Source, Ontario Securities Commission Fair Dealing Model proposals, appendix F, "Compensation Bias", page 12)

This does not speak very highly of the amount of professionalism in todays financial services industry.

Alberta Securities Commission comes under investigation

2005-03-23T21:05:00.000-08:00

from todays Financial Post comes an article about our Alberta Securities Commission being held to account by numerous insiders and former employees who allege improprieties within. "Securities watchdog turmoil
Alberta commission facing review, lawyer denies claims"

Theresa Tedesco
National Post
Wednesday, March 23, 2005

This article explains a lot to me, as I had worked with the ASC enough times to realize that they were rather dysfunctional in the role of public protection.

The following is my letter of support to Alberta Finance Minister Shirley Mclellan, who is coming under fire in the legislature for her tough approach:

March 23, 2005

To: Finance Minister for Alberta Shirley McLellan Fax: (780) 428-1341
From: Larry Elford, CFP, CIM, FCSI Associate Portfolio Manager (retired 2004)
Re: Alberta Securities Commission

Dear Mrs. McLellan,

I write to thank you for your bold efforts on behalf of the public interest in the province. I understand the pressure you must be under for taking on this problem, and I want you to know I support you.
I am aware that some of those accused will simply take the Bill Clinton (or the Lord Conrad Black) approach of , “deny, deny, deny”, and that this will not hold up forever.
I have no knowledge of the personal side of the issues in question, but my professional life required me to be in close contact at times with the Alberta Securities Commission, and to watch them in action.
I feel that my experiences with the Commission lend credibility to allegations made by others that the Commission was simply not doing it’s job as advertised.
I will keep it short for now, but I have a few examples of my own which show the Commission brushing aside, and selectively enforcing or choosing to not enforce our provincial Securities Act.
Given the recent resignation of the Ontario Securities Commission head, after being caught in deceptive public statements about his department (six days prior to his announcement), and the following news: Toronto, March 17, 2005
Michael Lauber, the CEO and Ombudsman of the Ombudsman for Banking Services and Investments, will retire June 30th, the organization announced today……………….it appears that there is a bit of a wholesale change of guard taking place, and it could not happen at a better time.
Canadians have been too long victims of financial predators and the current crop of regulators is as much part of the problem as the predators. Please accept my congratulations on your steps in this direction and my offer of support in any way that I may be of assistance.
Best regards.
Larry Elford, 521 Fairmont Blvd, Lethbridge, Alberta T1K 7G3, lelford@shaw.ca

2005-03-13T14:19:00.000-08:00

I should mention that this site is intended to catalogue my trials and tribulations during the time I have tried to bring increased ethics to the investment business. It is my responsibility to do this, similar to that of every single member of the industry to work towards preserving and protecting our clients and the reputation of the business. Looking the other way, and covering up abuse only works to profit in the short term, not the long term.

If I can be of any help through these stories, to members of the public who are, or have been abused by this industry, I offer my services and my experience to assist, without compensation. I am qualified to act as an expert witness in litigation, but if I were paid to do this, my opinions may come into question. I am happy to tell the truth as I know it, and happy to see if that can in any way improve conditions in the investment industry and for the public.

Thanks for reading along, and best regards.
investoradvocate@shaw.ca

2005-03-13T14:12:00.000-08:00

Mutual funds and profit motivators……….how your investment advisor’s personal compensation may have clouded the “professional advice” to you the client………

When you deal with a firm and an advisor that promises professional investment advice that is in the best interests of the client……………..is this what you actually get, or are you the victim of some puffy advertising? You be the judge.

Prior to 1987, investment commissions were regulated, and non-negotiable. Life was good if you were an advisor, although we called ourselves, “stockbroker’s”, back then.
Clients who wished to purchase a mutual fund were required to pay whatever the prospectus called for. Templeton purchasers paid a 9% commission to buy the fund back then.

They came deregulation and the market crash of 1987. Things changed. RBC Financial took away my business cards calling me a stockbroker, and gave me cards which referred to my title as one of, “investment advisor’.

No regard to the fact that “investment advisor”, is a registered title with Securities Act guidelines and requirements that virtually none of us met, nor today do most RBC advisors meet. It was deemed to be a “more acceptable” title to refer to us by, than that of “stockbroker” after the crash. People were afraid of the word, “stock”, after the crash.

Fast forward to 2004. Commissions have been deregulated for a time period coming up upon nearly two decades. The internet has allowed people to buy investments faster and cheaper. Clients are more sophisticated, better informed, and have access to information in their homes that was unheard of in 1987. (internet, CNN, CNBC, exchange quotes, business news)

Some advisors have grown and changed with the times, morphing from investment salesperson to investment advisor. However some have tried to play in both venues, that of pretending to be a professional advisor to the client, while actually acting the role of a commission product salesperson. The bulk of industry compensation schemes is still largely compensation incentive based.

Case in point. Have you ever, in the last twenty years seen one of the large, bank owned investment dealers state publicly that commissions are deregulated, and that you can buy your mutual funds without sales cost? No you have not. Why not?

Because offering mutual funds without sales charge was a topic banned from discussion at most large firms. More than one firm has given me this rule either verbally or in writing. I am currently in litigation with one of the firms I worked for that forbid the airing of commission free or even commission reduced mutual funds. They are so far denying ever acting in this manner, (as it violates their code of ethics) however it is a fairly well known fact in the industry. Why are short sighted management types able to convince themselves that lying is a better alternative than admitting the truth, I will never know.

Some of the independent dealers are able to offer commission reduced or free mutual funds, since trailer fees pay them quite well, and make a very decent living, while the major bank owned IDA firms, have a “gag order”, which forbids anyone in the firm from talking publicly about these client friendly forms of competition. Speaking of competition, this seems to fly in the face of the Canadian Competition Act, does it not?

Yes, however, no matter how much the bank owned firms treat advisors as independent agents, they also call them employees when they need to, and the Canadian Competition Act does not apply to employees. So they once again get the best of both worlds. They get to ignore the competition act, while claiming, “trust through integrity in everything we do” (RBC Financial), which is following one law while simultaneously violating the heck out of the spirit and the intent of the law.

If you as an investment advisor, make an error, or have a bad client, the firm will make you pay for this error, in violation of employment regulations, as this is in their (firm's) favor. But if calling you an employee is to their advantage, they will as quickly change gears and state this as the relationship. They call this double dealing, “standard industry practice”, which is another way of saying, “we are large enough to change the rules to suit ourselves, and to hell with you if you do not like it”. Unfortunately this attitude often applies to clients as well as employees.

But I digress…………….I was on the topic of how the large firms get away with charging the highest fees or commissions that they have to choose from, while at the same time telling you that they are your agent, advisor, or expert, acting on your behalf to help you meet your financial goals. (see any IDA firm’s advertising for confirmation of this premise)

Some specific examples of how your advisor places his or her interest ahead of yours:

You decide to buy a mutual fund. Rather than pick one out of a hat, you decide to trust an expert and get some advice. The expert has any one of several ways to buy mutual funds, since the market is now deregulated (remember 1987?). Does the expert advisor advise you to buy the one with the lowest cost to you, and the greatest return potential………..or do they abrogate their professional responsibility and advise you to buy the one that pays them the most?

From industry stats, which state that given identical funds, with identical holdings, and managers, but with different compensation structures to the advisor:
The funds with the higher compensation to the advisor sold at a rate of 74 times higher than the original, lower cost fund choice, in the last ten or so years.

Source
Ontario Securities Commission Fair Dealing Model, appendix F, pages 12 and 13 on Compensation Biases. http://www.osc.gov.on.ca/

These two pages that provide an interesting look at what happened when a new style of compensation was introduced to mutual funds back in the '90's. (DSC's) It shows that between otherwise identical funds, the one with more hidden and higher compensation to the advisor sold SEVENTY FOUR TIMES as much in assets over the following ten years than the identical fund with lower and less hidden compensation.

Statistics hold that over 80% of sales of mutual funds in Canada are made with the DSC option, despite the fact that advisors promise to place the interests of the client first and foremost. This promise is evidently not being lived up to.

Another real life example from http://www.globeinvestor.com/

Trimark’s flagship fund began in 1981, had front end fee option only, MER of 1.62%, total assets of over $3 billion, accomplished in 23 years.

Trimark’s Select Growth fund was introduced in 1989, as a clone fund to the above with a DSC sales compensation model as its key-differentiating feature. It’s MER is higher at 2.39%, costing the client more, in part to help finance the up front commission that advisors earn. This compensation is more easily hidden, in that the advisor earns his 5% commission without the client seeing it in writing (outside of reading a 334 page legal prospectus). It has total assets of over $6 billion, accomplished in 15 years. (double the size of the original and cheaper run Trimark fund)
Clients pay more in annual fee’s to have this fund. Clients are tied to a deferred sales charge that is easily hidden from them. Advisor earns more.

Why is your investment advisor telling you to buy the DSC option??
Is it because it is in your better interest? Or theirs?

I hope this information can be of use to Canadian Investors.

Larry Elford CFP, CIM, FCSI, Associate Portfolio Manager (retired 2004)

Future articles will look at the trend towards fee based accounts, which according to industry stats, earn between twelve to twenty six times as much profit for the firm offering them as do independent third party mutual funds.

Follwing this, perhaps an article will investigate the addiction of something called double dipping, whereby a few unscrupulous advisors have found ways to earn both the maximum commission from a client who comes to them for advice, and then add insult to injury by additionally charging the client an annual fee based advisory charge on this same investment. Two (or more) earnings from one client investment.

2005-03-13T13:38:00.000-08:00

Double Dipping
Is your advisor charging twice for advice?

As the investment world evolves, I find that the changes happen so fast, that the regulatory environment cannot keep up. This leaves only the ethics of an advisor or an organization to handle the conflicts that arise on a daily basis. Here is one situation that I have witnessed from my twenty year position within the industry that is being conveniently overlooked by firms and regulators to the detriment of clients, much to the advantage of advisors.

It is called double dipping and it is the practice of earning fees twice on the same investment. Here’s how it goes:

Your advisor comes to you, “advising” that you sign up for a new type of investment management process, where an annual fee is charged for services, rather than a per transaction charge. You agree that it sounds sensible and tell them to go ahead and convert your current investments over to this style of payment. The double dipping test is, “will your account pay a transaction charge either to sell or redeem your current investments, in order to change to the annual fee arrangement?” If so, there may be something rotten going on. The other double dipping method I have seen is to first sell the client a DSC (deferred sales charge) mutual fund where your advisor earns fee number one, and then change these investments into a fee based account, thereby earning fee number two.

Either way you have just been double dipped. In the case of the mutual fund, given that there is usually a trailer fee earned (a percentage of the annual management fee) by the firm and the advisor, you may actually be enabling your trusted advisor to earn three fees on the same investment.

As far as this writer is concerned, since about 1987, when commissions were deregulated and firms changed the title (as well as the promise) on their business cards from, “stockbroker”, to “advisor”, they brought with them a duty of care to place the interests of those they were advising first and foremost. It is simply not in the best interest of the client to pay two or three fees to their “advisor”, and it is most definitely in the best interest of the advisor as well as the firm who shares in each dollar earned.

These practices are considered unethical as well as illegal in the United States. In Canada I have seen them occur since the practice is slightly ahead of the regulations, (or the regulations in Canada are a bit behind). Ethics would of course dictate it not be done, but as we have seen, some firms and advisors (as well as regulators) only look at the rules and not at the ethics of a practice if that makes them look better.

The sad fact is that while you may have paid a commission to purchase your current investment, or your advisor may have earned a commission, it does very little for your advisor after this. You may be holding it for it’s intended purpose, say long term growth. This “holding” earns nothing for your broker or advisor, as they may be earning a commission only upon making a transaction. This is partially the reason for the industry trend towards annual fee based accounts. Moving to annual fee’s can be an advantage to avoid the potential conflict of interest of commissions, but it may also be advantageous to the dealer who will have an, “annuity”, if you will, from these annual fee’s. They have positives and negatives, as does anything, but disclosure is a bit lacking on these managed accounts and regulation as we have seen in Canada is mostly self interested industry theatrics.

Double dipping is the invisible client killer that occurs in some cases, and I look forward to the day when firms and regulators recognize this and stop looking the other way because of the revenue it generates.

If your account fails the double dipping test, I would suggest you make up a firm but politely worded letter to your investment firm, with a copy to the provincial securities commission. They may take your enquiry seriously and you should be offered a full refund as well as an apology. Unfortunately, I have also seen legitimate complaints in this area brushed aside by both, as firms and regulators are loath to ever admit to ethical lapses. After all, integrity is the highest value that the firm lays claim to. It is yet to be seen if they will ever fully live up to it.
Written by an anonymous member of the investment community. It is with regret that this need be done anonymously, but until the investment industry begins to walk the talk of integrity and ethics, this kind of client friendly discussion is still considered grounds for dismissal at some IDA firms.

2005-03-11T16:19:00.000-08:00

FURTHER TO DUTY OF CARE OWED TO CLIENTS
(easy steps to elder abuse in Canadian financial services industry)

My time working in the financial services industry gave me some interesting insights into the relationship between client and advisor or salesperson.

It reminded me a great deal of the dependant kind of relationship that exisits in a few other fields I am aware of. One is my local flight instructor, who holds my life in his or her hands, my future ability to fly, perhaps to earn my licence, perhaps to earn my living in this area. Another is the local hockey coach who may have players who hope to have a future in hockey. The player, as well as the flyer become so dependant on the good graces, good references and support of the instructor/coach that never will they think of questioning the behavior, the advice, or the activities of that person. Even when they cross over to improper behavior. To speak out might seriously impair the ability to progress and proceed to your goals.

Similar relationships exist between investment expert and client. The typical elderly client, may be trusting, vulnerable, alone, uninformed, basically a very easy target for a financial predator. The advisor is usually, young, informed, confident, backed by a very large firm, and full of promises of care and service. The balance of power between these two parties is so significant that those who fall victim to the odd financial services predator have virtually no chance in Canada. They often rely so heavily on their financial person, that they may never find out that they were ever abused. Firms are not yet doing the proper job of protecting clients, and in fact are far more active in self protection, secrecy, and limiting their liability if one looks at the many cases on record.

Those few who would abuse clients know this, and as an added bonus, are aware that the oldest, most vulnerable, most alone clients out there, may also have the most money. It is a relationship that requires the highest standards of care, and so far all I can point to is that we have the highest standards of talk and advertising promises in Canada. The care is yet to come.

To learn more visit
www.sipa.to small investor protection association
www.regulators.itgo.com website of industry indiscretions

2005-03-11T16:18:00.000-08:00

Do advisors owe clients a duty of care?
In a recent case where Norah Cosgrove of Ottawa challenged her advisor on her investment accounts in small claims court, one of the defense statements submitted by the investment firm's lawyers was something to the effect that they felt they did not owe this 90 something year old client a duty of care.
Reading it gave me the impression that they were attempting to "wriggle" away from responsibility on this account, due to the technicality that the client had not signed over total discretion on the account. This, despite having terminated the advisor responsible and supposedly for some cause in relation to this case. Since 90% of the investment accounts in Canada would be similar to this elderly client's account, are we to infer, contrary to industry advertising and promotion, that Canada's largest and most highly trusted corporations truly feel they owe clients no duty of care? No duty to place their interests first?
Unfortunately this seems to be the case, as difficult as that sounds from an ethical standpoint. More and more investment employees are standing up to (or stepping away from) an industry that according to Bank of Canada governer David Dodge, has a worldwide reputation of being the lawless, "Wild West".

This "wriggle ability", strikes this writer as being a position that should not be supported if we were to look carefully at the promises that the industry makes to clients overall. Courts have held professional advisors to a very high standard, and often to a fiduciary standard where there is a level of trust placed in the hands of the advisor, a level of vulnerability on the part of the client, and other guidelines. In fact, when an 80 or 90 year old widow (or anyone for that matter) comes to a someone representing themselves as a professional advisor, the relationship very often immediately becomes one of total faith and trust in that advisor. It can be no other way. The client is often very uninformed as to the intracacies of investing, the advisor claims to not only be a professional, but also an expert to guide the client. Any statement to the contrary is denying the obvious. Denying the obvious is either lying, or misleading and should nto be tolerated by the largest corporations in Canada any longer.

When I was an investment person in the industry I would not accept a client who would not take my advice, much like a doctor may not accept a patient who did not follow the doctors advice. If an advisor is claiming to be a professional (and not simply a salesperson) they will do no less.The relationship often becomes very quickly one of a vulnerable, trusting soul, becoming quite reliant upon the strength, wisdom, experience and skill of the professional. If that professional then chooses to abuse the trust placed in them and put their interests ahead of that of the client, the entire system comes into question. It happens very easily of too often.That is what we are seeing in the newspapers on an almost weekly basis, and it should be telling us something is wrong and it is time for a change.

I will wrap this up here, with a promise to explain further in my next blog the topic of just how dependant and vulnerable an elderly client may become on the advisor they deal with. Written in the interests of righting wrongs. Thanks for reading along. If you like what you read, pass this site to those on your mailing list and we will change things for the better. If you don't like what you read, feel free to share your thoughts. I have been wrong before and probably will again. I welcome the chance to learn and grow.

Rules For Fools

2005-03-11T07:27:00.000-08:00

Further on the topic of investment industry rules of two basic types. Type one are rules intended to protect investment clients from harm. Type two are rules intended to protect investment firms from harm. I contend that some investment firms do a much better job of enforcing rules that are to their own benefit, while often ignoring rules that are to client benefit. Here is but one example.

Today, march 11, 2005, the Globe and Mail contained a story titled, "RBC's Blackberry-addicted feel withdrawal pangs". It described how a "new" RBC policy, driven by regulatory requirements to overse electronic communications was causing RBC to question employees use of blackberry devices. It seems employees could send or receive e-mails without them residing on the RBC computer servers and this is a no-no.

Is it a no-no because of client interests, or due to the interests of the firm? Here is one opinion. As a nearly twenty year veteran of the firm in question, my experience has been that there has always been a rule that all outside communications by employees must be monitored. The rule was often haphazardly enforced due to new technologies making it difficult to do so. Managers of each office simply cannot read and monitor each type of letter, e-mail or correspondence coming from each salesperson to thousands of clients, so the rule is often ignored. (the rule would typically be intended to protect clients from receiving false or misleading investment promises etc)

However, now that CIBC has discovered that ignoring these types of employee communications can be detrimental to the firm, others are jumping to attention and trying to enforce a rule that they have conveniently ignored for a decade or more. Ignored due in part because it was intended as a rule to protect clients and not of particular concern to the firm's interests. Now that the interests of the firm, and not just the customer, have been demonstrated by the CIBC case, things will just have to change. Big brother will have to step in and folow this one, rather than choose to ignore it. I am adding it to the list of several dozen industry rules that are either ignored or enforced on a daily basis, depending upon the benefits or the preferences of the firm. I wont bore you with all the details. I will save the extended list for a Senate Committee on Banking and Finance.