Solutions, Self Defense and Best Practices

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http://osgoode.yorku.ca/osgmedia.nsf/0/DF99C84D4E5B8D6085257646007593DB/$FILE/V6(1)%20CondonPuri.pdf

Some very good details in this academic study. Financial firms, investment advisors, commissions, etc., etc.

For example "Consideration should also be given to replacing the current salesperson mentality, which is often underscored by the commission system of compensation noted above, with one that encourages increased professionalism and independent advice. Currently, certain classes of salespeople can sell securities with very little formal education and after completing courses which can take only a few months. There is also no formal period of apprenticeship, which can offer benefits of mentorship and role modelling of good behaviour and practices."

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Alberta Investors Protection Association

May 24, 2012
Calgary

Notes from session in Calgary:

What is it that the Alberta Investors Protection Association seeks to accomplish?

1. Victims of investment fraud or regulatory misconduct deserve their money back. From the regulator (Alberta Securities Commission) when it has allowed companies to breach securities law or acted contrary to the public interest, if recompense is not possible from the investments themselves.

2. Albertans deserve an investor protection agency to protect the interests of the public, and one which is not guided by, or linked to the possibility of corruption, connections to the investment industry, political appointments or cronyism.  

3. Albertans want the Canadian Criminal Code to be the guiding principles with which regulators, prosecutors and public protection agents view investment and financial markets. “Self Regulation” and self policing of financial fraud and misconduct is not serving the public well, but it is serving corruption very well. Both on Wall Street and in Alberta.

4. A full public inquiry, under the Provincial Inquiries Act, into systemic failures, connections, corruption and actions known to be contrary to the public interest, and damages to Albertan’s from negligence, gross negligence or conscious wrongdoing at the Alberta Securities Commission.

We feel that this is a worthy undertaking on behalf of the public interest. At the very best, we expect thirty thousand investor victims in Alberta might have a chance to get their money back, through legal approaches (civil or criminal) towards the Alberta government. At worst, we hope to raise the issue of professional fraud and misconduct by financial and regulatory intermediaries onto the public agenda, so that future generations might not have to suffer similar economic abuses at the hands of financial servants.

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WHAT IF........the financial or investment industry could be brought to heel, and required to meet just some portions of consumer protection laws.........?

Information on Product Safety: Health Canada can require manufacturers or importers to provide or obtain safety information - including studies or tests - that indicate whether a consumer product meets the requirements of the CCPSA. (tell me why not?)

General Prohibition: Under the Act, there are prohibitions related to the manufacture, importation, sale or advertisement of consumer products that could pose an unreasonable danger to the health or safety of Canadians. (but not applicable to products designed to pose a danger to their financial health.......:)

Packaging and Labelling: Under the CCPSA there are prohibitions related to the packaging, labelling or advertisement of a consumer product in a manner that is false, misleading or deceptive in respect of its safety.
(again, false misleading or deceptive is fully allowed with investment products or so called "advice")

Conclusion........government and corporate collusion allows "the strongest banks in the world to operate an "oligopoly" in the financial sector, and to use this oligopoly to screw Canadians financially". (quote from Bruce Livesey, author of THIEVES OF BAY STREET)
http://www.hc-sc.gc.ca/cps-spc/legislat ... ex-eng.php

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CFA Institute Integrity List:
50 Ways to Restore Trust in the Investment Industry
The CFA Institute Integrity List is a collection of 50 tangible steps that investment professionals can take to restore trust in the industry. The list was inspired by “real-world” ideas from CFA charterholders and members.

Commit to a gold standard code of ethics and professional conduct [See CFA Institute Code of Ethics and Standards of Professional Conduct].
Require training on ethical decision-making for yourself and your firm.
Place the client’s interests before your own.
Name and shame unethical behavior.
Recommend products with transparent payoffs, costs, and risks.
Help clients focus on risk as much as they do on performance.
Disclose your educational achievements and how you improve professional competence.
Strive for a conflict-free business model.
Advocate for stronger regulations that protect investors.
Act with integrity 24/7 – not just at the office.
Encourage young professionals to have the courage to disagree.
Keep client fees fair.
Be transparent with clients when something goes wrong.
Actively disclose all compensation arrangements to clients.
Lead by example with your firm and colleagues.
Write articles and speak publicly about ethics.
Act with fairness and prudence with every decision.
Present analysis based on facts and client needs.
Always be honest with clients.
Never overlook unethical behavior because you’re better served by ignorance.
Never engage in misleading sales promotions.
Mentor future investment industry professionals.
Vocally demand that your firm does what is right for clients.
Tip the balance between competing interests in favor of clients.
Outline exactly how you are managing a client’s funds.
Disseminate transparent, accurate and timely information.
Be clear about situational influences in your environment.
Base investment recommendations on strong analysis.
Adhere to high standards even if they are not required in your country.
Elevate the importance of integrity in the hiring process.
Disclose information in ways even novice investors can understand.
Adopt Global Investment Performance Standards.
Maintain regular contact with clients.
Openly share bad news with all who are affected.
Listen to clients’ concerns and fears.
Promote the concept of earning money rather than making money.
Create an ethical work culture that allows constructive criticism.
Bring an ethical dimension to discussions of business strategy.
Adopt the CFA Institute Asset Manager Code of Professional Conduct.
Remind junior associates that reputations are hard earned and easily lost.
Take responsibility for the actions of your team.
Use social media to comment about the values you uphold.
Act as an expert resource for journalists.
Refuse to associate with anyone who takes advantage of clients.
Bring to justice those who take part in irresponsible and illegal activities.
Recommend companies with fair practices and good corporate governance.
Advocate for technology that makes the industry more transparent.
Engage and build relationships with local regulators and policy makers.
Serve on committees that advocate for regulatory reform.
Become a member of CFA Institute and sign the required annual ethics statement.

http://www.cfainstitute.org/about/visio ... _list.aspx

(advocate comments: The CFA course is the most stringent and dilligent in the industry. It is the equivalent of a university level of training for the investment industry (CFP is kindergarden by comparison) and persons with CFA designations are: a) less likely to be employed or acting in conflict of interest positions like salespersons who pose as "advisor's", and b) CFA's have the lowest level of investor complaint of all industry professionals. I say this as someone who does not have a CFA designation, but who did hold the CFP when I worked)

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Audience Q & A from speaking visits recently. Coinciding with the book THIEVES OF BAY STREET

So who can you trust? Trust no one with your money. The Canadian financial industry is on of the worlds strongest oligopolies and they use this power to financially abuse customers. Learn to either deal with it yourself in whatever manner you can handle, or hire a professional who owes YOU A DUTY OF CARE and is willing to put that duty of care in writing to you.

Where can you put your money?
Put it where you can see it, protect it and keep it away from “advisors” or those who claim to be advisors but cannot produce a license that says advisor. (they will be able to print business cards, but a license is a different matter) Or put it in safe savings and stop worrying about trying to make it grow with some else’s magic formulas. Some buy land, some buy other hard assets, some stick it in credit union savings accounts, among many other things..........giving your money to a salesperson who is on commission, and who has no ability to say that your interests must come ahead of their own is simply foolish.

DO NOT give your money to a person, who earns his or her living on commission........DO NOT give your money to any person who cannot give you a written duty of care or a fiduciary duty (backed by a credible organization).......DO NOT give your money to a person who is not a CFA or a licensed portfolio manager. I rarely let my money out of my own sight unless I have met those three rules. If you cannot meet those rules, then learn to manage your money yourself, you will do a far better job than a commission salesperson posing as giving "advice".


What about the CFP designation?

It is the entry level correspondence course that any self respecting salesperson must have to start into the business, but am afraid I have yet to meet a CFP who was not simply a commission seller of investment product. There may be a few in Canada, I just have not met any. The CFP claims to have professional standards of conduct, but there is no one in the organization enforcing them from my experience. Violations are most likely to be hidden from public view, than taken seriously. (see three rules above)

What can we do to fix this?

Demand change in policies that allow this to happen. Banks and corporations have been infiltrating your government for 30 years, setting their own agenda, setting rules in their favor, and some of us are just waking up to this now. We have to change up our politicians, voting them out if they do not correct areas of legislation, and areas of accountability for corporations that abuse the public as badly as the financial sector does.

We need independent INVESTOR PROTECTION. A single securities regulator will be 1/4 of a step in the right direction, only because it might be a small step away from 13 provincial fiefdoms..........BUT it will probably still be run by most of the same people, and paid for by the same people.

If it is run by most of the same people, and paid for by the same people then it will do the same things, which is ignore the protections of investors and focus on the needs of the investment industry.

It MUST not be a FOX who guards our economic henhouse. It MUST be a body that cannot be corrupted or controlled by the foxes. I suspect that the formation of this might not even be trusted to our politicians, in the current "government for sale to highest bidder" environment.

I believe that things will come to a point where citizens will demand independent investor protection. Where they will demand that the referees to our game of investing are not chosen and paid by the other team. Either that or we continue with a "winner steal all" economic model, until we are all fighting each other in the streets....................

Impartial referees are essential to a fair game.

This is an job opening which our economy does not have. A job for whom the opening does not exist today. There is no one in Canada, paid a salary to protect investors, whose salary is not paid by the financial industry. There is not one independent body that I know of. How is that working for us?

Tell your current political people that you will not be voting them into power until and unless they take steps to seriously protect investors in Canada. Until then you are not safe investing here. The game is simply rigged.

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PAUL B. FARRELL Archives | Email alerts
March 27, 2012, 12:01 a.m. EDT
Everything you know about investing is wrong

By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — “America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask,” former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic “Take On The Street,” Levitt lambasted the fund industry as “a culture that thrives on hype … withholds important information,” a “cutthroat business” that “misleads investors.” Today, it’s worse.

Lazy Portfolios were born as a defensive move against this relentless war by guys with “masks and guns … ripping off” America’s 95 million Main Street investors. And the strategies of men like Levitt, Vanguard’s Jack Bogle, Nobel Economist Daniel Kahneman, Warren Buffett, Yale’s Robert Shiller and other industry giants were the inspiration.

Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall’s Street’s casino. Simple solutions: Just three to 11 no-load low-cost index funds, and zero trading. And in the past decade we’ve discovered eight great Lazy Portfolios that investors are using as guides to building their own portfolios, without brokers or advisers.

Today, Wall Street, the fund industry and brokers hate these eight Lazy Portfolios even more. Not just because they consistently beat the S&P 500 on a long-term basis. Not because they’re based on the exact same Nobel Prize-winning model Wall Street’s top wealth managers use. Not because you don’t need any fancy algorithms to rebalance your portfolio. And not because Bogle calls industry insiders casino “croupiers” because they skim a third of your market returns off the top, leaving you leftover crumbs.

The more you trade at Wall Street’s casino, the richer your broker gets.

Listen closely: The No. 1 reason Wall Street, fund insiders and your stock broker hate our Lazy Portfolios strategy is simple: They don’t make money unless you buy, sell and trade. No commissions. No fees. They can’t get rich, or richer, unless you’re playing at their rigged casino, where the house always wins.

Since my days at Morgan Stanley it’s been obvious that Wall Street gets rich on “the action,” on all the hot trading going in their casinos. More commissions and fees mean they can skim off America’s retirement money. Want hard evidence? In the decade ending in 2010, Wall Street’s stock market lost an inflation-adjusted 20% of America’s retirement money. Your money. So yes, Wall Street brokers and other insiders hate Lazy Portfolios. They want business as usual.

Several years ago I started tracking the best portfolios in America: Simple portfolios used by Nobel Prize winners, multi-millionaires, conservative institutional fund managers, neuro-economists and average Main Street investors.

We also found solid examples in popular books and publications like “The Coffeehouse Investor,” “Motley Fool Investment Guide,” “Investing for Dummies,” “The Idiot’s Guide to Investing,” “The Gone Fishin’ Portfolio,” even “Dilbert and the Way of the Weasel.” All winners.

Take a look at Farrell’s Lazy Portfolios page, including total returns for eight great portfolios.

Early on we discovered something amazing and brilliant. All these winners were saying the exact same thing: All you need is a simple, well-diversified portfolio of between three and 11 low-cost, no-load index funds to create a long-term portfolio that wins in bear and bull markets. And you do it with no market timing, no trading, no commissions. Lazy Portfolios are that simple.

What about the thousands of other stocks, bonds and mutual funds being hustled by brokers? Forget them! But don’t you need an adviser? No. As personal finance guru Jane Bryant Quinn put it in her classic, “Making the Most of Your Money”: “Most of us don’t need professional planners. We don’t even need a full-scale plan. Conservative money management isn’t hard. To be your own guru, you need only a list of objectives, a few simple financial products, realistic investment expectations, a time frame that gives your investments time to work out, and a well-tempered humbug detector, to keep you for falling for rascally sales pitches. Don’t put off decisions for fear you’re not making the best choice in every circumstance. Often, there isn’t a ‘best’ choice. Any one of several will work.”

Follow six simple secrets and create your own Lazy Portfolio winner

Here’s how it works: Get a feel for the eight portfolios in our Lazy Portfolios group. Track them a bit. Then use your judgment. Forget your broker and adviser. Trust yourself. Customize a portfolio that fits your needs, your age, your lifestyle. You can do it yourself. Many start with one of the eight.

Then over time, fine-tune their portfolios, rebalancing by adding new money. It really is that simple. This strategy is being used successfully by working Boomers and millionaires, young families with modest savings, college students just starting out, even a grade-school kid.

Here’s what our eight Lazy Portfolio masterminds tell us are the keys to successful investing; six simple secrets help you diversify, lower risk, level-out bull/bear cycles and generate returns that beat the long-term market without having to waste your time and retirement gambling in Wall Street’s casino.

Build your own Lazy Portfolios following these six secrets. You’ll win, and more important, you’ll have lots of time left to enjoy what really counts: your family, friends, career, sports, hobbies, living life to the fullest.

Being average wins. Lazy Investors win by being average. No big deals. No-Load Stocks guru Charles Carlson uses a baseball analogy: “Swing for singles.” Forget hitting home runs. In “Ordinary People, Extraordinary Wealth,” Ric Edelman uses this metaphor: “You’re not in a horse race. You’re playing horseshoes ... merely being close is good enough to win … If successful investors know they can’t pick the right horse, what do they do? Simple: They pick every horse.” Seriously, think about it: Even if you’re starting with a small portfolio of three low-cost, no-load index funds — for example, one diversified across the Wilshire 5000 stock index, one across the global stock market index and one across the total bond market index — you’re spread across more than a thousand specific stocks and bonds in these three index funds picked by pros. They do all the picking and trading while you just buy and hold, sit quietly, never playing the casino.

Buy and hold. Buy and hold. Buy and hold. Warren Buffett was once asked by Bogle about his favorite holding period. “Forever,” said the Sage of Omaha, the best time to sell is “never.” Index funds are the perfect long-term hold. If you buy quality companies and index funds with proven long-term track records, you won’t be tempted to sell when the market dips and talking heads on cable news shows freak out. Trust yourself, just do it. Remember, your most important decision is the up-front buy decision: You pick quality securities on the assumption you’ll never sell! In fact, one of our Lazy Portfolios was built by an industry leader who also manages a $20 billion institutional fund. He bought Bogle’s first index fund in 1976. And still has it. If you invested $10,000 in it back then it’d be worth over $200,000 today. Buy and hold works.

No market timing, no active trading. Never. Markets are random and unpredictable, says Wharton economist Jeremy Siegel in “Stocks for The Long-Run.” Siegel researched the stock market’s 120 biggest up and biggest down days between 1801 and 2001. Only 25% had a explanation. Buy-and-hold investors beat traders by big margins. The most active traders turned over their entire portfolios 258% annually. Their after-tax returns were only 11.4%. Why? Active traders lose by paying transaction costs, higher expenses, commissions, fees and taxes. In contrast, buy-and-hold investors turned their portfolios over just 2% annually for 18.5% returns, that’s 50% higher.

Not saving 10% for your retirement? Then you’re spending too much. In “The Millionaire Next Door,” Tom Stanley and Bill Danko reveal the one habit all millionaires share: “Frugality: They live well below their means … The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyper-consumption. … Being frugal is the cornerstone of wealth-building.” Simple math: Nothing saved equals nothing invested, equals nothing for retirement. Start saving at least 10% if you want to retire comfortably.

Forget short-term market swings. Focus on long-term retirement goals and harness the power of compounding interest. A 25-year-old investing $3,000 annually can retire with a million at 65 at 10% average returns. Start early and at 65 most of your retirement portfolio will be in the growth of your savings. For example, a 25-year-old could have a million bucks investing their $120,000 slowly over 40 years, the rest is compounded interest and appreciation. And that’s just one part of the nest egg if you start early.

Forget stock market news. Invest lazily, then go do what you love. As the legendary Fidelity investor Peter Lynch once put it in “One Up on The Street”: “If you spend more than 15 minutes a year worrying about the market, you’ve wasted 12 minutes.” And in researching 5,000 millionaires for his book, Edelman discovered that they spend an average of about six minutes a day on personal finance. They don’t waste time watching cable news, reading brokers reports, attending seminars, studying stocks tables, subscribing to newsletters, and reading financial newspapers. Just six minutes a day, the rest is precious time wasted: That leaves them 23 hours, 54 minutes every day to do what they really love. Remember, there are far more important things in life, not just a career that turns you on every day, but your loved ones, kids and parents, socializing, hobbies, movies, sports, making the world a better place, ordinary stuff, living a full life.

http://www.marketwatch.com/story/everyt ... iteid=nbkh

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(advocate comments......this post from the web site of a professional investment counsellor is not a commercial endorsement, but is an endorsement of the principles stood for by those who objectively, and with a fiduciary duty, act for customers.........it is an example of "best standards and practices" for those customers who seek professional money management......and is a black and white contrast to what I refer to as "worst, bordering on illegal" practices where 99.99% of those calling themselves "advisor" are nothing more than commission sales people misrepresenting themselves to appear as quasi investment counsellors)

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http://thewealthsteward.com/2010/09/inv ... rofession/
Investment Counselling: Not A New Profession
By Mark Barnicutt, MBA, CFA

“My advice to investors (who cannot give full time to a study of investments) is to seek out some trusted investment counsellor. The emergence of this new profession of disinterested investment analysts, who have no allegiances and whose job is to judge a security on its merits, is one of the most constructive and healthy developments of the last century.”Bernard Baruch 1870-1965

I. INVESTMENT COUNSELLING BACKGROUND & HISTORY:

The investment counselling profession as been around for almost 100 years. According to an October 2006 Investment Advisor article, Arthur M. Clifford, in 1911, opened his own Los Angeles-based brokerage firm after spending several years as a broker and analyst at a brokerage firm in St. Louis. Then, in 1915, the widow of the creator of Fletcher’s Castoria, Mrs. Robert Bliss, asked him to review her US$30 million in assets, and A.M. Clifford started calling himself an “Investment Counsellor and Financial Analyst”. Based upon this and subsequent client experience, Clifford decided in 1921 to serve exclusively as an investment counselor and no longer as a broker-dealer. This appears to have been the starting point for the investment counsel profession in the United States. His firm, now known as Clifford Swan Investment Counsel continues to exist today in Pasadena, California.

A central theme to investment counselling firms is being completely objective in the advice that they provide to clients by being compensated ONLY through a fully transparent, asset-based fee that is tied to the market value of a client’s portfolio, as compared with a sales commission on an individual security level, as with traditional broker-dealers. By doing so, Investment Counsellors are focused on crafting a completely objective, portfolio for clients that meets their unique needs, circumstances and tolerance for risk.

“An Investment Counsellor… should place himself in a position to consider only his client’s best interests to the exclusion of every other consideration.”A.M. Clifford ,1925
It’s also important to note that many Investment Counselling firms will also view themselves as more than simply “money managers”. Specifically, Maye Albanez, a long-standing principal at Clifford Swan is quoted as saying:

“We’re not just a money management firm. Investment Counselling is concerned with much more than just beating the market from day-to-day. We’re looking at preserving the wealth of our clients over generations. That can include estate & tax strategies. There may be a need to transfer some of that wealth to other generations in order to try to avoid as much of that inheritance tax as possible. We consider what their tax situation is without pretending to be accountants or attorneys.”Maye Albanez, 2006
As a true professional, many investment counsellors will also recommend “best of breed” outside experts who have professional competencies beyond investments such as accountants, lawyers, insurance advisors, and in the case of institutional pension assets, actuaries. As a result, a quality investment counsellor can also become a client’s “quarterback of their financial team”.

II. INVESTMENT COUNSELLING IN CANADA:

Investment Counselling in Canada has a similar long-standing history of being a completely objective provider of portfolio advice for affluent family and institutional clients such as foundations, endowments and pension plans. In fact, one investment counselling firm, Cassels Blakie — which is now part of Bank of Nova Scotia, traces its roots back to 1877. Given the differences in the financial landscape in Canada, our investment counselling industry has gone through considerable consolidation over the past twenty years. Although many of the investment counselling firms of the 20th century are now part of larger financial institutions (ie: McLean Budden – now part of Sun Life; Philips, Hager & North – now part of RBC; Jones Heward – now part of BMO, and Cassels Blakie – now part of Bank of Nova Scotia) there continues to be a number of independent investment counselling firms that include firms such as Fiera Sceptre Investment Counsel, Jarislowsky Fraser and Beutel Goodman. HighView Financial Group, through our investment counsel firm, HighView Asset Management Ltd., is also such an independent investment counselling firm. Such independent investment counselling firms value their independence in order that they can remain completely objective in the professional advice and the services that they provide to their clients so as to not be exposed to ANY potential client conflicts of interest that can potentially exist when part of larger financial organizations that have integrated business operations that span investment management, brokerage, lending, and custody of client assets.

In Canada, the industry association for investment counsellors is the Portfolio Management Association of Canada (formerly, The Investment Counsel Association of Canada). It was founded in 1952 and it’s current members are responsible for the management of over C$700 Billion of client assets.

III. WHO HOLDS MY INVESTMENT ASSETS:

A core service feature of the clear majority of investment counselling firms is that they do not take “custody” of client assets. In other words, although they manage the investments on behalf of their clients, they do not take possession of client assets. Instead, client assets will typically be held, in a client’s account with an independent custodian, normally a large, financially strong, well-respected financial institution. As a result, the client has two contracts: One contract with the investment counsellor for the management of their assets and a second contract with the custodian for safekeeping their assets. This means that the investment counsellor can only manage the assets WITHIN the client’s custodial account and CANNOT deposit or remove assets from the client’s account, without their permission as the custodian will only act on the client’s instructions. At HighView Financial Group, we believe that this “division of duties” — ie: separating the investment management function from the custody function is critical to providing clients with the comfort related to the safety of their assets and mitigating the opportunity for fraud. Even within large financial institutions, their investment counselling divisions will typically not take custody of client assets but are instead custodied through a separate custodian that is within the financial institution’s group of companies. When this ‘Division of Duties” principle is violated, it always increases the risk of conflict of interest and potential fraud. Please see a related article that we wrote on this topic called, Wealth Destroyed.

IV. PROFESSIONAL CRITERIA TO BECOME AN INVESTMENT COUNSELLOR:

Investment Counsellors in Canada represents firms, registered as portfolio manager with various provincial securities commissions, that are only in the business of discretionary investment management for clients. Few organizations are permitted to provide discretionary management where the portfolio managers make their own decisions in making and changing investments for clients, all within the investment objectives & risk tolerance established with each client. To be able to do so, investment counsel and portfolio managers meet the highest conditions of registration, in terms of both experience and education, with the applicable provincial securities commissions. Many investment counsellors/portfolio managers will also hold the professional designation, Chartered Financial Analyst, through the CFA Institute, is a global, not-for-profit organization comprising the world’s largest association of investment professionals. With over 100,000 members, and regional societies around the world, the CFA Institute, since 1947, is dedicated to developing and promoting the highest educational, ethical, and professional standards in the investment industry.

V. TYPES OF INVESTMENT COUNSELLORS:

There are a variety of ways to classify investment counsellors. At HighView Financial Group, we view these firms according to the following three categories:

1. Investment Offering:

Most investment counselling firms have their own proprietary offerings with specialization in certain areas of the capital markets, such as Canadian Equities, Fixed Income, US Equities, etc. A newer breed of investment counselling firms specialize in using the “money management” expertise from a select group of other proprietary investment counsellors so that instead of focusing on the selection of individual “stocks & bonds”, they can then focus on constructing portfolios for clients using a broad range of asset classes & investment mandates selected from other specialist investment counselling firms. HighView Financial Group would fall into this latter category, which we refer to as “multiple manager” investment counselling firms. Another term for “multiple manager” used in the investment industry is “open architectured” which means that the investment counselling firm does not use any of their own investment products but instead sources, through an independent research process, the use of other investment managers.

2. Investor Segment:

Investment Counselling firms can serve either broad client segments (ie: private families and institutions such as foundations, endowments and pension plans), while other firms focus on a specific client niche.

3. Ownership:

As discussed above, investment counselling firms are either independent (ie: owned by their individual partners) as would the case with other professional practice firms such as lawyers and accountants, or they are part of larger financial organizations (ie: either owned fully or partially) such as banks, life insurance companies or global investment management firms.

VI. BENEFITS OF WORKING WITH AN INVESTMENT COUNSELLOR:

The benefits of investment counsellors to clients remain relatively the same as they did when the profession was founded almost 100 years ago:

1. Objectivity of Advice:

- As they are compensated only through the fees that they charge investor clients, Investment Counsellors are completely objective in the securities that they include in clients’ portfolios.

2. Transparency of Fees & Services:

- As Investment Counsellors’ fees are typically charged separately from other portfolio costs such as custody and brokerage transaction costs (both of which are typically provided by separate firms), the fees and services that Investment Counsellors provide are fully transparent to investor clients.

3. Independent Research & Due Diligence:

- As the investment reputation of each Investment Counselling firm is premised upon their ability to construct quality portfolios for their clients, Investment Counselling firms will typically use their own independent research and due diligence capabilities to support the inclusion of all investment securities within client portfolios. In other words, they know, and can independently and objectively justify to their clients, why they purchase and sell the securities in all of their clients’ portfolios.

4. Professionalism:

- As discussed above, the professional requirements for Investment Counsellors, given the discretionary nature of their investment management relationship with their clients, is the highest in the investment industry.

VII. HOW TO SELECT AN INVESTMENT COUNSELLOR:

At HighView Financial Group, our experience goes well beyond the practice of investment counselling. In fact, we have collectively been responsible for the management and stewardship of more than $100 Billion of client assets in senior wealth management leadership roles at leading financial organizations including RBC Dominion Securities, CT Investment Management Group, BMO Nesbitt Burns, CIBC Trust, Maritime Life Insurance Company (owned by Manulife) and Laketon Investment Management (owned by Canada Life). It is these experiences that have enabled us to formulate our view that quality investment management firms have three key attributes:

1. A well-defined set of philosophical beliefs in terms of how money should be managed,

2. A clearly defined set of investment & operational processes that facilitate the implementation of their philosophical beliefs, and finally,

3. A group of talented investment professionals who are passionate about they work that they do and they way that they do it.

In other words, quality investment counselling firms are about Philosophy, Process & People.

We recently wrote an article for clients and their professional advisors that summaries these views with respect to clients selecting any type of investment advisor, including an Investment Counsellor. This article is available in a Narrative and Question & Answer Versions.

The Portfolio Management Association of Canada also does a good job of providing an overview of how to select an Investment Counsellor as well as the various categories of investment professionals in Canada and how Investment Counsellors are positioned. To review this article, click here.

VIII. THE FUTURE OF INVESTMENT COUNSELLING:

At HighView Financial Group, we believe that the future of investment counselling in Canada continues to be extremely positive. In a 2007 study conducted by Investor Economics, a long-standing, reputable & independent investment industry research firm, concluded that the Investment Counsel industry that caters to private wealth clients (versus institutional clients), would be growing at an annual growth rate of 15% between 2006 and 2016, from $113 Billion of client asset to a forecasted level of $560 Billion of client assets. We believe that this trend is being driven by two key themes:

1. Rising Affluent Family Demographics:

An aging population of wealthy households who will seek the affluent discretionary investment services that are the hallmark of many investment counselling firms. Investor Economics, also in a 2007 study, concluded that Canadian households with investable assets greater than $1 Million would increase between 2006 and 2016 by 8% per year from 471,00 to 1,027,00 households. What’s more interesting, though, is that the investable assets owned by these households are forecasted to increase, over the same time period, by almost 2.5 times from $1.5 Trillion to $4 Trillion.

2. Investor Desire For Objectivity & Transparency Of Advice:



In our decades of experience in the investment industry, we have never seen the degree of uncertainty and confusion that currently permeates the wealth management landscape; and it is not restricted solely to the clients. We are seeing many advisors and advisory firms rethinking their value propositions relative to meeting their clients’ needs and expectations. The historical foundation and future sustainability of the entire Global Wealth Management Industry is based upon earning and keeping the confidence and trust of our investor clients. This trust and confidence has been eroded by our industry as it continued to push ever increasingly sophisticated and complex investment products with the promise of unbelievable returns. The industry further compounded the problem as it moved along the management asset continuum with poorly designed investment portfolios using efficient frontier methodologies that proved to be misaligned with the investor clients’ journey in life, their investment goals and their own tolerances for risk. This experience has left investors wanting. They fear for their future and are confused on where to turn to get the objective & transparent solutions that will provide the comfort for which they are searching and the clarity needed to regain their confidence and trust. We strongly believe that quality, independent investment counsellors – given their fundamental beliefs in objectivity, transparency and independent research & due diligence – are perfectly aligned to address these investor client needs. The following quote from the 2010 World Wealth Report supports this view:
.
“Clients are demanding fundamental changes in how they are served, and are rewarding Firms that can clearly demonstrate a sharper understanding of their needs and objectives, and deliver risk-adjusted portfolios, increased transparency and simplicity, and specialized advice. As clients become more educated about their own investment choices, they increasingly expect ‘Specialized’ or ‘Independent’ investment advice, and are re-validating advice from their Advisors/Firms through other sources, including peers, the Internet, and other research alternatives. They also expect the advice to be aligned with realistic and appropriate goal-setting, based on their actual risk profile.”2010 World Wealth Report, Capgemini

[admin]

The Flaws In Canada's Financial Adviser System
By Mark Barnicutt, MBA, FCSI, CFA

OVERVIEW:

Recently, in the Report on Business of the Globe & Mail, there was an article titled, The Flaws In Canada’s Financial Adviser System.

This article stated that:

“In the investing industry, the line between what’s best for the client and what’s good for the adviser is easily blurred.

Advisers want their clients to enjoy high returns, but they need to make money, and the potential for large rewards is tempting.

That creates an inherent conflict of interest in many client-adviser relationships, critics say, and too many investors are left in the dark about the fees they’re paying to advisers and the effect those fees have on returns.”

WHAT’S THE ISSUE?

Having been in the investment management industry for over twenty years, I can tell you that this is THE ISSUE (ie: The Elephant In The Room) currently facing the wealth management industry globally. Specifically, what is the standard of care that Advisors owe their clients?

The purpose of this article is not to debate the different standards of care but really a call to the wealth management industry that it’s time to wake-up! After 10 years of volatile capital markets and paltry returns (as measured by broad market indices) and in some unfortunate situations, wealth destruction, clients are finally — and rightfully so — starting to ask more penetrating questions about the qualifications of advisers, how their hard-earned money will be managed and what are the fees & expenses that they’ll be paying. This sentiment is across the board — family wealth, pension & group retirement assets and philanthropic organizations such as foundations & endowments.

Here’s a quote from an affluent investor that I was recently chatting with:

“When I started investing 15 years ago, most advisors said that conservative 5 to 7 % investing would have shown a doubling of my investments. Sorry….flat as a pancake over 15 years. I attribute this to dishonesty in management of financial advisory companies and a lot of marketing lies from investment firms!”

In the United States, the Edelman Trust Barometer examines trust in four key institutions — government, business, media, and NGOs — as well as communications channels and sources. For 2012, the survey results showed that customers trust their car salesperson more than their financial adviser!

WHAT DO INVESTOR CLIENTS REALLY WANT?

Despite all of the complexities of the wealth management industry and the current debate about standards of client care, I strongly believe that investor clients of all types – families & institutions – are really only looking for four (4) things from their advisors:

1. Help me reach my financial goals.

2. Be honest.

3. Treat me fairly.

4. Don’t ‘blow-up’ my hard earned money.

SO WHERE DO WE GO FROM HERE?

Our industry urgently needs to get back to the basics of what this industry is really about — Stewarding client wealth in the diligent pursuit of their investment objectives. This will require that the wealth management industry adhere to the following eight (8) principles. I’ve also included for each principle an example of a real life situation that we’ve witnessed in the industry in recent years which runs completely counter to these principles and explains why clients are so frustrated with our industry:

1. Objectivity:

- Advice that is free of conflicts and only in the best interest of the client.

Example: A Benefit Consultant switching group retirement plans from one insurance company to another one in order to scoop a 1% switching fee/comission, all unknown/undisclosed to the client/plan sponsor.

2. Transparency:

- Complete & full openness & transparency of all of fees & transaction costs in client portfolios.

Example: An insurance company refusing to disclose to a plan sponsor client all of the investment management & related fees (ie: the complete MER) within investment pools used for their Defined Benefit Pension Plan Portfolio.

3. Honesty:

- Being truthful and ethical in all client advice and interactions.

Example: An international bank only disclosing directly charged investment management fees but not additional, embedded investment fees in underlying pool funds. As a result, instead of the client’s understanding of a 1.80% fee, they were actually being charged 4.50%!

4. Fairness:

- Being evenhanded, unbiased & reasonable in all client advice and portfolio management activities.

Example: A Portfolio Manager establishes a closed-end fund structure for underlying equity investments that are liquid. Unlike many closed end funds that would trade on an exchange to provide investors with liquidity for future sales, this one doesn’t. Instead, the Portfolio Manager has created a limited market amongst investors and allows investors to do small partial redemptions each year. As a result, the Portfolio Manager has created an investment fund in which he’s effectively “Portfolio Manager For Life”. For clients who have experienced disastrous performance in recent years, it’s like watching a horror movie at a theatre, a fire starts and the fire exit doors lock so you can’t get out!

5. Goals Orientation:

- Structuring portfolios to meet clients’ real goals, which are typically some form of current and/or future funding requirements instead of perpetually chasing relative returns against market indices and peer group comparisons.

Example: An investment manager search firm that was so focused on recommending money mangers to an institutional client that would outperform the market indices, that the institution regularly missed required funding payments, given the heightened volatility of the portfolio.

6. Solutions Orientation:

- Providing real solutions to investor clients that are guided by a set of portfolio management philosophies & processes in helping them achieving their investment objectives instead of selling them investment products that are nothing more than a collection of investment ideas without any purpose.

Example: An affluent family client with an $8 Million portfolio loaded with 45 mutual funds, all sold on a 4.5% deferred sales charge commission structure that would have resulted in $360,000 of gross commissions to the Advisory Firm upon account setup. This commission was not disclosed to the client.

7. Due Diligence:

- A rigorous research & due diligence process should be completed on all investment products before they are recommended to clients.

Example: An investment advisory firm didn’t do a sufficiently deep due diligence on the people involved in an international hedge fund manager. The investment advisory firm had directed clients to this international hedge fund manager, and the hedge fund manager stole the client assets and disappeared. All client assets were lost!

8. Effective Governance:

- Prudent oversight of portfolio management activities within client accounts, by advisory firm management & securities regulators, to ensure client investment objectives are diligently being pursued.

Example: The investment committee of a financial advisory firm meets regularly to discuss administrative matters of their discretionary investment management programs but doesn’t have a formal process for overseeing if client investment portfolios are being managed in accordance with their Investment Policy Statements and in pursuit of their investment goals. Unknown to management, one of their Investment Advisors places a huge, risky investment bet in client portfolios that violates investment policy. As a result, client portfolios experience a 60% decline.

If we all focus on adhering to these principles, it will be a gradual process, but the wealth management industry will eventually earn back client trust. If not, client trust levels will continue to fahttp://thewealthsteward.com/2012/02/t ... nt-53067ll to ‘carpet bagger’ status!

[admin]

The difference between advisers and counsellors
JOHN HEINZL | Columnist profile | E-mail
From Wednesday's Globe and Mail
Published Tuesday, Jul. 26, 2011 5:45PM EDT

What is the difference between a financial adviser and an investment counsellor?

When people say they have a financial adviser, they’re usually dealing with a commissioned salesperson employed by a brokerage firm. Financial advisers are also known as account executives, stock brokers, registered representatives, wealth advisers and other titles that suggest financial expertise. In most cases, however, advisers are salespeople compensated via commissions for buying and selling stocks, bonds or mutual funds, although a growing number of advisers are moving toward a fee structure based on a percentage of the client’s assets.


When dealing with a commissioned adviser, clients must be mindful of potential conflicts of interest. An unscrupulous adviser may recommend products, not because they suit the client’s needs, but because they generate the highest commissions. There are plenty of honest, hard-working advisers who have their clients’ best interests at heart, but there are also dishonest advisers who churn accounts, recommend inappropriate products and otherwise inflict financial pain on the people they are supposed to be helping.

One way to minimize the potential for conflicts of interest is to work with an investment counsellor. Also known as a portfolio manager, these firms or individuals generally have rigorous educational and ethical standards, typically work with higher net-worth individuals and also often manage money for foundations, endowments, pension funds and other institutions. They differ from commissioned advisers in several key respects:

Asset-based fees

Investment counsel firms charge a fee based on a percentage – usually 1 to 2 per cent – of the assets they manage, with larger accounts typically qualifying for the lowest rates. Fees are broken out explicitly on statements so the client knows exactly what he or she is paying, unlike mutual fund fees, which are deducted silently from the assets of the fund (which explains why many mutual fund investors don’t even realize they are paying fees at all!).

Discretionary management

A portfolio manager has the authority to buy and sell securities without the client’s prior approval, as long as the securities meet the client’s goals and risk tolerance as described in an investment policy statement. While handing over trading authority may sound dangerous, because portfolio managers don’t work on commission, they aren’t tempted to overtrade to line their own pockets.

Fiduciary duty

By law, portfolio managers have a fiduciary duty to act in the client’s best interest. Advisers, on the other hand, merely have to recommend products that are appropriate, even if there are other, more appropriate, alternatives. What’s more, most portfolio managers have earned the coveted Chartered Financial Analyst designation, the gold standard in the investment industry, whereas advisers aren’t required to complete such rigorous education.

Larger accounts

Generally, you’ll need a couple of hundred thousand dollars to gain access to investment counsel, and at that level you’ll probably only qualify for the firm’s “pooled funds,” which are similar in structure to mutual funds, but typically have lower fees. Many investment counsel firms also sell low-fee mutual funds to the public, usually with higher minimum investments than other funds.

For larger accounts – minimums generally range from $500,000 to more than $2-million – firms will manage a fully segregated and personalized account on the client’s behalf, tailoring the asset mix to the client’s goals, stage in life, risk tolerance and other factors. Clients with complex tax, estate or private business issues may also benefit from the expertise of an investment counsellor.

Other designations

We’ve only mentioned a few of the myriad financial designations in use today. In addition to financial advisers and portfolio managers, there are financial planners who work on commission, others who charge an hourly fee, and some who do a bit of both. Some financial industry employees are licensed to sell only mutual funds, insurance products, or both.



Do your homework

If you’re searching for an investment counsel firm, here are some questions to ask:


Is the firm registered with the provincial securities commission?
What is the minimum account size?
Are client assets held with a third-party custodian?
How long has the firm been in business?
How does the firm define its style?
Do the investment professionals carry the Chartered Financial Analyst designation?
Will the firm develop with you an investment policy statement that reflects your objectives?
How often are representatives of the firm available to meet?
On what basis are the investment management fees calculated? How frequently are they charged?
Will the firm provide you with names of clients for reference purposes?
For a list of investment counsels, minimum account sizes and other tips on selecting a firm, see the Portfolio Management Association of Canada’s website at portfoliomanagement.org

[admin]

Dear Minister of State Ablonczy:

I am writing to you for your support on a proposal that I am putting to all elected representatives in Canada on the matter of establishing Sections 361 to 363 and all other relevant sections of the Criminal Code of Canada as the primary tools for regulation of securities sales, and governing of the insurance industry in Canada. Your experience, as a former Minister responsible for the Seniors' Secretariat, would be extremely valuable in expanding the political support for this much needed regulation. This would greatly simplify the process of getting the two legal principles of: 1) Deterrence of future abuses; and: 2) Prevention of undue enrichment from fraudulent business practices, more available to assist victims of deception in these industries.

For the past five years, I have been studying the systems of redress for seniors who have had to correct the inappropriate financial management that has tormented their lives, when investment advisors have chosen to be less than honest in what they have placed vulnerable elderly investors' savings in. The Supreme Court decision on the Single National Regulator has necessitated something that will acknowledge provincial jurisdiction in this area. If a national requirement is developed that the rules stated in the Criminal Code are all organizations' responsibility to uphold, when industry councils and regulative bodies are notified of actions that are in conflict with the criminal rules, this would be a major improvement. Until the present, I have spoken with investigative personnel from the BC Insurance Council, the Integrated Market Enforcement Team of the RCMP, the BC Securities Commission, the Ombudsman on Banking, Securities and Investment, the Competition Bureau, the Mutual Fund Dealers Association and numerous other trade and regulative agencies. All of them have stated that the industry is "self regulating" and when I have raised issues of wording on commission slips stating that the trades were "unsolicited" when in fact it was only the advisor who ever initiated trades, or other items such as "GUARANTEED INTEREST OPTION" on a contract to buy mutual funds, I have asked for the opinion of the investigative staff on whether these phrases, that are contrary to the purpose of the document, can be treated as false documents, and the representatives of these agencies that are supposed to be dedicated to upholding industry standards, have told me personally - that they are "not allowed to make determinations of what is illegal". The lobbying that has been conducted over the past couple of decades has entrenched the pandemonium of self-regulation. This, in practice, has actually been a license to act in bad faith. The most practical, the most Conservative, thing that the Federal Government could do - that would cost the least to the tax payers in Canada, would be to join the cause that I have outlined above in this letter. It would be an enormous relief to seniors in Canada who have felt extremely used and betrayed. It would make the Federal Government be known as a force of protection of the interests of the vulnerable elderly, and it would reflect what you did when you were responsible for the Seniors Secretariat. From October to December of 2010, an excellent public service TV announcement ran during an awareness campaign on elder abuse, that had as its message that it is the time to get serious about elder abuse.

If you could find ways of getting your colleagues in the Cabinet and the Conservative Caucus to join this cause, it would be a very good example of Canadians taking that fabulous public service ad with a very commendable level of seriousness.

Thank you very much for your co-operation on this matter.


Alan Blanes
Kelowna
Ph 250-860-7719

PS - I will be in Victoria and Vancouver from Feb 27 to March 9, 2012, and I would like to speak to the staff of the current Minister of State for the Seniors Secretariat, Alice Wong, and I would greatly appreciate your support on this goal before I have meetings with west coast MPs, including Minister Wong.


(advocate comment.......I will be responding to Alan to mention one other point which he may or may not already know, namely that police agencies in Canada can be sued and held responsible for faulty or negligent (see case law Canada) investigative work. It may be a door opening matter to begin holding police agencies liable for times when they "look the other way" at criminal code offenses in Canada. They do this almost all the time with regard to economic crimes, certainly doing this 99.9999% when it comes to large economic crimes, although they do prosecute a few offenders below the $50 million mark, small time petty crimes only, anything involving "respected" persons or financial institutions gets a "have a nice day" pass from Canadian police. They do not appear to have one thin dime to prosecute anyone at approx $100 mil and up.)

[admin]

http://michaeljamesmoney.blogspot.com/2 ... costs.html

WEDNESDAY, DECEMBER 14, 2011

A Better Way to Explain Investing Costs
The typical person will invest for many years, but we express investment costs with yearly percentages that are misleadingly low. I propose that for recurrent costs that accumulate, we use an investing horizon of 25 years to express these figures.

For example, instead of talking about a fund's MER, we would talk about its MERQ (Management Expense Ratio per Quarter century). This would give investors a better feel for the effect of recurring costs. In another example, if an investor's portfolio concentration creates a drag on returns, we should look at the effect over 25 years rather than just one year.

In a recent article, Jonathan Chevreau observed that Investors Dividend A Fund has an MER over 2% higher than that of iShares Dow Jones Canada Select Dividend Index Fund (XDV/TSX) despite the fact that they have substantially the same holdings. Even if we add 1% to the MER of the iShares ETF to account for the cost of advice as Canadian Capitalist suggests, the percentages are 2.69% vs. 1.53%. The difference in these percentages doesn't seem like much, but if we look at MERQ (plus the cost of advice for XDV), we get 49% vs. 32%. This is a more meaningful comparison. Would you rather give away half of your money to Investors Group or one-third of your money to iShares and an advisor?

If you can handle your own investments, then you only have to give iShares 12.4% of your money over 25 years. Going even further, the MERQ of Vanguard's Total Stock Market ETF (VTI) is only 1.73%. Seeing cost figures ranging from under 2% up to 49% ought to make investors think.

In another example, I recently concluded that a portfolio of 20 randomly-selected stocks would underperform the index by 0.51% per year based on a paper by Meir Statman. If the stocks owned by dividend investors are no better than random, then a 20-stock portfolio would lose 0.51% per year to the index due to increased volatility. Based on some of the comments on that article, it seems that investors are unconcerned about such a small percentage of drag. But, if we say that the drag (dragQ?) is 12% over 25 years, it seems more troubling. Of course, most dividend investors don't believe that their stocks are no better than random, but that's a discussion for another day.

Even if the world doesn't like the idea of adding a "Q" to the end of MER and other measures, I think the fundamental idea of taking a longer view would help investors.

[admin]

(advocate comment.....who would ever be so bold to suggest applying the criminal code to our most trusted and respected criminals.........?)

I am forwarding you a letter that I sent earlier today to Guy Morrissette of the Seniors Secretariat. In the letter dated Feb 13, 2012, the goal of putting the Criminal Code of Canada into the role of being the primary regulative tool of the insurance industry and the securities sales industries, has not as yet been put on the Secretariat's priority list. This provides an urgent need for the Royal Canadian Legion, and the Common Front for Retirement Security to put this matter on their respective business agendas, and to join in the goal of achieving this as a policy goal that can be internalized in all regulatory and business council requirements in Canada.

I am hoping that we can all discuss this project as soon as possible. I think that most observers would agree, that this kind of regulation would effectively solve the shortfall in policy that has resulted from the Supreme Court disallowing the Federal Government from establishing a comprehensive single national regulator this past November.

I am looking forward to your reply to this, and I am hopeful that we can collectively pursue this objective in the interest of ending the torment that many seniors are having to endure, because the Criminal Code is systematically barred from being discussed by organizations like the IIROC, OBSI, and the Insurance Council of BC and the BCSC. I have had personal experience with each of these agencies where the personnel have explicitly told me that they are "not allowed" to discuss whether fraudulent wording on a form is in contravention of sections 361 to 363 of the Criminal Code of Canada. Such an unacceptable regulatory regime as it exists now, is enabling undue enrichment attributable to deceptive practices, and regulators are not following the principle of prevention of future incidents. Their lack of capacity to get serious with perpetrators is creating secondary abuse of seniors.

Best regards, and please feel free to pass this along to anyone who feels that action in this area is urgently required.

Alan Blanes, for:
Harold C. Blanes


On 2012-02-13

[admin]

Published February 12, 2012, 02:01 PM
New effort targets elder fraud, financial abuse
Commerce Commissioner Mike Rothman issued a letter to more than 9,000 licensed CPAs in Minnesota recently, enlisting tax professionals in the fight against elder fraud and financial abuse.

http://www.echopress.com/event/article/ ... roup/News/ THE ECHO PRESS, ALEXANDRIA, VIRGINIA

ST. PAUL, MN – Commerce Commissioner Mike Rothman issued a letter to more than 9,000 licensed CPAs in Minnesota recently, enlisting tax professionals in the fight against elder fraud and financial abuse.

The Minnesota Department of Commerce has stepped up its efforts to protect elderly and vulnerable consumers from fraud and financial scams. Providing Minnesota CPAs the tools and resources to spot fraud in their older clients is one important part of that effort.

“As millions of Minnesotans prepare their taxes, now is the time to spot fraud and abuse that is robbing our parents and grandparents of their financial security,” said Rothman.

According to the commerce department, seniors are particularly vulnerable to fraud. Older consumers control 70 percent of the nation’s wealth, making it more lucrative than ever to target seniors with unsuitable financial products, phony investments, and other scams.

A 2010 survey conducted by the Investor Protection Trust (IPT) showed that more than seven million older Americans (one out of every five citizens over the age of 65) have already been victimized by a financial swindle. According to the IPT, con artists scam senior citizens out of $2.5 billion every year.

“Licensed tax professionals are on the front lines every day, and have the skills to identify when their clients may be the victims of financial abuse,” said Rothman. “Accountants recognize when the numbers just don’t add up. Working together as a united front we can stop fraud in its tracks this tax season.”

In preparing tax returns during 2012, Commissioner Rothman has asked all licensed CPAs to keep alert for the following signs of financial abuse in their elderly clients:

1) Missing or incomplete documentation. Has your client received full and complete documentation regarding a transaction they engaged in? Is the tax information you have been provided regarding the transaction accurate and professional?

2) Substantial changes in income. When compared to the prior year, has your client experienced an unusual change in interest or dividend income? If your client has experienced a significant decline in income, is it explainable? Where did the money go? If your client experienced a large increase in income, does it seem too good to be true?

3) Promissory notes and gifts. Has your client been loaning money pursuant to long term promissory notes at interest rates that are not competitive? Has your client been gifting large sums of money to questionable third parties?

4) Exotic instruments. Has your client engaged in investing in exotic forms of investment that they do not understand and cannot explain?

5) Fees. If your client employs a broker, does the broker enjoy discretion over your client’s investment? If so, does it appear from year end statements that an excessive number of trades are occurring that may be resulting in excessive fees to the broker?

6) Investment advisor. Does your client employ an investment advisor? Do you believe the investments are not suitable given your client’s age and financial situation?

7) Capital gains or losses. Does it appear that your client is reporting an unusual amount of capital gains or losses compared to their historical experience?

8) Exchanges. Has your client engaged in a 1035 exchange that is not suitable and may have resulted in merely fee generating activity for the promoter of the exchange?

If they spot suspicious activity, Commissioner Rothman asked licensed tax preparers this week to encourage their elderly clients to contact the Minnesota Department of Commerce Consumer Help Line.

“Our staff and professional investigators are standing ready to take action against crooks who take advantage of vulnerable investors,” Rothman said.

The Commerce Department’s Consumer Help Line can be reached by phone at (651) 296-2488 or (800) 657-3602. Questions or consumer complaints can also be directed by email to consumer.protection@state.mn.us or by mail to Minnesota Department of Commerce, 85 7th Place East, Suite 500, Saint Paul, MN 55101.

[admin]

Subject: Re: Invitation to Attend OSC's Investor Advisory Panel Roundtable

Alan,

I am honored to be invited.
Unfortunately my work schedule only permits morning meetings so I won't be able to attend.

Suggested OSC topics
Am skeptical of " no contest" idea re enforcement
New investment fund regs are a backward step- investor engagement was superficial but changes are material and potentially toxic
Fund Facts regime needs to be changed re disclosure aspects and point of delivery
Long standing "adviser" issues need to be tackled on a priority basis - issues include "Best Interests " , Use of misleading titles and basic qualifications / professional designations for real advisors ( as opposed to salespersons)
OSC should have the power to order restitution in the context of a OSA section 127 administrative hearing [NOTE: OBSI is under existential threat ]
FAIR funding needs to be provided - also SIPA and possibly others-OSC has the cash
SRO's should set up Advisory Councils '
SRO's should collect fines from dealers not their employees ( "advisers" )
OSC needs to actually collect fines imposed and using the cash to expand support for investor advocacy, literacy and research
OBSI MUST survive but under a more robust governance model-OSC needs to take a leadership role-start by publicly supporting OBSI loss calculation methodology and financing continuance indefinitely ( actually should be CSA financed)
OSC investor complaint handling prcess needs an overhaul e.g. it doesn't require a definitive written response addressing a specific complaint
A discrete Seniors initiative is overdue - NAAF/KYC esp. need revisions- a HUGE looming problem
Tighter oversight of SRO's esp. MFDA ( pet peeve: Board qualifications for Public Director}
Enforcement- get serious and more pre-emptive -investors are too exposed to abuse and rarely seem to get their money back
The threrats posed by IFRS implementation

Dealers should be ordered to resolve outatanding OBSI cases per OBSI TofR AND to stop charging unecessary/unauthorized currency conversion fees in registered plans like RRSP's

Sorry I'll misss the meeting. I hope Andrew Teasdale , Pamela Reeve , Diane Urquhart , Al Rosen and Jim Macdonald get invites

Ken K

[admin]

All-public panels are a hit with investors, Finra says
Popularity of new program could quell calls to end mandatory arbitration

By Dan Jamieson
January 29, 2012 6:01 am ET
After nearly a full year, the Financial Industry Regulatory Authority Inc.'s program to let investor plaintiffs exclude industry arbitrators from hearing panels has proved more popular than expected.


So popular is the program, in fact, that it could ease concerns about industry bias and help quell calls to end mandatory arbitration.

From the start of the all-public program in February 2011 through Jan. 26, more than three-quarters (76%) of investors chose the all-public option, which allows them to strike industry arbitrators from proposed lists of panelists.

That figure was up from a 54% opt-in rate during a 27-month pilot program, according to Finra.

Normally, investor cases are heard by three-person panels that include an “industry” arbitrator who works in or is associated with the financial industry.

SURPRISING POPULARITY

The popularity of the all-public program is a “bit surprising, because the pilot numbers were lower,” said Linda Fienberg, head of Finra's arbitration program.

Observers said a growing familiarity with the all-public option by plaintiff's attorneys is driving its widespread use.

The pilot also was limited to customer cases against a select group of firms and applied only to those cases where an individual broker was not named. The permanent program includes all firms, as well as cases against brokers.

“The program has given everyone an option” to use in a larger number of cases, said Ryan Bakhtiari, a partner at Aidikoff Uhl & Bakhtiari, and president of the Public Investors Arbitration Bar Association, which represents plaintiff's attorneys.

The Securities Industry and Financial Markets Association also supports the program.

“We also think it's quite important that an industry panelist remains an option for investors,” Kevin Carroll, associate general counsel at the trade group, wrote in an e-mail.

SIFMA was smart to support all-public panels, said David Robbins, a plaintiff's lawyer and partner at Kaufmann Gildin Robbins & Oppenheim LLP.

The program has eased concerns about industry bias and helped counter the push by the plaintiff's bar and state regulators to end mandatory arbitration, he said.

“Finra had to respond this way because ... they were fearful they would be out of [the arbitration] business,” Mr. Robbins said.

Finra “wanted to assuage customer's attorneys [about the process] and it's worked,” he said.

DATA INCONCLUSIVE

“I do believe this [program] has removed the one issue [critics] could use to claim the [Finra arbitration] forum wasn't as fair as it might be,” Ms. Fienberg said.

Data from the pilot program are inconclusive as to whether investors did better when they opted into the program.

Of 49 pilot program awards issued by all-public panels, investors were awarded damages in 26 of 40 cases, or 65% of the time, according to Finra. Another 23 pilot program awards were issued by panels with one nonpublic arbitrator, and in these instances, investors got relief 13 times, for a 62% win rate.

In nonpilot cases, win rates were lower: In 2009, arbitrators awarded damages to investors in 49% of cases; in 2010, the win rate was 48%.

However, Finra said that the award data are insufficient to draw meaningful conclusions about whether all-public panels tend to favor investors — a conclusion that others share.

“Talk to me in a year” about win rate data, Ms. Fienberg said.

“We'll have a better idea then” whether customers do better with all-public panels, she said.

The growing use of the all-public option has worried some industry arbitrators, who insist that they can be as tough, if not tougher, on industry malefactors as public panelists.

“I've noticed inquiries for me [to sit on panels] have dried up,” said Neal Tourdo, national sales director at Mastrapasqua Asset Management Inc., who serves as an industry arbitrator.

Eliminating industry panelists “is a mistake,” he said.

“Finra doesn't do a good job of educating [public] arbitrators about investments,” Mr. Tourdo said.

For more technical products, such as derivatives, “the public arbitrators are generally unprepared,” said Joseph Stineman, a partner and chief compliance officer at Fogel Neale Partners LLC, who is also an industry arbitrator.

He added, however, that his own caseload of four potential customer cases is heavier than ever.

Of the 1,431 cases in the permanent program that have ranked panelists, investors have chosen to strike all the industry people in 66% of the cases, according to Finra.

Despite the success of the all-public option, the plaintiff's bar and state regulators still want an end to mandatory pre-dispute arbitration agreements.

“We think choice is working with the all-public program, and we think choice is the way to go in arbitration” overall, Mr. Bakhtiari said.

If arbitration were made optional, “I think [the industry] would improve the customer protection aspect of it,” such as providing for attorney's fees and written decisions, said John Cronin, Vermont's securities director and chairman of the North American Securities Administrators Association Inc.'s broker-dealer section.

The Dodd-Frank reform law gave the Securities and Exchange Commission authority to prohibit mandatory arbitration in brokerage contracts.

The commission hasn't yet acted on that authority.

CUSTOMERS WINNING

Mr. Robbins doesn't think that will happen, due in large part to the all-public option.

Customers “are winning” in Finra arbitrations, he said.

“Why kill a system where you can prevail?” Mr. Robbins said.

The SEC doesn't have a timetable for looking into the arbitration issue, Ms. Fienberg said.

“My best guess ... is, they are mightily working to do [other] things with a time requirement first,” she said.

Meanwhile, Republican control of the House and recent Supreme Court decisions make legislation prohibiting mandatory pre-dispute agreements less likely, Ms. Fienberg said.