Are advisors professionals, or salespeople masquerading?

[admin]

How to spot a good investment advisor

Over his 26-year career as a lawyer Peter Jervis has been involved in plenty of investment-dealer negligence cases, including Varcoe v. Dean Witter Reynolds Inc. (1992), 7 O.R. (3d) 204 (Gen. Div.), in which he acted for a sophisticated investor who lost a significant portfolio as a result of the negligence and breach of duty of his stockbroker. The decision, affirmed by the Ontario Court of Appeal (1992), 10 O.R. (3d) 574 (C.A.), established a new legal basis for stockbroker liability when brokerage industry standards and statutory and regulatory standards have been violated.

Good investment firms adhere to the KYC (know your client) rule promulgated by the Canadian Securities Institute and which is often referred to as the cardinal rule within the industry, explains Jervis, a partner in the national litigation group at Davis LLP in Toronto.

“When a client comes in and wants to open an account in order to trade in securities, the investment dealer — through the registered salesperson — has the duty to find out key information about the client’s financial situation and liquid net worth, age, employment, income, dependents and investment objectives on an overall basis and for the particular account being invested.”

The investment advisor is also required to ensure that the investment is suitable and appropriate for the client and is aligned with the investor’s objectives — and not having, say, a 78-year-old widow speculating on stock index or currency futures, or buying options on gold mining stocks.

In turn, the client is meant to sign the document containing this information (though some investment firms don’t always do that, says Jervis) and the licensed and registered investment or mutual fund dealer is obligated to use the document as a guide in supervising the account.

But the KYC and suitability rules “are often not honoured, especially when the markets are really, really good and everybody’s getting a little too aggressive and greedy,” and a client’s objectives, which should have been “careful, safe and conservative,” are changed by the broker to become “medium to high risk, and clients get exposed to far more risk than they can afford,” says Jervis.

“A firm’s compliance officers can only supervise based on what’s in the documentation, which often gets computerized as code.”
In “unfortunate situations, imprudent brokers” wanting to make a lot of money (for their clients and for themselves) get clients to double or triple up their investments by trading on margins. Jervis says that when markets fall, as they have going back to Black Monday 1987 (when he began handling investment-dealer negligence cases) and investors lose significant amounts of money, some brokers might not say, “I gave you bad advice, you’re significantly over-leveraged, let’s sell out when the market starts to turn.
“They think it’s going to get better.”

Yet someone who lost half of a $1-million investment intended for retirement will contact Jervis and be desperate for a solution — a situation, he adds that “happens time and time again.”

However, he hastens to add that such sad stories don’t usually involve “reputable, bank-owned” investment dealers, but more often smaller firms pushing such products as hedge funds, which bear “massive” risks.

“The industry is supposed to run like medicine where a good medical professional talks about risk and obtains informed consent from a patient. But investing is sometimes like playing the blackjack table at Casino Rama — especially if people go to more aggressive financial professionals.”

Jervis says that while some of his clients — who work as options or commodities traders — have “more responsibility” to check for investment-related trouble, most people who come to him “can’t read their statements and have no idea what they mean.”

from lawyersweekly.ca aug 21 09 issue

[admin]

Australian CFPs forced to abandon trailers

Mark Noble / August 18, 2009
Pretty soon, financial planners who are members of the Financial Planning Association (FPA), which administers the Certified Financial Planner designation in Australia, will have to give up the practice of receiving a trailing commission from investment product providers if they wish to continue membership.
According to news reports, under the FPA proposal, members holding themselves out as financial planners will be required to give up trailing commissions from product providers. The organization is advocating that its members transition to a fee-for-service model and receive all compensation directly from clients.
While the FPA doesn't consider taking a trailing commission wrong per se, it perceives it is as a conflict of interest in the case of a financial planner taking compensation from a investment product provider, such a mutual fund company, and also offering advice on investment selection.
So far, the FPA is the only member of the international Financial Planning Standards Board (FPSB) to eliminate the practice of trailing commissions from product providers. The move seems to be eliciting new debate about the ethics of the practice, which is an entrenched compensation scheme in Canada.
The move should have an immediate impact on the Australian investment industry, since the FPA represents more than 12,000 advisors who manage more than $630 billion in assets.
Australia's advisor industry has been plagued by credibility issues, since the collapse of Storm Financial last year. Storm managed more than $4.6 billion in assets using white-label index fund products - which charged a very high 7% fee upfront with a 1% annual management fee. To further juice commissions, the advisors in the firm apparently directed many clients take out collateral secured loans, which matched client money by as much as 85 cents on the dollar.
When markets went south last fall, client losses sparked margin calls. Many clients were retirees who shouldn't have been heavily invested in equity products. In a number of cases, the clients stood to lose their homes, which they had used as collateral, and still remain hundreds of thousands of dollars in debt on top of their market losses.
Canadian compensation not under review
There hasn't been anything quite like the Storm collapse in Canada - a colossal example of permitted advisor abuse - to make the industry re-examine compensation schemes. In Canada, trailer commissions are a widely accepted form of advisor compensation, and most professional organizations are perfectly fine with the practice, provided it is disclosed to clients.
The FPA's Canadian counterpart, the Financial Planners Standards Council (FPSC), does not take a position on how advisors are compensated as long as that compensation is disclosed to the client.
Cary List, CEO of the FPSC, says he first heard about the FPA proposal at the FPSB's semi-annual meeting in Tokyo back in April.
"Would we welcome this type of initiative? We would, if it were feasible in Canada," he says. "Until the actual compensation structure from mutual fund companies changes, it's kind of a moot point. We would never require planners to give up [their trailer fees] because it would make it too difficult for them to make a living. Under the current rules, it's your right to earn fair value for your services, as long as you disclose how you're paid."
List says concerns about a possible conflict of interest in the planning arrangement can be reduced through disclosure and transparency. Investors need to see that planners are putting client interest ahead of their own when recommending products.
"Provided the consumer is made clearly aware of how compensation is paid, we think it is an effective way to offer planning services," List noted. "Our members must disclose to their clients that they are going to be paid by the mutual fund industry. The client may be unhappy with that and opt for a zero trailing commission for their advisor, instead of paying 1% for assets under management. I think we we'll see more and more planners move to that sort of model because clients are starting to recognize that as an alternative. We support that, as long as the planner offers competent advice and puts client interests ahead of their own."
Ken Rousselle, president and CEO of Professional Investment Services (Canada), an advisory firm that has an Australian parent company, believes Canadian compensation practices are fine, as long as clients know what they're paying for and deem it appropriate for the services they receive.
"I don't believe change is needed in the compensation advisors receive for the financial planning advice they provide and/or the investments they sell. There are a multitude of choices - fixed fees, no-load, deferred sales charge etc. - advisors can utilize to satisfy any type of clients" he says. "Whether an advisor charges a fee or a commission is not the issue; the issue is whether clients are fully aware of how much they're paying for this advice?"
He adds: "Some clients would [probably] prefer to continue to pay 'embedded' commissions, they should have the right to decide," he says.

[admin]

to truly see corruption at its very best, look no further than Markarian V CIBC World Markets.

You will also get a very good look at whether bank investment reps are salesmen or trusted advisors.
quotes and comments from the judgement are posted below to give you some flavor.

It is a landmark case because it has been tried and completed in full public view, without a settlement and a confidentiality agreement to hide the fraud of the CIBC.

It is found under "cases" at http://www.investorvoice.ca

reading that should make anyone question the honesty, ethics and codes of conduct of our Canadian banks.
Markarian v. CIBC World Markets Inc.

HAROUTIOUN MARKARIAN, ALICE MARKARIAN and 125134 CANADA INC.,
Plaintiffs
v.
CIBC WORLD MARKETS INC., Defendant

(C) MISLEADING TITLES

¶ 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 retirement investments". Those titles were false representations that misled the plaintiffs, hid reality from them, disinformed them, comforted them in their confidence in Migirdic, reduced 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 plaintiffs.
¶ 264 In principle, a vice-president is a person in a management position in a firm. The vice-president is immediately 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 "investment 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 management role. What is more, it testifies to neither greater competence nor more reliability.

¶ 266 In the defendant's operations, the titles are, in fact attributed to many people. In 1995, there were 206 vice-presidents and 44 vice-presidents and directors out of 556 representatives. In 1997, there were 217 vice-presidents and 109 vice-presidents and directors out of 612 representatives. 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 recognition for the volume of commissions. Clients therefore believe they have a "very special" and "eminently acknowledged" representative when the representative has the title of "vice-president" or "vice-president and director". That was what Mr. Markarian in fact believed, as he testified. Richard Papazian, another witness (and also a victim) thought the same thing. So the titles create a false feeling of trust, comfort and prestige, the role of which is not trivial in the commission of fraud.

¶ 268 The plaintiffs were the victims of these false representations by the defendant in their regard.

¶ 269 Migirdic received the title of vice-president in 1986, then vice-president and director in the early 1990s. He retained the titles until he left, because of the enormous volume of commissions he generated. In fact, the titles increased Mr. Markarian's trust in Migirdic and prompted him to guard against him and his actions even less. The defendant committed a fault in acting to ensure that.

¶ 270 The Court wholly subscribes to the comments of Mr. Justice Donald Gordon in Blackburn v. Midland Walwyn Capital inc. [See Note 19 below], a decision of the Ontario Superior Court of Justice:

Note 19: [2003] O.J. 621 (O.S.C.J.).

[121] Promoting George Georgiou to the position of vice-president was purely a marketing gimmick, an intentional misrepresentation to the public by Midland. The public would consider a vice-president to have special status, be more knowledgeable and influential.

[123] What is more problematic is the process. The promotion resulted from the influence of the National Sales Manager. This clearly demonstrates the high position sales had in the corporate structure and, conversely, the lack of importance allocated to compliance.

[124] Clients of the firm, including the Blackburns, would be impressed with this announcement. Any misgivings they may have had about George Georgiou's ethics on trading practices evaporated with the recognition by head office of a superior strockbroker.

[126] Midland's conduct in this escapade is further evidence of their negligence, of the importance of revenue over client objectives and satisfaction and their willful blindness to the protection of their clients. Such a practice is contrary to the regulatory standards of integrity, dignity an ethical conduct.

[Emphasis added.] [sic]

¶ 271 That decision was upheld by the Court of Appeal for Ontario [See Note 20 below], and the Supreme Court refused leave to appeal.

Note 20: [2005] O.J. 768 (O.C.A.).

¶ 272 In the Court's opinion, the titles "vice-president" and "vice-president and director" have no place in the brokerage field when they apply to simple representatives. They then constitute a mere "marketing gimmick", to use Gordon J.'s words, just a misrepresentation contrary to the duty of a brokerage firm to seek to protect its clients and to inform them well. By continuing to use those titles, brokerage firms expose themselves to criticism, as in this case.

¶ 273 As for the title "specialist in retirement investments" or "retirement specialist", it was not a title given Migirdic by the defendant, but the defendant authorized him to use it (among others on his business cards). Once again, it was a way to instill trust in retirees and prompt them to rely on their representative in all confidence. In actuality, the title meant nothing more than that Migirdic had many retired clients, which did not make him more competent in that area and also did not make him a better representative for those people (much to the contrary, Migirdic exploited their greater vulnerability).

[admin]

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Sept 28, 2009
For Immediate Release Visual Investigations

Today brings rule changes which assist misrepresentation and financial abuse of the investing public.  The Canadian Securities Administrators (CSA) as of Sept 28, 2009 is implementing changes to the registration requirements of “salespersons”,  the largest category of financial registrants in Canada.  The changes hide the motivations of sellers of financial products. National Instrument 31-103 Registration Requirements and Exemptions and related rules and amendments will come into force on September 28, 2009.

http://www.securities-administrators.ca ... spx?id=814

There are currently some 2,000 firms and 130,000 individuals registered to deal in or sell securities.
While the CSA says that “investors often rely heavily on registrants”, (for advice) they fail to disclose that persons licensed as “salespersons” have committed mass misrepresentation of the public, by claiming professional advisor status, despite “advisor” being a separate license category.

See securities commission registration categories at   http://www.albertasecurities.com/Inside ... tions.aspx

As a result of these and other "less than honest" industry sales schemes, investors and taxpayers are paying a cost greater than the cost of every other crime in Canada combined, according to research at http://www.investoradvocates.ca and  http://www.breachoftrust.ca .

 “They then constitute a mere "marketing gimmick".  Quote about other misleading and phony investment sales titles from the Honorable Jean-Pierre Senécal of the Quebec Superior Court in the case of Markarian vs CIBC.
http://investorvoice.ca/Cases/Investor/ ... _index.htm

The public is bearing this cost because 13 securities commissions allow the misrepresentations.   Negligence and Breach of Trust is observed by securities commissions who aid misdirection by the industry while punishing the public.  Securities commission employees in Canada are paid much higher salaries than their US counterparts, and the salaries are paid by the investment industry, despite being agents of the crown. The conflicts are obvious.  The results are on the public record. 

Corruption, connections, conflicts and cronyism are standard practice in Canadian financial regulation.

Effectively Sept 28, 2009, the word “salesperson” will be removed from the rules and regs.  Will investors be informed of this change or will securities commissions continue with the misrepresentation?
Removal of “salesperson” effectively covers up customer misdirection and allows persons paid as commission salespersons to misrepresent themselves as “professional advisors”, despite requiring less training than a hairdresser.
 
Visual Investigations “follows the money”, and uncovers the flaws of an investment or investing process.  It provides this service to investors, corporations, governments and the media.  A financial and investment bodyguard whose public service work can be found at  http://www.investoradvocates.ca and http://www.breachoftrust.ca   
Larry

[admin]

Financial Advisors: A Case of Babysitters?*

Andreas Hackethal
Goethe University Frankfurt

Michael Haliassos
Goethe University Frankfurt, CFS, and CEPR

Tullio Jappelli
University of Naples Federico II, CSEF, and CEPR

July 6, 2009

Abstract
We merge administrative information from a large German discount brokerage firm with
regional data to examine if financial advisors improve portfolio performance. Our data track
accounts of 32,751 randomly selected individual customers over 66 months and allow direct
comparison of performance across self-managed accounts and accounts run by, or in consultation
with, independent financial advisors. In contrast to the picture painted by performance records,
econometric analysis that corrects for the endogeneity of the choice of having a financial advisor
suggests that advisors are associated with lower total and excess account returns, higher portfolio
risk and probabilities of losses, and higher trading frequency and portfolio turnover relative to
what account owners of given characteristics tend to achieve on their own. Regression analysis
of who uses an IFA suggests that IFAs are matched with richer, older investors rather than with
poorer, younger ones.

http://papers.ssrn.com/sol3/papers.cfm? ... id=1360440

[admin]

INVESTMENT NEWS (USA Publication)

Let's call a spade a spade and a salesperson a salesperson


By Michael Chamberlain
October 4, 2009
The majority of those working in the financial services industry are aware of the report last year by the Securities and Exchange Commission that found that 76% of Main Street investors surveyed did not know the difference between a representative of a broker-dealer and a registered investment adviser. The SEC is now struggling with ways to bring into line regulation of the two decidedly different approaches to financial services and, more important, to provide increased public safeguards.
Perhaps the primary reason for the failure of the public to recognize the difference between the two is due to the broker-dealers' use of the term “financial adviser.”
In reality, a broker-dealer rep is a sales rep, not an adviser. The broker-dealer rep does not get paid to give advice and is not licensed to provide advice, and hence is not an “adviser.” Such reps get paid when they sell a product; thus they are salespeople.
It seems clear that when broker-dealers refer to their salespeople as “financial advisers” or “financial counselors” or “financial consultants,” their intent is to mislead the public as to the true purpose of their reps. No wonder the public is confused. It seems pretty clear that the public would be less confused if the B-D rep's title were “financial services sales representative” or “vice president of sales.”
With this same approach, other industries could use titles such as “used-car adviser,” “carpet counselor” or “door-to-door consultant.” These are of course all salespeople, and the public recognizes them as such. Most people see warning lights in their minds when they deal with salespeople. It is an instinctive self-defense mechanism to be skeptical of what the salesperson is saying, to shop around with other vendors and to get second opinions.
However, when salespeople are called — and viewed as — “advisers,” the public can be led into thinking they are being told what is best for them. In fact, in a commission-driven transaction (with only the suitability rules in play), the client often comes out on the short end of the “conflict of interest” stick.
The public's understanding of the difference between B-D reps and RIAs is further confused when large B-Ds are also registered as RIAs and the B-D reps are registered both ways. With this dual registration, how are clients ever to know if the representative is wearing the RIA hat and giving advice or the B-D hat and selling a product?
This dual registration is how a rep sells a variable annuity, then puts an RIA money management contract on top of the VA and collects half of the continuing 1.5% RIA fee, in addition to his or her upfront commission. Clearly, this dual registration and income stream is not in the client's best interests.
The public would indeed benefit from a better understanding of the differences between a broker-dealer rep and a registered investment adviser. If the SEC wanted to improve the public safeguards and to improve the public's awareness as to the differences between the two modes of services, the easiest and cheapest way would be to start calling a spade is a spade. The SEC could simply mandate that “a salesperson is a salesperson” and “an adviser is an adviser,” and stop the financial services industry from referring to salespeople as advisers, consultants or counselors, etc.
ONE OR THE OTHER
The second part of such a “spade rule” would state that the financial services professional is either a B-D rep who sells products or an RIA, but no one can be both. It is no different than a physician and a pharmacist. One is trained to diagnose and prescribes, and the other sells a product. Financial services should have the same safeguards against conflicts of interest that exist in health care.
In reality, the chances of the SEC's developing a spade rule are slim to none. It will never happen as a way for the public to differentiate between the B-D rep and RIA, because it is such a simple solution and is an approach that the B-Ds would fight tooth and nail.
Michael Chamberlain, a certified financial planner, is the principal of Chamberlain Financial Planning LLC.

[admin]

Your Canadian Securities Administrators knowingly conspiring to further mislead the public................

http://www.securities-administrators.ca ... spx?id=814

from page 16 of this link http://www.albertasecurities.com/securi ... ly_8_CM%20[+%20attachments%201%20-%208].pdf

Conversion of individuals
Salesman "removed"
Under NI 31-103, if an individual is trading or advising, this registration category would be
either dealing representative or advising representative. If the individual also holds the position
of an officer or partner of the firm, this position would be reflected on NRD as a separate
designation (see column on far right of chart).

see chart on page 16


from page 9

2. In section 1.1.(1), the definition of “mutual fund restricted individual” is amended by
striking out “salesperson, partner, director or officer of a dealer” and substituting
“dealing representative of a registered dealer”.

In every province of Canada, the word "salesperson" will be removed and replaced with the word "dealing representative"


Now there is some honest disclosure for you.

[admin]

Tuesday, October 6, 2009


Financial planning is still about selling
Industry wants salespeople, not planners

Jonathan Chevreau, Financial Post
The first-ever "Financial Planning Week" launched yesterday with the year 2020 set for holistic financial planning to become a properly regulated profession. But despite lofty rhetoric from the Financial Planning Standards Council, the difficulty of attaining this seemingly simple goal was underlined in a panel session in Toronto where stock brokers, insurance and mutual fund sales people admitted their focus remains selling these products and finding new customers to buy them.

Gerry Matier, executive director of the Insurance Council of British Columbia, described the many roadblocks the financial industry put in his multi-decade attempt to regulate financial planning. "Few call themselves life insurance agents. The one thing they don't want to to call themselves is what they are."

Similarly mutual-fund salespeople don't put "fund flogger" on their business cards.

"We should be regulated as a financial planner/advisor but it doesn't exist," said Ted Rechtshaffen, president of Tridelta Financial Partners. He quipped his four-year old son could print up a business card and portray himself as a financial planner.

This didn't stop president and CEO Cary List from waxing poetic about the FPSC's Vision 2020: "Imagine a Canada in the year 2020 that is shaped by people, organizations and governments that value financial planning and its role in the betterment of people's lives...." (You get the idea.)

Ontario Minister of Revenue John Wilkinson-- the first Certified Financial Planner elected in the province -- sees the financial crisis as evidence of "a long overdue" need to boost financial literacy. He called on List to set standards that "prevent greed, avarice and lack of regulations to prevail in our market to the detriment of our consumers and businesses." However, the minister's message was diluted by his pitch for a harmonized sales tax.

Credit Canada executive director Laurie Campbell called for more co-operation between credit counsellors and financial planners. Once the heavily indebted are "out of debt, we can send them to you and vice versa."

Campbell is on federal finance minister Jim Flaherty's task force for financial literacy and said the message must filter down to provinces and education ministers. "We need to get into the school system desperately."

The feeling was it may be too late to educate older folk about the need for holistic financial planning, so the target should be youth 15 years or under. "We see younger and younger people with student loans and credit card debt on top of it," Campbell said, "Credit cards in the student population is growing immensely."

Bankruptcy numbers are hitting the roof and will continue until the end of 2010, she predicted.

York University's Alan Goldhar said finance grads are often disillusioned by the true nature of the entry-level jobs they find in the industry. "It's like graduating from medical school and then being allowed only to check temperatures and change bandaids." At York, 90% of those who enroll in financial planning don't take the advanced "Capstone" course, which includes real-life case studies. The reason they quit is "the industry has jobs for investment sales people, not for professional financial planners."

This was reinforced by Lee Corasaniti, who trains new recruits for Freedom 55 Financial. They are trained to take life insurance and mutual fund exams, then "prepared to build a client base," in other words sell. Clearly the transition from academic to sales training is a rude awakening.

Edward Jones' recruiting leader Yong Kim said not only is it tough for the recruits but also a challenge for employers.

"The toughest job is teaching them prospecting and selling," Kim said.

Little wonder RBC's vice president of recruitment Mark Galbraith puts equal focus on recruiting older career changers. There's a growing demand for grey hair and life experience that can provide holistic all-encompassing financial plans.

I'd argue they're also well aware of the sales nature of their chosen new career.

jchevreau@nationalpost.com

[admin]

NOTE: The CSA has shown it can act very quickly to protect its financial sponsors from potential litigation. If only it would be sold proactive in protecting the public, as it claims to be responsible for.

In alterations to its legal definition of each market registrant licensed as a “salesperson”, it has taken steps to "un-clarify" this legal definition by changing it to a more deceiving verbiage of “dealer representative”. In any case, it will be demonstrated that investment salespeople in Canada will still be licensed by as little as a three month correspondence course, and will still be calling themselves nearly any name available except that name which accurately describes the title. Mass misrepresentation of the public brought to you once again by 13 securities commissions.

http://www.securities-administrators.ca ... spx?id=814

July 17, 2009
Toronto – The Canadian Securities Administrators (CSA) today published new rules across Canada that apply to firms and individuals who deal in securities, provide investment advice or manage investment funds.
National Instrument 31-103 Registration Requirements and Exemptions, and related rules and amendments, create a new Canada-wide registration regime. This important initiative reflects an extensive consultation process that began in 2005.
“We have moved to harmonize, streamline and modernize the registration requirements and procedures across Canada,” said Jean St-Gelais, Chair of the CSA and President & Chief Executive Officer of the Autorité des marchés financiers (Québec). “The new registration regime is more flexible and easier to use, enhances investor protection and benefits industry by bringing increased efficiencies to the registration system.”
The new regime has higher proficiency standards for some registrants, and enhanced rules for consumer disclosure, referral arrangements, handling investor complaints, and disclosing and addressing conflicts of interest. It also introduces a registration requirement for investment fund managers, exempt market dealers and senior officers responsible for compliance.
There are currently some 2,000 firms and 130,000 individuals registered to deal or advise in securities. The new rules recognize that the registration regime must accommodate a wide variety of business models, scales of operation, clients and products.
National Instrument 31-103 Registration Requirements and Exemptions and related rules and amendments will come into force on September 28, 2009. They are available on various CSA members’ websites.
On the same date, a streamlined process for dealer and adviser registration in multiple jurisdictions will come into force. Today, the CSA published the rule amendments, policy amendments and new policy necessary to implement this system, which replaces the current National Registration System and creates the passport system for registrants. The new national registration regime is the foundation for this system.
The CSA is also making some amendments to National Instrument 45-106 Prospectus and Registration Exemptions to further harmonize and streamline requirements for using some exemptions and to complement changes to the registration regime in National Instrument 31-103 Registration Requirements and Exemptions.
The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.
National Instrument 31-103 Registration Requirements and Exemptions
Backgrounder
from page 97 of this link:
http://www.albertasecurities.com/securi ... ly_8_CM%20[+%20attachments%201%20-%208].pdf

2. In section 1.1.(1), the definition of “mutual fund restricted individual” is amended by
striking out “salesperson, partner, director or officer of a dealer” and substituting
“dealing representative of a registered dealer”.

In every province of Canada, the word "salesperson" will be removed and replaced with the word "dealing representative"

from page 84 of this link
http://www.albertasecurities.com/securi ... ly_8_CM%20[+%20attachments%201%20-%208].pdf

Conversion of individuals

Salesman "removed"

Under NI 31-103, if an individual is trading or advising, this registration category would be
either dealing representative or advising representative. If the individual also holds the position
of an officer or partner of the firm, this position would be reflected on NRD as a separate
designation (see column on far right of chart).

see chart on page 84-85
http://www.albertasecurities.com/securi ... ly_8_CM%20[+%20attachments%201%20-%208].pdf

[admin]

Conflicts of Interest

The mutual fund industry and its sales people have financial incentives that may not align with your best interests. Funds that pay high trailer fees and commissions may be recommended even though they are not the best fit for your investment objectives. Mutual fund sales advisors regularly recommend a select stable of funds that pay high commissions, even though better funds with lower MER fees and stronger performance track records exist. Be cautious and aware that "you are their lunch money."


http://www.activesectors.com/Downside_Mutual_Funds.htm

===============================================================================

Rule of 40: (handy to know for mutual fund investors)


http://www.bylo.org/affordmf.html


-----------------------------------------------------------------------------------------------------------------------------------------



Downside to Mutual Funds
Fees charged over investors lifetime astronomical

Read More AT:


http://www.activesectors.com/Downside_Mutual_Funds.htm


end of quotes and reference pages

=============================================================================

Don't forget to remember the latest illusion created by securities regulators to cover up
the truths embedded within the financial industry.

Your salesperson/"advisor" is now your dealing representative/"advisor" - What a joke!

Anything to try to deceive or mislead.


Good luck with your investing.

Bruce
Winnipeg

[admin]

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8 things your financial planner won't tell you

Literally anyone can claim to be a financial adviser. Even those with top credentials may not divulge everything you should know. Here’s how to dig up the facts on the person you're paying for financial advice.
By Liz Pulliam Weston

More people are flocking to financial planners these days, convinced they need professionals to help them navigate the market's stormy seas.
Unfortunately, not all planners are created equal. Some are thinly disguised investment salespeople, and many don't have the background or inclination to offer true, comprehensive financial advice.
So before you sign on with a planner, or implement the advice offered, make sure you know these secrets the planner may be keeping. Such as:

1. I have no qualifications for this job.
Anyone can claim to be a financial planner. There are no education, experience or ethical requirements and no government agency that regulates planners as planners.
Of the estimated 250,000 people calling themselves financial planners, only about 56,500 have earned the Certified Financial Planner mark -- the best-known financial planning designation. Fewer still are a Chartered Financial Consultant (ChFC) or Personal Financial Specialist (PFS), the financial planning designations offered by the insurance and accounting industries, respectively.
Even if your planner has one of these designations, you're not home free. It generally takes years of experience and ongoing education -- not to mention integrity and ethics -- to become a truly good planner.
Your best bet: Make sure that, at a minimum, your financial planner has one of the three leading designations. You can check on CFP status by consulting the Certified Financial Planner Board of Standards. For a PFS title, contact the American Institute of Certified Public Accountants' Personal Financial Planning Center. And to look into a ChFC designation, visit the Society of Financial Services Professionals.

2. I have no obligation to put your interests ahead of my own.
Real financial planners take seriously their duties as fiduciaries -- professionals who are trusted to think of their clients' needs first and foremost.
Most of those who call themselves planners, though, are really in the business of selling investments. As such, they may face scrutiny from various government agencies over their sales tactics. But instead of being obligated to create the best financial plan for you, they're only required by law not to sell you something that's utterly unsuitable.
Your best bet: Ask for, and read, a copy of any code of ethics with which your planner is required to comply (usually as part of his professional designation). It may be slow reading, but you'll get an idea of the standard by which your planner operates. The word "fiduciary," for example, does not appear in the Society of Financial Services Professionals' code of professional responsibility, but members of the fee-only National Association of Personal Financial Advisors are required to take a fiduciary oath promising "to act in good faith and in the best interests of the client."

3. I'm not being paid the way you think.
"Commissions" became a dirty word in the 1990s, when even the big brokerage houses like Merrill Lynch decided that people would rather pay fees than have advisers compensated by commissions for the investments they sold.
True fee-only financial planners are still a rare breed, however. The leading association for fee-only planners, NAPFA, has fewer than 800 members.
Most financial advisers still get some or most of their income from commissions, according to FPA. Many finesse the situation by calling themselves "fee-based" planners, or by simply avoiding the issue of how they get compensated.
Commissions aren't bad, per se. But they do create a built-in conflict of interest. Your planner should volunteer information about how she gets paid. If you have to ask, you should at least get a straight answer.
Your best bet: Ask -- and then do more research. If your planner is a registered investment adviser (RIA), ask for a copy of his form ADV, Parts I and II. This document, which must be filed with the Securities and Exchange Commission, outlines whether the adviser accepts fees, commissions or both. If the adviser's practice is too small to be regulated by the SEC, ask for the state equivalent of this form.
Video on MSN Money

When to look for a financial adviser
Financial planner Linda Lubitz Boone tells when you should look for a financial adviser and what one can do for you.

4. I'm looking at only one small portion of your overall finances.
A good financial planner looks at every aspect of his or her clients' financial situations, from their budgets to their estate plans. That's the only way to give truly customized, comprehensive planning advice.
Many of those calling themselves financial planners, however, focus on one narrow aspect of a client's monetary condition -- usually the area that corresponds with whatever financial training they've received.
Continued: Watch out for one-trick ponies
One reader told me her adviser, who mostly prepares tax returns for a living, insisted she get a home-equity line of credit to pay off her credit card bills. His reasoning was that she would be better off paying a tax-deductible interest rate on a home loan rather than paying nondeductible credit card interest.
The problem was that this reader was so deeply in debt that she couldn't qualify for a reasonable rate. An adviser with a broader background in financial planning would have recognized that a home-equity line would do nothing to curb her real problem, which was overspending. Meanwhile, she had cash sitting in low-interest accounts that could have been used to pay off her debt.
Your best bet: If your adviser has a narrow focus, get a second opinion -- or, better yet, look for a real financial planner who can evaluate your entire financial picture.

5. The only products I understand are the ones I'm selling.
The old saw goes like this: When all you have is a hammer, everything looks like a nail.
Advisers who lack training in comprehensive financial planning often know only what their companies tell them about the various investments they're told to sell. An insurance agent, for example, might sing the praises of variable annuities -- not realizing that annuities should only be considered after tax-favored retirement options, such as 401(k)s and IRAs, have been exhausted and less expensive alternatives, such as index funds or tax-efficient mutual funds, have been considered.
I still remember a conversation a few years ago in which an insurance agent launched into a passionate defense of variable annuities, only to confess -- after much probing -- that he had never heard of alternatives like tax-efficient mutual funds and didn't know how much could be invested in a 401(k) or Roth IRA.
Likewise, a stockbroker might push individual stocks or mutual funds, when the best use for your money might be increasing your emergency fund or paying down your mortgage.
Your best bet: Same as above. Your planner should be able to converse intelligently about alternatives to his recommendations. If he can't, or insists his approach is the only way, look elsewhere for advice.

6. I can't beat the market.
Many people think a financial planner can help them supercharge their investment returns. Many of the best financial planners, however, believe they're doing well if their clients' portfolios simply match the market averages. They don't even try for more, convinced that such efforts are a waste of their time and effort -- and of their clients' money.
Those who do try often fall woefully short. The more they trade, the more money they spend in commissions and fees, and the farther they fall behind the market benchmarks.
Good financial planners concentrate on making sure their clients are well-diversified and that other aspects of their finances -- their budgets, credit ratings, insurance coverage, tax situations, estate plans and retirement accounts -- are in the best shape possible. In contrast to the adviser who's trying to keep secrets, however, these good planners are upfront about the fact that they're not trying to beat the market.
Your best bet: Understand that good, comprehensive financial planning doesn't ensure outsized returns. A plan should, however, allow you to improve your credit, minimize your taxes, protect your assets, take care of your heirs and grow your wealth over time.
Video on MSN Money

When to look for a financial adviser
Financial planner Linda Lubitz Boone tells when you should look for a financial adviser and what one can do for you.

7. I won't save you from yourself.
The best financial planners didn't let their clients overdose on technology stocks during the 1990s and insisted they stay invested during the roller-coaster ride of the past few years. The worst encouraged their clients to chase every hot trend, whether it was dot-coms or excessive investments in real estate. Many planners fall somewhere in between -- trying to make the case for diversification and common sense, but lacking the confidence and experience to insist their clients not make suicidal moves.
Your best bet: Avoid planners who don't have a consistent philosophy or who are constantly talking about the next hot trend. And take some responsibility for your actions: Don't be a trend-chaser or insist on wild swings in course, especially if your credentialed, experienced planner advises otherwise.

8. I have a checkered past.
Sooner or later, most financial planners will have a run-in with an unhappy client. If those disputes regularly escalate to lawsuits, however, or your adviser has been disciplined by a regulatory board, that's a red flag. The worst offenders skip from job to job or industry to industry, hoping their past never catches up with them. Your best bet: Do your homework. Read the ADV form, which includes disciplinary histories. Stop in at your local courthouse to see what lawsuits may have been filed against your adviser. Contact your state's insurance department and securities regulator to see if your adviser has any disciplinary history there. If your adviser has a financial planning designation, check with the groups listed earlier for any disciplinary history. Then check with the National Association of Securities Dealers and the SEC.
Columns by Liz Pulliam Weston, the Web's most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Updated Dec. 14, 2007

[admin]

12

Commissions drive behaviour :In the Globe and Mail‟s “Financial planning: Whom should you
trust?” Rob Carrick reports on the Darquin‟s who were advised by financial advisor to cash out
a (safe) UBC defined benefit pension and invest instead in a leveraged portfolio with disastrous
results. (What a rip-off, all in the name of earning some mutual fund commissions on the backs
of retirees. Shame on the „advisor‟; this is not incompetence, but likely fraud. Are Canada‟s
laws/courts up to dealing with this? Time will tell.) Before retiring in 2005, the Darquins had
$50,000 debt; they then took $465K cash payout on their pension. Today they have $150K debt
and a retirement portfolio of $267K; nice work for their advisor. Thanks to retirementaction.com
for this
http://v1.theglobeandmail.com/servlet/s ... ERS21ART18
34/TPStory/TPBusiness/
ETF’s (exchange traded funds): a comprehensive assessment

from canadianfundwatch.com

[admin]

Celebration!! Only a few more days until there are no more “salespersons” in the Canadian Financial services community.

Following in the footsteps of the UK and Australia, which have taken recent steps to ban or separate commissions from the giving of financial advice, Canadian Securities Administrators, (CSA) in charge of the 13 provincial and territorial securities commissions have taken protective steps of their own by changing the names of 130,000 registered salespersons.

In a bold case of regulatory one up-man-ship, Canadian security regulators have raised the public protection bar even higher. In quiet moves indicative of a silent stong organization, effective Sept 28, 2009 they voted to remove the word “salespeople” from the securities registration categories in all jurisdictions in Canada. The OSC is the first such jurisdiction to act on this as can be seen from the registrant lists “before” sept 28, 2009 and the same registrant list “after” sept 28, 2009.

Above shows Registration categories Before sept 28th 2009: (salesperson)


Canadians will not be able to invest with complete confidence and objective impartiality now with the new category of investment representative titled “dealing representative”.
After sept 28, 2009





In what are the boldest steps ever taken by Canadian financial regulators to step into the twenty first century, and the fastest action they have taken to protect the “public interest”, the CSA has changed the name of the registration category of 130,000 licensed salespersons in Canada.

Canada is now completely protected and no longer subject to investment persons acting as salespersons, misrepresenting the public that they are “trusted advisors”, or failing to inform the public that they are placing their trust in someone who is only licensed as a salesperson.

They can now invest with complete confidence (and clarity) with the newly licensed “dealing representative”.

Release by http://www.investoradvocates.ca
Oct 30, 2009

see CSA regulation change at http://www.securities-administrators.ca ... spx?id=814

[admin]

http://www.investmentnews.com/article/2 ... /310049996

http://faircanada.ca/dialogue/fiduciary ... nd-the-us/

From FAIR Canada, an organization funded 100% by the investment industry as an industry trade group purporting to represent the public. $4 million funding given to them.

Fiduciary Duties – The Difference between Canada and the US
The Obama administration proposed in June 2009 that the fiduciary obligation to act in the client’s best interest be applied to all financial professionals. The specific language to be employed is now the subject of contentious debate and considerable lobbying as the financial reform legislation starts to take shape. This article in the U.S. trade publication Investment News argues that all financial advisors should be called salespeople.

The regulatory environment in Canada is somewhat different (as described below). FAIR Canada has called for an exploration of applying the obligation to always act in the client’s best interest to all Canadian financial service representatives.

Differences in Regulating Financial Advisors between Canada and the U.S.

In Canada, financial professionals (including both individual representatives and firms) have a duty to satisfy their suitability obligations to their clients. Specifically, CSA Staff Notice 33-315 Suitability Obligation and Know Your Product (33-315) states that anyone selling or advising in securities must determinate whether the purchase or sale of a security recommended to an investor is suitable for the investor. The suitability umbrella encompasses two key obligations: (1) financial professionals must understand their client’s general investment needs and objectives (“know your client”); and (2) financial professionals must understand the attributes and risks of products they recommend (“know your product”).

The only Canadian financial professionals who are under fiduciary obligations, whereby they are required to act in the best their clients’ best interests, are those registered as portfolio managers with discretionary authority over their clients’ accounts. Notably, case law has established that other financial advisors can in effect have such an obligation, depending on the knowledge of the client and the past pattern of dealings between client and advisor: in the Markarian[1] decision, for example, the Quebec Superior Court held that the defendant CIBC was under a heightened duty to supervise an investment adviser employee because of the latter’s past questionable conduct. Further, it noted that civil law mandataries have a duty to act faithfully, honestly and with integrity, and must subordinate their interests to those of their clients.

The American Environment

The situation in the US is slightly more complicated. Prior to engaging in this analysis, it is relevant to briefly introduce some key American jargon:

Broker-dealers are licensed to sell securities, are typically paid a commission on each transaction, and are not licensed to provide advice.
Investment advisers are able to give advice on what securities a person should invest in, and are usually paid a fee for their advisory services.
Currently, broker-dealers in the US are subject to the suitability standard, under which they must have “reasonable grounds for believing that the recommendation is suitable”, based on the facts of the customer’s situation. However, investment advisers are subject to stricter fiduciary duties of due care, loyalty and good faith: they are legally required to act in their client’s best interests at all times.

The differences between the current suitability standard for American broker-dealers and the stricter fiduciary standard for American investment advisers may be better illustrated through the following examples:

Investments: while investment advisers must disclose fees they receive for selling a security and must offer investments in a client’s best interests, broker-dealers merely recommend suitable investments and are not generally required to disclose commissions.
Disclosure: while investment advisers must disclose information about past disciplinary actions, no such duty is imposed on broker-dealers.
[1] Markarian v. CIBC World Markets Inc., [2006] Q.J. No. 5467.



(Advocate comments......I believe that this article ignores the relationship that Canadians have with their investment "advisor", and the trust that the financial industry promises, and then pulls the rug from these customers by delivering something closer to a product sales pitch for commissions. The rules, the names, the titles all are geared to protect and hide the truth about commission salespeople misrepresenting themselves as "trusted advisors". The courts have agreed with this concept of gross misrepresentation as can be seen in Markarian V CIBC case. The only folks who are still quite willing to participate in these "worst practices" are those whose salary is dependent upon the investment industry.......shame on them)

(further case in point.......in Canada ALL securities commissions (who are paid by the investment industry) voted to REMOVE the word "salesperson" from securities regulations and replace it with the words "dealing representative". Are you feeling better informed and protected now?) All this work and effort (and $4 million spent) just to keep hiding from the public the fact that a salesman with a three month correspondence course can pass himself off to the public as a trained professional.

[admin]

I received some feedback recently after a speech I gave on, “How To Make Financial Crime Pay”. It prompted me to write the following for the investing public, based on what I learned working over twenty years inside the investment industry.

The feedback referred to the Certified Financial Planning designation as if it were a license or a profession when sadly it is not. Not yet at least. It is a correspondence course that anyone can take, with no minimum requirements. It does not replace, improve, or over-rule the fact that nearly every single person calling themselves a CFP, CIM, or CF “anything” is being paid by sales commissions. An “eat what you kill” incentive plan. It might serve to mislead the public, however into believing otherwise and that unfortunately is the intent of some sellers. To mislead. To sell.

When I worked in the investment industry approximately 100% of persons selling financial products were legally licensed and registered in a category called “salesperson”. However this name was always cleverly hidden from the public using the many other names financial salesmen call themselves. Some call themselves planners, some advisors, some consultants. Zero called themselves what they were licensed as. Zero referred to themselves by how they were paid. The public should be asking government why this is allowed. All licensed salespersons found methods to avoid using the “saleperson” word. In some circles that is called misrepresentation. In my financial industry this is called “standard industry practice”. Call your MP and MLA and tell them if this is no longer acceptable to your financial health.

The fact that many industry people might have taken a course, titled Certified Financial Planning, or any one of a thousand such courses anyone can take, has little to do with their license, their practice or their behavior. I provided industry sales statistics in my speaking presentation that showed how most mutual funds are sold with the highest reward to the salesperson and the greatest penalty to the customer. This is not “advice”, nor is it financial planning. It is not even professional. This is predatory selling under the clever disguise of giving advice. It is also against the law and every code of conduct and industry rule. Again, sadly, this is the standard industry practice so people who should protect end up looking the other way. Having a Certified Financial “anything” course does not change this reality. It just makes misleading the public into parting with their money a bit easier. Many courses are simply used for marketing, to allow a salesman to proclaim a “sort of professional” status while operating totally as a commission product seller.

To mistake the name of a “course” for a “profession” and to begin calling oneself a “certified financial planner” when ones license with the government says something else, and ones compensation comes from commissions, is just one of many sleight of hand misrepresentations that my speech included that permits financial crime to pay so well. Using the same logic, should I be calling myself a Doctor, since I took a first aid course? The logic would be yes if we were talking about the investment industry. It would sell better.

Until members of the investment industry display an actual license on the wall in their office, the public will never know whether they are dealing with a salesperson, or a trusted professional advisor, or the brand new name given to nearly all 130,000 formerly licensed “salespersons” in Canada; “dealing representative”. Yes, the securities commission in your province cleverly and quietly just removed all reference to the word “salesperson” on Sept 29 of this year, and replaced it with “dealing representative”. I will let you think through the possible motivations of doing this, and while you are thinking this through, keep in mind that the salaries of each person at the provincial regulator are paid by fees charged to the industry they regulate, the investment industry.

Other developed countries have learned that one cannot both be a trusted professional advisor and a commission salesperson at the same time. Canada is a bit behind and is struggling to have it both ways as long as it possibly can. We have five major banks here who do over 90% of the investment business in the country and they very much enjoy the Canadian way of having your cake and eating it too.

Further info and background to this can be found at http://www.breachoftrust.ca as well as full video of the Southern Alberta Council speech titled “Making Financial Crime Pay” A How to Guide by a former industry insider.

Signed Larry Elford (formerly a Chartered Financial Planner, Certified Investment Manager, Fellow of the Canadian Securities Institute and Associate Portfolio Manager, now retired)