Are advisors professionals, or salespeople masquerading?

[admin]

Janet McFarland
From Wednesday's Globe and Mail
Published on Tuesday, Mar. 30, 2010 7:15PM EDT
Last updated on Thursday, Apr. 01, 2010 10:26AM EDT
When Robert Jones invested his retirement savings with a financial adviser at a large brokerage firm, he believed he held moderate-risk mutual funds and other products that would generate income he could live on.

But after losing $300,000 of his portfolio in a matter of months in 2008, Mr. Jones – who did not want his real name used while his case is still under review – pulled the plug on his adviser and launched a complaint, alleging he had discovered that he owned inappropriately risky mutual funds and that his adviser had made unauthorized trades in his account.

So far the 65-year-old resident of Richmond Hill, Ont., has worked his way through the complaints department at his brokerage firm, the firm's ombudsman, the investment industry self-regulatory organization and, most recently, the Office of the Ombudsman for Banking Services and Investments. His next step could be legal action.

“It is a very frustrating exercise to go through all of these channels and try to find somebody who would acknowledge there was wrongdoing, and then find somebody who has what it takes to do something about it,” Mr. Jones said.

For investor advocates in Canada, complaints about inappropriate investments and difficulties navigating the system to seek redress are typical – and regulators report their numbers are increasing.

“ It is a very frustrating exercise to go through all of these channels and try to find somebody who would acknowledge there was wrongdoing, and then find somebody who has what it takes to do something about it. ”
— Investor Robert Jones
Law makers in Britain, the United States and Australia have recently introduced legislation to strengthen investors' legal rights and raise the professional bar for investment advisers. Canadian investor advocates complain that no similar initiative is on the radar screen here.

“We're struggling with the problem of how you deal with advisers who sell clients products that are more in the adviser's interests and their firm's interests than the client's interests,” said Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR).

FAIR and the Hennick Centre for Business and Law at York University banded together last week to hold a conference in Toronto on the idea of introducing a higher professional obligation – called a fiduciary standard – for investment advisers in Canada, hoping to spur regulators to consider reforms.

A fiduciary standard (already the norm for doctors, lawyers and some other professionals) is a legal requirement that an adviser must put a client's interests first. That includes avoiding conflicts of interest and making the best recommendations for the client even if it means lower fees for the adviser.

In legal terms, breaches of the fiduciary standard can result in tougher penalties and can give advisers less legal leeway to argue clients shared a portion of blame for investment decisions.

In countries where fiduciary standard rules have been adopted, regulators were responding to concerns about sales of complex, high-fee products to ordinary investors. Advisers were accused of ignoring more suitable alternatives for regular investors because they would have paid lower fees to the advisers.

While Canada has not joined the global reform movement, it is clear that concerns about poor advice are growing.

Doug Melville, Canada's Ombudsman for Banking Services and Investments, said investor complaints filed with the Toronto-based OBSI have soared 300 per cent over the past three years. After the market crash, he said many investors discovered their investments were more risky than they had realized when markets were buoyant. “What we saw last year was an explosion of realization about the problems,” he told the FAIR conference last week.

Securities lawyer Edward Waitzer, director of the Hennick Centre, said a new fiduciary standard in Canada would especially benefit investors before cases ever hit the legal system.

He believes the standard would clarify professional duties for advisers, leading to better advice in the first place. “Having some sound principles to underlie the relationship might be a good starting point,” he said last week.

A new fiduciary requirement would also have the benefit of giving investors more time to launch legal action against financial advisers, adds investor advocate Stan Buell, who heads the Small Investor Protection Association, based in Markham, Ont.

That's because breaches of fiduciary duty carry a six-year statute of limitations, while normal lawsuits must be filed within two years. Many clients complain they cannot navigate the long complaints process and then organize a lawsuit in only two years.

“ We're struggling with the problem of how you deal with advisers who sell clients products that are more in the adviser's interests and their firm's interests than the client's interests. ”
— Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR)
But several lawyers who spoke last week at the conference poured cold water on the reform proposal, arguing that adequate legal protections already exist in common law so a change would have no practical impact.

Lawyer Joseph Groia said his first thought about the proposed reform was that “it was one of the goofiest ideas in enforcement that I've heard in a number of years.”

He said regulators should focus on tackling the unregistered advisers who have caused many of the biggest investment fraud scandals in recent years. Legitimate advisers already have good rules in place to ensure they give proper advice to clients, he said. “Capital markets is without a doubt the most heavily regulated sector of our society,” he said.

Securities lawyer Kelley McKinnon, former chief litigation counsel at the Ontario Securities Commission, said a fiduciary standard could have the unintended consequence of making legal cases move even more slowly in the courts if advisers fight harder because the potential penalties are greater.

And lawyer Laura Paglia said courts have demonstrated they will rule for clients who argue their advisers have breached the lower standard of “duty of care,” without needing to argue there's been a higher breach of fiduciary duty. “We don't need it in Canadian law,” Ms. Paglia said. “It's always been there in Canada through case law, through industry standards and regulations, and through expectations.”

But Mr. Jones, who is still seeking redress for his losses, believes Canada needs better rules to remove incentives for advisers to act in their own interests. “If an adviser sells funds that are being promoted, and he gets top dollar for them and he neglects the needs of the client, that is wrong,” he said. “This has to be clarified, no question about it. So many people have been taken to the cleaners unknowingly.”

What's happening around the world?

Britain
The financial services regulator passed new rules last week prohibiting financial advisers from receiving commissions from companies for recommending their products to clients, starting at the end of 2012. Customers will be told up-front what fees they are paying for investment advice.

The change means advisers cannot collect fees from mutual fund companies when they recommend their products, representing a major shift for the fund industry.

“What we’ve seen over the years is consistently bad advice over which products to be purchased, driven particularly by the fact that commissions exist,” said Peter Smith, head of the investments policy department at Britain’s Financial Services Authority.

Australia
A parliamentary joint committee recommended last November that Australia should create a new fiduciary-duty standard for financial planners, requiring them to place clients’ interests ahead of their own. The proposal is still under consideration.

United States
Congress has been debating a proposal to introduce a new fiduciary standard for all financial advisers. The measure was originally inserted in financial reform legislation proposed by the Senate banking committee. But the measure was cut from the bill when it was put forward by the committee this month. Supporters are still lobbying for it to be included again as the legislation heads for debate by the full Senate.

(Advocate comments: the solution is really quite simple. Just stop allowing persons who are licenced in the category of "salesperson" or the new category "dealing representative" from calling themselves anything other than what they are licensed as. This is what the OSC rules call for, so we simply fail to enforce rules for reasons of industry profits.)

[admin]

macdonald_mike.jpg (8.5 KiB) Viewed 522 times

April 11, 2010 Sois.mike: WHO GIVES A FIDU?



Mike Macdonald
Sunday, April 11, 2010

WHO GIVES A FIDU?



FIDUCIARY 101 ..... OR WHO GIVES A FIDU?

In keeping with industry tradition of backward processes and thinking, I will start with part 2 and then move on to part 1. This is important to reinforce the understanding that the sales discussion is most important and is always front and center. The information component required to make an informed choice will be provided at the end .... for those few who get all the way to the end! Think of it being just like a mutual fund sales conversation where key information is delivered well after the sale is closed.

PART 2:

So let’s get to my main topic: Fiduciary 101:

An advisor is a salesperson. A trusted advisor should be a "fiduciary". What is the difference and why should an investor care?

Fiduciary Duty would require an advisor to be legally and morally bound to put a client’s interest before their own interest.

Maybe I am just too simple a person but I cannot help but ask “why is this such a big deal for an advisor”? Why would any investor not want to be assured their advisor was acting in their best interests? We all understand that salespeople work to maximize their commission, so it is always a case of "buyer beware"!

n But what if you did not know your salesperson was a salesperson?

n What if they created a false and misleading title to fool you?

In that case a salesperson might deceptively call themselves an "advisor", "financial planner", or "investment manager", "retirement specialist", "estate planner" or any number of misleading titles! But underneath the sheepskin lies the cunning wolf we call a salesperson!

A word of caution to all investors, whether experienced or a novice:

n If approached by a salesperson using one of the above deceptive titles, immediately put your left hand over your wallet and back away slowly! Place your right hand in your pocket and make a fist so that a pen cannot mysteriously appear in your hand to sign any seemingly harmless document! They are cunning so try to avoid direct conversation or answering any leading questions

But common sense and integrity aside ...... let’s just look at real life for an example.

Starting Premise:

For a fiduciary obligation to exist we would need to have a situation where one party has far more expertise, knowledge, access to information, and skill than the second party to a transaction. Now let’s look at the advisor / salesperson relationship with a new prospective investor.

STEP ONE IN A SALESPERSON RELATIONSHIP:

The salesperson will:

n proclaim their accreditation and designation from an educational institute (typically Canadian Security Institute ) signifying both knowledge and skill

n explain their experience in the industry and with their current employer to show expertise as a salesperson and money manager

n sell their access to current privileged information from company analysts and direct access to mutual fund managers and portfolio experts

The client will:

n Complain they do not understand what happened to their money with the last guy they trusted

n Profess a greater knowledge than they have for fear of looking like a pigeon to be plucked

n Sign whatever they are told to get the process started, regardless of any true understanding of the jargon

n Write a cheque or sign a transfer document

n Abdicate most or all decisions to the new savior / advisor / salesperson

STEP TWO IN A SALESPERSON RELATIONSHIP:

The salesperson will:

n Prepare a Know Your Client questionnaire to say whatever the salesperson pleases, exactly as they are trained to by their compliance department (department of obfuscation)

n Explain vague terms like “risk” in such a manner as to suggest only morons would claim to be low risk and only vegetables look for conservative returns

n Have the client sign forms to purchase securities being careful to:

o Avoid showing any alternatives that are lower cost

o Maximize the commissions to the salesperson without disclosing amounts or options

o Keep the salesperson’s employer happy by pushing proprietary securities

o Do everything they can for the client up to the point where an action might infringe on the salesperson’s commissions or the parent company’s profitability

The client will:

n Nod when requested

n Sign where told

n Ignore the poor performance for years before getting frustrated and returning to step one.


WHAT WOULD THE FIDUCIARY DIFFERENCE BE?

Step 1:

n THE ADVISOR’S FIRM WOULD ENSURE THE ADVISOR HAD PROPER SKILLS AND ACCREDITATION SO THEY WERE NOT EXPOSED TO A LAW SUIT FOR VIOLATING THE FIDUCIARY OBLIGATION TO THE INVESTOR

n THE ADVISOR WOULD REVIEW THE PLANNING NEEDS AND INVESTMENT REQUIREMENTS OF THE CLIENTS SO INVESTMENT DECISIONS WERE BASED SOLELY ON ESTABLISHED CLIENT NEEDS

n THE ADVISOR WOULD STAY UP TO DATE ON PRODUCTS, FEES, COMMISSION STRUCTURES, PERFORMANCE OF SECURITIES AND REGULATORY REQUIREMENTS

n LESS TIME WOULD BE SPENT ON THE ADVISOR STORY AND MORE ON THE INVESTOR STORY

Step 2:

n THE ADVISOR WILL COMPLETE A THOROUGH ASSESSMENT OF THE CLIENT NEEDS, RISK TOLERANCE, AND KNOWLEDGE

n THE ADVISOR WILL EXPLAIN THE K.Y.C. FORMS AND ENSURE EVERY BOX TICKED IS APPROPRIATE

n THE ADVISOR WILL REVIEW THE UNIVERSE OF SECURITY OPTIONS AVAILABLE, DISCLOSE WHETHER THEY ARE RESTRICTED FROM SELLING CERTAIN TYPES OF SECURITIES, AND SELECT SUITABLE SECURITIES FOR THE CLIENT’S NEEDS

n THE ADVISOR WILL EXPLAIN THE SECURITIES CONSIDERED, EXPLAIN WHY SOME WERE SELECTED OVER OTHERS, EXPLAIN THE COSTS OF ALL OPTIONS CONSIDERED AND EXPLAIN HOW MUCH THEY PERSONALLY WILL MAKE FROM THE PURCHASE OF THE SECURITIES IMMEDIATELY AND OVER TIME

Conclusion:

Oh yeah, I get it now! Being a fiduciary would be a real pain in the butt for a sales person trying to maximize revenue with a quick deal! And yeah, if a client had the full range of product options, profits from hidden fees would be tough to maintain. And of course it costs money to actually train advisors on all the options they need to consider and the licensing they require to sell those other options. In fact, many of the salespersons disguised as advisors would have to spend months and thousands of dollars being trained to meet the new standards.

The compliance people would need to learn why a KYC questionnaire is filled out instead of how it should be filled out to protect an employee!

Of course all you salespeople hiding behind advisor titles can relax. We will not see fiduciary duty extend to the advisor industry in the near future!

Whew, that was scary for a moment .... it was like a weird dream where investors have rights and advisors work for clients not security and fund companies!

PART 1: THE CONFERENCE

I recently attended a conference on FIDUCIARY requirements in the investment industry. Most advisors did not attend as they are not fiduciaries; and I suspect they also do not know what the big multi syllabic word means. In fairness, almost all investors also ignore discussions on “fiduciary duties” since they only tend to learn about advisor / salesperson obligations after they have been fleeced.

Based upon the conference discussions, it was clear to me that the usual entrenched positions are still in place. As always, the fiduciary question excites the lawyers who make a living from investor disputes and it excites the investment manufacturers (fund and insurance companies mostly) who make a killing by avoiding fiduciary obligations. The third excited group are the investor advocates and regulators who know fiduciary obligations should be in place but cannot seem to get attention or focus on the issue.

And again based upon the conference dialog, the third group will remain easily distracted by sidebar issues that prevent them from really working towards the end goal of investor protection.

A last comment on the conference would be to lament that the Ombudsman for Banking & Investment is very much an under-funded, under-focused, and under-performing group. The first two “unders” contributing to the third “under”! If an investor was willing to slog through the investment stock broker / mutual fund salesperson complaint process, stick handle through the idiotic Bank employed Ombudsman, and then finally reach the end game Ombudsman for B & I: they would find themselves tired and frustrated from what has been a 3-6 month battle just to get to the starting line.

At this point they would be assured that a small over-worked group will look at their situation sometime in the next six months or so. They would also find a group that does not consider the battle to be one of giant company versus little investor, but rather a battle of equals. Taking a cautious non controversial approach they will likely try to saw off some workable agreement and get everybody to go away with a small piece of the loaf.

Based upon the case study example situation presented to the conference, the small guy will get no break when confronting the big company lawyers and liars with paperwork to back them. The Ombudsman for B&I has no big stick to make change, cannot order restitution and may well, at some point, be looking for work again from one of the big bank / insurance / law firms that oppose the little investor.

On the legal front, it was almost embarrassing to listen to the lawyers who work for the big firms.

No duty or obligation is so small that it cannot seem far too onerous to enforce on the poor hard working advisor!

Hell, the Canadian contingent at the conference was still debating what name to call a salesperson as if that minor detail was an insurmountable hill to be climbed! While Europe and Australia lead the charge on big issues, Canada has no momentum and no process for change!

It seems the Canadian establishment is going to obstruct the regulatory changes on every front for fear a small win for investors will turn the tide of the battle. We should expect no concrete ideas or solutions from the industry or any willingness to listen. They will jam every panel, write a sea of position papers, demand second, third and fourth reviews and basically ensure no progress occurs! It is as close as we can get in Canada to having a Republican Party mentality of "obstruct at all costs!" Think I am exaggerating, then consider the recent Point of Sale document debates! It's been years of haggling and infighting to get a watered down thin gruel of a document.

Of the distinguished panellists present, Allan Hutchinson of Osgoode Hall was one of the few who seemed to get it! Peter Smith from the U.K. FSA also clearly got it and actually was able to do something about it for U.K. investors.

I thank FAIR and the Hennick Centre for making the conference possible. Maybe next time they will find a way to have an independent investor voice on a panel as well as all the official institutions, but overall, a job well done in laying out the size of the opposition faced by investors in Canada!

Your "I give a fidu!" advocate.....soismike

p.s. The firm I work with has just passed an international fiduciary certification audit so fiduciary duty is real and we "walk the walk" while most firms just "talk the talk"! Check out Weigh House Investor Services at CEFEX for details on the certification process available for all firms who act as fiduciaries for clients ..... including the one you deal with!

[admin]

To call a commission investment salesperson an “advisor” is akin to calling a pharmaceutical industry sales rep a “doctor”.

You are no more likely to get true investment “advice” from them than you are to get medical advice from a pill salesman. Sales figures on mutual funds and wrap fund products put the number at 80% to 90% (plus) who will act as salespeople, while 10% to 20% might put your interests first. That means that four out of five investment sellers recommend products that serve their commissions better than they serve the customer.

I am sure pill salesmen, (drug reps) would do it if they could get away with it. The financial industry in Canada can get away with it because they police themselves. Their attitude is, “who is big enough to stop us?” In Canada they are correct in this stance.

Check their license, it does NOT say advisor.

Check their pay process, it is based on commissions or fees on assets.

Check the Ontario Securities Commission rules. They say that a sales rep MUST (repeat MUST) disclose to you his or her license category. (Salesperson or dealing representative are the only two selling license categories used in the last twenty years by 99.9% of investment sellers in Canada)
The provision in subsection 44(1) states that "No person or company shall represent that he, she or it is registered under this Act unless the representation is true and, when making the representation, the person or company specifies his, her or its category of registration."

Jeffrey Fennell Senior Inquiries Officer, Ontario Securities Commission, inquiries@osc.gov.on.ca, 416-593-8314


Check IDA or IIROC (investment dealers association) rules that say that your investment seller cannot represent him or herself as anything other than how they are licensed. (today that means “dealing representative” is how your person is legally bound to represent himself to you)

[admin]

Weigh House Certified for Fiduciary Excellence
Investor consultancy is the first in Canada to have its support services CEFEX-certified

TORONTO, April 19 – Weigh House Investor Services today announced that its investment support services have been certified by the Centre for Fiduciary Excellence (CEFEX) as adhering to the fiduciary standard of excellence. Weigh House is the first organization in Canada to achieve this independent certification.

The annual certification process required detailed assessment of Weigh House’s operational procedures, service offerings and client files, followed by on-site interviews with key management and service delivery personnel. Weigh House is now registered at www.cefex.org where its certificate is available for viewing.

“CEFEX is a welcomed new player in the Canadian marketplace, and symbolic of a general reshaping within the global investment advisory industry,” said Warren MacKenzie, president and CEO of Weigh House Investor Services. “In Great Britain, Australia and the U.S., legislative changes are planned or under consideration that will prohibit financial advisors from giving ‘advice’ on investment products and then receiving commissions when clients follow that advice.

“Eventually all investment advisors will be held to the fiduciary standard, and we will look back in disbelief that we long endured a model where advisors were not explicitly required to put clients’ best interests first,” continued Mr. MacKenzie. “Until then, Weigh House represents a unique advisory channel, providing Canadian investors with independent, unbiased assessments of their current positions and straight answers on how to get to where they want to go.”

Weigh House was evaluated against The Prudent Practices for Investment Support Services, part of a series of standards published by Fiduciary360 (fi360) of Pittsburgh, PA. The assessment was conducted in accordance with the International Organization for Standardization (ISO) audit process 19011.

“With so much anxiety in the investment industry, trust in the investor-advisor relationship is more ephemeral than ever,” said Carlos Panksep, general manager of the Centre for Fiduciary Excellence. “CEFEX’s independent assessment and certification assures investors that Weigh House has demonstrated conformity to the industry’s best practices and is well positioned to earn their trust.”

ABOUT WEIGH HOUSE INVESTOR SERVICES

Weigh House Investor Services is the first choice for straight answers for Canadian investors. Certified by the Centre for Fiduciary Excellence (CEFEX), Weigh House provides fee-for-service personal financial planning, investment portfolio strategy and assessment, investment counselor searches, and ongoing portfolio monitoring for individual investors, employees and not-for-profit organizations. The company employs the proven strategies utilized by institutional money managers to improve investment returns, while reducing investment risks and fees. For further information, please visit, www.weighhouse.com.


Weigh House Media Contact

Robert Miskimmin
t: 416.640.0550 ext. 232
email: robert.miskimmin@weighhouse.com

[admin]

Alan, I agree that it is a huge misrepresentation to let the industry "fudge" with the "advisor" wording. It is one of the key foundational issues that starts the ball rolling towards an anything goes mentality. If I can preserve my sales commission remuneration while at the same time, misleading my clients into believing I am some kind of "advice" giving professional, I get to have my cake and eat it too.

Until a client (like yourself) acts in a civil action against the industry (or the regulators) for allowing this misrepresentation, I think they will continue to get away with it. Uninformed media also assist by using the term "advisor" (which is a legal license category) to describe persons who are not registered as "advisors" but as salespersons, or dealing representatives.

I wish Canada had a few more informed clients who would take this matter into court to get it clarified.

If you can think of any ways to gain a civil action or class action please let me know. So far I am stumped and trying to spread the word one person at a time until the public no longer accepts this kind of misrepresentation.

sorry I have nothing better to offer.

i will post your good comments on by flogg and see what comes next

larry
On 21-Apr-10, at 8:50 PM, Alan Blanes wrote:

Larry -

I greatly appreciate this message that you sent last week. There are so many hard truths that need to be confronted in the self-regulating sham that has undermined the application of the Criminal Code of Canada to the sale of securities. One thing that stares a person in the face on this matter is fact that on the IIROC brochure, the use of the term "Advisor" has an asterisk beside it. In the footnote, it states that it is not defining a person as an advisor, rather the corporate member company. It is something that IIROC needs to be called on ASAP. There are a number of legal precedents that hold that a corporate entity cannot be prosecuted for acting in bad faith, only an actual human being has the capacity to act in either good or bad faith. When a person tries to follow up the invitation within this brochure to contact IIROC for a biographical reference for advisors who are affiliated with IIROC, you get a brush-off, with IIROC saying that its records do not provide information on individuals, only the corporate summary of member companies.

A presentation to IIROC from a wide swath of Canadians indicating that we will not allow any continuance of any replacement of lawful adherence to the common law and the criminal law, by any further sidestepping of the foundations of our legal heritage, needs to be organized without delay. We need to provide a history of how the western world was able to begin wealth creation from the time of the Renaissance, by the fact that contracts were treated as extremely serious, and that any deception present from either side, nullified the contract. It was only the trustworthiness of our contracts that made it possible for people to have enough confidence in our business culture to make massive investments in our economic ventures. In parts of the world that did not enforce iron clad rules on ethics in contracts, they did not flourish. If we allow such undermining of our fidelity to absolute honesty in our business dealing, we run the risk of destroying confidence in our financial structure. This message needs to become predominant in this whole public discussion.

Would like to get your reply,

Alan
On 12-Ap

[admin]

Investor Protection reprinted from May 2010 CANADIAN MONEYSAVER MAGAZINE
Ken Kevinko
When the Earl Jones Ponzi scheme made headlines last year the media pointed out that Mr. Jones was not registered with a regulator. The implication was that if he had, the scheme would have been detected earlier. Investors are encouraged to check the category registration status of those who provide them with financial advice. If they’re not listed, beware. You can also check if they’ve run afoul of regulators. The Canadian Securities Administrators has a merged list of disciplined persons, http://www.securities-administrators.ca/ disciplinedpersons.aspx?id=74 Separate checks have to be made at the Mutual Fund Dealers Association (MFDA - www.mfda.ca) and Investment Industry Regulatory Organi- zation of Canada (IIROC -www.iiroc.ca) as the systems are not integrated.

Under the new National Instrument 31-103 as of Sep- tember 28, 2009, mutual fund representatives, formerly called “salespersons”, are now called mutual fund “dealing representatives” and individuals who were an advisor un- der a portfolio manager are now called an advising repre- sentative. See this link for full details: http:// www.bcsc.bc.ca/uploadedFiles/securitieslaw/policy3/31- 103%20Registration%20Requirements%20and%20 Exemptions%20%5BNI%5D.pdf. Many feel that the pre- vious title was more descriptive of their behaviour. To be sure, the title salesperson wasn’t normally on their business cards. No matter what the title, these folks were paid lu- crative sales commissions for selling you mutual funds and keeping you invested.

And, of course, you can also enquire about the professional designations they might have. The British Columbia Securities Commission (BCSC) explains the alphabet soup of designations at http://www.investright.org/advsrdesign.aspx?id=1. If the per- son recommending changes to your portfolio has no designation, it means you are being provided with advice from someone with minimal qualifications. But what about titles, do they provide comfort or mask qualifications? A great blog on the topic is at http://www.investoradvocates.caviewtopic.php?f=1&t=10 &start=15.

Regulators consider many of the titles that are commonly used within the financial advisory community as being of a generic nature. That is, they are non-specific enough that they, for the most part, escape regulation or regulatory en- forcement. “Financial planner” and “financial advisor” are two notable examples of a generic title. Because it seems anyone may use these titles, they convey little useful infor- mation to consumers and are a form of misrepresentation. The descriptor “vice-president” may be a meaningful ad- jective within the confines of various entities...or it may not. In actuality, some organizations are swollen with VPs whose responsibilities are pretty watered down. In contrast, the term “partner” tends to carry some weight – and for good reason. When you walk into a professional services firm (e.g., a law or accountancy firm) and meet with a part- ner, that person is likely to have provided years of valuable service to that firm. The term partner is also a legal term that suggests an ownership interest in the firm.

However, what if an advisory firm whose advisors were regular employees automatically received business cards that say partner? Clients would be duped, but regulators may not notice. This practice is unethical, if not illegal. Advi- sory firms have resorted to title inflation in an effort to give its “advisors” a marketing edge. Unlike the financial advice industry, professional lawyers, doctors and engineers pro- actively limit the use of titles.
A recent enquiry to the Ontario Securities Commission (OSC) concerning the use of the term “advisor” and how it relates to subsection 44(1) of the Securities Act (Ontario) (the Act) resulted in this response: “Ontario securities law does not seek to regulate the use of the term advisor in all circumstances. It is a commonly used or generic term. The purpose of subsection 44(1) of the (Ontario Securities) Act is to ensure that people who represent that they are regis- tered under Ontario securities law do so in a manner that also states their category of registration.”
If there is substantive evidence that a person has repre- sented themselves as registered with the OSC but failed to properly disclose their category of registration, they’ll re- view that evidence. If they receive substantive evidence of
Business Cards, Titles and Investor Trust

Canadian MoneySaver http://www.canadianmoneysaver.ca MAY 2010 19

specific actions that may be in breach of Ontario securities law, they could take disciplinary action.
While the OSC suggests that it is an offense to the On- tario act for a registrant not to disclose to you, the investor, that their license category says “salesperson”, or more re- cently “dealing representative”, we’re not convinced that this part of the law is enforced.
In a particularly nasty court case, Markarian vs. CIBC World Markets Inc., the trial judge made these crucial points before fining CIBC and imposing punitive damages:
¶ 263 - The defendant attributed to Migirdic fake titles, i.e. “vice-president” and “vice-president and director”, in addition to letting him use the title “specialist in retire- ment investments”. Those titles were false representations that misled the plaintiffs, hid reality from them, disinformed them, comforted them in their confidence in Migirdic, re- duced their distrust, and contributed to Migirdic’s fraud. The defendant committed a fault in terms of its obligation to inform and advise, in addition to misleading the plain- tiffs.

¶ 264 - In principle, a vice-president is a person in a management position in a firm. The vice-president is im- mediately below the president and reports to the president. The vice-president acts in the absence of the president. It is a prestigious title in a firm; a title held by few individuals. The English word “director”, the incorrect origin of the word used here in French, designates either the member of a board of directors of a firm or the head of a department or office. That is also a prestigious title, at least when it is attributed in a prestigious firm.

¶ 265 - In the defendant’s operations, these titles also have that meaning, but not that meaning alone! They are given as well to any representative (also called an “invest- ment advisor” or previously a “financial consultant”) who reaches a certain level of commissions in a given year, in short, who “sells” a lot and brings in a lot of commissions. A person is awarded the title essentially in “recognition” of work and as a marketing tool, as the president of CIBC Wood Gundy, Tom Monahan, acknowledged. However, to have the title of “vice-president” or “vice-president and director” adds no new responsibility or any manage- ment role. What is more, it testifies to neither greater competence nor more reliability.

¶ 266 - In the defendant’s opera- tions, the titles are, in fact attributed to many people. In 1995, there were 206 vice-presidents and 44 vice-presi- dents and directors out of 556 repre- sentatives. In 1997, there were 217 vice-presidents and 109 vice-presi- dents and directors out of 612 repre-
sentatives. In 1999, there were 197 vice-presidents and 101 vice-presidents and directors out of 725 representatives. The proportions were about the same in 2000. That year, about 300 of the 700 representatives had a title!

¶ 267 - The problem is that clients do not know that these titles are simply marketing tools, i.e. a means to convince them that they have an excellent representative, and their recogni- tion for the volume of commissions. Clients, therefore, be- lieve they have a “very special” and “eminently acknowledged” representative when the representative has the title of “vice- president” or “vice-president and director”.

According to the BCSC, it is the responsibility of the registrant firm and those representatives at the firm who hold themselves out as a “financial planner” to ensure they have proper proficiency in financial planning. As noted in BCP 31-601(s. 4.6), communications with the public should leave no uncertainty as to the dealer’s or representa- tive’s proficiency. This means that the descriptions and ti- tles used on the registrant’s signs, business cards , written communications and in advertising should not mislead the public about the proficiency and qualifications of the rep- resentative providing services or advice.

To comply with this policy, the firm should have proper procedures outlining the business names, styles, salesper- son’s qualifications and business titles that can be used at that dealer or advising firm. The firm needs to ensure that all representatives have been given the guidelines and should take steps to institute an effective compliance program that will detect when representatives at the firm are offside. To be effective the firm’s policies also need to be enforced.
The BCSC requires that any representative who wishes to hold himself out as a “financial planner” or advertise that he or she provides financial planning services must be licensed by the Financial Planners Standards Council of Canada (sponsors the CFP - Certified Financial Planner designation). If the representative is not licensed by this body, but has one of the qualifications below from the re- spective sponsoring group, then that person may hold him- self out as a financial planner:
Association for Investment Management and Research CFA - Chartered Financial Analyst Canadian Association of Financial Planners RFP - Registered Financial Planner
Canadian Institute of Chartered Life Underwriters and Chartered Financial Consultants Canadian Institute of Financial Planning CFP - Chartered Financial Planner Canadian Securities Institute (or fellow of the CSI) Professional Financial Planning Course
CLU - Chartered Life Underwriter
Certified General Accountants Association of British Columbia or of the Canadian province or territory in which the applicant is resident
Certified Management Accountants Society of British Columbia or of the Canadian province or territory in which the applicant is resident
CGA - Certified General Accountant
CMA - Certified Mgmt Accountant
Institute of Canadian Bankers PFP - Professional Financial Planner Institute of Chartered Accountants CA - Chartered Accountant
20 Canadian MoneySaver http://www.canadianmoneysaver.ca
MAY 2010
These requirements are minimum requirements and are subject to change. If the representative has other qualifica- tions not included above, they may only be eligible by ap- plying to the Executive Director for approval on a case-by- case basis. What would not be acceptable to the BCSC is where an individual has participated in a seminar and taken a financial planning course, but has not completed all the courses in a program of study. Partial completion of a pro- gram does not entitle “advisors” to use a designation.
Quebec regulators get pretty specific: “A representative must, when he first meets with a client, give him a docu- ment, such as a business card, on which the following must appear:
• his name, • the business address where he pursues his activities, as
well as his business telephone numbers and, where ap-
plicable, his fax number, • the titles he is authorized to use, • the sectors or sector classes in which he is authorized to
act, as indicated on his certificate, unless the titles he
uses are representative thereof, • the name of the firm or partnership to which he is at-
tached, as the case may be.
A trainee may never use the titles of representatives. When meeting with clients, he must give them a written document, such as a business card, which must clearly in- dicate he/she is a trainee. Source: http://www.lautorite.qc.ca/ userfiles/File/bulletin-publications/Guide-anglais-2005.pdf
Section 1.2.1(e) of the MFDA Rules http:// www.mfda.ca/regulation/rules.html state that no approved person shall hold themselves out to the public in any man- ner including, without limitation, by the use of any busi- ness name or designation of qualifications or professional experience that deceives or misleads the public, a client or any other person as to the proficiency or qualifications of the approved person under the rules or any applicable leg- islation. Rule 1.1.7 generally gives permission for mutual fund sellers to trade under their own names, provided they give clients clear information about where the funds origi- nated. It also prohibits mutual fund sellers from trying to fool the public by trading under names that sound like those of established firms.
In the infamous Ian Thow case, fund dealer Berkshire gave Thow the title of senior vice-president, even though he was little more than a branch manager. His business card also stated that he was a member of the “Berkshire Advi- sory Board”. Thow did little to dispel the impression that he was a bigwig, and everything to cement it. Thow re- signed from Berkshire Investment Group Inc. on May 31, 2005 after clients filed numerous complaints about his off- book business dealings with clients. Investors lost an esti- mated $25-$30 million based on the trust they had assigned him due to his perceived high status within the company.
Summary
It appears that there are a number of rules regarding the use of titles by provincial securities commissions, the Mu- tual Fund Dealers Association and the Investment Indus- try Regulatory Organization of Canada. The rules vary from entity to entity. However, it does not appear there is any enforcement of these rules. Too often we see titles such as pension specialist, retirement counselor, financial advisor, portfolio consultant etc. that do not appear to be in com- pliance with the intent of the rules, thus deceiving finan- cial consumers by implying qualifications that simply do not exist. The trust that results from this misrepresentation has led to the destruction of many a portfolio. Industry critics believe that payments from product providers to fi- nancial advisers, such as sales commissions, trailers and vol- ume bonuses, are creating entrenched conflicts that are very difficult if not impossible to manage. This conflict leads to title inflation and a host of nasty sales practices.
The U.S., the U.K. and Australia are taking concrete steps to improve the regulation of those dispensing advice. In Canada, so-called “advisors” owe clients recommenda- tions that are suitable. A high Management Expense Ratio (MER)-Deferred Sales Charge (DSC) fund may be suit- able but it certainly isn’t necessarily in the investor’s best interests. As one abused investor recently said, “Trust eve- ryone, but shuffle the deck.”
It’s time that Canada, and the provincial regulators, take similar action to ensure that those who are providing ad- vice and selling increasingly complex financial products are held accountable as fiduciaries. A fiduciary can be defined as a person who owes a duty of good faith and loyalty to another person. The fiduciary occupies a position of trust and confidence to that person and undertakes to act on their behalf. A person will be in a fiduciary relationship with another when that other is entitled to expect the fidu- ciary will act in that other’s interests to the exclusion of the fiduciary’s interests. For too long the industry/regulators have been playing with words and using legal jargon and fine print to deceive the public and deny responsibility. If core issues were addressed, investors would be better pro- tected. Misleading titles would likely disappear from the scene. But for now – CAVEAT EMPTOR.
Ken Kivenko, PEng, President , Kenmar, Etobicoke, ON (416) 244-5803, kenkiv@sympatico.ca, www.canadianfundwatch.com

[admin]

images.jpeg (3.37 KiB) Viewed 500 times

[color=#FF0000]here is an "article" mostly self serving puffery spoken by someone claiming to represent client interests while acting out the part of another commission salesperson.........everything this man says screams "BUYER BEWARE!!!" Only in an industry sponsored trade mag would lies like this be allowed to stand.

See for yourself, with some advocate comments in red:

Advisors targeted unfairly: Reynolds

Vikram Barhat / April 30, 2010

Advisors do a great deal more than media gives them credit for. Regulators don't understand the consequences of their decisions. Canadians would suffer if it wasn't for the value of advice. These and many other views were expressed on the final day of the recently concluded 2010 Distributors' Summit.

"The value of advice is important to Canadians, and without it they will suffer greatly," said Chris Reynolds, co-founder and president of Investment Planning Council Inc.

Reynolds made a compelling case for that value, identifying three key areas of service that financial advice provides for Canadians.

First on the list was financial planning. He defined it as "telling you what you have to do to get to where you want to be.

"It is giving people that roadmap that they need to where they want to go," he said. (then why do 80% to 90% of most "planners" recommend a mutual fund, and coincidently the one which pays them the highest commission choice possible?")

Second, it was product choice. "Is the average consumer well equipped or have the financial literacy to make the right choice of the right vehicle at the right time?" he asked. "I will say no. That's our job." (the average financial salesperson in Canada has less professional training than a hairdresser or a plumber, so who is he bragging about?)

He rounded off the list with the protective role advice provides against unguided investor strategies. He said investors tend to ignore fundamentals of successful investing and make irrational choices when left "to their own devices, without guidance or proper investment strategy. (and the salesmen make choices where they maximize commissions, while lying to the public that they are some kind of professional to be trusted.......enough)

"They will buy high and sell low, until they don't have to worry about money any longer," said Reynolds with tongue firmly in cheek.

He said those were very complex areas of investing, which advisors, not government, were equipped to help the consumer with. (again, with less training that the person who cuts your hair and a huge commission conflict of interest)

"In fact, it's so complex that our industry employs almost 300,000 people to give this advice to consumers across Canada," said Reynolds. "That's a lot of people whose lives depend on it." (130,000 of those people were until last year registered and licensed as "salespersons", but that was too accurate and the industry wanted to mislead a bit more, so they reclassified every licenced salesperson in sept 2009 to now be licensed as "dealing representatives". I suspect the other half of the 300,000 her refers to are life insurance salespeople, but I could be wrong)

He said financial advice also served as an important tool to protect clients from unexpected events. (he badly confuses and misleads the public when he misrepresents selling of products as "financial advice")

"Clients count on us to be there for them and to give them proper guidance at all the trigger points throughout their life." (and 80% of salespeople then screw them over for the maximum commission............)

He said advisors perform a range of services for their clients that go well beyond financial engagement.

"The greatest value that we give our clients is what we call 'soft issues'," said Reynolds in a reference to support advisors extend to help clients get though unfortunate life events. (it is called, doing whatever is needed to earn your client's complete trust,..............and then the average financial seller then abuses this trust for commisisons)

There is widespread ignorance about the role of an advisor, he said. "We provide a wide range of services. It's easy to pigeonhole what an advisor does."

The purchase of an investment product, he said, was simply a "by-product" of all these services.

He took more than a moment to take potshots at the mainstream media saying "they don't have a clue (as to) what we do."

"[The press suggests] we scammed people into buying mutual funds" with the "highest fee so we make the highest commission. (which is exactly what the public record and sales figures from the MFDA and IFIC tell us is true)
And we drive nicer cars than they do."

The media tended to downplay the role of an advisor, he said. (you dont even possess the license of an advisor, how sad can you get at phoney self promotion?)

"The media has been going after our industry. Pointing fingers saying you don't need advice," said Reynolds. Buying and holding onto an ETF doesn't work very well, he said, referring to the passive strategy often suggested by the mainstream press.

With some very blunt remarks, however, Reynolds made it clear it was the regulators he had reserved the sharpest criticism for.

"All this pension reform and all the Big Brother stuff they decide to shove down peoples' throats; I don't think they really and truly understand the far reaching consequences of these actions."

He made no secret of what he thought of the new point of sale disclosure requirements either.

"Regulators are under the impression (that) if a client signs their name enough times they will be safe." He said it was "higher educational standards" and "screening of people in the business" that made people safer not "filling up 500 pieces of paper."

He said regulators were "trying to over-regulate" the one industry that has "the highest level of consumer satisfaction." (there is zero consumer protection on investments in Canada, and not one single investor protection agency in the entire country that is not paid by the investment industry......is this guy brain dead?)

"Government has decided that for some bizarre reason our industry is not regulated enough," he said. "We shouldn't need regulators, because we should be self regulated." (lets let cunning, clever, untrained financial sellers of high cost, high compensation products police themselves, that could never go wrong, could it?)

I picture this guy wearing white shoes, a white belt, a pencil mustache and posessing a life insurance license, sorry, but too much of what he says is bullshit.[/color]

(04/30/10)

Filed by Vikram Barhat, vikram.barhat@rci.rogers.com

Originally published on Advisor.ca

[admin]

images.jpeg (2.71 KiB) Viewed 500 times

advisor or salesperson

I just realized part of the problem. There are 130,000 salespersons registered in Canada trying to earn customers trust and sell them investment products in order to earn a commission. They obviously are telling the public to "trust us", we are looking out for your interests, whether this is true or not in every case.

Along with this is the investment firm that employs these commission salespeople, which is remaining silent except for advertising promises, codes of ethics and various industry promises like "trust, through integrity in everything we do". But they fail to address the issue of whether or not they are acting in the client best interest at all times. They fail to clarify the exact duty of care that is owed to the client.

They therefore succeed in having it both ways in the investment industry. First they get to send out the impression that they are to be trusted, and you should give them your money. Second they get to legally stand (in court when your money is gone) on an argument that says they DO NOT owe you a fiduciary duty, or perhaps any duty. Heads they win, tails you lose.

Until the industry is forced to clean up these little loopholes that they can skate through, you are still dealing with "goldman sachs" mentality and you should be entirely buyer beware when dealing in Canada.
--------------------------------
below from comments page for may 3 rob carrick article in globe:
It’s encouraging to hear an adviser say it’s a given that clients and advice come first. What would be even more encouraging would be to hear the heads of some advice-giving financial companies do likewise.

Fiduciary ABCs

What's a fiduciary?

Someone who must act strictly in the best interests of another individual based on the nature of the business relationship between them.

How would adoption of a fiduciary standard affect advisers?

They would have to recommend products and services that suit the client's needs.

What's the status quo?

Some advisers already meet the fiduciary standard, but others put a greater priority on generating commission revenue from the sale of products than they do on client needs.

What's the answer?

Canada is just starting to look at this, but the United Kingdom has already announced that earning commissions based on the sale of investments will be banned in 2012. In the United States, Congress has been looking at formally requiring advisers to be fiduciaries.

[admin]

The Wall Street Journal


<http://online.wsj.com/public/search?article-doc-type=%7BThe+Intelligent+Inv
estor%7D&HEADER_TEXT=The%20Intelligent%20Investor> THE INTELLIGENT INVESTOR

MAY 15, 2010

Holding Brokers To a Higher Standard



INVESTOR

Christophe Vorlet



Columnist's name



By JASON ZWEIG

As Congress enters the final rounds of mud-wrestling over financial reform,
small investors might end up splattered and trampled yet again.

At issue is whether a financial adviser—which nowadays means anybody from a
stockbroker or insurance agent to a financial planner or "wealth manager"—
should be held to higher standards of conduct.

Many brokers and insurance agents are obligated only to have reasonable
grounds for believing that any investment they recommend is "suitable" for
you. They need not inform you of conflicts of interest that might bias their
judgment; you might never find out, say, that they sold you a particular
fund primarily because it paid them a fatter commission than others would
have.

Other financial pros, however, bear a "fiduciary duty," meaning that they
must put their clients' interests ahead of their own and disclose potential
conflicts. After the rolling calamities of the past decade, wouldn't this be
an improvement over business as usual?

A measure in the Senate's earlier reform bill would have imposed a fiduciary
duty on all financial advisers. It has been superseded by one that would
merely study whether the current standards are adequate. An amendment
introduced last week would exempt many insurance agents, and brokers selling
their firms' own products, from being fiduciaries.

According to a
<http://online.wsj.com/article/SB10001424052748703871904575216491495135642.h
tml> recent investigation by The Wall Street Journal, Congress may not be
in a very good position to tell the difference between suitable and
unsuitable financial advice.

Some members of Congress permit brokers to trade their accounts hundreds of
times a year; others trade too much themselves. The accounts of 38 members
of Congress or their spouses showed at least 100 trades apiece in 2008,
according to public records; 15 had more than 300 trades each.

Such activity is just what long-term investors try to avoid. Regulations
have long sought to protect small investors from "churning," or excessive
trading.

In a recent interview with the Journal's Brody Mullins, Sen. Tom Coburn (R.,
Okla.) said that most of his money is managed by a professional adviser. The
senator explained that his portfolio is heavy on oil and natural-gas stocks
because energy is big business in his home state of Oklahoma.

Sen. Coburn added that he has his own account at TDAmeritrade, valued at
about $70,000. He said he trades actively based on tips he gleans from Jim
Cramer's "Mad Money" show on CNBC.

In 2008, Sen. Coburn traded Transocean
<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=RIG> four
times in less than a month on Mr. Cramer's advice. "I lost my shirt," the
senator said. He fared better with Tyson
<http://online.wsj.com/public/quotes/main.html?type=djn&symbol=TSN> Foods,
which he bought on Nov. 20, 2008, and sold less than three weeks later. "I
bought it and got out because it went up," Sen. Coburn said. He added that
he regretted selling Tyson so quickly, because its price kept rising after
he sold.

While it's far from clear that Congress has the courage and knowledge needed
for reform, it's quite clear what shape the reform should take.

Arthur Laby, a professor at Rutgers School of Law-Camden and a former
assistant general counsel at the Securities and Exchange Commission, points
out that securities salepeople are usually exempted from a fiduciary duty if
their advice is "solely incidental" to their brokerage services and if they
receive "no special compensation" for providing advice.

But that exemption, says Mr. Laby, is "an antiquated concept embedded in an
antiquated statute." When the law was enacted, in 1940, many brokers acted
as custodians for cash or securities, and trading was much more cumbersome
than it is now. "Today, advice is the main dish," points out Mr. Laby, "and
it's brokerage that's become 'solely incidental' to advice." Therefore, he
says, anyone providing individualized investment advice should bear a
fiduciary duty toward his clients—putting their interests first and
disclosing any conflicts of interest.

Going one step further, Mr. Laby suggests that Congress could require
investment banks to bear a fiduciary duty toward anyone who buys the stocks
or bonds they underwrite. Instead of having a primary duty toward the
issuers of the securities, Wall Street would first have to do right by the
purchasers.

While that might not completely prevent underwriters from generating the
kind of toxic waste that poisoned investors over the past decade, it might
well cut back on the volume of sewage. It's a reform well worth considering.

Write to Jason Zweig at intelligentinvestor@wsj.com

[admin]

http://www.theglobeandmail.com/globe-in ... le1582140/

there is a good series of articles in the Globe, about the sales game and investment sellers

check it out via the link above. it accurately depicts the "salesman" nature of the "advisor" business.

cheers
larry

[admin]

images.jpeg (5.48 KiB) Viewed 396 times

Every person in Canada who is employed to sell investments is a "salesperson" despite whatever name they wish to use to deceive. In the same way that my amway guy does not want to use the name amway before he has me hooked and my life insurance salesman tries every name in the book to avoid telling me he is there to sell insurance...............

Added to the above is the truth that each of those persons in Canada who are employed in the selling of investments was legally licensed and registered in the official category of "salesperson" until just recently. In fact during my entire twenty year career I have never met a person in my capacity who was licensed as anything but a salesperson, and despite laws or rules to the contrary, I have never met the person who referred to him or herself as a salesperson.

Now, since sept 29, 2009, in the wisdom of the CSA (Canadian Securities Administrators) who finally understood the misinformation that they were perpetrating upon the public, and perhaps the risks and liabilities of doing so...........the solution they devised was to strike the word "salesperson" from the securities acts of thirteen provinces and territories and replace it with the words "dealing representative". Another phony title that no one uses, and all salepeople continue on calling themselves some kind of professional, without the training, the compensation or the lack of conflicts of interest to be judged a professional.

I dont know what you would have them called, but myself I try to warn people with this simple message "YOUR ADVISOR IS A SALESPERSON" Buyer Beware!!
The harder and harder the industry works to bury, hide and run from this truth, the harder they will be pressing themselves into an embarrassing corner if the public truly ever wakes up.

any other thoughts and ideas I am open to

please help me to get this misinformation narrowed down, so the public can be properly informed without complexity and fraudulent misrepresentation, and thanks for it

cheers

larry

[admin]

Warren Mackenzie, President and Founder of Weight House Investments speaks about the conflicts of interest inherent in people who sell on commission AND call themselves advisors. Bad practice. Good interview.

http://www.financialpost.com/video/inde ... AV1so3_1SW

[admin]

Firms need to focus more on fiduciary duty


Jonathan Chevreau, Financial Post · Tuesday, Jun. 29, 2010

It is encouraging to see words like “fiduciary” and “stewardship” coming back into vogue. You’d think the financial-services industry would automatically make the best interests of investors their foremost concern but, sadly, this is not always the case.

It’s significant that in the financial reform bill being hammered out in the United States, one issue has been whether to extend the fiduciary standard of duty to broker-dealers and agents who provide financial advice. Last Friday, despite major lobbying against it, the House and Senate conference agreed to language that gives the Securities Exchange Commission the authority to impose a fiduciary duty on any brokers and advisors who give investment advice.

That means advisors will have to put the interests of clients ahead of their own interests — e.g. compensation.

In Canada, discretionary wealth managers are considered to have a fiduciary duty — making investor interests paramount — but stock brokers and mutual fund salespeople are not held to the same high standard.

But a controversial report on Canada’s mutual fund industry takes its cues from the United States with respect to so-called “stewardship,” a term viewed as almost synonymous with fiduciary duty.

Morningstar Canada has unveiled stewardship grades for mutual-fund companies, adapting a similar program that’s been in place at its Chicago-based parent for years.

The grades take into account corporate culture, manager incentives, management expense ratios (MERs) and regulatory history, with a top grade of “A” awarded to fund companies with 7.5 or 8 points. A failing grade “F” is for those with less than 1.5 points.

Morningstar uses the word “fiduciary” when it explains the corporate-culture component: Points are scored based on “how seriously a firm takes its fiduciary duty” to unitholders, as evidenced by whether it is focused on investing or merely gathering assets.

Predictably, the Investment Funds Institute of Canada (IFIC) tried to block the release of these grades by going over the head of Morningstar Canada president Scott Mackenzie and asking Morningstar Inc. president Don Phillips in Chicago to postpone the release of the report. The tactic didn’t work, and so the grades are public. (Mackenzie has responded to IFIC with a letter, which you can read about on my blog at financialpost.com.)

“A” grades went to a number of smaller shops that usually have a tough time getting the attention of financial advisors. Among them were Vancouver-based Steadyhands Funds, Mawer Investment Management Ltd. of Calgary, Chou Associates of Toronto and Beutel Goodman & Co., also of Toronto.

Among mutual-fund firms that distribute their funds through brokers, using “embedded compensation” or trailer commissions, the only A grade went to lesser-known Capital International Asset Management Inc. of Toronto.

Broker favourites Brandes Investment Partners & Co., Invesco Trimark and Manulife Mutual Funds received “B” grades.

“C” grades went to AGF Management Ltd, CI Investments Inc., Dynamic Funds, Fidelity Investments Canada ULC, Franklin Templeton Investments Corp., Investors Group, Mackenzie Financial Corp. and Sprott Asset Management Inc.

Bank no-load funds constitute a different distribution channel. None received an A grade. TD Asset Management got a B, while BMO Investments Inc., CIBC Asset Management, RBC Asset Management and Scotia Asset Management all got Cs. Trailing was National Bank Securities with a D.

Manager incentives and fees account for a maximum two points and it’s instructive to see how firms did here, since advisor compensation — through trailers — causes MERs to be higher than funds that don’t compensate advisors. Some firms, including Dynamic, Investors Group and Sprott, got “zeroes” on fees.

Manager incentive scores are also apt if you’re wondering whether to put money with one company or another — the “fund-family approach.”

“It’s the kind of approach many advisors have espoused for many years, focusing on a handful of companies they know well and are comfortable dealing with,” says fund analyst Dan Hallett.

Corporate culture may also be reflected by a firm’s compensation policies. Morningstar defines this as “whether a firm’s incentive policies effectively align management’s interests with those of unitholders and whether the managers invest in the funds they run.”

This is one of the points on which IFIC tried to undermine Morningstar, on the basis such disclosures are not required by regulators. Hallett, for one, is not impressed by IFIC’s argument: “I have been asking managers how they invest their personal net worth for a long time.”

He also asks them to divulge compensation and bonus formula, a request he says they have always answered.

Morningstar’s stewardship-grading methodology is quite different from its star-rating system for individual mutual funds, with stewardship having no impact on fund ratings.

Even so, by focusing less on individual funds and more on the companies behind the funds, investors may find their investing decisions made easier with stewardship grades.

More to the point, if your advisor recommends nothing but C- and D-rated fund companies, you might want to ask why.

Financial Post

jchevreau@nationalpost.com

Jonathan Chevreau blogs at http://www.financialpost.com

[admin]

images-9.jpeg (2.77 KiB) Viewed 243 times

From a recent communication by Ken Kivenko, (http://www.canadianfundwatch.com) comes this gem about "title inflation", ie, the practice of inflating ones role from that of a salesperson to a professional advisor. It works in Canada since the banks and investment dealers are self regulating, and because they also pay the salaries of those regulators. It creates a circle of conflict. The results are people who are licensed as a "salesperson" or the new term effective Sept 29, 2009 of "dealing representative" being able to create more professional titles for themselves without the requisite training.

Consumer protection agencies and the Competition Bureau of Canada look the other way at misrepresentation because they improperly believe the "self regulatory" regime to be working. They fail to grasp that it might just be working for the banks and investment dealers.

It still comes down to an investors right to know that I (or anyone) can become an investment "advisor" in shorter time and with less training than it takes to become a plumber or a hairdresser here in Alberta.

From Canadianfundwatch.com comments on Fund Facts and what more is needed for consumer protection


There is no Warning about Salesperson Risk: Point out ( diplomatically of course) that your "advisor" or financial planner" is actually a licensed salesperson. He/she does not have a fiduciary obligation. A Guide should highlight the fact that they typically earn money through collecting commissions which are often not disclosed even though retail investors pay the commission either directly (Front-end sales commission, flat fee) or indirectly (fund trailer commissions). It's well known that most salespeople are rewarded to gather clients and for getting their money into a mutual fund and generating management fees off that money. Very few are paid a fee to manage client portfolios effectively - they just can't recommend unsuitable investments. Whether a client makes or loses money has very little impact on the income of a salesperson so long as an investor does not leave the fund company he works for. Trusting a salesperson to effectively manage money is a huge risk. Saying that the dealer " may pay part of the trailing commission to their representatives" is actually misleading. We are not aware of a single dealer that does not share trailers with salespersons. This brochure warning completely fails to expose the potential conflicts- of -interest at play. Title inflation by salespersons adds to this risk especially for seniors, immigrants and widows.[quote][/quote]

Hopefully Canadian media commentators will work to inform the public of the kind of relationship they (consumers) are involved in, rather than simply repeating the information they are given in press releases.

Cheers and safe investing

Larry Elford
http://www.breachoftrust.ca (the worst quality video project in Canada with the most candid comments about tricks of the investment trade)

http://www.investoradvocates.ca (investment sales tricks and traps forum for and by investment professionals who object to financial abuse of customers)

[admin]

Investors stuck in middle of debate over the 'F' word

Steve McKinley/National Post
Ken Kivenko, chair of the advisory committee for the Small Investor Protection Association.
TwitterFacebookLinkedInDiggRedditBuzzEmail
Jonathan Chevreau, Financial Post · Wednesday, Jul. 21, 2010

Discretionary portfolio managers and other "fiduciaries" are happy to see the brokerage and fund industries making noises about moving closer to fiduciary models.

But this may not happen fast enough to save naive investors from the ongoing financial crisis.

Phoenix, Ariz.-based financial planner Robert Keats says few investors realize financial salespeople "do not necessarily work in their best interest and have numerous conflicts of interest." He says the issue needs to stay alive until everyone holding themselves out as financial planners or the equivalent "act in a fiduciary capacity with their customers."

Some on this side of the border feel the same way. Andrea Horan, co-founder of Toronto-based Agilith Capital Inc., says it makes little sense to hold stockbrokers to a different standard of customer care than wealth advisors, since both serve similar roles from a client's perspective.

Conflicted compensation structures, like selling "in-house" funds chosen from limited fund menus, may have been tolerated when fund performance appeared undifferentiated. But not all funds perform the same and many popular "megafunds" lose their edge once they pass a certain asset size. Horan says the system serves sellers better than buyers and the benefits of scale accrue more to asset managers than investors.

On the other hand, fund salespeople are skeptical that moving from commissions to a fee structure would change things much for themselves or their clients. One fund seller estimates that 90% of his clients wouldn't accept fees, which are more visible than embedded compensation.

And some say they are not earning enough to make a living now, let alone take on an onerous fiduciary responsibility.

David McDonald is a former educator, now a certified financial planner with Investia Financial Services Inc. He has 146 clients and a modest $5-million under management. If he charged a 1% annual fee, that would reap him $50,000 a year. Working through a dealer, he nets only $33,000 ($23,000 in 2009). As a CFP, he says he "does not give tainted advice," but strictly speaking, he has no fiduciary relationship with clients because he has no trading authority.

He says clients will question his advice and if they choose not to follow it, he is fine with that. But he questions where new advisors will come from -- especially in a stricter fiduciary environment -- and how they would survive while building their practices. "Is there to be no place for people like me and the other little people?"

An Ottawa-based fund specialist said the notion of imposing fiduciary responsibilities on advisors--a trend gathering steam among regulators in the United States, the United Kingdom and elsewhere -- is "theoretically correct," but may not work in the real world.

"The average age of advisors in investment services is 53," he said. "Entry costs are already too high and the length of time needed to gather assets is too long to attract young people."

One Toronto fund salesman, who declined to be named for fear of being "punished by regulators," says it's unrealistic to expect any industry to change without being forced to. Canadians love legislation and regulation, he says, "but you can't regulate ethics."

One analyst says deferred sale charge funds that pay 5% commission upfront should be banned along with annual trailer commissions. "Too bad this industry is all about sales and who you know, not what you know. Investment salespeople -- notice I didn't say advisors -- put clients in funds that will pay [themselves] and help them keep a job."

Pickering, Ont.-based investment counsellor John Hood says abusive sales practices and lack of risk disclosure can do serious harm to investors. "I don't think any product whose fees devour 50% of your returns can be considered moderate risk." He ob-jects to fund names that obscure the risks being assumed, such as high-yield bond funds or ETFs.

Clearly, something needs to be done, says Ken Kivenko, president of Toronto-based Kenmar Associates and a consumer advocate. He noted that the Mutual Fund Dealers Association (MFDA) recently released a lengthy report focused on member "administrivia," but barely touched on the topic of fiduciary responsibilities or other retail investor issues that are supposedly its raison d'etre. Meanwhile, Kivenko and other consumer advocates are seeing more cases of retirees, widows and other unsophisticated investors suffering serious losses through leveraged fund sales and other inappropriate strategies.

If this summer's shaky markets retest 2008's lows, we'll be hearing much more about how the "F" word, as in "fiduciary," might have saved investors while they still had capital to preserve.

jchevreau@nationalpost.com