Sunday, December 10, 2017
For years we have pleaded with IIROC, OBSI and others to improve investor engagement processes. The answer back- we hold public consultations. The few investor inputs are lost in a blizzard of industry Comment letters. Rules and laws made without material Investor input are destined to be to the investors’ detriment.
We quote from this blog https://canadafactcheck.ca/bank-consumer-protection/ to explain the weakness of such an approach.
“...But who exactly are they consulting with?
Governments and regulators, of course, will say “the public”. The truth, however, is that the general public has little expertise in the highly complex matters under discussion while the financial industry has at their disposal a tightly knit group of institutional players that collectively possess immense technical expertise – far more than even the regulators on many of the issues under discussion in this post.
Tier 1 in the industry’s lobbying machinery are the formal industry trade associations. There are many such groups but the most important are: the Canadian Bankers Association (the lobbying arm for Canada’s large banks); the Canadian Life and Health Insurance Association (the lobby group for Canada’s life and health insurers); the Investment Funds Institute of Canada (the key lobby group for Canada’s mutual funds); the Investment Industry Association of Canada (IIAC – the securities dealers lobby group); the Insurance Bureau of Canada (the lobby group of Canada’s Property and Casualty Insurers) and the Financial Advisors Association of Canada (generally referred to as Advocis – the largest association of financial advisors and planners in Canada).
But the official lobby groups are only the tip of the financial industry lobbying iceberg. These formal lobby groups not only work closely with each other but also with their individual members’ internal government relations and legal departments. They and their members also retain many of the country’s elite government relations firms, blue-chip corporate law firms, and largest consulting firms (Deloitte, KPMG, etc.), to support their lobbying efforts. Finally, they are also strong supporters of corporate-oriented “think tanks” (eg. the C.D. Howe Institute) which often (although not always) publish papers consistent with the views of the financial services industry.
Also of importance in understanding the dynamics related to the various consultation initiatives is the role of industry self-regulating organizations (SRO’s): the two most important being the Mutual Fund Dealers Association of Canada (MFDA), the organization that provides oversight to dealers that distribute mutual funds and exempt fixed income products and the IIROC (Investment Industry Regulatory Organization), the self regulatory body for securities dealers. Canada’s securities regulators rely on the work of these two national self-regulatory organizations for many aspects of regulation of their member firms (securities dealers, etc.) and their individual employees. Accountability for securities regulation ultimately extends from the securities regulator to the Minister responsible for securities regulation (generally the Minister of Finance).
Finally, it must be remembered that the securities regulators (OSC, etc.) themselves are funded by “market participants” – not governments. Market participants include securities dealers, publicly traded companies, mutual funds and marketplaces (e.g. the Toronto Stock Exchange).
To be fair, the situation in Quebec is somewhat more favourable to financial consumers.
There are also small, underfunded groups such as FAIR Canada and the Public Interest Advocacy Centre (to name a few) who do heroic work on behalf of ordinary consumers/investors. But the excellent work of these small consumer groups simply does not carry the weight of the intense lobbying done by the financial industry trade groups, the self-regulating organizations, the corporate law firms, the large consulting firms and the government relations firms – who on issue after issue produce work (of course, much of it paid for by the financial services industry) aligned with the interests of Canada’s financial giants…..”
Some of the consultations are deficient. For example in the IIROC consultation on discount brokers, reference was made to research and meetings with Investor groups. When pressed to disclose the research and reveal the identity of the groups contacted, IIROC refused to provide the information.
The problem isn’t only that industry is powerful and has lots of money and that its lobby groups, funded think tanks, law firms etc. can participate in the public consultation process. While this is true, the fundamental problem is that the rule- making process is deliberately designed to exclude investors, they are given no meaningful opportunity to make their views known at any point in policy and rule making.
The industry is given a big role in actually developing the rules thru the industry consultative committees at the securities commissions, and the SROs. There are no investor reps on the SRO committees. There are only a few non- industry reps at the OSC consultative committees and only the OSC has an IAP. There is no room for the investor perspective, they are shut out of the rule and policy making process. This is essentially a behind the scenes, private process with no public accountability or public reporting as to what industry representatives have lobbied for before the regulators .
Investors have NO input in the first stages of rule and policy development (except for the OSC IAP) and are only able to comment on the proposed final version through the formal 90 or 120 day public comments process. This investor input is too late to do anything except propose changes on the margins.
As a result, rule and policy making in the Canadian securities is virtually devoid of investor input.
Changing or updating an existing rule or policy is nearly impossible unless the industry agrees. For example, three independent reviews of OBSI have recommended that the retail investor have a seat at the Board table and that decisions be binding but have been rebuffed each time. For at least three years attempts to correct IIROC Rule 2500B on Client Complaint Handling have gone nowhere. The classic example are the 1995 and 1998 Classic Stomberg reports recommending a ban on mutual fund embedded commissions – there have been many “ consultations’ but no decisive action despite the identified harm to investors.
We continue to press for entrenched Investor Advisory Panels and board of director representation on regulators boards —so far all our requests have fallen on deaf ears (OSC excepted).
Until things change, we can expect weak regulations coupled with loose enforcement i.e. WEAK investor protection. This is not in the Public interest.
J. Black Involving consumers in Securities Regulation https://pdfs.semanticscholar.org/a800/b3aaab54b42d8f4417d21aa1057cabb1621f.pdf
Transpaify Think Tank Transparency in Canada Lagging Behind US and UK, Think Tank Transparency in Canada: Lagging behind the US and UK
Thursday, November 30, 2017
Anyone that has to file a complaint with a bank, should read this letter. It has been our position for a decade that the complaint system is broken. We continue to call for a statutory Ombudsman service completely free of industry influence. Our regulators and lawmakers must start listening. This letter was sent by Mr. Stenzler to senior officials at the Financial Consumer Agency of Canada and the Ombudsman for Banking Services and Investments. We continue to caution about the use of so-called bank " ombudsman".
November 27, 2017
To whom this may concern:
RE: The Banking complaints process – as demonstrated through the real life experiences of a consumer
I have personally gone through the banking complaints process twice in my lifetime; once in 2010 against the Royal Bank of Canada and again in 2014 against the Bank of Nova Scotia. While I understand that there are many interests staking out various competing positions ostensibly based on THEIR subjective interpretation of the fairness and appropriateness of the current banking complaints process, I am of the belief that the true experiences of the consumer must be taken into account by all stakeholders in order to understand what is really happening under the current rules and how those rules should be changed for the better. The consumer, being a key participant in the banking complaints process, is also a stakeholder in that process. Below, I offer you my personal experiences of the banking complaints process as one of the many consumer voices that deserves to be listened to on this matter.
My complaint against the Royal Bank of Canada (“RBC”) alleged that RBC employees were responsible for a privacy breach that directly resulted in the termination of a multi-million dollar business deal to which I was a party. My complaint was escalated through the four internal stages established by RBC – that complaint was rejected as having no merit by each of those stages. Finally, through mediation at the ADR Chambers Banking Ombudsman, RBC agreed to pay me compensation in the sum of $50,000 based on my initial complaint.
My complaint against the Bank of Nova Scotia (“BNS”) alleged that a bank employee made additions, in his own handwriting, to my personal statement of net worth (“Statement”) without my knowledge and consent and forwarded that Statement to other employees of the BNS representing that I had authorized his additions (i.e. I alleged that the bank employee committed the criminal acts of forgery and the uttering of a forged document). My written complaints were escalated according to the stages set out by the BNS. My complaint was ignored by the bank employee who I alleged committed the aforementioned crimes, ignored by his manager and summarily rejected by the BNS Office of the President. In his investigation the BNS Ombudsman concluded that the bank employee did in fact make additions to the Statement after I had signed it and without my knowledge or consent yet reasoned that he did so in order to help me qualify for a loan (that is, this supposed independent Ombudsman concluded that a forgery of a document by a bank employee took place, that the forged document was uttered to other bank employees but that all of these acts were acceptable because the bank employee had a benevolent purpose guiding his actions).
Ultimately, OBSI rejected my attempts to have them investigate my complaint on the basis that the subject matter of the complaint (a banker’s criminal activity) was outside of their mandate. The matter is now in litigation before the Ontario Superior Court.
While the specifics of my stories are not what truly matters in this debate (and I am more than happy to discuss and/or provide records to anyone who may request them in support of the truth of what I have written herein), what truly matters is the way in which I, as a consumer, was treated by the banking complaints process under the current regulations/rules – that treatment was neither fair nor reasonable by any standard. I wish to state that I was born in Canada and I speak and write English proficiently. My language skills, along with my desire to fight for what I believe is right, were instrumental in my being able to navigate the nuances of the banking complaints process. I have spoken to numerous other bank consumers and I can reasonably conclude that many consumers do not file complaints about the banks because they are intimidated by the banking complaints process, do not understand their rights or how to navigate the process itself, are afraid of the possible negative consequences of complaining about their bank, do not possess the written or oral skills to effectively advocate for themselves and/or simply give up on a process believing that they have no chance of succeeding against a bank.
It takes a great deal of time, research, self-confidence and strong communication skills in order to voluntarily enter into what is an adversarial process against a well-financed, highly trained adversary who has unilaterally established the rules of that process. Let’s be honest here, the number of lodged consumer complaints against a bank represents a “drop in the bucket” of the complaints that consumers could lodge if those same consumers believed they had any chance at being treated fairly by a process that is currently heavily stacked in favour of the banks.
Both of my bank complaints were initiated in writing and forwarded to the bank employee who I alleged was directly responsible for the complaint. Prior to formalizing my complaints, I had to research the respective bank’s complaints process as it differs somewhat from bank to bank (this entailed online readings of the banks respective websites, Government of Canada websites and blogs about how to formulate an effective complaint to a bank). I formatted the complaint in my best “legalese” and made copies of what I believed to be records that supported my complaint (without legal guidance, I was left to make decisions about what to include in my complaint based on what I believed to be best knowing that the complaint could or would be scrutinized by bank lawyers who would view my submission in order to determine if I could be an effective adversary – after all, this is an adversarial process by definition and if bank lawyers conclude that I am not a competent advocate they are more inclined to advise bank employees to “blow-off” my complaint).
After submitting the initial complaint I was left to wait, indefinitely, as there are no guidelines stipulating if, when or how that initial complaint is to be addressed. In fact, with respect to my BNS complaint, it was totally ignored by the BNS employee (that is, it was neither acknowledged nor responded to). Is it fair or reasonable that there are no rules requiring an employee who has received a complaint to acknowledge it and act on it in a timely manner?
Unsatisfied by the RBC employee’s response, and after waiting about three weeks for no response from the BNS employee, I escalated both complaints to their respective bank managers. In order to do this I had to research who these managers were (this was done by telephoning the respective banks central telephone numbers), obtain the managers contact information and finally resubmit my complaint (with supporting materials) under a new cover letter which had to be drafted to include the response (or in BNS’s case the lack of a response) to my initial complaint. Would it not seem reasonable that the bank employee who received the initial complaint be responsible for forwarding it to the proper next level person after either being asked to do so by the complainant (if he/she has received a response) or within a reasonable time frame (eg. 14 days) if the bank employee choose to not respond to a complainant?
Again, as in the previous stage, there is no requirement under any rules that require a manager to acknowledge receipt of a complaint or respond to that complaint in any set time frame or at all (and apparently there are no consequences for a manager’s failure to acknowledge or respond to a complaint). As I stated earlier, the BNS manager chose not to acknowledge or respond to my complaint and apparently did so with impunity. Is the lack of any rules during this second stage of the banking complaints process either fair or reasonable to a complainant?
An unsatisfactory response from the RBC manager and a lack of response from the BNS manager resulted in me escalating the complaint further. Again, I had to research who and where this next party in the process was, redraft a cover letter and resubmit my complaint with supporting records as if nothing I had done prior to this step had taken place. Again, is it not reasonable for the bank managers to have the responsibility of forwarding a complaint to the next level if requested to do so by the complainant? As a consumer I can only conclude that the banks complaints process is designed, in part, to wear out the complainant – does this repeating of steps mandated by the process and placed on the shoulders of the complainant in any way contribute to a fair and reasonable dispute resolution process?
The third level of complaint within the RBC complaint’s process resulted in my receiving a formal acknowledgment in writing of RBC’s receipt of my complaint and a statement as to how they intended to conduct their investigation. The third level of complaint in the BNS process resulted in me receiving a telephone call from someone who identified themselves as “Trevor from the Office of the President.” In that telephone call “Trevor” advised me that I would not be receiving a written response from the Office of the President and that his office had summarily rejected my complaint – he offered no reason for his shocking statements and given that his statements were made verbally and without me being able to authenticate the source of his telephone call, I did not believe him to be authentic at the time of the call.
I never did receive anything in writing from the BNS Office of the President in response to my complaint; thus, I concluded that “Trevor’s” telephone call was real. Is it reasonable for someone to call me and offer me only verbal statements in response to a written formal complaint made as a bank client and alleging that a bank employee engaged in criminal activity?
The third level RBC adjudication of my complaint resulted in RBC concluding that while my complaint may have some merit with respect to a breach of confidentiality, that breach, if it occurred, did not result in me losing any money. RBC did advise me in writing of my right to escalate my complaint to their internal ombudsman. With respect to BNS, they did not advise me of my right to escalate my complaint to their internal ombudsman either in writing or verbally. Nonetheless, in both cases I escalated my complaints to the bank’s respective Ombudsman’s offices. And yet again, I was required to resubmit my complaint in its entirety to the Ombudsmen’s offices as though I had taken no previous steps in the complaint’s process. The Ombudsmen’s offices acknowledged my complaints in writing and set out time frames as to their respective investigations.
The RBC Ombudsman requested that I execute an agreement as a precondition to their investigation. The BNS Ombudsman agreed to conduct an investigation into my complaint without me having to execute any agreements (despite the fact that the BNS website sets out that a complainant must execute an agreement as a precondition to an ombudsman led investigation). In both cases, in entering into an agreement or not, I made my decisions to proceed with the process without the benefit of independent legal advice (is it reasonable or fair for a complainant to enter into agreements with a bank that may affect his/her rights going forward without the benefit of legal advice? Should a complainant be expected to engage the services of a lawyer at this time in the complaints process?). In conducting their respective investigations neither ombudsmen requested any further information/documentation from me (aside from that which I originally provided to them) nor did either ombudsman apprise me of the information or documentation provided to them by bank employees or agents.
As such, if a bank employee or agent made statements to the bank ombudsman that were demonstratively false, I was not made aware of those statements nor was I given an opportunity to provide the ombudsmen with the evidence that I possessed that would prove the employee’s claims as false (should there not be fair and open disclosure of all evidence to both sides of a dispute if that dispute is supposedly being investigated by an independent ombudsman who only wants to ascertain the truth of the matter?).
My investigation of the bank’s ombudsman determined that: a) the bank ombudsman was not truly an ombudsman by any stretch of the definition of the word ombudsman; and b) the bank ombudsman was an employees of the bank, being paid by the bank who, in most cases, was previously a long term employee of the bank who came from other departments within the bank had established relationships with other bank employees; and c) that the ombudsman worked within premises populated by other bank employees; and d) that the ombudsman was hired first and foremost with a mandate to protect the bank from litigation liability. It is clear to any reasonable person that the ombudsman’s inclusion in the dispute resolution process is solely for the benefit of the banks.
The banks use of the title “Ombudsman” is designed to intentionally deceive the consumer into believing, incorrectly, that their investigator/employee is supposedly acting independently and fairly throughout his/her investigation. This is obviously misleading at best, an intentional fraud at worst. How can an investigator from the bank’s ombudsman’s office be impartial given that he/she is an employee of the bank, may have existing relationships with parties being complained about and is ultimately accountable to the legal team of the bank? – Who’s kidding who here? The use of the title “Ombudsman” is not being made in good faith by the banks as the banks know that the ombudsman’s true purpose is to protect the bank at the expense of the consumer (no ombudsman elsewhere in the world has such a disguised purpose). In contrast to his/her true purpose, the bank ombudsman is marketed to the consumer as that of a fair, impartial and independent investigator.
The bank’s use of misleading titles such as ombudsman, vice-president and advisor is intentional and serves the purpose of hiding the true motivations and allegiances of those title holders. Advisors and vice-presidents (outside of true corporate vice-presidents) are really salespersons while bank ombudsmen are truly – while I don’t know how else to say this – shills for the bank’s legal team. Why is this bastardization of nomenclature allowed by regulators? How many consumers, believing that a supposedly impartial ombudsman has ruled against them, abandoned their complaint? Do regulators truly believe that bank ombudsmen are fair to the consumer despite being employees of the bank?
The RBC ombudsman did not rule in my favour; therefore, I escalated my complaint to the ADR Chambers Banking Ombudsman (the “ADRBO”). Having never heard of the ADRBO prior to being referred to them by the RBC Ombudsman, I was quite concerned when I learned that they were not a government funded organization but rather a private organization that was compensated directly by RBC – the optics of this clear conflict of interest was very concerning. Again, I had to formalize my complaint directly to ADRBO by resubmitting my entire complaint with supporting materials which now had to include the decision of the RBC Ombudsman. And yet again, in order to take advantage of ADRBO services, I had to enter into a lengthy agreement without the aid of independent legal advice. So I ask, is the consumer being fairly or reasonably treated throughout this process by having to enter into numerous agreements without legal advice?
ADRBO suggested that the parties agree to non-binding mediation – I agreed to their suggestion again without the aid of legal advice. I prepared for a day of mediation where I was to stand, as an individual, opposed by two RBC lawyers in front of a mediator who himself was a lawyer. Would a lawyer as arbitrator take me, a non-lawyer, seriously or would he be predisposed to favour the presentations of lawyers like himself? Was this process going to be fair to me? As I stated earlier, I was victorious in the end and received a settlement of $50,000.00. I was told through four stages at RBC that my complaint had no merit (at least in terms of cost consequences); however, it was ultimately determined that my complaint did have merit and was worthy of compensation.
The bank’s lawyers told me that the monies paid to me proved that the complaints process does work for the consumer. I informed the bank’s lawyers that the fact that I had to stay the course for over ten months, jump through a large number of hurdles, commit to endless hours of repeated document preparation and submission and attend to a full day hearing on my own behalf in a process I had no previous experience with, demonstrated to me that the process was neither fair nor reasonable and does not work (despite the outcome). How many other complainants could have or would have done all that I was required to do in order to receive some level of justice? How many others would have been intimidated by the process and dropped it without receiving any compensation? How would someone who does not speak or write English as a first language have done through the various stages in this process? Clearly, this process can work but only for a select few?
The BNS ombudsman offered his decision in writing and set out my right to appeal that decision to the OBSI. I made that appeal and was subsequently advised by the OBSI that issues alleging forgery are not within their purview. So despite the fact that I followed the bank’s complaints process, I was apparently not entitled to have my complaint investigated by the OBSI. At the suggestion of the OBSI my complaint was translated into a civil suit that is currently in litigation. Is it fair or reasonable that the OBSI limit itself to only certain ill-defined categories of complaints? Should consumers be advised to contact the OBSI at the initiation of a bank complaint to see if that complaint falls within the OBSI mandate?
My intention in forwarding this letter to you is to apprise you of the real life steps (and possible outcomes) one must follow in order to comply with the current banking complaints process. While I have many suggestions as to how this necessary process can be made better (and fairer), I will withhold those suggestions in favour of my belief that at this time voices such as mine should be heard and understood prior to any attempts to correct the flaws in a system that is both complex and necessary. I wish to remind you that within the current banking complaints process I have, at times, had my complaints ignored (without consequences to those who did the ignoring), have had to wait indefinitely for responses (or lack thereof) from bank employees, received verbal rather than written correspondences in response to a written submission of a banking complaint, etc. Is this truly the process that regulators wish to defend?
I am happy to share my experiences with anyone who cares and am always willing and able to provide documents and other materials in support of my story. The current banking complaints process is demonstrably in need of an overhaul. If bankers, banking lobbyists and self-regulating organizations dominated by banking interests support the status quo, this should be a sure sign to everyone else that current regulations and oversight are not working. We can do better.
Dr. Gary C. Stenzler
Sunday, November 5, 2017
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. “- Albert Einstein
Indeed, the magic of compound interest is the best way to build a retirement nest egg. It is also true that the greater the return rate, the greater the amount accumulated. Conversely, the less the return rate, the less there is to compound.
You can't control the markets or a fund's performance, but you can control what you pay to invest. Controlling costs is smart, because costs reduce your net investment returns.
Vanguard founder John Bogle refers to the decompounding impact of fees on long term returns as tyrannical.
Most Canadians shrug off investing expenses but don’t realize the impact of decompounding due to annual and other fees. These fees/expenses include but are not limited to front end loads/commissions, early redemption penalty fees, management fees, trading expenses , minimum annual account fees, switch fees, account transfer fees , advisory fees etc.
To calculate returns on a $100K investment at say 7%, use the compound interest calculator at http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php .If you've done everything right, you should see a "future value" of $1,497,475.78 This is what an investor would end up with after 40 years at a compound annual average growth rate of 7%. To figure out the return, subtract the original $100,000, which gives you $1,497,475.78.
But what if the annual rate of return is 5 %? The only number you need to change is the rate of return– let’s assume 5 per cent due to fees. Hit "calculate," and you'll get a future value of $703,998.87 for a return of $603,998.87.
You'll notice that the return has been cut by more than 50%- and all because of “just 2 %” in fees charged every year. In the case of actively-managed mutual funds , the S&P Indices Versus Active ( SPIVA) Scorecard, the data routinely shows that for five-year periods, the below benchmark performance pattern repeating across all categories, after fees. The 10-year period data also show further struggles for active managers, with typically less than one-quarter of funds outperforming.
Here's something else to consider: The longer the time horizon, the bigger the bite that fees take. As the time horizon approaches infinity, the proportion of returns eaten up by fees approaches 100 per cent. That is the tyranny of fees in action.
Why does this happen? Because, over extremely long time periods, even small differences in compounding rates have a gigantic impact on returns.
The adverse impact of fees is twofold: An investor pays an ever-increasing amount in fees as account balances grow, because many fees are based on a percentage of assets. And fees also strike a blow to the portfolio’s returns. That’s because every dollar taken out to cover management /advice costs is one less dollar left to invest in the portfolio to compound and grow. So in addition to paying potentially tens of thousands of dollars in avoidable fees, research shows that an investor gives up many times that amount in lost portfolio returns over time (“opportunity costs”).
Several economic forecasts project that market returns may be lower in the future so the impact of fees on returns and savings will be even larger .Fees are the silent killers of investment returns. amplified by decompounding over time. Don't make the mistake of thinking even 0.5% doesn't matter – in the long run, the impact is huge.
Before investing, always consider whether an investment is appropriate for your financial goals, situation, time horizon and risk profile.
The cost of investment fees is one of the drivers behind the Canadian Securities Administrator’s new fee disclosure proposals, designed in part to give investors better clarity about how much they’re paying in fees for advice. Some products like mutual funds include ongoing trailer fees intended to provide advice but they can also skew advisor recommendations in addition to increasing the MER.
Understanding the long-term impact of fees - especially slight differences between similar products - is up to financial consumers. You also need to laser focus on the value and cost of financial advice which is less tangible and quantifiable.
Control your own financial destiny or someone else will.
Thursday, November 2, 2017
While they can only investigate complaints about firms that participate in their service, most banking services and investment firms in Canada do participate in OBSI. OBSI can recommend compensation up to $350,000. In Canada, and around the world, regulators and ombudsman offices in financial services are typically funded by the industries they cover, as opposed to the general taxpayer. There is no charge for the service.OBSI is able to handle inquiries in over 170 languages.
OBSI can consider your complaint if:· your firm has had 90 calendar days to deal with your complaint but has yet to provide you with its final response, or
· your firm gave you its final response on your complaint but you are still unsatisfied. Once you receive the final response, you have 180 calendar days to bring your complaint to OBSI.
OBSI is neither a court nor a regulator, and they do not fine or discipline firms or individuals. Their recommendations are not binding on either party, but they have over a 80% record of acceptance of their recommended settlements from both firms and clients. The alternative, civil litigation, is out of reach for complaints involving less than $250,000. OBSI work on fairness principles and hold dealers accountable rather than individuals, which is a real positive for the retail financial consumer.
If you disagree with OBSI investigation conclusions, and: believe they have failed to consider the issues or information provided, have new information that not previously provided , or have reason to think their decision is unfair or unreasonable, then you can request they reconsider the decision.
While OBSI do not handle matters that have already been through a court or an arbitration, if a client is not satisfied with their conclusions, investors are free to pursue their case through other processes including the legal system and IIROC arbitration, subject to statutory limitation periods. Unlike dealer-related internal bank “ombudsman”, the statute of limitations time clock is stopped while OBSI investigates complaints.
OBSI has some warts that you should know about:
· Their recommendations are non- binding
· They cannot properly investigate investment portfolio complaints involving insurance products like Segregated Funds
· That do not have the mandate to investigate systemic issues
· Their Board does not have a dedicated Retail financial Consumer Member in the same way industry participants do.
In addition there are a few other issues you should be aware of. Investor advocates have questioned the accuracy of published complaint statistics/disclosures, complained about a board policy that allows bank-owned investment dealers two FINAL response letters that undermines regulatory intent and a process that enables a significant number (18%) of low-ball settlements that evade public Name and Shaming.
Notwithstanding these warts, OBSI is known for fair settlements and user satisfaction is relatively high – 70 % of investor respondents to a satisfaction survey strongly agree that the final written recommendation was clear (55% of banking respondents strongly agree). About 90% of investors felt that their complaint had been dealt with promptly.
Of the multiple and convoluted options retail investors have for compensation from their investment dealer, OBSI is the most practical for the average retail investor. OBSI, while imperfect, is the most consumer-friendly alternative for those seeking compensation. The “hand holding” type of service provided by OBSI is essential because most retail investors cannot effectively articulate a legitimate complaint even if they have one.
Saturday, October 28, 2017
A robust investor complaint handling process is integral to treating investors honestly, fairly and in good faith. It is a key component of investor protection.Under a Best interests (BI) advice regime, prevailing methods, based on an adversarial relationship, aren't up to the job. This article relates our vision of a complaint handling process working in a BI environment. Read article here Existing complaint handling regalations and rules would need to change where a BI standard is in place.
Tuesday, October 10, 2017
Mutual funds are a cornerstone of our Canadian savings and retirement systems. There are thousands of mutual funds in Canada, holding a total of more than $1.4 trillion in assets. Mutual fund ownership is widespread. As of 2015, 33% (4.9 million) of Canadian households held mutual funds. Mutual funds account for 31% of Canadians’ financial wealth.
Consistent with the long-term investment horizon of many fund investors, more than half of investors’ mutual fund holdings are in equity funds, i.e., funds that invest in stocks. The portfolios of equity funds are either passively or actively managed. Passively managed funds typically are index funds, managed to track the returns of a specified market index, such as the S&P/TSX. Most equity funds, however, are actively-managed in an attempt to beat the market (or a specified benchmark) by superior stock picking, market timing, or both. Actively- managed funds typically engage in more research and trading activities than do Index funds, and thus generally have much higher costs to manage (or what's known as "MER's")
Uninformed investors bear the burden of fund selection
With the job of deciding how to allocate money among different mutual funds increasingly falling on individual investors, our nation’s retirement income security depends to a growing extent upon investors making wise fund choices. An extensive body of research has examined how investors choose among the vast number of funds available to them. In general, the studies have found that most fund investors are uninformed and financially unsophisticated—unaware of the investment objectives, composition, risks, fees and long-term impact of expenses on their funds. Investors, however, do pay great attention to funds’ historical returns. Indeed, studies have found that this might be the most important factor to the typical retail investor choosing among funds.
Past performance not a good indicator of future results
Studies of actively-managed equity funds have found little evidence that strong past returns predict strong future returns after fees. This is a very important fact. Chasing performance is therefore a fool’s game and not a good reason to select a fund. Fund companies advertise their high-performing funds because they have proven effective at exploiting and encouraging investors’ tendency to chase funds with high past returns. Simply put, investors tend to put their money with fund managers who have succeeded in the PAST, despite the fact that this will not mean that the fund manager will succeed in the future.
Mutual Fund Ads: inherently problematic
Investors receive these performance ads via email, newspapers, TV/BNN, social media, so-called “free lunch" seminars and directly from fund salespersons. Such promotions are consistent with the old adage “Mutual funds are sold not bought ". Fund companies use performance advertisements much more often during stock market upswings (and at RRSP time) than downswings, because they have higher returns to advertise when the stock market has been performing well. This phenomenon is very important. It means that the timing of performance ads encourages investors to make a major investing mistake: chase past returns.
Performance ads may prompt investors to buy equity funds primarily when recent stock returns have been high. This is the opposite of what investors should do- buy low, sell high .In many performance ads, the implication of continued high performance is not subtle. Statements such as "superior proven performance" or "superior risk- adjusted performance" are both vague (superior to what?) and exaggerated (is the performance repeatable or does it imply certain future returns? Such headlines touting the advertised fund’s “proven” performance are understood as saying that such past performance predicts likely future performance.
What the regulators Say
Canadian regulators have recognized the troubling tendency of mutual fund investors to chase past returns. Regulations specify how funds may calculate and present past performance in their ads. The rules also require that performance ads include a warning:
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund Facts before investing. Mutual funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or any other deposit insurer. Their values change frequently and past performance may not be repeated. The unit value of money market funds may not remain constant.
The mandated warning, however, is not a sufficiently robust disclosure to convey that strong past performance is not a good predictor of strong future performance. Instead, it merely informs investors that past performance may not be repeated in future results, that returns vary, and that investors in the fund might actually lose money. Even this light warning is subverted by putting it at the bottom of the ad page in fine print, light black over grey background.
So what to do?
So, how does one select a mutual fund? Start by reading this easy to read article 5 Things to Know Before Choosing a Mutual Fund https://retirehappy.ca/choosing-a-mutual-fund/ When it comes to choosing a mutual fund, a basic portfolio approach that is consistently implemented gives you the best chance of optimizing your returns. Asset class mix and low fund costs are key determinants of portfolio performance. Understanding your investor type and your risk tolerance/ capacity as well as knowing how to select key information from a fund profile (Fund Facts) will help you ensure that the funds in your portfolio are congruent with your financial goals and objectives.
Investors should understand that some periods of below average performance are inevitable. At such times, investors should remain disciplined in their investment approach and avoid the temptation to chase performance.
So, think twice about chasing past returns based on fund ads. It may be harmful to your financial health.
Sunday, September 17, 2017
In The seven tactics unhealthy industries use to undermine public health policies
https://theconversation.com/the-seven-tactics-unhealthy-industries-use-to-undermine-public-health-policies-81137?utm_source=twitter&utm_medium=twitterbutton we learn how health industry participants undermine public health policies.
While many of the health industry techniques are slick, we still think the Canadian investment fund industry lobbyists are world class. Some examples of the methods used:
· Hire senior regulatory staff promoting reforms
· Lobby Minister of Finance to come down on regulators
· Attack independent empirical research
· Attack the researcher that created the independent research
· Fight independent research with industry funded research
· Have former regulators publicly condemn reforms
· Divert attention towards better disclosure or financial literacy
· Use fear mongering- Small advisors will be left to fend for themselves
· State that retail Investors will be scared away if details on fees are fully disclosed
· Claim that regulatory reforms could cause a shortage of advisors
· Boldly assert that trailer commissions do not skew recommendations- the Big Lie
· Claim that there is no convincing evidence that indexing has an advantage over active management
· Argue that Targeted reforms are good enough - no need for a Best interests standard
· Suggest that small investors need comprehensive guidance on taxation and estate planning
· Imply that mutual fund "advisors" ( registration is actually salesperson) provide holistic planning
· State that advice is free with mutual funds
· Support freedom of payment scheme choice for unsophisticated investors
· Use gross dollars "saved" as a metric to justify advice
· Claim that the value of conflicted advice is over 3% of assets
· Argue that similar problems in other jurisdictions are different
· Let media know who pays the advertising bills
· Claim that greater advice integrity will make advice unaffordable for the mass market
· Assert that rural communities will lose access to advice
· Rip into robo advisors
· Support political candidates that are industry-friendly
Let us know of any other approaches so we can keep the list up to date.
Sunday, September 3, 2017
Tuesday, August 29, 2017
Every October is investor education month in Canada. All the securities Commissions will remind investors to check the registration status of their “advisor”. You should do that but be forewarned the process isn't easy. Be aware that the title “advisor” has no legal meaning – it won't match any of the registration categories. If you see they are under “strict supervision”, it's time to change advisors.
Our concern is with those “advisors” that are registered and how senior investors can be exploited. Yes, they are required to follow IIROC and MFDA rules but the rules aren't as tight as you'd think and they aren't enforced to the necessary degree by the industry self-regulators. As Vanguard founder John Bogle has remarked “The scandal isn't what's illegal, it's what's legal”.
Advisors are required to sell you suitable investments but they are NOT required to act in your best interests. Senior financial abuse and exploitation continues to be one of the most prevalent and “lucrative “enterprises in Canada.
Approximately 30-35 % of all complaints received by regulators involve seniors. I suspect the elderly statistics are distorted as it’s my experience that the elderly are usually reluctant to formally complain for many reasons. Seniors often avoid publicity or litigation due to the embarrassment of having been bilked. They may unduly blame themselves for losses, are reluctant or unable to formulate a complaint or unaware that something is amiss.
A 2007 Canadian Securities Administrators Investor Study: Understanding the Social Impact of Investment Fraud, estimates that over one million adult Canadians have been the victim of investment fraud. The study shows it is a common occurrence in the lives of many Canadians, with almost one-in-20 having been victimized.
Regulated “advisors” also are quite capable of fraud but the real abuse is more subtle- unsuitable investments, undue leveraging, high cost products,
account churning and lately, reverse churning and pension commutation.
1. Check registration: Engage with registered dealers and advisors with good reputations.
2. Don’t fall for investments that promise “guaranteed” or exceptionally high returns: If an investment seems too good to be true, Run.
3. Avoid investments that are advertised as “risk free”: All investments have risk. As a general rule, the greater the potential return, the greater your risk of losing money.
4. Don’t be rushed into an investment by high pressure sales tactics .Always take the time to evaluate and understand an investment before purchase. Always be leery of “once in a lifetime” opportunities, or investments that are only available “for a limited time.”
5. Be wary of inflated titles: A few advisors may use inflated titles to market themselves such as Vice President , Seniors Specialist and the like. Too often, these are meaningless. Don’t be intimidated by the titles.
6. Be wary of professional designations: Some advisors may use professional designations to market themselves as retirement or senior specialists. While real professional designations require rigorous study or extensive education or experience, some may be relatively easy to attain, and
may even be available to individuals with no experience.
7. Avoid “Free lunch” financial seminars for seniors: These seminars may be carefully scripted sales presentations designed to prey upon seniors’ fears. Some of these seminars may pitch investments that may be unsuitable or fraudulent.
8. Make sure that you clearly communicate your investment objectives to your advisor: Don’t let him/her steer you into investments that are not in line with your investment objectives, risk profile or time horizon.
9. Never sign a blank or incomplete document: Always take the time to review documents you are asked to sign, and ensure the document is filled out completely and signed/dated.
10. Take great care in filling out the NAAF/KYC form .Anything you declare can and will be used against you in the event of a complaint. Don't exaggerate investment experience or risk tolerance.
11. Never make payments to an advisor: When making an investment, use a method of payment that can easily be tracked. Make payments only to the registered dealer, NEVER to an individual.
12. Avoid any personal financial dealings with your advisor: You are not a bank so don’t start lending out money. Avoid assigning POA or executorship to an advisor.
13 Get a second opinion: If you have questions about an investment and the advisor fails to fully or satisfactorily explain things, consult a different financial professional.
14. Ask questions: Some advisors may use language or jargon with which you may be unfamiliar. If you don’t understand something, ask for a clear explanation.
15. Contact your provincial securities regulator . Every province has a Commission/agency devoted to protecting people from financial abuse and fraud. Contact your provincial securities regulator if you suspect you’ve been treated badly or targeted as part of a financial scam.
And above all, read your account statements and trade confirmation slips. If something appears amiss, act quickly to get it resolved. Do NOT let problems accumulate.
The following are the most basic questions that seniors, and investors in general, should ask when facing the decision to make an investment:
· Do you have a fiduciary duty to me? If yes, get it in writing on Company letterhead.
· How are you compensated?
· Can you explain the investment to me without using industry jargon?
· Do you use Investment Policy Statements?
· What risks are associated with the investment/program?
· What are the investment cost in terms of commissions and fees?
· Are there additional or ongoing fees?
· Are there early redemption charges associated with this investment?
· What are the pros and cons of this product re taxation?
· Why is this investment suitable for me? What are the alternatives?
· What type of reports will I receive and how frequently?
· How easy is it to sell or convert the investment to cash if I need money quickly?
· What happens if I have a complaint?
If the salesperson can’t or won’t answer your questions in writing and to your satisfaction, the investment may not be right for you. Ask questions and stay informed about your investments. Seek help if you believe you are being targeted or have been a victim of financial fraud or abuse.
Some light reading to protect your assets:
Pursuit of a Financial Advisor Field Guide – v13 A MUST read for retail investors.
Understand Investment Jargon The Steadyhand Investment Dictionary
The Responsible Investor http://faircanada.ca/wp-content/uploads/2011/03/The-Responsible-
Why Your Financial Adviser Should Be a Fiduciary http://www.aaii.com/journal/article/why-yourfinancial-
Sunday, August 13, 2017
Inquiries offices at securities regulators play an important role in the investor protection chain. When handled effectively many issues can be put to bed quickly and painlessly. People who take the time to inquire/complain should be viewed as invaluable sources of information. An inquiry or complaint should be welcomed as an opportunity to resolve a problem, revise a rule or change a policy. Yet in our communication with retail investors, they tell us the satisfaction level with inquiries Offices is less than satisfactory. Complaints range from non-responsive, impatient and dismissive to abrupt and insulting. The most frequent complaint by far are responses that investors perceive as bureaucratic bafflegab that fail to answer the specific issues raised. This can result in a chain of communications that result in caller frustration and even anger.
Here's some ideas for improvement:
· Access - phone, mail, email, FAX - physical offices – convenient operating hours
· Languages-provide most common in the region
· Response times to inquiries- state target times clearly and keep to less than 3 days for most inquiries : explain if a delay is necessary
· Know your caller - elderly, vulnerable investor, veteran, recent immigrant, despondent due to losses....Tailor response to the type of caller.
· Understand the issue (s)- realize retail investors need help articulating the issue(s)
· Listening- apply assertive listening principles – try to understand the underlying issue(s)
· Respect- never insult the intelligence of callers , never ridicule
· Clarity- avoid use of investment industry jargon, acronyms and legalese in communications
· Plain language- use plain language principles.
· Remember, the majority of Canadians have low financial literacy.
· Linear response - answer specific questions asked, not questions not asked ; be forthright and straight to the point
· Patience- retail investors, especially complainants, need to be treated with a lot of patience- this is a new process for most ; do not close file prematurely
· Compassion and empathy - show understanding and be tolerant of occasional outbursts of caller frustration
· Facts and evidence- use objective material and references; do not ignore or dismiss caller evidence and paperwork
· Updates- provide periodic updates as required
· Responses- address the issues raised point by point in easy to understand terms; invite caller to contact you for further information
· Referrals- explain why referral is being made to another agency, provide full and clear contact information to referral
· Nest steps- if caller unsatisfied , explain/ suggest escalation procedure
· Satisfaction Survey - conduct caller annual satisfaction survey , publicly release results and commit to addressing issues identified
We believe that Inquiries Offices have an important role to play in investor protection. Taking the time to listen to the Voice of the Investor is a WIN –WIN for all stakeholders.
Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The material does not constitute a recommendation to buy, hold or sell. The purpose of this Document and others in the series is to educate investors by bringing together personal finance information from a variety of sources. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained.