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Postby admin » Thu Jul 16, 2009 10:17 am

Below is a rough outline of a something that could be turned into a statement of claim by a lawyer. It was written for a specific case where I felt the clients were knowingly misled and misrepresented. The same might apply to tens of thousands of investors in Canada, due to our self protective, self enriching, self regulatory financial system in Canada.

This claim is for damages suffered as a result of being financially taken advantage of by someone purporting to be a trusted professional investment advisor.  Specifically this company and it's salesperson failed to accurately represent their relationship to ourselves as one of commission salesperson, and instead repeatedly and constantly led us to believe they were acting in our best interests in financial matters.

Specific misrepresentation involved misinforming the plaintiff as to the qualifications and the license and registration of the defendant, namely that of "salesperson", under the provincial securities act, such representation is a violation of the securities act, the self regulatory rules of the MFDA, and the criminal provisions of the Competition Act of Canada on misrepresentation.  

Specific failures to act in the best interests of the plaintiff, and provide investment recommendations that meet the test of "suitability" for the plaintiffs is the example of both encouraging the plaintiffs to leverage their investments to the maximum, which has the effect of maximizing the compensation to the defendant, while not being in the best interests, nor being a matter of "best practices" by an investment professional.  Further, that each and every investment thus purchased by the defendant was purchased using the highest choice of compensation to the defendant, the DSC (deferred sales charge) which places a long term commission penalty for redemption on the plaintiff.  This unsuitable choice of compensation to the defendant is further evidence of a taking advantage of the trust and the vulnerability of the plaintiff, while maximizing the revenue to the defendant.

From the web site advertising of the defendant: 
XXXXXXXXX is a young and dynamically growing Mutual Fund Dealership, committed to providing its Sales Representatives a broad range of products services, and support needed to expand an advisor's practice.
At no time did the defendant inform the plaintiff that its employee was a sales representative.  Instead all efforts were made to misrepresent this relationship as one of trust and professional advice for the benefit of the plaintiff.
From the license and registration section of a provincial securities commission:

Broker name removed -Mutual Fund Dealer, Limited Market Dealer, & Scholarship Plan Dealer ==> SalespersonAt no time did the defendant make efforts to inform the plaintiffs of the license category of the defendant, and instead took extensive efforts to mislead and misinform the plaintiffs in order to maximize the trust of the plaintiffs and to misuse this trust to maximize the commission revenue available to the defendants.

From the defendant web site:

As a XXXX representative, you are essential in helping clients find the right solution to their growing financial needs-today and in the future.

This "right solution" was not provided to the plaintiffs, under the promise and the suitability requirement of the industry, when highest cost and highest compensation investment products were chosen in each and every instance.  And in each instance an identical version of the same mutual fund investment was available at lower cost and greater benefit to the plaintiffs.

Also from the defendant web site:
XXXXXX is a dynamic financial services firm shaping the financial future of Canadians. As part of the XXXXX team, you can help offer Canadians an array of financial solutions to meet their needs including education savings plans, life and disability insurance, mutual funds, stocks, bonds and other investments."   At no time did the defendants properly inform the defendants that they were acting as commission sales persons, and instead made every effort to mislead the plaintiffs as evidenced by the foregoing.

From the defendants web site:

XXXXX offers:
Opportunities to grow and manage your own future
On-going training and development
State-of-the-art technology
Back-office service and support
Superior integrated compensation grid
Sales incentives and exotic trips
The above "sales incentives and exotic trips" is indicative of the culture of commission driven sales rewards of the defendant, and further illustrates a failure to inform and properly represent this to the trusting clients of the firm, namely the plaintiffs.  The plaintiff intend to call upon documents from the defendant to illustrate the compensation grid, the training and to show a clear bent towards commission sales and away from best practices in financial advice.

The plaintiffs claim damages in the amount of $$$$$$, for financial loss suffered by financial abuse by someone claiming to be a trusted professional financial advisor, pus legal costs incurred by the plaintiff to effect this claim.  In addition the plaintiffs claim $1,000,000.00 for the pain and suffering, mental stresses of being victimized financially by someone they trusted, and then having to engage in costly, timely and stressful litigation with the defendant in order to be fairly compensated by the defendant.

(if you wanted to make this into more of a newsworthy case (your only help at this point is the media and the law, the investment industry will be no help to you at all), you could also name the provincial securities commission and the MFDA for knowingly allowing this misrepresentation to go on with their knowledge (negligence?).  their web sites also say how their mandate is to protect the public........this depends on how creative, expensive and aggressive your lawyer would like to be.

I myself would find a small town lawyer who understands right and wrong better than he/she understands billable hours, in other words, one who will not take advantage of your situation like the last guy did.  Talk with a few of them and get a feel for how they understand your case, learn something new from each one, and use it to move forward with one who will give you some estimates and assurances of cost.  If they bullshit their way through the costs discussion, you might want to avoid them.  tell them you are claiming financial abuse, and you want to be very clear up front, that you want a legal rep who understands and respects this.

For filing a statement of claim and getting a ways into this, I would estimate a legal cost to you of $25,000 (and it should be less from my small town experience) and another $25,000 to take it to court.  that is simply a guesstimate, and may be off by thousands and thousands, but I would hope it not be off by tens and tens of thousands.  You have to decide whether your case of wrongdoing is strong enough to "bet" this much money in an effort to get it back. I personally think it is a better investment than your last one, but I am very biased. (that is disclosure)  Your mutual fund dealer is likely to go broke over this, and you might have difficulty collecting.  You should also name the owner and the salesperson personally so that you can collect from them.  (The company looks very low class and low capital from the site)

Efforts like this (in addition to a formal complaint of misrepresentation to the Competition Bureau and perhaps to the police for fraud (if you want to be rejected one more time), will be ground breaking steps which a client in Canada has never used in my experience.  Or if they have, they have received settlement out of court and signed a confidentiality agreement not to disclose the settlement.  You will be testing the morality and the ethics of the investment industry in a public venue, and asking if they can be held accountable and responsible for everything they do.  So far, your experience with MFDA and OBSI probably tells you that they can now get away with just about anything within their own cozy system.  Your job, if you take it on is to change that and make a positive change for those who follow your example.

I will be happy to be of any help I can be with this, including finding you the investment industry experts who can and will speak to the abusive, commission driven tactics that were used on you.  They will likely not charge you to speak of what they know and believe, nor will I.

In a fair world, your case is strong and you will win it.  Unfortunately, this in not a fair world, and I cant speak to the knowledge or the integrity of the judicial system.  They are pretty damn close to the financial guys.  Last advice is to ask in your statement of claim to have this trial heard in from of a jury, so that you have everyday folks making the call instead of one lone single judge.

all of the above includes spelling errors, grammar, and missing quotation marks.  i hope you can digest it, clean it up and add to it, and run it past at least three lawyers for thoughts.  then i hope to hear from you
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Postby admin » Wed Jun 10, 2009 8:32 am

As I look at avenues for clients to recover money lost to predators, posing as professionals. To salesmen posing as supporters. I see the following.

If you work "within" the system, you will be turning your fate over to what I see as a very incestuous and well designed system that will not treat you fairly. You will be baring your soul and sharing your case to people who are in my opinion bought and paid for by the investment industry. Look at the record, look at the research. Check out .

Your salesman, his manger, his regional manager, his national manager etc., etc are not motivated to help you either get your money back, or admit wrongdoing within their company. Neither is their compliance officer. The compliance officer is hired and paid to protect the company first and foremost, and secondly the client.
The self regulators are nothing but a loose knit association of industry members, who also have no motivation to truly reveal rot from within, so they will be referees on the take, so to speak.
The provincial regulator, (the securities commissions) are government agencies in the worst possible way. They have delegated far too much work down to self regulators and they will go to any lengths to support this action, rightly or wrongly. They are the greatest dissapointment in the bunch, since they, at least, should have some motivation to protect the public. Unfortunately protecting themselves is a far stronger motivation, and you will be sadly disappointed if you rely on them for help.
Ombudsmen, industry mediation services, etc., etc are an extension of the "referee on the take" as they are all industry paid and sponsored.
There is very little hope of finding independent thought or judgement within any of these organizations. A customer of the financial services industry is entirely at the mercy of this "system". Even the police defer their involvement to this financial system of self regulation. The financial industry has succeeded in telling us that they are capable of policing themselves and they have put in place a support system to get away with it. To get away with fraud, forgery, negligence, misrepresentation, nearly anything that is typically criminal. They get to deal with it "in house", meaning they get away with it. Until this system is altered to something fair and honest, we continue our economic decline. It is like having termites eating away at the very foundation of our economy. No matter what economic condition we experience, good or bad, those feeding in the dark, on the very foundation will always win and we will always lose.
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Postby admin » Mon May 25, 2009 12:00 pm

various destinations** for the previously posted letter intended to get ones money back

Take it personally to your local member of parliament, your provincially elected member of the legislature, and your opposition members. Speak to their staff about the issues, the problems, the abuse.

Local Police Detachment. They are being coached by the financial industry to allow the industry to "police itself". Do not allow criminal violations to be swept under the carpet. Speak to your local police commission, attend a police commission board meeting and have your voice heard.

RCMP is a broken organization, but it needs to be in the loop none-the-less.

Provincial Securities Commission

Investment Firm Involved

Competition Bureau of Canada (if they receive 6 letters of similar complaint they are obligated to report back to you the status of the investigation, otherwise they blow a person off claiming confidentiality)

Local press

national press

local talk radio (and call them and talk to them. believe me, they understand the problem, they just have never met a Canadian who will stand and complain very loudly)

three reputable class action law firms (imagine them getting thousands of such letters.......)

myself (

public internet forums/bloggs/floggs/start your own, they are free after all
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Postby admin » Mon May 25, 2009 11:55 am

letter outline to send in attempt to force a refund of money lost to a predatory and misleading financial relationship:

change this as you see fit.


To: Various destinations suggested below**


Dear Sir,

I write in regards to money lost in my investment account, due to what I believe to be misleading and misrepresentative marketing practices. I would like your help in obtaining a full refund of my money lost due to these misrepresented practices. I ask you to immediately prevent such practices, which I believe to be illegal under our Canadian criminal code and also under the misleading marketing terms of our Competition Act of Canada, and to cause those responsible to be held responsible and accountable for such practices.

I specifically state that after learning that my investment person was legally licensed, registered, and paid in the capacity of a "salesperson" which is a legally defined license and registration category, I now realize that this information was not conveyed to me accurately. It was in fact witheld, concealed or misrepresented, and I was led to believethat my investment person was in fact an "advisor" (another separate and totally distinct license that my person did NOT hold) and that they were acting in my interests. I refer to their marketing materials, advertising, and the marketing and advertising promises of the investment firm that they sold for.
I was not made aware that I was in a relationship with a "salesperson", but rather led to believe it was with that of a trusted professional. This is clearly not the case.
I ask your immediate help to stop this misrepresentation to the public, and to compensate myself and others for the losses and damages suffered as a result. It is possible that the investment salesperson, the firm, their self regulatory bodies, as well as the provincial securities commissions have all participated in this misrepresentation. All may thus be liable, up to an including our provincial government which oversees, regulates and should protect us from such industry behavior.

I understand the many options for remedy might include industry complaint, criminal complaint, civil action, competition act complaint and possible class action. I ask you to work with me in those areas which you are empowered to do so, in obtaining my full refund of moneys lost due to misrepresentation, and I ask that you act to protect the public interest from these types of misrepresentation in future.

I look forward to your help and response and I thank you for your time.

Best Regards.


PS. Enclosed are three criminal code sections which may apply to the type of misrepresentations or deceits involved:

Fraudulent concealment
341. Every one who, for a fraudulent purpose, takes, obtains, removes or conceals anything is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years. (applies to the financial scheme to take advantage of clients interests as well as the resulting legal manipulations)
False Pretences
(1) A false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it.
Negligent Misrepresentation
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Postby admin » Mon May 25, 2009 11:39 am

it may be nothing,l but I have started to notice a change in the advertising and presentation of the investment industry:

1. I no longer see the RBC YOUR FIRST!! ads that were so prevalent a few years back. I believe it to be due to the lawsuit potential of an advertising promise saying the client comes first, without adequate fiduciary backup to this promise by investment salespeople.

2. The radio commentators who come on at news time to tells us what the market it doing, are strangely no longer referring to themselves as advisors, but as financial consultants, financial planners etc., etc. Another legal issue I believe.

Go back a few years, and look at all correspondence, advertising, promises and business cards for your investment salesperson. Keep these, and compare the promises or impressions they conveyed with the license category of your salesperson (see securities commission web such as and look up their license there) I think you will find them misrepresenting their license which I feel makes them civilly liable for the misrepresentaion.

Fight it, and get your money back.

on following posts I will put up sample letter outlines to get you started down the road of getting your funds returned to you from a misleading and predatory financial relationship.
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Postby admin » Mon May 25, 2009 11:12 am

Lawsuits against Fisher Investments may lead to other
adviser litigation

Meanwhile, firm's founder says cases "will run into a
concrete wall'

By Bruce Kelly
May 17, 2009
If legal action against Fisher Investments is any
indication, financial advisers increasingly will face lawsuits and
arbitration claims from clients who are angry about investment losses.
This month, two sets of former clients of Fisher
Investments, whose founder and chief executive, Ken Fisher, is known for his
redoubtable marketing skills, have sued the firm, both alleging that it
failed to live up to its fiduciary duty during the recent calamitous market
There will be "more claims versus advisers in this type of
environment," said Theodore Eppenstein, senior partner at Eppenstein &
Eppenstein in New York, which represents investors. "I think advisers could
expect" more lawsuits and arbitration claims, he said.
After past market free falls, such as the bear market
following the bursting of the technology stock bubble, stockbrokers and
broker-dealers have been by far the most common target of arbitration claims
by stunned investors looking to recoup losses, industry observers said.
But the historic severity of the recent market fall, coupled
with investors' making little or no distinction between stockbrokers and
investment advisers, make the latter increasingly vulnerable to such claims,
some attorneys and industry observers said.
Mr. Fisher, for his part, brushes off both claims, one a
lawsuit filed this month in federal court in Houston and the other an
arbitration filed this month in Atlanta.

Tom Iannuzzi

Ken Fisher: "The person who will be sorry in
the end is the client, who will wind up spending money on lawyers and
getting nothing."
In an interview Thursday, he stressed the mere handful of
legal claims by investors Fisher Investments has faced, and said that the
lawyers who are representing the clients in both matters are "similarly
Both cases "will run into a concrete wall," Mr. Fisher said.

"The person who will be sorry in the end is the client, who
will wind up spending money on lawyers and getting nothing," he said.
Mr. Fisher, discussing one of the plaintiff's lawyers in the
arbitration claim, Andrew Stoltmann of the Stoltmann Law Offices PC in
Chicago, said he wanted to teach Mr. Stoltmann "a lesson he won't forget."
When told of Mr. Fisher's comments, Mr. Stoltmann,
co-counsel in the claim, said: "Bring it on, bring it on."
Mr. Fisher, however, acknowledged that the financial
services industry as a whole is likely to face an increasing number of legal
During a presentation he made last month at an industry
meeting in New York, he pointed out that in the aftermath of every bear
market, there is a pickup in arbitration claims and litigation.
Both the lawsuit and the arbitration claim allege that
Fisher Investments of Woodside, Calif., failed to protect the clients' money
before last year's stock market collapse, because the firm invested their
portfolios almost exclusively in stocks. on Tuesday reported one legal action
against Mr. Fisher, a $1.2 million arbitration claim.
A lawsuit making a similar allegation was filed by an
investor this month in federal court in Houston. In that suit, the investor,
Maurine Ford, claims that Fisher Investments caused "significant losses" to
a living trust that the firm started to manage in June 2008.
Prior to that, her trust was managed by Lighthouse Capital
Management LP of Houston, from which Fisher Investments bought the client
assets last year.
"Upon the transfer of the trust's investment account from
Lighthouse to Fisher Investments, the asset allocation in the trust's
account was as follows: cash 27%, fixed income 32% and equities 41%," the
lawsuit states. "Fisher Investments recommended that [Ms. Ford] reallocate
the trust's portfolio to invest 100% in equities," the suit states.
The arbitration statement of claim, which was filed May 5 in
Atlanta, alleges that Fisher Investments invested too much of a retired
doctor and his wife's $2.5 million portfolio in stocks, even with the market
in free fall last year.
"As the market continued to plunge throughout 2008, there
was one common theme from Fisher Investments:
* blind optimism and staying fully invested in equities," the
arbitration claim states.
"Despite overwhelming evidence of a bear market, Fisher
Investments kept its elderly and retired clients almost 100% in equities,"
according to the arbitration claim, which was filed with Jams, an Irvine,
Calif.-based private provider of alternative dispute resolution services.
The claim was filed by Brent and Michelle Murphy of
Savannah, Ga. Mr. Murphy is 61, and his wife is 60.
Mr. Stoltmann said he expects to file more claims against
Fisher Investments in the coming weeks.
Mr. Fisher declined to comment about either the arbitration
or the lawsuit, because that would violate the privacy of the clients, he
However, he emphasized that Fisher Investments, which is one
of the most noted investment advisory firms in the country, has a rigorous
process of vetting clients and gathering information to review their goals
and needs when they invest with the firm.
"We are over-the-top careful in this process," he said.
Fisher Investments has $28 billion in client assets and
37,648 accounts, making it one of the largest registered investment advisory
firms in the United States.
E-mail Bruce Kelly at
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Postby admin » Sun May 24, 2009 1:46 pm

For more info related to this topic, see also, "class actions", and "solutions, self defense" topics

there are also some communications with the Competition Bureau of Canada on the matter, to show you how difficult it can be to get bureaucrats to step up and do their jobs, when their jobs become difficult.

good luck
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Postby admin » Sun May 24, 2009 1:45 pm

In this day and age of laws, and the rule of law, I feel there are laws that you can and should be using to get a full refund of any and all losses you may have suffered with the help of a trusted financial advisor.

The laws are those against fraud, negligence, misrepresentation, negligent misrepresentation. Those laws are under the administration of the criminal code of Canada, and the Competition Act of Canada.

Fraudulent concealment
341. Every one who, for a fraudulent purpose, takes, obtains, removes or conceals anything is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years. (applies to the financial scheme to take advantage of clients interests as well as the resulting legal manipulations)
False Pretences
(1) A false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it.
Negligent Misrepresentation

Breach of Trust, section 122, may apply to your provincial securities commission, and any self regulator that knowingly allowed these misrepresentations to prey upon you. This may make them liable as well as the person or persons who misrepresented themselves to you.

Negligence From Canada's Criminal Code, ¶219:
"Every one is criminally negligent who in doing anything, or in omitting to do anything that it is his duty to do, shows wanton or reckless disregard for the lives or safety of other persons."

Fraud, section 380 “every person who. By deceit, falsehood, or other fraudulent means........defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service”

The other laws are civil codes against misrepresentation, and other intentionally known ways and means to do financial damage to you. Lawsuit and or class action may be the avenue that you turn the tables against financial professionals, or those who pose as financial professionals, without delivering professionalism. Let me give you an example to start with:

Supposed you have dealt with someone who is licensed in your province in the category of a “salesperson”, and this person (or his sponsor firm) has intentionally misled you, the consumer into thinking and believing that you were instead dealing with a trusted financial professional. Perhaps they even used the term “advisor” to represent themselves, when they were in fact, licensed, registered, trained and compensated in the official category of a “salesperson”. Would you object to the misrepresentation? Would it fit the definitions above? Many might say yes. I say yes. I say you have ben intentionally lied to, misled, and taken advantage of for purposes of marketing.

You would not accept this coming from a “doctor”, who you find out later, is not licensed to practice medicine, but working to sell products instead. I have even see recent headlines where a person was arrested to impersonating a dentist without being licenced. “Advisor”, is an official, legal, registration category that your lawyer can research and investigate by reading the Securities Act of your province. It is a category that 99 times out of 100, your “salesperson” has not met the qualifications for, nor is he or she registered in this category.

So how does the investment industry get away with this if it against the rules?
The investment industry polices itself, judges itself, and (rarely) prosecutes itself. Almost never does it prosecute for it’s own mistakes, but rather, acts in an arbitrary manner, like self regulated industries may tend to do, and enforces rules detrimental to its profits or it’s major members very rarely.

On the MFDA topic on


and the IDA (IIROC) topics


are posted attempts to get these “self” policing organizations to come clean on how rules like this are knowingly broken every day. They do not answer the question. They can not answer the question in my opinion, without either lying, evading, or admitting negligent misrepresentation. That is good news.

What? Good news?
Yes, since it means, in my view that they are caught in a lie. Caught red handed, misleading consumers, misrepresenting, and failing to enforce and enact the laws designed to protect consumers. The good news in that is that they are caught. They cannot change the paper trail. It is there, all laid out for you and your lawyer to read, to deal with, and to beg the authorities to prosecute.

Authorities, such as the Competition Bureau, and some police, are not up to speed on such matters as this, in regards to the financial industry. You will have to bring them up to speed, educate them, force them to stray from their comfort zones. Or have your lawyer take the steps for you if you have one. I will help them if need be. I do not charge for this help. I think enforcing the law might just be the right thing to do once in a while.

If you are a fighter, or can hire a fighter, or can band together with others who have been financially abused by a common group of predators, I feel that you might just be able to get your money back. Is this a legal opinion? No. It is a personal feeling from someone who is tired of seeing an entire industry be able to get away with anything, up to almost murder, without laws being applied to this conduct.
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Postby admin » Fri Dec 07, 2007 8:59 am

The Investor Advocate
Ken Kivenko’s column is all about investor protection. Ken fights for investors’ rights and exposes violations and malpractices. He also runs an advisory business, Portfolio Analytics, assisting investors obtain restitution due to sales or broker abuses.

OBSI in depth

By Ken Kivenko | Thursday, December 06, 2007
Things you should know about the Ombudsman for Banking Services and Investments.
Like every product or service, the investment industry has its share of unhappy clients. You might blissfully assume that robust mechanisms are in place to promptly and fairly deal with complaints. As John Reynold’s book the Naked Investor makes so abundantly clear, nothing could be further from the truth. The financial services industry’s approach— Deny, Delay, Defend is built into the system — internal and external ombudsmen, arbitration, civil litigation and complaints to regulators — are a microcosm of the convoluted nature of the system as a whole. First you have to figure out that something is wrong. Next, you have to convince yourself it’s the fault of your financial service provider, so that it’s even worth for you begin the long battle for restitution. Then you have to understand the nature and limits of the internal complaint process where your trusted expert adviser becomes your adversary — and the firm’s formidable resources are arrayed against you. They know the process and how to game the complaint proceedings that a retail investor is barely even aware of.

Once an investor concludes he can and should complain he must go through a long, extended and stressful process with the fund dealers and brokers. Some have referred to this complaint process as “a quagmire” as the investor struggles with how and to whom to address a complaint. Before it’s over an investor must deal with his advisor, a branch supervisor, a Vice President, a compliance officer and the firm’s ombudsman. During this complex process, documents are exchanged, there are many phone calls and meetings are held. Sometimes key documents go missing or the advisor has left the company. The brokerage firm may encourage delays, with long response times and obtuse replies begging for explanations that are not forthcoming. This phase alone can take many months, if not years. Meanwhile, the Limitation Act clock keeps ticking away

The financial services provider (FSP) knows the rules of the game and you don’t so you start out at a real disadvantage. The investment firm will drag you through the ringer before it gives you back a dime. It’s not a process you’ll enjoy. Most of the usual suspects, the provincial securities commissions, the IDA and the MFDA will remind you they’re not set up to provide restitution. Often you’ll be ricocheted from one organization to another. At some point, you should, if the FSP tells you, come across a non-profit entity named the Ombudsman for Banking Services and Investments (OBSI) OBSI investigate through what are called “inquisitorial” procedures, asking questions and reviewing material provided to us. It’s not adversarial but you can be sure the firm is an adversary. OBSI doesn’t conduct hearings involving lawyers or cross — examinations although it’s clear that the law department of the FSP is behind the scenes and crafting responses.

About OBSI

OBSI was formed in 2002 when the Government of Canada was planning to set up its own dispute resolution system for investment complaints. The financial services industry “graciously” jumped in and offered up OBSI for “free.” Today OBSI supports more than 600 participating firms across the banking services and investment sectors. As of Nov.1, 2007, dealers for registered education savings plans also come under the service. OBSI is the only national organization that offers a chance for retail investors to get some of their hard-earned money back in cases of financial assault or incompetence. You have up to 180 days after receiving a firm’s final response to get in touch with OBSI to submit your complaint. It’s therefore vital that you decide how you are going to proceed with your complaint without undue delay.

OBSI is industry-sponsored and industry-funded. It is not a government agency or regulator. OBSI is not subject to Freedom of Information legislation. It has a Board of Directors, the majority of which OBSI classifies as independent. The Terms of Reference provide the constraints under which the Ombudsman must function. OBSI’s Terms of Reference do not require it to conduct an analysis to warn other uneducated and unknowing pattern—advised and/or toxic product sold investors who may also have been abused. OBSI does however provide some interesting case studies on its website. Before OBSI may conduct an investigation, it will first have you sign and return a release letter. The release letter provides you with detailed information regarding their complaint process and outlines the terms and conditions under which OBSI will investigate. OBSI have disclosed that their ability to assess suitability is complicated by the continuing lack of industry-standard terminology in KYC forms, and the subjective nature of assessing the risk of certain securities. Recommendations are not always sent concurrently to the firm and complainant, a practice that invites cynicism.

OBSI are committed to the privacy principles of CSA-Q830 which are, in turn, embodied in federal legislation (PIPEDA). In particular, collection, use and disclosure of client data will only be done with your consent and only to the extent required to conduct the investigation.

OBSI provides guidance on making a complaint If you have a question, or want more information, you can call OBSI toll-free at 1-888-451-4519 or email them at You might also want to read OBSI’s Procedures Guide ... _Guide.pdf If you’re a mutual fund owner be sure to read How to Make a Complaint to the MFDA

OBSI doesn’t automatically take on a case just because a client complains. Section 9(d) of their Terms of Reference gives them the right to refer the case to someone else if they judge that someone else to be more appropriate. There is no appeal [ ]


OBSI is a non-profit entity claiming it is independent from its industry sponsors and financiers. Governance is crucial as is the transparency of the governance. One measure of independence is the process for selecting the independent board directors and the CEO/Ombudsman. We are told that the majority of board members are “independent” but no definition is provided. OBSI’s disclosed governance process does not seem to include a nominating committee, an oversight committee, details on compensation policy/decisions or annual board self-assessment Looking at the independent members we would have expected to see some background in investor issues, modern complaint systems, dispute resolution processes — instead we see a group of folks, though talented and accomplished in their fields, representing merely diversity of occupations and geographic coverage across Canada. Some have been members’ since way back in 1996 when the service only provided banking dispute resolution services.

Many other aspects of contemporary governance are not revealed in public documents. e.g. By-laws, disclosure controls, board education, position description for Chair, board member duties, annual independent audits [financials and effectiveness], annual no conflict of interest certification, succession planning (current Chair has been in place since 1996) etc. Finally, the fact that there is no appeal to the Board or anyone else, nor can the Board influence the decisions of the Ombudsman, dramatically limits their governance potential and accountability. OBSI affects the lives of all Canadians exposed to it and more transparency of governance practices is required for a national dispute resolution service. Transparency would allow an assessment of OBSI’s operations; the opaqueness breeds distrust.

The rules of engagement

OBSI’s financiers, the financial services industry, have designed the rules under which OBSI will operate. Some of the more important ground rules include, but are not limited to:

OBSI does not deal with service complaints
the investor must first have made an effort to resolve the case with the firm, a long convoluted frustrating process [there is no defined time period wherein OBSI will automatically take on a case; as long as the firm insists it’s still working the case, they maintain control and the statute of limitation clock ticks on]
recommendations are non-binding on either party—OBSI has no power to force payment, set deadlines or impose a sliding scale of fees to encourage early settlement—the way government-imposed arbitration services do in other countries
the restitution limit is $350,000—it hasn’t changed in four years [Where the amount claimed by you in respect of a complaint exceeds $350,000, the Ombudsman will not investigate the complaint unless you and the FSP in writing acknowledge the Ombudsman’s recommendation limit and you agree to release the FSP from liability for any amount greater than the amount of any recommendation made by the Ombudsman and accepted by both the Complainant and the FSP].
if you’ve launched civil litigation, OBSI won’t take your case
only out-of-pocket losses are covered, not pain and suffering
there is no direct charge for the dispute resolution service
In most cases, OBSI will conduct their investigation concurrently with a regulator’s if you’ve filed a complaint with them. However, in some cases OBSI may choose to delay until the regulatory investigation is completed. Dangerous, unless the limitation clock is stopped.

If you meet with or are called by an OBSI case investigator you may be asked questions that try to reveal your financial literacy, personal situation, level of education, investing experience, financial objectives, employment, annual income, net worth, age and other factors that will determine the success or failure of your claim. Be very careful what you say and how you express it. If you don’t understand a question, ask for clarification. Your answers could come back to bite you. This is no time for ego.

You might think that these restrictions are not too bad. Let’s add a little more detail. In 2006, only 51% of cases ruled upon resulted in any restitution. If you reject the recommendations, you cannot go on to file a civil action. The firm will require you to sign a confidentiality agreement aka a gag order if you agree to settle. OBSI may resist taking on a case that includes segregated funds, a life insurance product, but with a little persuasion they will do it especially if the issues are a blend of segregated funds and other securities. Ensure in your statement of complaint that you clearly articulate your investment profiles and attach relevant documentation such as a signed and dated NAAF.

Wait, there’s more .All provinces have what are called statutes of limitations which are time frames during which you must file a civil claim or lose your right to a claim. In Ontario, that period is a short two years, thanks to our politicians. In the case of Ontario, and only in the case of Ontario, OBSI explicitly state that the “limitation clock” is stopped while they deal with the case. Outside of Ontario, you’ll be told to find out on your own whether or not the clock is halted while they take six months or even two years to make a recommendation—their stated target for resolution is 80% within six months. The number of cases that go beyond that is not disclosed in any public documents. When the clock actually started is a judgmental issue depending on differing and legally untested provincial criteria—a real mess.

In 2006, the number of investment cases examined was a shockingly low number given that Canada’s investing population probably numbers well over 10 million. OBSI does note in its Annual report that even of the people who did use their services, fully 40% had to find out on their own that OBSI exists. OBSI is in fact not well known by the average retail investor, a situation we hope this article will correct.

While the word Ombudsman might conjure up an image of a friendly group that will hold your hand when facing the powerful, well resourced investment industry, this is not exactly the case. The address for OBSI is a Post Office Box, their office itself is not particularly inviting and the website could be a lot more investor-friendly. OBSI makes it clear it is not an advocate for investors. The shackles on OBSI limit it to examining your case and making a recommendation. You will be told they offer no legal advice, actually no advice. You won’t even be told what the limitation period is for your province of residence. Except for Ontario, you could be flying blind as the precious limitation clock days and months tick away.

Complaints about OBSI center on their complaint acknowledgement process, the infrequent case status updates, a perceived bias towards believing FSP evidence and of course the recommendation outcomes both in percentage successful and restitution amount.

The Ombudsman is not bound by the rules of evidence. OBSI itself may be stonewalled by the FSP — it has little clout to demand documents or records. There is no appeal process for OBSI recommendations. Trying to contact the Chair or any of the directors is fruitless, even if you could find out their mailing or email addresses. Once they’ve opined, you should understand that none of the documents can be used in court and OBSI cannot be asked to testify in any subsequent legal or other proceedings.

In recent large cases, like the Portus and Norshied fund fiascos where investors lost tens of millions of dollars, OBSI takes the position that since bankruptcy proceedings or class actions are in process, they will not take on the case or even log it in to restrain the limitation clock.

Strangely, the OBSI web site refers to IFIC, the mutual fund industry’s official lobbyist but does not mention the Small Investor Protection Association There is no periodic disclosure of patterns or systemic investment abuses. Details of settlement amounts are not provided nor are there any figures outlining OBSI’s operating budget. OBSI claims that in 2007 it encountered the first ever rejection of its recommendations by a firm. Critics believe the amounts are negotiated and then “accepted” so a perfect record can be publicized. In any event, investors have, over the years, turned down the recommended offers. Some went on to win satisfying awards after initiating civil action.

Even those who accept the recommendations may not be satisfied. Desperate for cash or worn out by the exhausting process, they take what they can and try to move on with their lives. The sad fact is that the culture is one in which small investors are conditioned to expect little — they are often not disappointed

Summary and conclusion

When recommending compensation, OBSI aim to “make you whole” by putting you in the financial position you should have been in if there hadn’t been a problem. They do not look at compensation for damages such as pain and suffering or medical conditions

For consumers, clients, customers or small investors, especially if they are older, the entire process can be exhausting and time-consuming. The stress of a life — altering traumatic event such as the loss of a hard-earned retirement nest egg can be so debilitating in itself that it can lead to depression and the inability to make a rational decision. In this mode, an investor may not have the emotional strength to file a claim, the energy to deal with all the interrogatories or the sometimes nasty remarks made by FSP’s. And if they do, the redress process only compounds their stress.

On the matter of decision-making criteria, their website indicates that the decisions reached by the Ombudsman take into account “fairness in the circumstances”. They look at g ood financial services and business practices, Standards established by regulators, professional associations or the firm and Laws and regulation. This is simply not good enough. As a self-governing organization representing virtually all of Canada’s banks and major investment dealers, OBSI should seek to raise the standards for services and business practices for ALL of its financial institutions by using ‘Best practices’ as the basis for determination of the resolution of a complaint.

While far from perfect, OBSI represents one of the few routes to dispute resolution without cash outlays for investigation or legal fees. Should OBSI adopt ISO 10003,Guidelines for dispute resolution external to organizations and an independent compliance assessment, many critics would feel a lot better [ a recent third— party assessment of OBSI is available at ... ort_EN.pdf ]. Previous to this, the only observations on OBSI have come periodic critiques by investor advocates, the media, SIPA, CARP individual investors and some lawyers.

The report of findings they provide can be harvested for useful facts in pursuing the case further. Several critical OBSI observers however caution that the recommendations may not be unbiased. One key settlement criteria used is that dollar settlements, if any are reduced because the hapless investor failed to mitigate the loss at an early enough stage. Another ploy used attempts to offset the losses from unsuitable investments with the gains from suitable investments. Investor advocates warn that OBSI’s legal position on rejections may not always be on solid footing. SIPA does not recommend OBSI to its members based on limitation period uncertainties and other issues.

Regrettably, for too many Canadians, OBSI represents their only hope for restitution. The losses may be too small to justify hefty legal expenses or age or ill health may be working against the investor. If you reject the proposed settlement it is removed from the table and you’re back at square one. It’s even possible OBSI’s recommendation could be lower than one you nay have rejected from the FSP. The bottom line: Look towards OBSI for a resolution recommendation but with constructive criticality, a cast iron stomach and a lot of determination.

thanks to ken at for this article
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Postby admin » Tue Jan 17, 2006 9:22 pm

Who Are Compliance Departments Protecting?

Since the dotcom bust of the late 90s 'staying compliant' has become more and more of an issue. As dealers face the rising costs of investigations and litigation, due to allegations of unsuitable investments or improper supervision, ever more strenuous restrictions are being placed on the average advisor. Many advisors complain of the extra paperwork and time involved in satisfying compliance departments. Dealers justify the extra regulation citing fiduciary duty and investor protection. Who is the paperwork protecting; the investor or the dealer?

It is now getting popular for dealers to hire lawyers specializing in defending advisors and branch managers to lecture at advisor conferences. The lecture material is through and professional, and it tends to revolve around one basic premise: keep client paperwork up to date... or else.

The argument seems to make a lot of sense. If a client's know your client data is regularly updated, all disclosures are documented as received by the client, and the advisor has detailed and dated notes of all client meetings I think anyone would have to agree: the client will have little or no recourse in an unsuitable investment investigation.

For example, on April 18, 2005, Edward Graham, a co-branch manager with Credential Securities in Regina was found to have violated IDA regulation 1300.2 – he failed notice an over concentration of one particular security in the accounts of multiple clients. The IDA also wanted to make the point Mr. Graham should have been alerted to a potential problem in one particular account when updated Know Your Client data indicated 50% speculative for an investor over 60 years of age. Mr. Graham acknowledged that 50% speculative was high for someone 60 years of age, but he did not acknowledge that it was high for this particular client. The Hearing Panel had to agree with the point, and dismissed the allegation.

Here lies one of the big problems in Canada's investment industry; dealers are using regulation originally designed to protect the investor to protect themselves instead. Once this connection is understood, it makes perfect sense why a dealer would hire lawyers to coach advisors.

Unfortunately whether lawyers specialize in defending investors or advisors, neither group have any vested interest in making our industry better. Lecturing to groups of investors or advisors primarily serves to advertise the legal firm to potential clients. The lecture material serves to teach potential clients how to spot new cases for the law firm, and how to make those cases easier for the law firm to research and argue.

Instead of serving our industry on a platter to lawyers, why don't we start taking responsibility, and try to fix some of the problems internally? For example, instead of hiring legal coaches to avoid paying for problems after they occur, how about investing in education programs for investors, and better risk assessment technology for advisors to avoid unsuitable recommendation complaints before they happen? Why not institute standards of risk every member firm and advisor can agree on?

Our industry is at a crossroads. The money, technology and know-how all exist. So why don't we start embracing transparent disclosure of compensation, risk and potential conflicts of interest, and stop hiding behind ever longer application forms and lawyer created loopholes? It's time to stop paying lip service to fiduciary duty and to start building confidence in our industry again.

posted by Edward Iftody, BA, CIM
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Postby admin » Sat Jan 14, 2006 11:45 pm

read this report if you are needing up to date "duty of care" requirements of your advisor. I find most of them want it both ways in this department.

One way when they want your business, and the promises they make, and a second different way when a problem arises and they want you to go away. ... 20duty.doc

the link above is to a really interesting site and the following report:

Fiduciary Duty

In the Canadian Financial Services Industry
January 2006

A must read for those interested in the duty of care required of your investment advisor.

Remember what all firms advertise and promise to clients. Something along the lines of "trust us, we are experts and we will look after you". But also remember when 92 year old Norah Cosgrove took RBC to task over $10,000 of alleged self dealing by the RBC advisor, they were able to wiggle out of the $10,000 by claiming that they did not technically meet the required kind of account where the client should have trusted the firm???

Even though the advisor was fired for her part in the alleged elder abuse, the firm still failed to be responsible to the client. Not a pretty scenario for a firm that claims "YOU FIRST" is all its advertising.
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Postby admin » Sat Jan 14, 2006 6:39 pm

I have found some degree of help with the law called FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY ACT. (FOIPP)

Aside from the obvious protective intentions towards personal information this act has elements in it that allow you to request any information and or files on yourself (or perhaps others files you may have a legitimate interest in).

This means that the law provides for you to seek info into any file where you may not have been properly helped. I have yet to see if this act gets actually followed, and I have been led to believe that corporations and government agencies who are asked to comply with the law are often able to ignore and blow off many legitimate requests.........but we knew that going into it..............and forward we go anyway if the matter is important enough.

If you have made legitimate complaint, or are about to do so, against a corporation or government agency, I might suggest a written letter of enquiry into your file under the FOIPP Act. It will not guarantee a professional response and might result in yet another level of dissapointment, but you gotta take each and every step of proper procedure if you are fully intending to have a major corporation accept blame, admit fault, or open a wallet and make your losses whole again.
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Postby admin » Sat Jan 14, 2006 12:01 pm

The above is interesting commentary from the inside of the investment industry. If you read between the lines on this kind of communication, you will no doubt separate the professionals from the posers.

Professionals in the investment game do several things well:

1. They follow a very dilligent, well defined process to make investment plans, and justify investment decisions.
2. They are experienced and competent enough to know the process, understand it, and be able to clearly and simply, in plain language translate it to the client.
3. The document the process, and the client understanding, agreement and co-operation in the overall, plan. A written investment policy is but one essential document to begin this process.
4. They follow this process carefully, reviewing it and making sure that any and all investment advice is in the clients best interest, and no others.
5. They act professionally and represent the advisor title properly, using only "best industry practices".

These people have nothing to fear from clients, nor from compliance or other regulators. Compliance will be your best friend towards keeping your business on a "best practices" level.

The other kind of salesperson fears the compliance department, documents poorly, places his or her interests ahead of the client often, makes investment decisions based on how his or her compensation will be affected. They feel a compliance department is their worst enemy and they are right. They are the old dinosoars from the "sales pitch" days and they are out there. The sooner they are drummed out of the business the better.

If you have been the victim of a bad advisory relationship, where a professional standard of practice has not been followed, I think you should be consulting lawyers immediately and demanding that your account be "made whole" as per best industry practices. You will not receive much help from industry, or from regulators, as they are in many cases a dozen years behind the times and have other interests. But you will prevail if you have a case. (not simply an "I lost money" case)

Investor advocates is happy to help abused investors at no charge. We consist of ex-industry people, who have come to the sad realization that the industry does not live up to it's promises to investors, and we feel strongly enough about it to want it to change for the better.

e-mail your thoughts to if you would like to engage in some no cost, no obligation, no expectation discussion.

best regards
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Postby admin » Sat Jan 14, 2006 11:45 am

The message here for naive investors with scare resources who seem to expect natural justice if things go wrong is that they can expect a spirited fight by a much better resourced organization. When you ask for justice (in the event of some malfeasance on their part), they go to war - against you!

Dated but telling......

When Compliance Comes a Calling
By Caroline Spivak (09/06/2004)

In an ever-changing, complex, and sensitive regulatory environment, advisors are increasingly faced with tightening compliance rules and regulations. Should you unexpectedly find yourself the subject of a regulatory investigation, there are steps you can take to ensure your livelihood and reputation are protected.

Reason and knowledge have always played a secondary, subordinate, auxiliary role in the life of peoples, and this will always be the case. A people is shaped and driven forward by an entirely different kind of force, one which commands and coerces them and the origin of which is obscure and inexplicable despite the reality of its presence.

Fyodor Dostoyevski

Throughout their careers, advisors – with books of business both big and small – are invariably faced with complex regulatory requirements imposed by lawmakers, regulators, and dealers. While most interactions with compliance regimes tend to be obliging, accommodating, and even co-operative, there too often comes a time in an advisor’s career where the dark side of compliance rears its ugly head, reeking havoc on an advisor and the very livelihood that sustains his or her business.

Compliance – friend or foe?

For most advisors, the experience of receiving a call from their compliance department probably ranks right up there with having a root canal. Viewed as more of a nuisance and added headache rather than a function of helping advisors meet their duties and obligations under provincial securities law, compliance teams tend to enjoy the kind of reputation one generally reserves for necessary evils rather than welcome intruders.

Nevertheless, as a necessary nuisance, the very existence of the compliance function, its rules, regulations, and requirements, when administered effectively and justly, can help to protect the reputation of advisors, market participants, and the overall industry. Ideally, this contributes to greater overall investor confidence and, ultimately, to greater market participation and ongoing business for advisors.

What happens then when compliance assumes a more sinister role in the “governance” of advisor behaviour, particularly in the area of unexpected audits and investigations? What happens when compliance comes knocking on your door? Does your friend suddenly become your foe?

All audits are not equal

Audits can be broken down into two general categories: general or reinforcement audits and specific or enforcement audits. General audits typically emphasize reinforcement of procedures, tend to be educational, and can be viewed as helpful. Routine in nature, general audits tend to be characterized by a visit from your dealer or auditor who reviews the books and records maintained on behalf of the dealer. Here, as a general rule, the dealer is entitled to look in the representative’s files – but cannot go into the advisor’s client files unless there is a specific reason to do so. This can happen in instances where there is a perceived breach that requires clarification or corroboration to be found in advisor files.

Advisors are typically required to maintain documents such as know your client forms, general account-opening documentation, purchase orders, and communications related to securities held and advice-giving relating to those transactions, in addition to client tracking information in their dealer files.

Brian Mallard, CFP, CLU, CH.F.C., past chair of Advocis, cautions advisors to be clear on what they are required to maintain in their dealer files. “Advisors tend to complicate things when they maintain advice-and insurance-related plans and documents and anything related to overall client information. Client files of this nature are far over and above what is required to be maintained in the dealer file. Advisors forget this distinction.”

Depending on the contractual relationship, the dealer may not have the right to look at insurance files and other advice-giving documentation. Advisors should have a clear understanding of what their dealer contractual obligations are,” says Mallard. “Files should be appropriately divided and, in order for the dealer to access advisor files, the dealer needs permission from clients to view them. Clients have a legal right to privacy and an ethical expectation of confidentiality.”

Ellen Bessner, LLB, a partner at Gowling, Lafleur, Henderson who specializes in representing and training advisors, concurs with Mallard. “If it’s purely a general audit, then let them in and let them see what they need.”

Specific or enforcement audits, on the other hand, have an entirely different flavour. Generally viewed as more invasive, a specific audit can be triggered by a consumer complaint, an employee allegation, or the general suspicion of a dealer. This kind of an audit is carried out under the authority of a superintendent order and has far more serious implications for advisors. In this instance, an advisor is subjected to a more rigorous investigation and will need to defend him or herself with supporting documentation.

“The difference between a regular audit and an investigation,” adds Mallard, “is that a regular audit looks to confirm that you are complying with the established rules and regulations, whereas an investigation looks to determine how many rules you are breaking.”

This does not bode well for what is viewed by the regulators as an opportunity for advisors to improve their business. Noulla Antoniou, senior accountant at the Ontario Securities Commission (OSC) compliance capital markets branch, tells us that when the regulators come in to conduct an audit, “We are not there to find something wrong. We come from the perspective of open communication and advisors should feel at ease to share information openly.”

Mallard disagrees. “Advisors do not benefit from the presumption of innocence and due process,” he says. “Our current regulatory environment, which assumes advisor guilt, facilitates a poisoning of the relationship between advisors and compliance enforcers.”

Guilty until proven innocent?

Most client complaints are not about specific transactions. Typically, what is at the core of the complaint is the breakdown between an advisor’s advice and a client’s action, or inaction, based on that advice. When clients decide to litigate, an advisor finds him or herself on the defensive on two fronts: one is the courts and the other, the governing regulators.

Court sympathies typically tend to fall on the side of investors, notes one industry insider. There is a prevailing presumption that the statement of claim is valid and that puts every advisor at significant risk.

On the other hand, investor protection advocates, including Stan Buell, head of the Small Investor Protection Association, has been cited as stating that the investment landscape in Canada is in fact tilted in favour of the industry because it has the ear of the regulators. Interestingly enough, he feels that it’s the voice of the client that is not being heard.

An advisor in British Columbia disagrees, noting that the societal perspective is that if you are an advisor and are accused of something, then you must be guilty. There is a presupposition of guilt.

Mallard further warns advisors not to dismiss employees in the realm of possible accusers. Employee risk can be even greater than that of client risk as employees are privy to more information than a client is in the overall course of your business. “Advisors are at such a huge risk [from] vindictive clients and employees. This can become very serious very quickly. An advisor’s very livelihood can be at stake.”

In either circumstance, an advisor will need to quickly take on a defensive position to attempt to clear his or her reputation.

Role of the regulators

So what is the role of the regulator in all of this – specifically, provincial securities commissions, the Mutual Fund Dealers Association (MFDA), and the Investment Dealers Association of Canada (IDA)?

Primarily, the collective role of these individual organizations is that of investor education and protection through registration, compliance, and enforcement in conjunction with enhancing the capital markets across Canada.

Essentially, the focus is on educating investors. Advisors, however, say that investors don’t necessarily want all the education thrown at them and that the reason that investors seek the help of advisors is because they don’t want to know all that an advisor knows. Just as one goes to their doctor or accountant for advice, one seeks to engage the services of advisors to fulfil a professional advisory function.

What then of advisor education? “Advisors don’t get education, they get regulation,” notes Mallard. “Today, dealers are running around scaring advisors with the regulatory boogie man,” which Mallard suggests does not really exist.

How real is the regulatory boogie man?

“If you read rulings of the IDA and securities commissions across Canada, they are reasonably even handed – not entirely punishing and pejorative,” says Mallard. “The logical reason for this is that within Canada, every citizen is entitled to a process of natural justice. Findings, even in the instance of guilt, need to be sustainable on appeal and few of the IDA findings are appealed. The reason being is that they ultimately deal with guilty people in a fair manner.

“Dealers, on the other hand, aren’t equipped to provide objective access to the process of natural justice. They are economically and environmentally conflicted due to pre-existing relationships, both business and personal, and therefore cannot come to the table with clean hands.”

Dealers will typically defer to the IDA with its established processes, procedures, and requisite powers of investigation and enforcement.

On the other hand, the MFDA, which stipulates on its Web site that it is responsible for regulating the actions of member firms, does not seem to have the authority to regulate the actions of advisors. In fact, investors with complaints are directed to their advisor dealer firm and to the Ombudsman for Banking Services and Investments to proceed with a complaint.

So it seems that although regulators and the courts can be fair, the real danger lies in the resulting damage to an advisor’s reputation. Damage that can halt and effectively end an advisor’s career.

Regulating advice

If the focus of existing regulation and enforcement is on transactional breaches of an advisor, and the majority of client complaints are borne of discrepancies arising from advice-giving, who then regulates the advice- giving process?

With the advent of proposed models for national securities regulation, it seems that most everyone is attempting to carve out a role for regulating the advice-giving process including, most notably, the OSC’s Fair Dealing Model (FDM). The FDM dissects the advisor-client relationship into specific categories with associating parameters to govern each relationship.

When it comes to regulating advice effectively and fairly, Mallard suggests that it is the role of professional membership associations to fill this vacuum. He further suggests that the associations not only regulate the advice-giving process, but also guide advisors on governing themselves appropriately in the event of a claim.

Advisor protect thyself

In the event that an advisor is faced with an investigation, documentation is key. Consistent, clear, and concise documentation of client and advisor records is key to protecting both the advisor and the client in audit situations. Advisors must always maintain evidence of client contact, correspondence, and instructions. Consistency of process is crucial in these circumstances as regulators and the courts alike will look not only at the specific case in question – your entire business process and recordkeeping and management system will come under scrutiny. Advisors need to be able to effectively demonstrate that a process is in place and, therefore, there is an increased likelihood that information has been recorded accurately. Emphasizing the importance of recordkeeping, Bessner counsels that, “advisors should be making sure that they are complying with compliance requirements. It is not a question of if [the auditors] will come in – it’s a question of when they will come in.”

Consider the following in the event of an audit:

Do show respect. Be polite and co-operate.

Do call a lawyer, preferably a securities lawyer with the perspective of a mediator, not a litigator. In the event of a specific order, you have the right to have a lawyer review it before the investigation takes place.

Do grant access to specific requests.

Do ensure that investigators are supervised when they are in your office or branch.

Do keep a record of all files removed from your office and have an understanding of when and how the files will be returned to you.

Do understand your contractual obligations and the limitations of same.

Do understand the rules and regulations that govern your conduct.
Do not touch any of your files or attempt to change any notes.

Do not meet with compliance alone.

Do not volunteer additional information.

Do not leave investigators alone in your office.

Do not allow for the removal of any files other than those specifically requested

The OSC’s Antoniou echoes this sentiment, noting that audits and investigations should not be any more taxing if an advisor is where he or she should be. “It’s when [an advisor] is deficient in their compliance processes that he or she may have difficulty in catching up with a changing environment. It depends on where you currently are in your books and records – are you catching up or keeping up?”

Mallard goes further and suggests that advisors should “assume that someone is coming to look at the transaction at some point in time to try to figure out what’s wrong with it.”

In the final analysis

A client or employee claim can result in the suspension of an advisor’s licences, termination, and the resulting inability to obtain and maintain professional liability insurance. And all of this before an advisor has had a chance to respond and to defend him or herself against the charges levied.

Fulfilling compliance functions helps an advisor’s business and is better for clients in the long run. Bessner suggest that it is not a choice of compliance versus clients. “Compliance should not be perceived as a cost of doing business and a means of warding off the enemy. Compliance is here to stay. As soon as it is embraced, advisors are going to be more productive. They will have procedures in place for compliance and they will have a better sense of their business. Clients are going to feel that advisors are professionals.”


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Postby admin » Tue Dec 13, 2005 6:39 pm


(A) Fiduciary duty:

There is no presumption in law that a fiduciary relationship exists between a broker and his client. There may be a fiduciary relationship if the facts so dictate.

Fiduciary principles are founded in equitable law doctrines. There must be present the elements of trust, confidence and reliance on skill, knowledge and advice. The combination of these elements can cover the entire spectrum from complete vulnerability and reliance, where there is no ability to exercise independent thought and choice and therefore a clear fiduciary relationship, to the other extreme of total independence, where a fiduciary relationship does not exist. It should be noted that merely because a customer is elderly ,does not necessarily result in the existence of a fiduciary relationship.

Each relationship must be analyzed on its own facts to determine whether or not there are in fact the elements of a fiduciary relationship. The court will look to enforce a fiduciary duty where the party owing the duty is acting dishonestly, and the party receiving that duty is acting in good faith with clean hands. The court will not protect a customer who is participating in an attempt to deceive for personal advantage. Public policy does not warrant affording such claimants protection of the court.

Hodgkinson v. Simms, [1994] 3 S.C.R. 377

Stegor Consultants (1988) Ltd. v. Mader, [2001] O.J. No. 376

Hunt v.Toronto-Dominion Bank (August 26, 2003)Ontario C.A.

The characteristics of a fiduciary relationship are that the fiduciary must have the ability to exercise power over another, that the power can be exercised unilaterally, and that the receiving party is vulnerable to the party welding the power.

International Corona Resources Ltd. v. LAC Minerals Ltd. (1989) 69 O.R. (2d) 287

(B) Negligence:

The law of negligence has been well developed. For damages to flow in this instance, the court must find that the firm owed the customer a duty of care that was breached, and that it was this breach that was the proximate cause of the alleged loss. The court must assess this duty and at the same time examine the conduct of the customer in determining whether or not it was the customer’s negligence that contributed to the loss. In other words, the court would have to determine if the customer acted as a reasonable man in mitigating the damages. In my view the reasonable man test to be applied must take into account the investment acumen, experience and knowledge that particular customer.

Kamloops v. Nielsen ,[1984] 2 S.C.R. 2 (S.C.C.)

Edwards v. Law Society of Upper Canada (No. 2), [2000] 48 O.R. (3d) 329 (Ont.C.A.)

Asamera Oil Corp. Ltd. v. Sea Oil and General Corp. et al, [1978] 6 W.W.R. 301 (S.C.C.)

It is prudent public policy not to permit customer to claim for losses where there is a breach of the regulations by the firm, but the breach at issue was not the proximate cause of the losses claimed, especially where a customer pursued an aggressive trading strategy with full knowledge. The courts have not given customers carte blanche to lose money in the market and look to the brokers for recovery based on technical breaches of stock exchange rules and industry by-laws.

Varcoe v. Sterling (1992), 7 O.R. (3d) 204 (Ont.Gen. Div.)
Parks v. Midland Walwyn Capital Inc. (July 7, 1995) Doc. 92-CQ-30790CM
Saskatchewan Wheat Pool v. Canada (1983) 143 D.L.R. (3d) (S.C.C.), Farkas (Trustee of) v. CIBC Wood Gundy Securities Inc. (1999) Docket 96-CU-99444, Ontario Superior Court of Justice

(C) Duty to warn:

It has been argued that a firm has no duty to warn a customer of other customer complaints against a broker, especially when there is a TSE investigation pending of which the customer has knowledge. These other customer relationships are confidential.

It has been argued that a duty to warn does not arise merely because of the broker-customer relationship. Whether or not there may be a duty to warn is a question of fact dependent on the particulars of the relationship. Even if there is a duty to warn, it should apply only to those who may incur reasonable foreseeable losses.

Reed v. McDermid St. Lawrence Ltd. ,[1990] W.W.R. 617 (C.A.)

If a firm that terminates a broker for cause fails to disclose the particulars of that termination to customers, then the firm could be held liable should the broker continue to carry on business with the customer with another employer. In my view whether or not a duty truly exists must be fact driven. Further, the customer’s knowledge of the broker and of the circumstances surrounding the termination should be considered by the court in determining whether or not there was any reasonable reliance by the customer that warrants liability. This ground for liability is currently under appeal.

Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon

(D) Ratification:

The first principle of ratification in stockbrokerage transactions is that a customer who wishes to take advantage of his broker’s wrongful act must repudiate that act. If he does not he is deemed to have ratified it. He may not merely sit by and do nothing, but is bound at the risk of the loss of his claim affirmatively to indicate his repudiation.

Ratification may be proved, not only by an express assent, but also by implication from the principal’s acquiescence or failure to dissent within a reasonable time after being informed by the agent of what he has done.

The courts have held that this doctrine is not unfair. The customer, who has knowledge of the wrongdoing and is aware of his right to repudiate, should not have the privilege of withholding approval or disapproval of the transaction until the market has taken a turn for the better or for the worse, and then assume the position which turns out the more profitable. To accord the customer that privilege would enable him to speculate at the broker’s expense. Moreover, the broker should not be placed in a position where he does not know whether his act will be affirmed or disaffirmed, and therefore cannot act intelligently to minimize his own loss before the market has undergone too great a change. The obligation to repudiate, however, does not depend on whether or not the broker in fact relies on the customer’s silence.

The general principle is that any wrongful act on a broker’s part may at the election of the customer be either ratified or repudiated. He has the “privilege” of election, upon discovery of the facts, whether to adopt or to disavow the unauthorized act of the broker. This is in accordance with the simple doctrine of the law of agency, that an act performed by an agent on behalf of his principal which was in fact beyond the scope of the agent’s powers may nevertheless after performance be ratified by the principal, and if so ratified will bind the principal to the same extent as if authorized in the first instance. Any wrong committed by a broker, no matter how serious and no matter what its nature, is susceptible of ratification. This applies to the improper execution or non-execution of an order, to the wrongful sale of the customer’s securities or the wrongful covering of short commitments, and to all kinds of miscellaneous breaches of duty of which the broker may become guilty during the course of his relations with his customer. A customer who ratifies claims the benefit of the wrongful act and demands its avails, but he may not have more. A customer who repudiates has his claim for damages, but may not subsequently ratify and demand the benefits of the transaction, which he has previously disaffirmed.

In Connolly v. Walwyn Stodgell Murray Ltd., [1993] N.S.J. No. 191 (N.S.C.A.), the plaintiff sued his stockbroker in contract and for negligence for losses he incurred in trading activities undertaken by the stockbroker’s employee. The trading was unauthorized. The plaintiff was aware that the employee was engaged in unauthorized trading on his account but never asked him to stop. He stated that the arrangement was that the employee would be personally responsible for any loss. He also stated that he did not want to report the employee because the employee might lose his job. The plaintiff succeeded at trial.

On appeal the court held that the employee was acting as the agent of the plaintiff in all transactions and accordingly the plaintiff was liable for the total losses. The claim in contract and negligence was not established.

There was extensive evidence led at trial with regards to the supervisory obligations of the brokerage firm. Witnesses testified that the only reliable means of detecting unauthorized trading was from client complaints. The court noted that the claim by the plaintiff was for unauthorized trading, not unsuitable trading. The court also noted that the firm’s principle mechanism to detect an unauthorized trade is for head office to send out trade confirmation slips to the customer. The duty (common law, not regulatory), then falls to the customer to not accept the trade as documented and communicate that fact to management. Assuming the trade was suitable, failing such a response by the client, the firm has no reason to suspect that the trade is anything but authorized.

The court held that the acquiescence by the customer, with full reasonable knowledge, to the transactions clearly amounted to ratification and therefore vitiated any fiduciary duty that the broker may have owed to the customer. It was clear that the customer knew of the unauthorized trade and participated in deceiving the firm with the intention of gaining an advantage. It ill behooves the customer to complain about supervision, when the option was always available to the customer to communicate his knowledge of the unauthorized trading to management. Lack of supervision was not the proximate cause of the customer’s losses. Acquiescence and ratification by the customer, and therefore a failure to reasonably mitigate, resulting in the private arrangement between the broker and the client was the proximate cause of the loss.

The court also held that the personal guarantee of the broker did not bind the brokerage house, as the customer knew full well that the firm had not authorized such an arrangement. As a result, the court held that there was no basis to disavow the brokerage firm of the commissions earned on the transactions.

In Martin v. Donaldson Securities Ltd. (1975) 61 D.L.R. (3d) 518, the court held that although a plaintiff’s right to complain of a breach of trust is not lost by delay alone, acquiescence in the breach combined with delay that prejudices the defendant may amount to laches that will defeat the plaintiff. Thus, where a stockbroker disposes of certain of its customer’s shares in breach of trust but the customer delays for nine months after knowing of the breach, enforcement of the claim against the brokerage house is inequitable and the defence of laches succeeds.

Grenkow v. Merrill Lynch Royal Securities Ltd. (1983) Manitoba Court of Queen’s Bench

Connolly v. Walwyn Stodgell Murray Ltd., [1993] N.S.J. No. 191 (N.S.C.A.)

Martin v. Donaldson Securities Ltd. (1975) 61 D.L.R. (3d) 518 Hill v. Chevron Standard Ltd. ,[1991] M.J. No. 411 (Q.B.)

Hunt v.Toronto-Dominion Bank (August 26, 2003)Ontario C.A.

(E) Calculating damages:

The decision of the Ontario Court of Appeal in Zraik v. Levesque Securities [1997] O.J. No.2263 (SCJ) (Q/L), varied [2001] O.J. No.5083 (C.A.) addresses the method of calculating damages in stock brokerage cases. The key question for the court to ask and answer is “what is the date of breach?” This is significant since it will be from that date that one must calculate the damages. This principle applies whether or not the calculation is for an unauthorized trade or for an unsuitable trade. Where the calculation is for an unauthorized trade, then the calculation is relatively straightforward, since the transaction is being assessed in total isolation of other surrounding trades. However, where the calculation is for an unsuitable trade or series of unsuitable trades then the calculation is not so straightforward. In my view there is a difference in the damage calculation where the customer is alleging that a particular trade is unsuitable, and where an entire investment strategy is unsuitable. In my view where an entire investment strategy is unsuitable, but during the relevant time the customer earned a positive rate of return, and that rate of return outperformed a suitable investment strategy, then the customer would have to account for those gains and have no damages. The important question is to determine the date of breach.

In the Zraik case the Court of Appeal held that, on the facts, each trade at issue was in and of itself unsuitable and an independent breach. On each occasion the firm allowed certain procedures to be breached which permitted each trade, even though the investment strategy as a whole could not be said to be unsuitable for the particular customer. Therefore, each transaction was looked at separately. As a result, if a particular trade yielded a profit, then the customer had no damage claim. However, if another trade, which required its own individual suitability assessment by the firm which the firm did not complete, created a loss the customer would have a damage claim. At the end of the day the court refused to allow the firm to off-set the profits of the customer against the losses in calculating damages.

In my view this case turned on very specific facts. This does not mean that a customer is permitted to keep the profits from the transactions that yielded a profit, and at the same time sue for damages for transactions which incurred a loss where the claim by the customer is that the investment strategy as a whole was unsuitable. If the allegation is that the particular trade was unauthorized, then, upon proper proof, it appears that a customer can in fact sue for that loss without accounting for profits earned in the same stock in an earlier transaction that was authorized.

Zraik v. Levesque Securities [1997] O.J. No.2263 (SCJ) (Q/L), varied [2001] O.J. No.5083 (C.A.)
Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon

(F) Vicarious liability of the employer:

It should be remembered that an employee’s wrongful conduct falls within the scope of his employment when the acts are authorized by the employer, or when unauthorized acts are so connected to the acts of the employer that they can not be considered a separate act.

Where a customer is aware of the wrongful acts committed by his broker, seeks recovery from the broker personally, and conceals the arrangement from the employer to gain an advantage, then there is case law which supports the conclusion that an employer is not vicariously liable for any resulting loss. However, it can be argued that where the client was under the influence of such a broker, the court may conclude that the customer acted reasonably in the situation and firms may attract liability.

Bazley v. Curry, [1999] 2 S.C.R. 534 (S.C.C.)

Bourgeault v. McDermid, Miller & McDermid Ltd. (1982), 140 D.L.R. (3d) 174 (B.C.S.C.)

Druiven v. Warrington, [1998] 38 B.L.R. (2d) 12

Blackburn v. Midland Walwyn Capital Inc. et al. (Ont.S.C.), January 22, 2003, J.Gordon

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