Thursday, April 23, 2015

Check your brokerage service and maintenance fees

NASAA research shows investor confusion over fees| . A new advisory from the North American Securities Administrators Association (NASAA) aims to help raise investor awareness about fees charged by broker-dealer firms for account services and maintenance. In the advisory, NASAA suggests investors focus on the timing, method and content of these sorts of fee disclosures. It calls on investors to not place assets with a firm without a current fee schedule, to ensure that they understand those fees, and to pay attention to any changes that firms make to those fees. Additionally, it says that investors should know the services that they could use regularly, and ask specifically about the terminology a firm uses for its services and the associated fees. Full Report Are you an informed investor? Understanding Broker-Dealer Fees available at Fees impact returns- make sure you know what fees you are paying and that you receive the services associated with the fees.Don't hesitate to ask about seniors rebates, asset-based discounts etc. -It's your money.

Friday, April 3, 2015

“Risk Literacy”

 Using domestic and international data, Director Annamaria Lusardi finds that knowledge of financial risk is strikingly low both in the population and across a variety of demographics. Across countries and age groups, individuals show little mastery of concepts such as risk diversification and the relationship between risk and return. Indeed, in financial literacy surveys assessing knowledge of interest compounding, inflation, and risk, respondents consistently performed worst on the risk-related question. Knowledge of risk is critical to making decisions about saving and retirement planning. These findings have implications for individuals, policy makers, and the financial and insurance industry. While individuals are facing increasingly complex financial and insurance instruments, their low risk literacy may limit their ability to use these instruments on a micro level, and—on a macro level—impede the development of wellfunctioning financial markets. Read the full paper here

Tuesday, March 31, 2015

Brokers misleading investors about fiduciary duty: PIABA Report

The U.S. organization  , the  Public Investors Arbitration Bar Association ( PIABA) has issued a report highlighting how U.S. brokerages mislead investors as to the true nature of the dealer- client relationship.

They want Federal action to stop  U.S. Brokerage Firms misleading investors about their role as fiduciaries, which Firms deny to block arbitration claims.

"Investors believe they are doing business with individuals they can trust, because the brokers use titles which imply trust, their advertisements give the impression they can be trusted, and the brokers say they can be trusted to look out for the best interests of their clients.  A survey of the major brokerage firms show consistency in the advertising, in the tone they take on their websites, and the impression that they intend to leave on investors," said the report's other co-author, Christine Lazaro, director, Securities Arbitration Clinic at St. John's University School of Law.

"Yet when that trust is breached, a survey of answers filed in arbitrations demonstrate that these same firms disclaim liability when held to account in arbitration, and rely on case law to say no such duty exists. The public face of the firms is that they hold themselves to the highest standards, while the private face of the firms, in the arbitration forum where everything is non-public, is that they are mere order-takers," she says. 

A similar situation exists in Canada.Some examples of what has been dubbed The Grand Deception:

A survey of business titles by the Investment Industry Regulatory Organization of Canada (IIROC) found  that there is a wide array of business titles in use by licensed representatives both across firms and, in some cases, within the same firm. Some of the more commonly used business titles that were reported through the survey include: Advisor, Financial Advisor, Financial Assistant, Investment Advisor, Senior Investment Advisor, Financial Consultant, Personal Finance Consultant, Financial Planner, Certified Financial Planner, Wealth Advisor, Investment Associate, Private Client Principal, Private Client Associate, Retirement Specialist, Consultant to Seniors, Vice President, Senior Vice President, and Managing Director. IIROC concluded that many of these business titles do not, on their own, provide a meaningful description of the type of services and/or investment products that a licensed representative can offer to a client. Some of these business titles imply that the individual carries out an executive function within a firm, for example, Senior Vice President, where the individual is not, in fact, a corporate officer of the firm. IIROC also found that there is a wide array of financial designations that licensed representatives possess and may put forward, in addition to their business titles, in their dealings with clients. While some financial designations, including professional designations like the Chartered Accountant designation, require a specified number of years of work or hours of classroom study, passing an examination, and continuing education, the requirements for others are much less rigorous. In fact, some financial designations may be obtained after a weekend seminar or through online self-study, with a self-administered examination.These titles facilitate sales person gaining investors’ trust  and enabling the sales persons to sell products and implement strategies that are not in the investors’ best interests.

Another common example is the recommendation of proprietary mutual funds (which often bear the name of the brokerage firm). There are often similar, less expensive index funds or other mutual funds available with higher expected returns. A fiduciary couldn’t recommend proprietary funds if they weren’t the best option. A broker has no such constraints and can do so with impunity.

How about this declaration ? Your goals are unique, and BMO Nesbitt Burns Investment Advisors are here to help you develop a plan that's right for your needs. Working with us you can expect open,trusted and transparent advice...  Sounds like you'll be provided advice that is in your Best interests, eh?

A number of OBSI recommendation cases cases further illustrate the two-faced  issue . Equity Associates refused to compensate a retired couple in the amount of $83,386. After the couple sold their home, their advisor invested the proceeds in unsuitable medium-risk and high-risk mutual funds.Richardson GMP refused to compensate several investors in the amounts of $232,500 and $66,366. They entrusted their retirement savings to an advisor who ignored their investment objectives and risk tolerance.Armstrong & Quaile refused to compensate a retired couple for $34,000 after their advisor urged them to borrow to invest. They sold their investments after a market decline to cover a debt they could not afford to service.Monarch Wealth Corp refused to compensate a young couple, new to Canada, in the amount of $30,628. They borrowed to invest after being told by their advisor they would not incur any losses.Despite the Ombudsman's comprehensive independent complaint investigation, the dealers refused to accept accountability or provide restitution.

Other excuses that dealers use when responding to a client complaint include:
1. Blaming the investor- greedy , didn't pay attention to forms signed
2. Falsely claiming that because the account is a discretionary one, no duty of care is required
3. Wrongly asserting that the responsibility for determining suitability rests with the client 
4. Incorrectly asserting that ,even though the investments are unsuitable, the dealer is not accountable because risks were disclosed to the client
5. Refusing to accept responsibility if "advisor " has sold products off the books of the dealer . Sometimes dealers are willfully blind if a " producer" is harvesting a client and when things turn ugly claim that they knew nothing about the egregious behavior and are not accountable.

A recent example of the latter practice involves a case involving FUNDEX  Investments Inc. . In that case FUNDEX  argued that they had not approved sale of the exempt market product and the client must have  known they were not dealing with FUNDEX. The OBSI complaint investigator found otherwise and recommended full restitution. The dealer refused and the victims must now decide if they wish to proceed with civil litigation  or walk away with a hard lesson on who they can trust. From the FUNDEX website we note: " Since 1995, FundEX Investments Inc. has been providing independent financial advisors with an established, fixed fee business model that enables them to access a wide variety of quality investment products to best meet the needs of Canadian Investors."

Brokers and insurance companies are fighting hard to avoid becoming fiduciaries. They are currently held to the lower “suitability” standard. This means they can recommend investment products that may not be the best option available to help you reach your financial goals, as long as they are “suitable.” CAVEAT EMPTOR!

Wednesday, February 18, 2015

Research paper on Ponzi schemes: Cam McCormick University of Lethbridge

The Earl Jones scam is a particularly interesting read.

Abstract:Using a multi-case study, three Ponzi schemes were investigated: Road2Gold, Bernie Madoff’s empire, and the Earl Jones affair. This grounded study used an inductive bottom-up methodology to observe and describe stakeholder mobilization in reaction to corporate fraud. This research on stakeholder behaviour in Ponzi schemes articulates new theory for describing stakeholder behaviour and possible determinants for successful mobilization to action. The data presented here point to a useful distinction in the stakeholders in a corporate fraud: reluctant and engaged stakeholders. Reluctant stakeholders seek only interest-based ends, whereas engaged stakeholders have additional identity and ideological goals shared by a mobilized group.
Read the paper here 

Tuesday, February 10, 2015

Checklist: Was your complaint handled fairly?

It's no secret- investment dealers hate to admit they provided bad financial advice. They will try very hard to avoid accountability for losses.

The industry has a longstanding over reliance on form documents such as disclosure forms, agreements, account statements and KYC forms, seeking to meet regulatory KYC and suitability obligations; however, more and more, courts and regulators are looking to the record of direct communications between the advisor and client to assess the degree to which the advisor's recommendations and the client's instructions were truly informed regarding risk and suitability issues. In some cases the 'paper' is not a barrier to the imposition of liability for losses sustained by the client.That should be your mindset as you assess the dealer's response letter.

You should assume the relationship between you and the complaint investigators is adversarial regardless of the soothing words of fairness and unbiased investigation. Some very smart seasoned people are reviewing your complaint to ensure the dealer is immunized from providing restitution. This Checklist should help you determine just how objective the investigation has been  Read the Checklist here.  

Related readings :

Calculation of Damages: Securities Fraud & Protection Resource Center

Resolving Investor Disputes : Is your Advisor to Blame?

Compensation for Retail Investors :The Social impact of Monetary Loss$file/rep240-published-May-2011.pdf ]

Tuesday, January 20, 2015

INVESTOR ALERT : Return of Capital Mutual Funds

Return of Capital mutual funds have given rise to a significant numer of investor complaints and concerns.This ALERT explains the issues . Read the article here

Monday, January 19, 2015

The Suitability Standard in plain Language

The suitability standard for advice giving is the standard used by most dealer Representatives to make investment recommendations to you.It's important you understand how it works so you can assess your Rep's diligence in determining suitability.It will also be of use in the event you file a complaint.Read the article here

Saturday, January 17, 2015

CRM2: Quick Guide for Retail Investors No. 2

Here’s Quick Guide # 2 for making the most of the Client Relationship Model Phase 2 disclosures.
NOTE: Fund Facts is a disclosure document for mutual funds. Dealers may charge fees not articulated in Fund Facts or set higher minimums for initial investments than defined in Fund Facts.While these fees will show up in CRM2 client statements , the cost for managing the mutual fund will not. Neither will the brokerage commissions incurred by the fund.These costs must be added to the CRM2 fee summation to get a complete picture of the fees you are paying.
Read the article here

Tuesday, January 13, 2015

CRM2 : Quick Guide for Retail Investors No. 3

This Guide will assist you in gatting maximum utility out of the disclosure provided by CRM2. Read the Guide here   Although the deadline set by regulators is July, 2016, many firms will be providing the fee and performance information earlier. Some can already provide it now.In any event, get up to speed on the information by reading some of the plain language references provided.

Thursday, January 8, 2015

CRM2 : Quick Guide for retail Investors No. 1

This post describes Phase 2 of new securities regulations called The Client Relationship Model.This is information that retail investors should be aware of. Thanks to the Small Investor Protection Association for the information on trade confirmation slips and to the Investment Funds Institute of Canada for the information on benchmarking.
Read article Other Guides to specific portions of CRM2 will be provided in the future. Stay tuned.