OBSI an industry body trying to help the public?

[admin]

From: Ken Kivenko
To: Hon. James M. Flaherty, Minister of Finance ; James Flaherty
Sent: Monday, June 20, 2011 2:38 PM
Subject: Need for a national independent Ombudsman



Subject: Need for a national independent Ombudsman

Minister of Finance, Hon. James Flherty

On May 28th we sent an OPEN LETTER to regulators concerning the plan by 5 investmen dealers to disengage from OBSI and set up an external dispute resolution service more to their taste. We now realize that OBSI has been so compromised it cannot be salvaged in its existing state. Please see attached our letter to regulators .

We now state our support for the continued mandatory involvement of the OBSI as a means of redress for retail banking clients and investors and its enabling by an Act of Parliament . This is the mechanism in the UK, Australia and New Zealand. . Such an initiative is entirely consistent with a national regulator.As you may be aware , banks do not currently have to retain OBSI and RBC Banking has in fact dropped out ( in 2008). This huge gap in regulation is not in the public interest.

The banks and investment dealers must not be permitted to opt out of OBSI. The odds are already heavily stacked in favour of the industry in permitting financial assault to take place and then to avoid responsibility and compensation for wrongdoings. We believe it is critical that retail financial consumers should be able to count on fair, independent treatment in the resolution of their complaints.

The enormous costs of civilt litigation makes it an unrealistic alternative for most Canadians. The OBSI alternative is an important mechanism to keep the financial servicesindustry in line. Aggresive efforts by various industry players to opt out of OBSI confirm that its balanced recommendations sometimes hurt them and that it is doing credible work.

Should you have any questions, do not hesitate to contact us.

Sincerely,

Ken Kivenko P.Eng.
President, Kenmar Associates
(416)-244-5803
www.canadianfundwatch.com

[admin]

canadianfundwatch.com The Fund OBSERVER Mid- June , 2011 The voice of the retail investor
TWO Questions
1. Why doesn't CSA Chair Bill Rice acknowledge our request for a meeting on the OBSI fiasco? 2. Does anyone still believe the industry-regulator complex doesn't exist?
OBSI is under attack:
Doug Melville, Ombudsman for Banking and Investment Services can use your help. TD Waterhouse Canada Inc., Investors Group Inc., Manulife Financial Corp., Macquarrie Group and RBC Capital Markets are out to dismember OBSI .In a nine-page letter sent June 1 to the Canadian Securities Administrators (CSA), the Ontario Securities Commission (OSC), the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Funds Dealers Association of Canada (MFDA) and OBSI, FAIR www.faircanada.ca declared its support for “continued mandatory participation” for all investment dealers and mutual fund firms and “urges securities regulators to protect investors by resisting the attempt to undercut OBSI and render it ineffective.” Source: http://faircanada.ca/wp-content/uploads ... Letter.pdf SIPA www.sipa.ca has written Finance Minister Flaherty asking that OBSI be enacted by Federal legislation and be freed from all industry influence. We agree, the clench fist approach these firms have taken to independent complaint handling suggests client interests may not be first. Only a truly independent entity can assure fair restitution for industry wrongdoing. Contact your MP and/or Minister Flaherty and support an independent Federal Ombudsman service for banking, investments and insurance complaints.
Hmmm..: TD Waterhouse pays $30,000 for contravening cease trade orders: BCSC [TDW is one of the dealers calling for dismemberment of the national independent Ombudsman www.obsi.ca ]
INVESTOR ALERT issued: We regard the OBSI situation so critical to investor protection we issued a ALERT on June 3rd. In it we advised readers of the threat and implications. We also asked readers to contact Ministter of Finance James Flaherty to take action to prevent a fiasco. A copy of the ALERT can be obtained by contacting kenkiv@sympatico.ca.

[admin]

Roseman: Ombud for investors wants your help
Published On Thu May 26 2011

TORONTO STAR

By Ellen Roseman
Personal Finance Columnist
The Ombudsman for Banking Services and Investments wants to hear from the public about how it deals with complaints from investors about unsuitable advice.

Some members of the industry-funded body are dissatisfied with the way OBSI assesses suitability cases and calculates the size of an investor’s loss that deserves compensation.

As a result, securities regulators asked the ombudsman to release a consultation paper. It’s posted online at www.obsi.ca.

OBSI’s role is to investigate complaints and try to resolve them in a manner that is fair and reasonable in all the circumstances.

Established in 1996, OBSI started resolving investment complaints in 2002. It can recommend compensation for investors going up to $350,000.

The process starts by looking at the “know your client” or KYC information gathered by the adviser when the account is opened (and updated later).

OBSI may interview the parties and do its own research to see if the information was accurately recorded during the period in question.

Investors often complain they didn’t understand the forms they signed or their adviser didn’t review them or explain their significance.

The next step is to look at the risks of the investments chosen by the adviser and compare them to the investor’s KYC forms.

“The fact that an investment has declined in value does not necessarily mean it’s unsuitable. Similarly, an investment that has performed well is not necessarily suitable,” the paper emphasizes.

Though securities law is based on proper disclosure or risks, OBSI says disclosure is not enough.

“Disclosing information or providing investment literature does not override the adviser’s obligation to recommend investments that are suitable for the investor.

“In other words, disclosure does not make an investment or strategy suitable if it’s otherwise mismatched with the investor’s objectives or risk tolerance.”

If OBSI believes the investments are unsuitable, it will try to determine what financial harm the investor suffered and what amount the firm should pay as compensation, if any.

“We typically calculate the performance of the unsuitable investments and then the position the investor would have been in had they been suitably invested,” it says.

“If the investor’s actual unsuitable investments performed worse than suitable investments would have, the difference is the investor’s financial harm.”

As the final step, OBSI looks at investors’ responsibility for any harm incurred — assessing their experience, knowledge and sophistication, their degree of trust in the adviser and their actions to prevent or limit losses.

“We will consider whether there was a point in time when the investor became aware or should have become aware that an investment, portfolio or strategy was problematic,” it says.

An alternate approach is to let the investor and firm try to negotiate mutually acceptable compensation without an impartial determination of loss. But this is not how a traditional ombudsman scheme operates.

“It should be noted that one of the key rationales for the creation of OBSI by the industry was the recognition that there is an inherent imbalance between investors and their firms/advisers.

“In particular, there is an asymmetry of information given the knowledge, skills and access to information available to the firms that are not similarly available to most investors.”

The ombudsman was created to give access to a free and independent dispute resolution service that includes, among other things, a determination of the amount lost, up to a specified limit.

“OBSI is an impartial body that does not, and should not, advocate for the investor (or the firm) as part of its process.”

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca

[admin]

http://faircanada.ca/top-news/ombudsman ... -industry/

another story about efforts by the investment industry trying desperately to expand their "vast reputation protection system". Apparently OBSI as a dispute resolution mechanism is "too fair", for our big banks. I hope someone finds this stuff of interest because it forms the foundations for financial abuse of each and every person in Canada, whether you invest with them or not.
Below is the opening paragraph, and go to the link to FAIR for the entire thing.
=========================================================================================================================

"Members of the financial industry hold themselves out as acting in the interests of their clients. This is also the expectation and understanding of retail investors. However, the law does not currently require financial advisors and firms to act in their clients’ best interests. FAIR Canada believes that a clear requirement that financial advisors act in a client’s best interest would bring the law in line with industry’s advertising and marketing and help protect investors. "

http://faircanada.ca/top-news/ombudsman ... -industry/

[admin]

Sent: Sunday, May 29, 2011 6:05 PM
To: Roseman, Ellen
Cc: larry elford; Ken Whitehurst; Garth Rustland
Subject: Comment on your May 26 article re OBSI

Dear Ms. Roseman -

I greatly value your series on the OBSI. I tried to make a comment earlier today on your May 26 piece. Unfortunately it seems to hang up when I am attempting to post the comment to the comment section. Would you be able to forward the comment to the appropriate department. The comment is as follows:

I am very glad that you, Ellen, and the STAR have been covering this subject. There is a major problem with the OBSI being an industry-funded umpire. It refuses to uphold any responsibility for the question of lawful business practices; it will not look at the issues of fraudulent business violations of Sections 361-363 and Sec 366 of the Criminal Code, when a broker trades without authorization, and creates 7 year DSC fees without the consent or knowledge of the investor. Or fabricates false records of "unsolicited trade" in commission slips. This lack of fidelity to lawful business practices is creating a competitive disadvantage for Canada, in making Canadian investment less secure than in countries where the law is treated as everyone's obligation to uphold. We cannot rely on police services to govern this, when these police organizations have been persuaded that "the industry is self regulating".


With great appreciation,

Alan Blanes
Kelowna

[admin]

(advocate intro.....this letter from an investor rights champion from Toronto, Ken Kivenko. He is attempting to sway investment regulators and self regulators from allowing rule changes which would allow investment sellers (your bank or mutual fund) to hire their own private dispute resolution mediators. Apparently they feel that the one industry complaint ombudsman is being too generous in awarding compensation to victims of financial violence and they would like to hire their own. RBC has already "opted out" of this industry approved system in favour of their own. (does that mean that RBC is a less safe/fair place to invest than the others?) Read on, as this letter is a good example of some of the "foundations" of how you, your children or your grandchildren will retire with about half of the retirement savings that they would in a different jurisdiction. Sure it is boring stuff, but it is truly your financial future these people are fighting over.)

May 30 , 2011

Mr. Bill Rice
Chair, Canadian Securities Administrators
Chair and CEO, Alberta Securities Commission
Alberta Securities Commission Ste. 600 - 250, 5th Street SW
Calgary, AB T2P OR4
bill.rice@asc.ca

Mr. Howard Wetston
Chair and CEO, Ontario Securities Commission
Ontario Securities Commission
20 Queen Street West, Suite 1903 Toronto, ON M5H 3S8
hwetston@osc.gov.on.ca

Mr. Larry M. Waite
President and Chief Executive Officer, Mutual Funds Dealers Association of Canada
121 King Street West, Suite 1000 Toronto, ON M5H 3T9
lwaite@mfda.ca

Ms. Susan Wolburgh Jenah
President and CEO, Investment Industry Regulatory Organization of Canada
Investment Industry Regulatory Organization of Canada
121 King Street West, Suite 1600 Toronto, ON M5H 3T9
swolburghjenah@iiroc.ca


Mandatory OBSI Participation by IIROC and MFDA Member Firms

Kenmar Associates have been actively tracking OBSI ever since it became the Ombuds service for investments in 2002. We have issued Reports on its decisions, its Annual Report(s) , its operations, its Terms of Reference and its governance . We have acted as Intervenors or supported complainants in other ways. We have issued a Guide for retail investors on how to deal with OBSI . Thus ,we feel qualified to comment on the current issue.
A May 24 article in the Toronto Star " Brokers battle with ombudsman" http://www.moneyville.ca/article/996371 ... mpensation says it all. Canada’s large investment firms are fighting with the Ombudsman for Banking Services and Investments (OBSI). The article says they think OBSI’s decisions are too favourable to investors and too costly for industry members. They want to work with other complaint mediators just as the RBC's banking group did in 2008. According to the article, five investment dealers – TD, Manulife, Investors Group , Macquarie Group and RBC – met with you to seek exemption from mandatory participation in OBSI .
While we were not invited to this meeting and have been unable to secure a meeting of our own , we take this opportunity to provide our viewpoint. The article says that you have denied their request, but asked OBSI to explain and justify the method used to calculate investment losses via a public consultation. The Consultation Paper has been released and we will comment on it. Our comments here are laser focused on the retention of OBSI as the sole Ombud service for handling MFDA and IIROC Complaints. Clearly,the industry is exploiting a defect in of National Instrument NI 31-103 [ para 13.16 ] as the rationale to move to an independent dispute resolution service framework of their choice .This would not be in the public interest .
While OBSI is viewed by many with suspicion due to a perceived pro-industry bias in recommendations , weak governance , excessive cycle times, and 100 % industry financing , it remains in many cases ,the only option available for aggrieved investors to gain some measure of restitution. Legal remedies are unaffordable for the vast majority for most complaints submitted to OBSI . They are simply not large enough to justify costly and time consuming litigation but large enough to adversely impact the lives of Canadians. In Q1,2011 OBSI made recommendations for monetary compensation or facilitated monetary settlements totaling $792,280, representing 29% of all closed case files. 17% of banking services case files and a whopping 41% of investment case files ended with a recommendation for monetary compensation or facilitated monetary settlement. An additional three case files (2% of closed case files) ended with a non-monetary recommendation or facilitated settlement .
Compensation Total Average Median
Overall $792,280 $14,672 $7,569
Banking Services $103,037 $6,869 $1,000
Investments $689,243 $17,673 $9,078

In fiscal 2010, OBSI recommended compensation in 78 banking case files and in 177 investment case files, with an astonishing 100 % of recommendations being accepted by the firms involved. Complainants received compensation from their financial institution in just 20% of banking cases and 38% (177 of 468) of investment cases, representing a total of only $3,788,896 for all of Canada [ this is less than the tiny OBSI annual operating budget of$7, 335,746] . Just 5 cases were settled for greater than $100,000 . About 63 % of total OBSI costs were related to investments. Among IIROC firms, TD Waterhouse Canada was the subject of the most cases ( 72 vs. 46 in 2009), while BMO-related firms (BMO InvestorLine Inc., BMO Nesbitt Burns Inc. and BMO Nesbitt Burns) were the focus of 26 cases. Ironically, both firms are on the Board of Directors. On the MFDA side, Investors Group Financial Services Inc. was the subject of 24 cases, followed by WorldSource Financial Management with 10. These results indicate that the numbers involved are very small . So small, in fact that we believe they represent only a small fraction of prevailing investor abuse .In any event ,it appears that a mountain is being made of a molehill by a few firms.
OBSI is generally recognized as the nation’s banking and investment Ombudsman. The Ombudsman can serve as a bulwark of financial consumer democracy in troubled times, protecting citizens and helping industry, regulators and government to improve in the face of a tough economy and fiscal constraint. See http://www.gouvernance.ca/publications/09-06.pdf for a review of the Ombudsman as a producer of better governance.
Here are our main reasons for retaining OBSi as the sole Ombuds service approved by the CSA:
OBSI provides a one-stop point of entry for complaint resolution. Distressed investors require simplicity in working their way through the convoluted financial services industry complaint handling process.
OBSI are constrained by the FRAMEWORK worked out by regulators and must comply with its specifications.
Every 3 years OBSi is subjected to third party review providing some assurance the service is functioning properly and keeping up with Best Practices around the world.
By its nature, OBSI has a treasure trove complaint database entrusted to it. This database can be mined to help develop better practices in the financial services industry , not just assess complaints. Prevention will reduce complaints and make Canada a safer place to invest.
OBSI's cross Canada complaint database can be used to identify systemic issues at the national , regional or dealer level. It could , if used properly, provide an insight into long term industry issues. For example , OBSI have identified the NAAF/KYC system deficiencies as a root cause of investor complaints and a factor in complicating the analysis of complaints.
OBSI is much more transparent than any for- profit dispute resolution services.
Permitting MFDA/IIROC dealers to retain multiple dispute resolution service providers of their choice would lead to confusion and inconsistencies in the processes and methodology used in resolving investor complaints.

Eliminating the requirement for member firms to participate in the OBSI would create an alternative complaint handling network laced with conflicts- of- interest with little oversight by regulators . Retail investors would be at a huge disadvantage under such a regime. We expect that the for-profits would be more motivated to retain business than be fair to complainants. This would further weaken investor protection in Canada .

A for-profit Ombuds service paid for directly by dealers would never be trusted by investors
These points makes it essential that mandatory use of OBSI be preserved .The cost of litigation is simply too much for most Canadians to bear especially after they've lost a money. Internationally, other Ombuds services are an Agency of Government established by legislation as is the case in the UK, Australia ,NZ and elsewhere . By all accounts these are working very well. e.g.
UK Financial Ombudsman Service (FOS) attacks banks handling of investment complaints http://www.moneymarketing.co.uk/investm ... 52.article In Canada, the banks and dealers are attacking OBSI. Latest FOS Annual Review at http://www.financial-ombudsman.org.uk/p ... 1/ar11.pdf (152 pages) See page 40 esp. Read also page 104 How Consumers feel about complaining.

OBSI has already been irreparably damaged by the public disagreement. Of course the real problem to be `` fixed`` is the abuse sales Reps are inflicting on Main Street. OBSI is only the symptom of the problem. The KYC system is broken and suitability standards are weak and ill-defined. Investment Policy Statements would help but they are not required by regulators and hence ,infrequently used. We note also that, in most cases, sales Reps owe no fiduciary duty to clients . These systemic regulatory deficiencies are the root cause of the majority of complaints .
OBSI does have serious governance issues and excessive cycle times but their job is made more difficult by working within a weak regulatory foundation
Because of all the negative publicity and hostility , OBSI will never be the same again. Intimidation and threats now hang over their head- funding formulas and budgets will be real battles.- loss calculations will be a persistent irritant-more cases will end up in Court or dropped by worn out investors Investors will now not accept that OBSI is independent [if they ever did]. OBSI has been emasculated and permanently impaired . We recommend that the CSA engage with OBSI to stabilize it and rebuild staff and investor confidence. This will require ,at a minimum, changes to NI31-103 and the FRAMEWORK The CSA / OSC should sit down with the investor advocacy community and discuss this Category #1 issue face to face . After all, investor protection is JOB #1.Without an independent OBSI, investors will have to get involved with costly , lengthy and frustrating civil litigation.
We add parenthetically that a compensation calculation that makes people whole from an industry that holds itself out as a trusted source of advice must include opportunity costs. The abuses we see are truly disturbing . It is supported by false and misleading representations by the industry as to the roles, titles, and compensation of those they employ as "advisors".Further information regarding the misrepresentative marketing practices that are considered standard operating procedure by the industry can be found at http://www.investorvoice.ca with particular attention to the MARKARIAN vs CIBC WORLD MARKETS discussion of false and misleading sales practices by a Quebec Superior Court Judge. http://investorvoice.ca/Cases/Investor/ ... _index.htm Investors are lured into a relationship that is unfriendly to them. They are defenseless in this scenario. That is why loss calculations employing notional portfolios play a crucial role.
OBSI should explain their methodology in more detail but the general concept is correct. If it were any other way , restitution would be limited to the loss incurred - for a senior or retiree especially, that could mean several critical years of potential earnings would be lost forever. It would mean that RRSP's/RRIF's could not be repaired. It would also mean that reckless behaviour would not carry much financial risk for industry participants .We think of unsuitable investment recommendations as unauthorized trades and therefore the loss calculation should include opportunity costs. OBSI is not a regulator -it cannot fine wrongdoers , order disgorgement or assign punitive damages. so opportunity costs are the only available route for fair compensation for demonstrably defective advice . THE UK Ombuds service routinely uses notional portfolios to assess restitution.

In conclusion, Kenmar Associates supports continued mandatory OBSI participation for MFDA an IIROC dealers and urges securities regulators to protect investors by resisting any attempt to dismantle OBSI. We urge the CSA, IIROC, and the MFDA not to buckle under to intense industry pressures to revise Section 24.A.1 of MFDA By-law No. 1 and IIROC Rule 37.2 and to remove the definitive requirement for dealers to participate in the OBSI complaint assessment process.

In fact ,we urge regulatory reforms to strengthen the accountability and independence of OBSI in the public interest. Further , the financial services industry should be asked to explain why the number of OBSI complaints is so high and growing . They should be asked to reveal their loss calculation methods and justify them. They should be asked to justify why they do not compensate for “ opportunity losses”. They should be asked to correct obvious deficiencies in their investor protection protocols.

We understand that OBSI currently has about 15 cases in which there’s a stalemate and the firm refuses to follow its recommendation. According to OBSI's Terms of Reference they should be publicly revealing the names of the firms that refused to accept their recommendations. That hasn't happened, further weakening OBSI's claim of independence. The faster this invented problem is resolved, the faster these citizens can get on with their lives.

We would welcome an opportunity to meet with you and discuss this critical issue.

Should you wish to disclose or post this letter on websites , permission is granted.

Sincerely,

Ken Kivenko P.Eng.
President , Kenmar Associates
kenkiv@sympatico.ca
(416)-244-5803

cc
Mr. Doug Melville
Ombudsman and CEO, Ombudsman for Banking Services and Investments
401 Bay Street, Suite 1505 ,P.O. Box 5
Toronto, ON M5H 2Y4
dmelville@obsi.ca

[admin]

This cartoon accurately depicts 99.99% of Canadian regulators who act as reputation protection systems for the financial industry.


The following was provided to OBSI in response to a call for comment on their consultation paper on "suitability" etc. It is dually posted in the investor advocate site in the section titled GET YOUR MONEY BACK due to it's expected use in helping abused customers in this regard.

The paper is good reading for anyone who has been violated by someone calling themselves a financial "advisor" or representing as a financial professional of some kind. http://www.obsi.ca/UI/Resources/WhatsNew.aspx?csid1=77

the paper can be found at the OBSI website http://www.obsi.ca/UI/Resources/WhatsNew.aspx?csid1=77

The jury is still out as to whether or not OBSI is simply another industry body paid to protect and enhance the reputation of the industry, even at the expense of honesty and integrity to the public. They are currently in a battle with major financial players in Canada who are not in favour of how they judge investor losses and investor compensation, soooooooo if the banks are leaving OBSI (Royal Bank the first) they may in fact be doing a better job than this author has given them credit for. Time will tell. History will judge.

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Thank you for the well reasoned and well written consultation paper on investment suitability. I would like to add a comment or two which I hope might add to the discussion.

Each of my comments may be difficult for the industry to swallow or to agree with, as each one I feel addresses issues of honesty and fair play in providing an investment service:

As nearly each person in Canada is representing him or herself as an "advisor", and each company is advertising and promising a similar service to the public, honesty and fair play is a fair expectation by members of the public.

In this regard, it is unsuitable when choosing a mutual fund to recommend to a client, to choose the one which pays the highest commission possible, and may include a higher management fee (and lower investment performance) as a result. Unfortunately the vast majority of mutual fund choices are sold with the DSc option, which is arguably the "most suitable" choice for the compensation of the seller, and not for the customer. So, in this regard, I might suggest that something like "four out of five" persons who call themselves "advisor" are failing in their duty to advice fairly and honestly and instead are choosing the most suitable product for commission earning purposes instead of for customer benefit. This is an industry wide failure with sales statistics (mutual fund sales) to back it up. Some source info found at http://www.investoradvocates.ca and a post script comment on sale of "house brand" mutual funds at end of this posting**.

Secondly, a long term investment rule or principle that has always held, but I have never seen it actually enforced, is the rule of "best execution". It refers to order execution, and it requires customer orders to receive the best price they possibly can receive. I again, point out that more than 80% of mutual fund "advice" is contrary to this rule, and if it were to be enforced, customers would be owed a refund for any mutual fund purchased with a high commission choice (DSC for example), when there are identical but cheaper (or less restrictive) alternatives available for the customer. The practice of selling the highest commission choice has become "standard industry practice, but again, fails in the honesty and fairness testing.

Third, is the written principle or rule of providing the client with true, clear, plain disclosure. When I was witness to several hundred million dollars of sales of mutual funds while I worked in the industry for two decades, I noticed a great deal of time and effort dedicated to NOT informing the customer of his or her investment choices, but rather an extreme dedication to hiding these choices, while informing the customer that the highest commission generating choice was the best for him or her. It was a classic case of a hundred million dollar "bait, and switch" operation, whereby the customer is led to believe that their best interest and best advice would be provided, while actually providing them with information that only supported the highest commission and or fee generation choices. see http://www.examiner.com/crime-in-calgary/larry-elford

Unfortunately the sale of investments is, and was done by commission salespeople, without disclosure to the public that this has always been the case. It is a constant reminder of the principle of DECEPTIVE MARKETING PRACTICES, as outlined in the criminal provision of the Competition Act of Canada. It is supported by false and misleading representations by the industry as to the roles, titles, and compensation of those they employ as "advisors", and this may be another violation of the criminal code of Canada. Fortunately the industry has self regulating privileges, which give it the powers to "decriminalize" any behaviours that are advantageous to the industry. InvestorAdvocates has considerable information available to the public about this at viewtopic.php?f=1&t=173

It is expected that one day, the privilege of self regulation, which allows decriminalization and willful blindness of rules and laws, will be eased out in favour of client first principles which are actually enforced, and not just written down for appearance. I would like to thank OBSI for it's efforts in this regard.

Further information regarding the misrepresentative marketing practices that are considered standard operating procedure by the industry can be found at http://www.investorvoice.ca with particular attention to the MARKARIAN vs CIBC WORLD MARKETS discussion of false and misleading sales practices by a Quebec Superior Court Judge. http://investorvoice.ca/Cases/Investor/ ... _index.htm

Larry Elford, former CFP, CIM, FCSI, Associate Portfolio Manager, retired
Lethbridge Alberta

Post Script comment. Using IFIC sales stats, more recent examples of the "four out of five" salespersons go for the highest commission or fee, rather than the most suitable investment product, are found in the sale of "proprietary" or "house brand" funds. According to the OSC Fair Dealing Model, these funds earn up to 26 times more money for the investment firm than selling independent products. It is like walking into a restaurant, asking for advice on the "best" wine in the place, having your waiter bring you a $300 bottle of his recommendation, and you never knowing that he made it in his own basement. Not very professional, ethical, or even legal, but with the bait and switch style of investment advice in Canada, a licensed salesperson (or dealing representative) can misrepresent himself to the public as something other than what he is licensed as, or how he is paid. Assante Artisan and Optima funds probably the very best known and best documented case in Canada of doing this to clients, pumping up the value of the company and selling it off for $800 million.

[admin]

Subject: Roseman: Ombudsman can't resolve dispute with members over compensation

Ombudsman can't resolve dispute with members over compensation
TORONTO STAR
By Ellen Roseman | Tue May 24 2011

Canada’s large investment firms are fighting with the Ombudsman for Banking Services and Investments (OBSI), which can review client complaints and recommend restitution of up to $350,000.

They think OBSI’s decisions are too favourable to investors and too costly for industry members, in some cases. They want to work with other complaint mediators.

Five investment dealers – RBC, TD, Manulife, Investors Group and Macquarie Group – met with securities regulators to seek exemption from mandatory participation in OBSI earlier this month.

Regulators denied their request, but asked the ombudsman to explain and justify the method used to calculate investment losses.

“We are confident that we are resolving complaints fairly. We welcome oversight by the regulators to provide assurance to all stakeholders that we perform our mandate in the public interest,” says Doug Melville, the lawyer who has headed OBSI since 2009.

In a consultation paper to be released later this week, the ombudsman will try to address the industry’s concerns and seek public support for keeping the status quo.

What’s behind the battle? I think there are three issues at stake.

Participation isn’t mandatory for banking disputes.

The federal government encouraged banks to set up and fund their own complaint handling system in 1996.

But in 2008, Canada’s largest bank (RBC) started using ADR Chambers for all its banking complaints. The federal government did not intervene.

While setting a precedent for OBSI’s banking operations, RBC’s move had no impact on the handling of investment complaints.

All members of Canada’s two national self-regulatory groups – the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA) – had to join OBSI in 2002. They can’t pull out unless the rules are changed.

Investment complaints soared after the 2008 market crash.

When stock prices fell by almost half from September 2008 to March 2009, many people looked at their investment portfolios to see how suitable they were for their age and stage of life.

If they had too much exposure to stocks, they filed a complaint with their investment dealer – and later with OBSI – as a faster and cheaper option than going to court.

However, OBSI handles complaints in a different way than a court would. When analyzing suitability, it looks at an investor’s asset mix going back many years – and not just before the 2008 crash.

In doing this, it’s departing from the trend to adopt a statute of limitations for investor restitution in court cases. In Ontario, investors can sue firms for only two years after they become aware of problems.

OBSI takes account of opportunity costs.

Some investment firms want to limit the compensation to the actual losses suffered by an investor. They may throw a bit of interest into the settlement.

OBSI, however, looks at the opportunities an investor gave up by adopting an unbalanced portfolio.

Suppose you complain about losing money because you were overweighted in stocks. You ask OBSI to investigate.

It starts by looking at the form you had to sign when opening the account (often called the “know your client” or KYC form), which sets out your knowledge, experience and investment goals.

If the recommended strategy didn’t fit your objectives, OBSI then tries to apportion responsibility between you and the investment firm.

Finally, OBSI sets up an imaginary portfolio that is suitable for your needs. It compares the sensible portfolio’s performance with the actual performance you achieved – trying to get you back to where you’d have been on day one if you hadn’t agreed to the unsuitable recommendation.

In two-thirds of cases, OBSI doesn’t recommend that the firm compensate the investor, Melville says.

However, OBSI currently has about 15 cases in which there’s a stalemate and the firm refuses to follow its recommendation. This ongoing quarrel is hurting investors and needs to be resolved quickly.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.

[admin]

https://docs.google.com/viewer?a=v&pid= ... MmJh&hl=en

The google doc link above should take you to ADR Chambers 2010 Annual Rpt RBC Banking.......an alternate dispute resolution process that RBC has elected to go with while trying to avoid the OBSI system.

It strikes this author that RBC might prefer to hire its very own judge and jury in order to have greater control over the outcome of any disputes that come it's way. My thoughts are that this process should be avoided like a Kangaroo court should be avoided. Abused and violated financial clients should (if they can) pursue any financial predator in an open, reasonably unbiased court of law, and not in an arena where the referee is chosen, bought and paid for by your opponent. I could be wrong on some exact specific details and I await and welcome corrections to come my way.

ADR Chambers 2010 Annual Rpt RBC Banking

https://docs.google.com/viewer?a=v&pid= ... MmJh&hl=en

[admin]

FINANCIAL POST
Theresa Tedesco May 12, 2011 – 7:57 AM ET | Last Updated: May 12, 2011 8:33 AM ET

Officials from RBC Capital Markets Ltd., TD Securities and Manulife Financial Corp. are meeting today with securities watchdogs and industry self-regulating agencies to argue for changes to the way brokerage firms are forced to resolve disputes with their aggrieved customers.

FP Street has learned that a meeting has been scheduled at the offices of the Ontario Securities Commission, the country’s top securities regulator, in the wake of an unsuccessful attempt by RBC, TD and Manulife to pull out of a mandatory provision that requires brokerage firms to mediate through the Ombudsman for Banking Services and Investments (OBSI).

OSC chairman Howard Wetston is hosting the meeting that will include William Rice, chair of the Alberta Securities Commission and current chair of the Canadian Securities Administrators (CSA), the national umbrella organization responsible for securities regulation, Susan Wolburgh-Jenah, president and chief executive of the Investment Industry Regulatory Organization of Canada (IIROC), her counterpart at the Mutual Fund Dealers Association of Canada (MFDA) Larry Waite, and Douglas Melville, chair of OBSI. The brokerage firms will also be represented at the afternoon session.

A mutiny has been in the making for months because a growing number of investment dealers are refusing to accept OBSI’s recommendations in as many as 50 cases.

At the heart of the dealer revolt is OBSI’s loss calculation methodology used to figure out compensation to be paid to aggrieved customers.

There is considerable difference of opinion on OBSI’s methodology for calculating losses. The ombudsman’s office does not negotiate with its member firms directly. Rather, it is tasked to reach a “fair” conclusion based on the facts of each individual case.

The investment dealers are up in arms because OBSI has been assessing opportunity costs on suitability without consultation. Many of OBSI’s decisions are not only factoring in money lost if a dealer puts a client in an unsuitable investment, the mediator is also awarding costs for lost opportunity.

The major firms argue there is no oversight of the banking ombudsman by any regulatory body, and its powers have been expanded considerably since its creation in 1996 with no accountability.

“The last thing the big dealers want is to send something to OBSI because they aren’t going to get a reasonable, cogent and logical analysis of a complaint,” said an industry observer. “This is not a simple case where dealers want to castrate OBSI. They’ve been complaining for years. They want choice.”

What made the long simmering dispute finally boil over was the introduction of the CSA’s national instrument 31101, part of broader registration reform tabled in 2009, that states dealers must provide their clients with independent dispute resolution or mediation services at the brokerage’s expense.

However, that provision collides with a 2002 rule by IIROC and the MFDA which makes it mandatory for all brokerages to use OBSI, which is funded by its 600 participating banks and investment firms to sort out several hundred individual complaints a year that consumers and financial firms can’t resolve themselves.

The CSA had delayed the implementation of its rule for two years (it was scheduled to become effective in September) and the controversy is threatening to delay it further.

The large investment firms want IIROC and MFDA to adopt the CSA rule allowing them a choice of mediation and dispute resolution services for their customers. And they want the self-regulatory bodies to oversee OBSI, which IIROC and the MFDA have so far resisted.

RBC, TD and Manulife recently filed an application with IIROC and the MFDA for an exemption from the mandatory provision that requires them to resolve disputes through OBSI. That request was denied two weeks ago by IIROC, setting up today’s meeting.

Consumer advocate groups have not been invited to attend today’s gathering.

[admin]

thanks to ken from http://www.canadianfundwatch.com for this story
(get on his mailing list)

Email from a reader :
Mr. Kivenko , I just have to tell you what's it's like to deal with the Ombudsman. My complaint has been there for more than one year. We experienced a rather uncomfortable interview that seemed oriented towards pinning the blame on me.

Despite repeated messages , our calls are never returned. We don't know the status of their investigation or when we can expect a decision. The result is that my elderly relative ( whom I'm representing) is getting anxious , frustrated , angry and stressed out at the long time it's taken. This is making his “golden” years a nightmare and adversely affecting his health.

Quite frankly , we need the money to keep him in the retirement home and I can't keep financing this much longer. I'd get a lawyer and file a suit but am told if I do, OBSI will immediately stop their investigation. Our case is very simple- at age 8x he was sold U.S. Equity and Technology mutual funds with an early redemption penalty . They've lost a lot of money and now he's had to pay $1x,000 to escape from the funds , his adviser and the firm.

Why does the obvious take so long to decide?Are they trying to wear us down? We feel victimized twice -once when we got taken by the so-called adviser – and again when we tried to get our money back! - sender's name deleted by us Response: We often hear about very long cycle times at OBSI, OLHI and the MFDA/IIROC . There is little you can do except make them aware of your dire situation. They should have a procedure for accelerating a complaint investigation in cases of financial , emotional and physical distress.

(advocate comment......each of these industry paid organizations now appear to be kangaroo courts with loyalty to those who pay them. If you go into this process please know in advance that the referee might be being paid by the other team. Very, VERY, unprofessional examples of worst practices by industry people.)

[admin]

DRAFT

OBSI Governance Checklist
In the 1990’s the Federal Government gave OBSI the opportunity ( non-binding) to act as the nations ombudsman for banking services which was changed in 2002 to include securities by the CSA. Thus, OBSI in effect has a public service function. Back in 1996 there was a handshake understanding that the banks would use OBSI. The understanding was breached in 2008 when RBC banking chose its own dispute resolver service., ADR Chambers Despite this isolated incident and the voluntary nature of the arrangement, OBSI is recognized as the nation’s banking and investment ombudsman.
By its nature, OBSI has a huge complaint database entrusted to it. This fact plus its critical public service role makes it necessary that governance is set at the highest possible level. OBSI's governance process is delineated at http://www.obsi.ca/UI/AboutUs/Governance.aspx OBSI has 4 Committees, the most important one from a financial consumer viewpoint is the Standards Committee. The Standards Committee recommends and monitors OBSI’s quality and performance standards, independent reviews and the Code of Conduct, as well as overseeing any revisions to the Terms of Reference. Its composition is not publicly disclosed.

Some current governance issues:

Some of the governance issues:

Non-responsiveness of the Chair. The Chair didn't even acknowledge my email requesting disclosure of Section 27 rejection rationale .

Rejection of  Section 27 Ombudsman recommended amendment , a housekeeping change, without publicly providing rationale

Advocates are questioning why Complainant satisfaction surveys are no longer authorized  for release by the Board

Questions are arising why there are 2 Industry Directors from TD but no representative from mutual fund dealers , an industry where complaints are numerous and severe. Board Nomination Committee failure? 

Failure  to conduct required  3 year  Independent review as required by Framework with Regulators agreed to by the Board .

Of the OBSI cases I'm handling all range from 10 -18 months without a recommendation - i.e. not meeting  unambitious 80%/180 day target by wide margin . OBSI's own stats show massive below standard cycle time performance. The Board should be disclosing its plan to get back on track.

Poor disclosure of restitution methodology 

Recent complaint  interviewing techniques where victims are put on the defensive. I listened in on 2 of these calls as INTERVENOR and had to ask they be halted. Investigators were attempting to put words in people' mouths. Has the Board established/ approved a standard of conduct  ?

Not publicly posting Comment letters is poor transparency and not a BEST PRACTICE for a public interest entity like OBSI. Even the OSC posts comments for all to view.

RBC  is on a tirade at the performance of OBSI and openly condemning it for lack of accountability, understaffing / poor training of investigators and long case cycle times. They are totally satisfied with ADR Chambers and rave about their speed and professionalism.  They are not alone in voicing dissent.
EXTRACT: http://www.industrymailout.com/Industry ... 386&p=174b
 
This should be a RED FLAG FOR OBSI  BOARD [ RBC is Canada's largest Bank , mutual fund manager and mutual fund  dealer]
 
Note that the RBC Bank pulled out a few years ago. Now we see a pretty vocal denunciation of OBSI's processes from the Investment (IIROC ) side as well . Hopefully, OBSI's Board  approved the public disclosure of RBC's submitted Comments.  
·      "   RBC DS continues to have significant concerns about the overall lack of accountability and transparency with respect to OBSI’s public consultation and approval process for revising the ToR.     -Many of the recent amendments to the ToR expanded the scope of OBSI’s powers beyond that of a dispute resolution service, allowing OBSI to effectively adopt quasi SRO functions while it is not subject to the high standards of due process that are required of a statutory body. As expressed in a number of industry submissions to OBSI over the past years, this has created a significant dissatisfaction among the Participating Firms. The request for comments published on October 29, 2010 presents an example where substantive changes in OBSIs process were introduced as changes of a housekeeping nature and as such, would not be subject to due process that accompanies material changes to the ToR.RBC DS strongly supports investors’ access to dispute resolution services that are fair, transparent and efficient; however, RBC DS does not believe that OBSI provides a dispute resolution service with these merits."

If IIROC approves new Arbitration rules with higher limits ,  what will be OBSI's response?

Chair rotation - is 10 years too long?

There are additional issues on the operational side but the Ombudsman needs Board support including funding .  SIPA and others has always felt an Ombudsservice should not be industry funded and represented on the Board . The Board needs to develop a better relationship with all stakeholders. The Consumer/Investor Council will help  but that was a long overdue move recommended by myself  to Ms. Brown way back when Lauber was Ombudsman. An unresponsive Board is in our view an example of deficient governance.
 
K. Kivenko
Kenmar Associates
January 10, 2011

[admin]

CONSUMER COMPLAINTS ABOUT BANKING SERVICES AND INVESTMENTS GROWING RAPIDLY

For immediate release June 9, 2010

CONSUMER COMPLAINTS ABOUT BANKING SERVICES AND INVESTMENTS GROWING RAPIDLY
TORONTO – Complaints about the financial industry have reached record levels, according to new figures released today by the Ombudsman for Banking Services and Investments (OBSI).

OBSI looked into 990 banking and investment consumer complaints in 2009, representing a 48 % increase over 2008 and a more than tripling of the number of case files in just three years. OBSI also processed over 12,400 individual inquiries from consumers and small businesses in 2009.

As in recent years, OBSI saw more investment cases (599) than banking cases (391). Investment complaints continue to drive much of the overall increase in complaint volumes OBSI deals with. While banking sector complaints were up 21%, investment complaints were up a staggering 73%.

"The global economic crisis, coupled with sharp declines in financial markets, gave rise to much of the increase in complaints we saw," said Douglas Melville, Ombudsman for Banking Services and Investments. "However, despite the improvement in the markets over the last year, complaint volumes remain high. We expect this to continue."

OBSI looks into complaints about most banking and investment products and services including: debit and credit cards; mortgages; stocks, mutual funds, income trusts, bonds and GICs; loans and credit; fraud; investment advice; unauthorized trading; fees and rates; transaction errors; misrepresentation; and accounts sent to collections. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.

"On the banking side, many of the complaints we saw dealt with mortgage prepayment penalties, rates on lines of credit, or fraud," said Melville. "On the investment side, the vast majority of cases were related to the suitability of investment advice. Investment advisors need to fulfill their "know your client" obligations as well as explain the risks and characteristics of the products they are recommending."

In 2009, consumers received compensation in 28% of cases reviewed by OBSI. The rate of compensation was 20% for banking complaints and 35% for investment complaints.

The Ombudsman for Banking Services and Investments (OBSI) is the national independent dispute resolution service for consumers and small businesses with a complaint they can’t resolve with their banking services or investment firm. As a free alternative to the legal system, we work informally and confidentially to find fair outcomes to disputes about banking and investment products and services.

For further information:

Tyler Fleming
Director, Stakeholder Relations and Communications
416-218-4244
www.obsi.ca

(advocate comments........please keep in mind as you read media releases from organizations such as OBSI, that these "referee's" are bought and paid for by the industry team. If you play against the industry keep in mind that the game might be rigged in their favour.)

[admin]

Here is an example of the continuous lack of serious response a consumer gets when using OBSI as a complaint resolution process...How long is my government going to allow the victims of financial crime be treated with such a complete lack of respect, dignity and consideration by this industry?

It is very important that everyone in the position to correct the injustices being committed against victims of financial crime everyday in this country are made aware of just how broken the system is. WE NEED SERIOUS REFORM IN CANADA.

You will notice OBSI does not address the serious issue of obstruction of their investigation by TD employee and perhaps even by TD itself...Why is this????

They also refuse to address the fact that there was a significant financial loss to all parties involved. In fact that loss is adding up everyday in the amount of 9.55 percent on a mortgage that was done in error without a doubt and in our belief purposeful intent to commit fraud/forgery.

There was also the issue of funds over $22,000 being lost due to employee's ERRORS in the application.....Why is no one addressing these issues.....why are tax paying Canadian Citizens being left to fend for themselves against these corrupt, unregulated financial bodies and subsequently the very groups that are supposed to be protecting the consumer after the fact.......Where is our democratic government in all of this????

[admin]

Kenmar Associates
Investor Education and Protection
1
ALERT ALERT ALERT ALERT September 3, 2009
the Ombudsman for Banking Services and Investments
To: Retail Investors
Widows and widowers
Seniors
Retirees and pensioners
The infirm

Many investors believe that the Ombudsman for Banking Services and Investments (OBSI) is a
government agency. It is not. OBSI is an industry sponsored and industry funded entity.
According to an Agreement with the CSA , dealers must utilize OBSI but there is no requirement
for bank participation as was evidenced in 2008 when RBC Banking arbitrarily decided to pull
out of OBSI In October, 2007 the report from the Navigator Company, an Australian firm with
extensive experience in external reviews of ombudsman services, was released .The 24
improvement recommendations outlined in the report were to be addressed by the introduction of
new Terms of Reference on April 1, 2009. This date was missed and the key improvements are
not implemented as of the date of this ALERT.
OBSI has appointed Douglas Melville as new Ombudsman and CEO effective August 25,
2009. His bio at https://www.obsi.ca/images/document/up-
1Douglas_Melville_Bio_sketch_EN.pdf We are hopeful that the many reforms needed will be
implemented under his leadership.
We have recently received a growing number of questions and complaints about this
organization. Here are a few cautionary tips, should you have occasion to bring your complaints
to them for resolution:

A. Direct dealings:

1. Never attend an interview (aka interrogation) with OBSI without being prepped by a
professional.
2. Don't allow them to put words in your mouth.-ask if conversation is being taped
3 Don't let them cross-examine you – always have a witness with you
4 Don't think that they are your friend, and get lulled into a false sense of security -they are
financed by the securities industry.
5 Make a list of everything you want to say and make sure you say it whether you are asked
about it or not
6. Do not volunteer information and do not answer questions you do not believe are relevant to
your case. Assume anything you say can and will be used against you.

B. Statute of Limitations

Every province in Canada has a statute of limitation .This is the time period in which you have to
take civil action. In Ontario the time spent with OBSI stops the limitation time clock [the
limitation time period in Ontario is a short two years]... In other provinces be sure to check what
the time period is, otherwise you may find that the time taken dealing with the firm and the time
Kenmar Associates
Investor Education and Protection
2
taken dealing with OBSI may use up all the available time. Once the limitation period is
consumed, civil action cannot be taken. OBSI have a target of completing 80 percent of their files
within 180 days. Some files can take longer, a year or more.

C. Consent for release is one-way

When OBSI undertakes to investigate your complaint, they send you a letter asking you to sign a
Consent for the release of your personal information, by your brokerage house to them. In the
letter to you, OBSI say that they may also request you to provide them with certain documents
related to your complaint, and “We may discuss your complaint with [firm name] and we may
exchange information and documents between you and [firm name]. We also may need to provide
information or documents to advisors outside of OBSI who we consult about your complaint.
“. It is significant to note that although OBSI may provide your brokerage house with the
information or documents that you have provided to them, there is no corresponding obligation
on their part to furnish you with copies of any information or documents that your brokerage
house may have provided to them, in the course of OBSI’s investigations. These documents may
be of great importance to you to help you make an informed decision as to whether to accept or
reject any recommendation OBSI may make to you, with regard to a possible settlement of your
complaint.

D. Right to inform police and regulators

We have come across yet another issue with OBSI. Specifically, it appears that their new
standard Consent letter has language that may prohibit you turning over their recommendation
Report to police or securities regulators even if you believe it could help your case in the event
fraud or other illegal act is suspected. The form’s language is set out below:

“ .. The success of our process depends on both you and [firm name] dealing with OBSI in a frank
and open manner. By signing this letter, you and [firm name] agree that OBSI’s correspondence, files
and any discussions we have during our review are confidential. You and [firm name] agree that if
there are subsequent legal or other proceedings you will not use any correspondence or information
from our process. Neither you nor [firm name] will try to compel OBSI to produce its files or
records. Nor will you try to have the Ombudsman, any OBSI staff member or advisor give evidence
or testify…”

We are continuing to work this issue with OBSI as we believe it encroaches on civil rights and
acts as an obstruction of justice. Of course, if they receive a subpoena from law enforcement they
will provide the Report but we feel that as a Canadian citizen you should have the right to turn
over documents you believe are relevant evidence without any constraint.




Contact kenkiv@sympaico.ca for a copy of the OBSI Survival Guide. It may save you a lot of
time, trouble and money.