Friday, April 6, 2018

More issues with IIROC client complaint handling rules


IIROC Rule 2500B http://www.iiroc.ca/Rulebook/MemberRules/Rule02500B_en.pdf Client Complaint Handling has been subject to much criticism from the time it was released in early 2010. Experience has shown that investor advocate concerns were on the money. In this blog we relate new concerns that have arisen regarding this controversial Rule.

The Substantive Response Letter


One of the most problematic aspects of the current version of Rule 2500B from an investor protection standpoint relates to the extremely minimal and demonstrably inadequate standards in the “substantive response” of IIROC Member firms to client complaints. This issue needs to be considered from a comprehensive perspective, which includes taking into account the regulatory outcome(s) that the rule is supposed to achieve, together with the ‘framing’ of the conduct at the firm level, which is supposed to achieve these outcomes. One then may consider whether the regulatory framing of this conduct—which specifies what is to be done, when it is to be done, and how it is to be done—is sufficient to achieve the desired regulatory outcome(s) . In the present case, there is an evident deficiency in the way the “substantive response” is specified relative to the achievement of the claimed regulatory outcome, which is to ensure the fair handling of client complaints. 

The Rule does not introduce provisions that arguably will “ensure” that clients are made aware of the complaint process and that their complaints will be handled in a fair manner. The provisions relating to fair dealing in the current version are seriously deficient relative to the presumed regulatory outcome of ensuring the fair handling of complaints. The mere requirement that firms should provide a letter with a “summary” of the complaint, the “results of the Dealer Member’s investigation” and the “final decision, including an explanation” is completely inadequate to “ensure” fair dealing. On the contrary, it is our view that fair dealing will not be “ensured” by the current version and it would be seriously misleading to suggest this. To many retail clients, the responses would have appeared reasonable and authoritative, often to their detriment.

 
Investor advocates consider transparency and disclosure issues, as well as conflict- of-interest, while also taking into account retail client vulnerabilities. The Rule overlooks these vulnerabilities, which are clearly evident in a process in which there is, very often, a significant imbalance in power and an asymmetry in knowledge between the complainant and the firm. It is disappointing to find that these elements, which are essential in any consideration of investor protection, have not been adequately taken into account in the formulation of Rule 2500B.


Consider the original IIROC Staff response to the issue of conflict-of-interest and disclosure raised previously in a SIPA submission. The response acknowledged that the “submission of a complaint by a client usually results in the creation of opposing interests” and that “the proposed complaint handling rule will not eliminate this situation.” IIROC has not undertaken to provide a regulation that would serve to ‘manage’ this conflict-of-interest, especially where a client has a meritorious complaint that the firm might be inclined to deny, favouring its own financial interests and avoiding an offer of fair recompense. 

Moreover, the effectiveness of the Rule in achieving the public interest objectives is entirely questionable from a further perspective. These objectives are typically the promotion of “just and equitable principles of trade, the duty to act fairly, honestly, and in good faith”, the fostering of “fair, equitable and ethical business standards and practices” and the promotion of “investor protection”. If these objectives were being “promoted” or “fostered” by means of the present Rule, this would entail, for one, that clients with meritorious complaints who have suffered financial loss should be offered fair compensation by IIROC Member firms. Our own detection of errors, omissions, bias and fallacies in the firm’s responses is confirmed based on years of assisting clients resolve their complaints and published OBSI data. Complainants have also been exposed to made up KYC forms, defective risk profiling and selective non- disclosure of important documents. 

The IIROC rule contains no framing of Member conduct that “promotes” or “fosters” precisely the kind of conduct and outcome, that most people in our society would consider to be “just”, “equitable”, “ethical” and to reflect “fair dealing” in such circumstances. The mere provision that the Member firm should provide a summary of the complaint, the results of its investigation, and a final decision with an explanation is clearly inadequate to achieve these objectives.

An investor-centric substantive response letter should include a statement of facts; reference to the applicable rules , principles and standards on which the decision is based; identification of the files documents and records used in the analysis; and the methodology used for calculating restitution, if offered. This information is essential if the client is going to be able to make an informed decision whether or not to accept the firm’s decision. How is a retail client going to be able to know one way or the other whether the firm’s offer is fair if little information is provided regarding the methodology used to formulate/calculate the offer? The requirement that the firms’ decision should be “fair, clear and not misleading “does not suffice to ensure firms will treat complainants fairly.


Indirect regulation and obtuse language

We have noted that certain qualifications regarding how complaints are to be handled by dealers have been incorporated into the IIROC rule in a curious way that reflects indirect regulation. That is, certain provisions similar to those in the U.K. Financial Conduct Authority (FCA) policy have been incorporated into a requirement that member firms should develop policies and procedures having certain features. Hence , while the  FCA rule directly mandates certain conduct e.g. that firms must investigate complaints “competently ,diligently and impartially “,the IIROC  rule specifies  only that member firms must have in place policies and procedures that address  “the fair and thorough investigation of the complaint”. Or again, while the FCA  rule directly mandates that firms must assess complaints “fairly ,consistently and promptly”, the IIROC  rules specifies only that firms must have policies and procedures that address “the process by which an assessment is made regarding the merit of the complaint”.

Further concerns arise from the fact that the policy and procedures of SRO member firms are subject only to review and approval by private self-regulatory bodies and are inaccessible to those representing investor interests. This is a significant concern given the evidence of inadequacies in the policy development process used by IIROC to this point.

Compare to UK FCA Rule

Systemic Issues

Internal reporting procedures to management in the event of the occurrence of frequent or repetitive complaints is less specific then the U.K. FCA policy which is superior. Moreover, the policy contains no guidance regarding a firms consideration of the interests of other clients when it identifies some systemic problems or compliance failures. In other words, there is no indication that IIROC member firms should consider the interests of clients who have not complained but may have suffered detriment or have been disadvantaged by identified compliance problems. This is a serious deficiency, which raises the question as to why Canadian retail investors merit a lesser degree of protection than those in the UK.

Access to alternative dispute resolution sources

The IIROC 2500B Complaint Handling Rule states:

"Dealer Members must respond to client complaints as soon as possible and no later than ninety (90) calendar days from the date of receipt by the firm. The ninety (90) days’ timeline must include all internal processes (with the exception of any internal ombudsman processes offered by an affiliate of the firm) of the Dealer Member that are made available to the client. The client must be advised if he / she is not to receive a final response within the ninety (90) days time frame, including the reasons for the delay and the new estimated time of completion. "
 
One concern comes into play, where the client must be advised if he/she is not to receive a final response within the ninety (90) days time frame accompanied by reasons for the delay and the new estimated time of completion .The content of this communication with the client needs further specification. The firm should be required at this point to reiterate the 90-day timeline and indicate that the client now has the right to proceed directly to OBSI. As it stands, the way this communication is specified (above) in the current rule is inadequate. Clients need to be informed of their right to proceed to alternative dispute resolution once the allowable timeframe for a substantive response has been reached and not just be given reasons for further delay and a new estimated completion date. Furthermore, the Rule should make it clear that the timeframe is measured in calendar days.

Rule 2500B needs a complete rewrite if fair complaint handling in Canada is to take place.

 

Saturday, March 17, 2018

Complaint guide for dealing with Senior Investor complaints

Read about suggested process for dealing with Senior and other vulnerable complainants . Seniors and other vulnerable investors need a different approach. Handling Senior Investor Complaints

Friday, February 16, 2018

One Account Application for all Accounts ?


Under IIROC Rule 2500 ,IIROC dealers are allowed to use a single account application for a client, in cases where the client's investment objectives and risk tolerance are identical for all of the accounts covered by the application. A single form can make sense if an investor's investment objectives, risk tolerance/profile , time horizon and tax situation are truly  identical for all of his/ her accounts. It makes less sense when the "advice" is provided by non-fiduciaries operating under the lowly suitability standard.


Many investors may want to take different approaches in various accounts, for instance emphasizing interest income in a registered plan such as a RRIF and capital appreciation in a cash or margin account, or having different time horizons or risk tolerance in various accounts to meet specific financial  objectives. That's not a problem for those retail investors who have enough investment experience to recognize that various accounts may have different objectives, risk tolerance and time horizons, and can clearly state their views to a dealing representative ( aka "advisor"). But there are a lot of others who may be relatively unsophisticated and not understand the implications of a one-form-fits-all approach.



What really stands out for us is the statement that, "The client understands that the accounts on the same account application will be assessed for suitability on a multiple account or portfolio basis." We question what percentage of retail investors will really understand what that means. The Mutual Fund Dealers Association of Canada approach says that "suitability must be analyzed for each individual account. The fact that the client may have other assets in other accounts, or with other institutions, should not be taken into account."



In our view, the IIROC approach favours the dealer while the MFDA approach favours the client. If suitability is assessed on a portfolio basis, an investment dealer could argue that a single holding which might represent a major portion of a client's RRIF account would be suitable if it were looked at in terms of that client's total holdings. Using MFDA rules, that holding would have to be assessed for suitability on the RRIF account only, even if the client's other accounts had identical objectives and risk tolerance. If an investor were to suffer a significant loss in a specific holding, the outcome of a complaint might rest on whether it was viewed in the context of a single account or on a multi- account ( portfolio) basis. Accordingly, we have asked IIROC to amend their Rule 2500 to exclude RRIF  accounts . See our letter here.






Saturday, January 27, 2018

Report on IIROC Dealer Account Supervision


This report deals with the issue of account supervision by IIROC registered dealers. We use information observed and documented over the past five years, reports /case studies from the Ombudsman for Banking Services and Investments, independent research, CSA / IIROC reports on compliance, enforcement and compensation practices, IIROC Hearing panel decisions, IIROC Bulletins and feedback from hundreds of Fund OBSERVER readers. In addition, we talked to dealing Reps, former industry participants and lawyers representing clients. The analysis indicates fundamental shortcomings in regulations/rules, supervisory support systems, supervisory cogency, dealer audit practice efficacy, complaint handling practices and IIROC rules/ compliance/enforcement.

We draw attention to root causes and the inherent failure mechanisms. In effect, we have a weak supervisory framework designed for individual brokerage transactions trying to function in an advisory environment whose primary purpose is retirement income security for Canadians. We recommend numerous reforms/ improvements for consideration by IIROC, the CSA and by elected officials. For Report click here 

Tuesday, January 9, 2018

Agravating and Mitigating factors and Associated Issues

We examine IIROC Settlement Agreements along the line of the factors that determine the sanction. Aggravating factors increase the sanction while mitigating factors decrease the sanction. We find that IIROC Hearing panels have a systemic bias towards including mitigating factors while omitting aggravating factors. The result are sanctions that are lower than the evidence suggests they should be. Read the Report here. 

Friday, December 29, 2017

Note to CSA : Signature forgery impacts retail investors and wealth management industry


                                                                                     December , 2017



Note to CSA : Signature forgery impacts retail investors and wealth management industry 



Forgery or as regulators call it “signature falsification” takes place in two ways:


1. pre-signed forms, which involves salespersons (“advisors “) having clients sign a form that is blank or only partially completed, or altering an existing signed form without the client's written approval of the changes;



2. actively falsified forms, in which salespersons sign the client's name or initials on a document, or reproduce the signature in some way.



In some cases, signature falsification is being used by salespersons to engage in serious regulatory infractions and lawbreaking, such as unauthorized trading, cash transfers and theft (“misappropriation of funds” per the regulators).



This has been going on for years but It's something that has not caught the attention of the CSA in s meaningful way. For example , recent  disciplinary decisions by the MFDA include a one-year prohibition against a salesperson  who had obtained, possessed and used more than 200 pre-signed account forms over a two-year period, and a $1,500 fine and six-month prohibition handed down to a branch manager who had reviewed and approved the use of three forms with falsified signatures. Is this how Signature forgery should be disciplined from an “advisor” and Industry responsible for your retirement income security?



When deciding on disciplinary action in cases of signature forgery, the regulators say they consider factors such as whether the forgery resulted in financial harm to the client, the number of times the advisor engaged in the practice, and whether the advisor tried to mislead the dealer/ regulator during the investigation. We argue that they should consider that even one forgery is a sign of a serious ethics breach of trust.



The real impact of forgery is on the reputation of the entire advice industry. Like workplace sexual assault, it just gets worse over time and spreads like a cancer.  It can lead to document adulteration which involves changing or adding client information after a document has been signed. The changes usually involve risk tolerance, net worth or investor knowledge. For dual -licensed salespersons this unsavoury practice can lead to problems with insurance, the purchase of more expensive products like Segregated Funds or improperly signing people up for unwanted annuities. 



A corporate and regulatory culture that tolerates forgery is not one in which investors, especially the elderly, can feel safe. This will only become a more serious issue with changing age demographics. See SIPA Special report on forgery at http://www.sipa.ca/library/SIPAsubmissions/160%20SIPA%20REPORT_FalsifiedDocuments_20170526.pdf


Perhaps 2018 will be the year the CSA gets serious about salesperson practices including the misleading titles being used to build trust. We can hope.


Tuesday, December 26, 2017

Kenmar Commentary ….IIROC How Do I Get Money Back Brochure


                                                                                       December, 2017



Kenmar Commentary ….IIROC How Do I Get Money Back Brochure


In the fall of 2017 we pointed out a number of deficiencies in the IIROC Complaint brochure. These included missing information, a need for better information on limitation periods, revealing the true nature of internal “ombudsman”, crystal clear text that after 90 days, investors have direct, unimpeded access to OBSI and the downplaying of the role of the Ombudsman for Banking Services and Investments (OBSI). Investment Industry Regulatory Organization of Canada (IIROC) have just issued a new brochure on how an investor can receive redress if they feel they have been treated unfairly or improperly by the IIROC registered firm. There is a separate brochure for making a complaint (see References) in addition to this one on seeking redress. You should read them both.

In this Guide we explain sections of the How Do I Get Money Back brochure and how they can be improved.

Background and Perspective


When an IIROC Member firm receives a complaint they must:

·         Assess every complaint fairly and promptly

·         Acknowledge the complaint promptly, usually within 5 business days. At this time, the firm may request additional information from you to assist them in resolving your complaint.

·         Unless your complaint can be resolved informally sooner, provide their decision to you within 90 calendar days, along with:

(a)         An outline of your complaint;

(b)         The results of their investigation and the reasons for their final decision;

(c)         Information about other options for seeking compensation, in case you are not satisfied with the firm’s response.

If your firm cannot provide a response within 90 days, they must inform you, explain the reason for the delay and provide you with the new expected response date. You do not have to accept this delay. You can take your complaint to OBSI after 90 days of filing your complaint.

The Ombudsman for Banking Services and Investments (OBSI) is the exclusive Ombudsman service for IIROC firms. OBSI is independent from the investment firms and has its own Board of Directors. It is overseen by the Joint Regulator Committee, a group consisting of several provincial securities commissions, the MFDA and IIROC OBSI works on fairness principles and is a non-legalistic, free dispute resolution service for clients of IIROC firms. Its decisions are non-binding- in 2015, 18% of its compensation recommendations were low-balled or rejected outright by investment firms.

IIROC is an Industry Self-regulating Organization that regulates its Member firms. It derives its authority via Recognition Orders from the constituent members of the Canadian Securities Administrators (CSA), a grouping of Canada’s provincial securities Commissions. IIROC is overseen by the CSA.

Comments on the new brochure

First off, we must say that OBSI has been given more prominence in the revised brochure. This is a real positive. We recommend inclusion of OBSI’s toll free Fax number [1-888 422-2865] for seniors and those who prefer to use FAX.

The brochure encourages complainants to act promptly due to statute of limitation periods. As such matters are completely new to the average retail investor, we suggest some additional helpful text viz..”  For further information regarding limitation periods in your province/territory, contact a lawyer or your provincial/territorial government”. In Ontario, the period is two years.


The brochure states” The first step in seeking compensation is to make a written complaint directly to your investment advisor [Emphasis added] and his/her firm. They must provide you with a substantive response to your claim within 90 days. But if you’ve tried that and haven’t heard back, you can go to OBSI or consider the other options outlined in this brochure”. Where it says "directly to your investment advisor and his/her firm we would like to see the word "AND" capitalized for emphasis.

IIROC Member firms are responsible to you, the investor, for monitoring the actions of their representatives to ensure that they are in compliance with the by-laws, rules and policies governing their activities.If you have a formal complaint, we do not recommend submitting it solely to your dealing representative (aka “salesperson” or “advisor”). Address the complaint to the Branch manager, compliance officer or other senior manager of the firm, perhaps with a cc to the salesperson.

The brochure should use plainer more prescriptive language as to when exactly you can file a complaint with OBSI. The law states that you may contact OBSI if the firm has not responded within 90 calendar days of the date you complained. In other words, if the firm has not responded to you within 90 calendar days, you can file a complaint directly with OBSI. You do not need to wait for a substantive response from the firm.


This new brochure has some significant improvements especially the text on the 180 day limit to file with OBSI.  It is important to know that if you choose to  use a firm’s internal ombudsman, you will have less than 180 days to complain to OBSI as the 180 time limit begins to apply after the firm’s written response to you (not after you receive  a letter from the internal ombudsman). “ This is much increased clarity over the previous version. Please note that all references in the brochure to days refer to calendar days. Note also that during the 180 day timeframe, the statute of limitation clock continues to run down, a point we think should be made in the brochure.

"Although IIROC is not directly involved in the compensation process, all IIROC-regulated firms are required to participate in ombudsman [Emphasis added] and arbitration programs if the client chooses this option." This line may be confusing to investors regarding a firm offering their internal “ombudsman”; it may lead an investor to think he/she is required to use the  internal “ombudsman”.

The mention of a firm's internal ombudsman requires some further clarification from IIROC .We would add after "Some firms suggest you use their own internal ombudsman first" in brackets, "(internal ombudsman are non-independent employees of the firms’ or related affiliates)”.

We continue to ask IIROC to get rid of the internal “ombudsman “nomenclature. According to CSA Notice CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments  when using an internal ombudsman, registered firms should clearly indicate (with at least equal prominence to information about the internal ombudsman), among other things that the internal ombudsman is not independent and is employed by the firm [ Emphasis added]. This is Never done to our knowledge; in fact these internal “ombudsman” boldly assert that they are independent of the firm which raises the question why OBSI accepts such non-binding response letters as letters from a regulated firm. For its part, IIROC must enforce this CSA requirement in order to retain the integrity of the complaint handling process.

The brochure makes it reasonably clear that the use of an internal “ombudsman” is voluntary. However, the document does not disclose that internal “ombudsman” findings are not binding on the firm, that the statute of limitation clock continues to tick for any time you spend with this entity, they do not disclose their loss calculation methodology or that these entities are not regulated by IIROC. Such information would help complainants make an informed decision before deciding to use an internal “ombudsman”.

Since internal “ombudsman” are related to the firm and OBSI is firm-independent, we recommend you focus your redress efforts on OBSI. Be aware that there may be nudging to divert you away from CSA-mandated OBSI in an attempt to keep control of the complaint within the firm and corporate family.

There is a major disconnect on the scope of a complaint. The brochure limits scope to financial losses [Emphasis added] but the OBSI deals with transaction errors, fee issues, investment advice, unauthorized trading, misrepresentation, fraud etc. as well as direct losses. We feel strongly that a complaint can be more than the direct financial loss incurred. For instance, a complaint can also include opportunity losses if unsuitable products were recommended. It can also involve excessive fees, breach of confidentiality, forgery, defective disclosure and other inappropriate financial dealings with clients. Ignore what the brochure says and follow the guidelines in the OBSI complaint brochure.

The brochure rightfully states that “OBSI is Canada’s free, independent service for resolving investment and banking disputes with participating firms. IIROC requires all the investment firms it regulates to take part in the OBSI process.OBSI provides an independent and impartial process for the investigation and resolution of complaints about the provision of financial services to clients. The OBSI process is confidential. Unlike a complaint filed with an internal “ombudsman”, a complaint to OBSI stops the statute of limitation time clock. This is a unique feature that should be considered before deciding to use an internal “ombudsman”. On next revision, the brochure should highlight these distinguishing characteristics of OBSI.

The sentence “Many firms will compensate the complainant but some choose not to.” is a pretty disparaging remark concerning OBSI, albeit technically not incorrect. OBSI does have the mandate to Name & Shame firms that refuse to accept its recommendations, a tool it has not effectively used. In view of the recent Joint Regulatory Notice on complaint handling, this remark seems odd coming from the regulator responsible for regulating these firms and who sits on the Joint Regulator Committee overseeing OBSI.IIROC have an obligation to act if they feel the firm has not handled the complaint fairly and in accordance with its rules. NOTE: IIROC gets to nominate a Director for a designated spot on the OBSI board. This current Director is from a IIROC-regulated firm that refused an OBSI recommendation and was Named and Shamed publicly!

In fact IIROC do claim to take note when a registered firm is involved in a refusal case or a pattern of repeatedly settling for amounts lower than OBSI recommendations (low-ball settlements). IIROC rightfully believe that this data can provide risk-based indications of potential problems with a firm's complaint handling practices, or raise questions about whether it is participating in OBSI's services in good faith or consistently with the applicable standard of care. IIROC have a variety of regulatory responses available if, after concluding an appropriate review, they come to the view that securities laws and rules have been breached. These may include, but are not limited to: recommending terms and conditions on the registration of the firm or registered individuals to mitigate risks in the area of concern; and initiating an enforcement investigation of the registered firm and/or registered individual relating to the issue. Unfortunately, we cannot find examples of where this sanction capability has actually been used.

The brochure provides some other options for dealing with complaints in Quebec, New Brunswick, Saskatchewan and Manitoba. Most have restrictions and limits that make OBSI the best choice in the majority of cases. These securities commissions can order a person or company to pay compensation in appropriate cases.  This however requires a preliminary finding of a regulatory violation which may take years to investigate and adjudicate, a point the brochure should note.

The Guide also points out the availability of IIROC Arbitration. It has a $500,000 compensation cap. It is rarely used by retail investors because of the legal costs involved and the more consumer-friendly, no-cost nature of OBSI. Any choice to forgo the right to access the courts of justice ,should be well informed.

This paragraph is very helpful “As an investor you can complain to IIROC and we will review your complaint to determine whether or not your advisor and/or firm has broken our rules. If we find that our rules have been broken, we may take disciplinary action including fines, suspensions or permanent bans. However, IIROC cannot provide compensation to you or force an investment firm or individual advisor to reimburse you.” It makes clear that IIROC is not in the loss recovery chain. They do however include disgorgement in their Sanction guidelines but they retain the cash, it is not turned over to the investor. Disgorgement includes include any profits, commissions, fees, profits  or any other compensation or other benefit received by the dealing representative, directly or indirectly, as a result of misconduct.

On the chart page - under the column heading "Time Limit to Complain" we would like to see the actual time limit numbers put on the chart rather that the answers "yes" or "no". This should be complemented by a flow chart (or a link to a flow chart) that would visually present the complex, interacting sequence of events. Based on years of experience with complainants, we feel these changes would add greatly to the brochures’ impact and value.

We recommend that the following paragraph be integrated into the brochure or link-referenced:  If you live in Ontario: the Investor Protection Clinic at Osgoode Hall Law School provides free legal advice to people who believe their investments were mishandled and who cannot afford a lawyer. The clinic is staffed with Osgoode Hall Law School students that are paired with supervising lawyers from law firms in Ontario. If the Clinic is able to take you on as a client, you will be paired with a student-lawyer team that will provide you with legal assistance. The Clinic may be able to assist you by: (a) writing a complaint letter on your behalf to the company or the regulator; (b) giving you options on how to proceed with your issues; or (c) even representing you at a hearing.You can find more information on the clinic’s process and an online contact form at this link.”

Under Questions? We would expand to “You can contact IIROC if you have questions about making a complaint or to discuss alternatives at InvestorInquiries@iiroc.ca  or toll-free at 1-877-442-4322 for greater clarity.

It should be noted that IIROC registered firms must comply with IIROC complaint handling Rule 2500B which has been criticized by Investor advocates as being outdated, , creates an escape path ( acknowledges internal “ ombudsman”) that subverts the CSA 90 -Day rule and has weak provisions for dealing with systemic issues among other deficiencies. It also attempts to “balance interests” of all parties instead of using analytical root cause investigation analysis

If IIROC  place emphasis on a balance of interests, as opposed to a fair assessment of the overall balance of  objective information from both parties, then this clearly has implications for the complaints processes within IIROC’s Member firms, in particular the highly misleading internal “ombudsmen “ of the major banks. This is especially so under what still remains a largely product and transaction distribution focused industry. The complaint risks being set up to fail if we use a conflicted set of interests to set the basis upon which complaints are deemed to have merit.Kenmar have filed an Action request to the CSA asking them to require IIROC to make the necessary amendments to the Rule.

Summary

Overall, we believe IIROC has addressed some of the important issues we raised. That being said, there are still some significant aspects of the brochure that need revision. The ideas presented here should be useful to IIROC.

Kenmar have for years pleaded with IIROC to create a designated Board seat for a Retail Investor and establish a Investor Advisory Committee modelled after the OSC’s successful and effective Investor Advisory Panel. IIROC have been consistent in their rejection of such proposals which suggests to us they may be uncomfortable publicly confronting many Retail Investor issues, including complaint handling. We feel it would be WIN-WIN.

The complaint handling process is a cornerstone of investor protection yet it is inherently adversarial in nature. Retail investors lack a knowledge of the applicable rules, terminology and their rights. They are unaware of the many potholes and bear traps that they will face during their complaint journey. It falls upon Securities regulators to do their very best to level the playing field. Informative brochures are one tool that can help make the complaint experience a safer one.


Reference







Saturday, December 16, 2017

Anatomy of an internal Ombudsman: Office of The TD Bank ombudsman


Anatomy of an internal Ombudsman: Office of The TD Bank ombudsman
The Office self-identifies itself as an ombudsman. The Office will investigate complaints and act as a liaison between customers and all business areas within TD Bank Group in Canada, including: TD Canada Trust, TD Wealth, TD Insurance, TD Auto Finance, TD Commercial Banking, & MBNA. The Office does not report directly to any of these business areas .Complaints falling within their mandate are free of charge to TD customers.

TD’s If You Have A Problem brochure https://www.td.com/document/PDF/to-our-customer/td-customer-care-en.pdf  states under the heading Additional resources – external agencies states “If you require further assistance after the decision of the TD Ombudsman [Emphasis added], the following independent services can provide you with information and a further review of your complaint. Please use the information below to contact the agency that deals with the TD business group where your concern arose. These agencies may contact TD’s internal complaint resolution staff – including the TD Ombudsman’s Office – to facilitate their investigation and work toward the earliest possible resolution of your complaint”. This is incorrect – investors with complaints DO NOT have to engage with the TD’s “ombudsman” before they can access the Ombudsman for Banking Services and Investments ( OBSI). The brochure also does not warn investors that the statute of limitations time clock continues to count down while the investigation is in progress.

The TD-OBSI Relationship

A May 2,2011 NP article reported that sources had said that TD Securities, RBC Capital Markets Ltd. and Manulife Financial Corp. had filed an application with the Investment Industry Regulatory Organization of Canada (IIROC) for an exemption from the mandatory provision that requires them to resolve disputes through the Ombudsman for Banking Services and Investments (OBSI). The application was rejected but the fact it was made says something about TD’s aversion to OBSI.

In May 2011, Kerry Peacock, executive vice-president branch banking at TD Canada Trust, resigned from the 10-member board of OBSI in the wake of an attempt by TDWaterhouse Canada Inc. to opt out of using the services of OBSI. There was also pressure for Luc Papineau, a senior executive at TD Waterhouse, to step down from OBSI’s board. At the time, consumer advocate groups asked IIROC to replace Mr. Papineau, who was also a member of IIROC’s Quebec District Council, because of TD’s criticisms of the banking and investment industry mediator. Mr. Papineau and Ms. Peacock were two of the three industry representatives on OBSI’s board who were nominated by SRO’s.

In  October 2011, TD Bank Financial Group decided to withdraw all banking complaints from OBSI ( RBC did that in 2008 and National Bank November of this year).These banks now use ADR Chambers Banking Ombudsman (ADRBO), a for-profit mediator, to handle banking complaints that aren’t resolved by the bank’s own internal complaint handling process. ADRBO is regulated by the Financial Consumer Agency of Canada (FCAC).  Investment complaints involving TD and RBC still must go to OBSI.

At that time of withdrawal, OBSI’s annual report showed TD leading in complaints by consumers. TD was the subject of 131 banking case files opened by OBSI (33 % of the total) and 59 investment case files (15 % of the total).TD’s abrupt decision to leave - with just 5 days’ notice — created financial exposure to OBSI. Quick action to change its Bylaws preserved TD’s funding for the rest of OBSI’s fiscal year. The then TD ombudsman Paul Huyer said OBSI’s slow response time was an issue. He hoped to see all complaints resolved within 90 days by ADR Chambers. OBSI resolved straightforward banking complaints in 55 days on average, according to its report. But for all banking case files, the average response time was 126 days.


“Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer,” Peggy-Anne Brown, then OBSI Chair, said in her opening message to the report. “Make no mistake, this is a power struggle between the interests of consumers/investors and the interests of large and powerful financial firms.” she said.

The ombudsman’s Office

Ms. Kerry Robbins has been the TD Ombudsman since September 2014. Kerry has worked at TD for over 18 years in increasingly senior roles in a wide variety of areas, including Direct Channels, Branch Banking, and Real Estate Secured Lending. . Ms. Robbins therefore has friends and associates among bank staff. She has a BA from King’s College at the University of Western Ontario and a MBA from Anglia Business School in Cambridge, England. She is also listed as a Board Member of the Canadian Centre of Ethics & Corporate Policy.
According to TD, the TD Ombudsman’s Office is an independent body within the Bank charged with reviewing customer complaints that remain unresolved after the completion of Steps 1 and 2 of TD's internal customer problem resolution process.



According to the 2016 Annual report, the Office opened a total of 749 cases, representing an 18% increase over 2015. The average time to complete a review was 61 days, with 95% of the cases closing within 90 days. About 85% (637) of the cases were either not resolved or were partially “resolved” at least using TD’s definition. The majority of the case files originated from the Branch Banking network but 75 (10%; 6% in 2015) of cases related to wealth/ investments. This means that complainants who had a choice to use OBSI after the investment dealer decision chose or were nudged into using the unregulated TD ombudsman’s Office instead of CSA- approved OBSI, a non-profit agency supported by participating firm funding . It can make non-binding recommendation. According to an independent reviewer’s report, 18% of its recommendations are low-balled by investment dealers. Investor advocates argue that OBSI’s inability to make participating firms follow its recommendations is a denial of access to justice.

In March, 2017 there were media reports of “hundreds of current and former TD Bank Group employees” who described feeling pressured to meet high sales goals, with some claiming to have raised credit and overdraft limits without customer consent. Signature forgery was also reported. In response to the news reports, the Financial Consumer Agency of Canada (FCAC) moved up its review of the financial sector to April, during which it plans to focus on sales practices and whether Canada’s banks are following guidelines regarding express consent and disclosure.

Some TD ombudsman characteristics:
Location: TD Centre in Toronto. Co-located with senior TD executives, this is generally regarded as an indicator of non-independence.

Employment: It is not revealed who can terminate the ombudsman or under what conditions.

Coverage: Assumed to be all TD wealth units including discount brokerage.

Limitation clock: Unlike OBSI, a complaint to the Office does NOT stop the limitation time clock.

Reports to: Not revealed.
Compensation source: TD - no detail provided-could possibly include salary, profit sharing, bonus program and stock options.
Funding: By TD Corporate from general revenues
Governance: Not revealed
Applicable regulator: Not regulated by CSA, IIROC or MFDA
Loss calculation methodology: Not disclosed.
Organizational Independence: Asserts independence from business units but is part of the same corporate family.
Social independence: As a long term TD employee , the TD ombudsman has a network of associates and friends among several TD business units to be investigated.
Standard. None cited. Typically would be ISO 10003 Quality Management – Customer Satisfaction – Guidelines for Dispute Resolution External to Organizations or the Forum of Canadian Ombudsman www.ombudsmanforum.ca/en/  We do not believe the TD ombudsman meets the criteria, particularly independence.

Decision stature: Unable to elicit a response to our enquiry- we believe recommendation is non-binding on applicable TD Bank business unit.

Dollar cap: Not disclosed
Forms to be signed: Not available on website
Target cycle time: 90 calendar days
Mandate Restrictions: Unless there are extenuating circumstances, the Ombudsman’s Office will not review complaints relating to bank policies, including credit granting or risk management decisions ;interest rate levels; other charges or fees that are disclosed; or matters where legal action has already commenced or has been concluded.

Summary

TD has a controversial relationship with the CSA-recognized Ombudsman, OBSI. The TD ombudsman is not independent. The internal TD bank “ombudsman “ service is strictly optional. There is no need whatsoever to utilize that service. After the investment dealer has submitted its final response letter or after 90 days of filing a complaint, complainants have an immediate right to access dealer- independent OBSI. They must file a complaint to OBSI however within 180 calendar days. A complaint to OBSI stops the limitation time clock while it conducts the investigation.

Given its lack of independence, unknown governance and opacity, the use of the internal “ ombudsman” is a questionable choice .It is a well  established fact that the more stages in a complaint handling process , the less likely a complainant is to see it through to completion .That is why investor advocates suggest going to OBSI after the firm has had two chances at satisfying the complainant.

The internal “ ombudsman'  issue should be addressed in the consumer component of the review of the Bank Act - along with many other issues related to OBSI, the FCAC, For-Profit external dispute resolvers, conduct standards etc.


References:
·         MEDIA RELEASE: CONSUMER AND INVESTOR ADVISORY COUNCIL TO OBSI ALARMED BY TD BANK DECISION  26/10/2011 https://www.obsi.ca/en/about-us/resources/Documents/MEDIA-RELEASE-CONSUMER-AND-INVESTOR-ADVISORY-COUNCIL-TO-OBSI-ALARMED-BY-TD-BANK-DECISION.pdf
·         TD Bank: Do you Really Care about Your Customers? https://www.linkedin.com/pulse/td-bank-do-you-really-care-your-customers-td-thebully/
·         FAIR Canada Letter to OBSI Joint Regulators Committee re Use of " internal Ombudsman" by Registered Firms When Responding to Investment Complaints   https://faircanada.ca/submissions/letter-obsi-joint-regulators-committee-re-use-internal-ombudsman-registered-firms-responding-investment-complaints/ 
·      PIPEDA Report of Findings #2016-006: An insurance company’s internal ombudsman office is not a “formal dispute resolution process” under PIPEDA - Office of the Privacy Commissioner of Canada In order to qualify as “a formal dispute resolution process” pursuant to paragraph 9(3)(d) of PIPEDA, as a basis for withholding access to personal information, the process’s purpose must be to resolve a dispute and the process itself must be formal. The formal process requirement mandates the presence of a framework or structure, either legislated or agreed to by the parties to the dispute; in other words, the resolution of the dispute must take place in accordance with recognized rules.https://www.priv.gc.ca/en/opc-actions-and-decisions/investigations/investigations-into-businesses/2016/pipeda-2016-006/


NOTE: The Investor Protection Clinic at York University’s Osgoode Hall Law School wants to hear from investors who believe that their funds have been mishandled . The Clinic is staffed by Osgoode students who are paired with supervising lawyers from leading business law firms in Ontario. Common issues that the Clinic may be able to help with include cases of an advisor, teller or customer service representative at a bank, insurance company or investment firm misrepresenting the risk of a client’s investments; funds being used in ways that a client was unaware of; an advisor making too many trades, resulting in high commissions or trading fees; a firm charging fees that were not explained to a client; and an advisor signing forms on a client’s behalf without their permission. These student-lawyer teams might assist a retail investor by, for example, writing a complaint letter on their behalf to the company or the regulator; giving a client options on how to proceed with their issues; or even representing the client at a hearing. This free service is well worth exploring. For more information about the Investor Protection Clinic, call 416-736-5538 or email ipc@osgoode.yorku.ca  .