Sunday, August 19, 2018

The final insult for victims of financial Assault - the RELEASE form



The odds are that sometime during your investing lifecycle you will file a complaint with your investment dealer. The odds are also high the dealer will deny any responsibility for your losses. In those cases where they do concede some liability for the losses, they may agree to partially compensate you. In order to receive any compensation they will insist you sign a RELEASE form. If you don't sign you will not get your money back no matter how valid your complaint. You will then have to use the Ombudsman for Banking Services and Investments which does not provide a binding decision or proceed to costly , aggravating civil litigation.

In case you’ve wondered what a RELEASE form looks like we present a typical example here. If you think the deal is one-sided and ugly, you are right, it is. If you think some sharp lawyer working for the dealer crafted this document , you are right again.Note also this RELEASE serves as a Gag order in that you effectively cannot reveal what happened to you. Most Canadians are shocked that such silencing of a complainant is permitted in Canada. Many regard their experience with the financial services industry complaint system as life -altering. It definitely isn't " If you're not satisfied, your money will be cheerfully refunded"  .This blog should open your eyes to Bay Street tactics to keep details of client complaints from the public. Be AWARE. 

To obtain a deeper understanding on how Bay Street can adversely impact the lives of Canadians visit Listen to the Voices. 


RELEASE


IN CONSIDERATION of the payment by Big Bank Dealers Inc. ( BBDI) of the sum of $XXX.00 in Canadian Currency (Cdn) and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged) to Mr. I.M. Sucker for and on his own behalf and for and on behalf of his agents, heirs, executors, administrators, successors and assigns (hereinafter collectively referred to as the “Releasors”), the Releasor does hereby fully and finally release and forever discharge BBDI, together with each of their associated, affiliated, related and predecessor companies, partnerships and entities, as well as each of their respective directors, officers, shareholders, employees, servants, agents and insurers and each of their respective successors and assigns or any other person for whom they may be responsible in fact or in law (hereinafter collectively referred to as the “Releasees”), from any and all actions, causes of actions, judicial proceedings, suits, claims, demands, debts, dues, accounts, bonds, contracts and covenants, whether express or implied or direct or indirect, and for damages, indemnity, costs, interest, loss or injury of every nature and kind whatsoever and however arising which the Releasor may have had, may now have or may in the future have for or by reason of any cause, matter or thing whatsoever existing and, without restricting the generality of the foregoing, all claims and demands arising in, out of or in any way connected, directly or indirectly, with BBDI  Accounts 123-45678 and 123-45679 up to and including this day.

AND FOR THE SAID CONSIDERATION, the Releasor further agrees not to make any claims or to commence or maintain any action or proceeding, either directly or indirectly, whether in Canada or elsewhere, on his own behalf or on behalf of any class or any other person, against any other person, corporation or other entity in which any claim could arise for contribution or indemnity or any other relief over, against the Releasees (all the claims described in this paragraph are referred to as a “Prohibited Proceeding”).



THE RELEASOR agrees that in the event he commences a Prohibited Proceeding, and either or both of the Releasees are added in any capacity or manner whatsoever to such proceeding:

(a)         the Releasor will:

i.         immediately discontinue the Prohibited Proceeding; and

ii.         be liable for all legal and related costs incurred by the Releasees in connection therewith;

(b)         this Release:

i.         shall operate conclusively as an estoppel in the event a Prohibited Proceeding is commenced;

ii.         may be pleaded as a complete defence and reply in the event a Prohibited Proceeding is commenced; and

iii.         may be relied upon in any proceeding to dismiss a Prohibited Proceeding and no objection will be raised by the Releasor to the effect that other parties to the Prohibited Proceeding are not parties to this Release.

THE RELEASOR represents and warrants that he has not assigned to any person or corporation or other entity any claim which has been released by this Release.

THE RELEASOR acknowledges that before signing this Release, he has been afforded the opportunity to, or did in fact, seek independent legal advice in connection with all of the matters which are the subject hereof. The Releasor voluntarily accepts the consideration offered for the purpose of making full and final compromise and settlement of all claims as aforesaid.

IT IS UNDERSTOOD AND AGREED that the aforesaid consideration is deemed to be no admission of any liability or obligation of any kind whatsoever on the part of the Releasees.

IT IS FURTHER UNDERSTOOD AND AGREED that the Releasor hereby undertakes and agrees not to disclose the terms of the settlement and this Release to any third party without the prior written consent of the Releasees, except as required by law and except for any communications with securities regulatory and self-regulatory organizations.


THE RELEASOR AGREES that should he breach any terms of this Release, there shall be a complete failure of consideration in favour of the Releasees, and accordingly, they shall be liable, in addition to any other remedy the Releasees may have, to repay to the Releasees any and all of the consideration received in accordance with the terms of this Release.


THE RELEASOR UNDERTAKES AND AGREES to cooperate with the Releasees to execute and deliver such further and other documents as may be reasonably required to give effect to this Release.

IT IS UNDERSTOOD AND AGREED that this Release, once executed, may be retained in electronic form and has the same force and effect as the original executed Release.

IN WITNESS WHEREOF the Releasor has hereto set his hand this ___ day of __________, 2018.



SIGNED in the presence of:
}



}


______________________________
}
___________________________

Witness’s signature
}
Mr. I. M. Sucker


}


______________________________
}


[NAME]
}





______________________________
}


[ADDRESS]
}





______________________________
}


Wednesday, July 25, 2018

Remediation pitfalls to avoid



From time to time, and more frequently lately, investment dealers are obligated to compensate you for undue losses. The losses may be attributable to unsuitable investments, double billing, overcharging, misrepresentation, improper leveraging and the like. 

Typically, you will receive a letter from the dealer advising you of the compensation. However, it seems some brokers can’t miss the opportunity to kick victims one more time. They will ask you to sign off on the planned remediation thereby legally agreeing to the amount provided. So where’s the rub?

There is often insufficient information being provided for an informed consent to be given. The real reason for payment is not given- in most cases it’s because regulators or a Court ordered it. The numbers provided are not verifiable and victims are given a very short deadline to respond, sometimes less than three weeks, or the offer is off the table.  The explanation for the payment may be as deceptive as the sales practices used to deceive you.

You may be told the investment they have "might" not be suitable for you but if you want to stay in it, sign here and if you want to get out of it sign this gag order (referred to a Confidentiality Agreement) and a Release over here indemnifying the dealer who will pay some of the loss and excess costs inflicted on you the last "X" years.

What these brokerages fail to reveal is: "We didn't suddenly just discover this, we have had the regulators breathing down our necks and they have now disciplined us. We were fined for selling unsuitable investments or strategies to a group of people just like you. We didn't follow any of the industry rules and guidelines in setting this up for you, or the other hundreds or thousands or maybe it's even millions of people just like you that trusted us. 

We also used unethical sales practices to motivate and incentivize our sales team that you mistakenly were led to believe were professional advice givers working in your best interests.   We also sold it to you on a DSC basis so we could get a big fat commission right away and I think we forgot to mention that to you as well. “

So instead of something appropriate and suitable in your portfolio, that in a fairly good market you would have made money in, if they had actually cared about you, your goals and what they knew about you, you got this crappy investment instead or were overcharged and lost years of saving for your retirement.

These scoundrels may even take the opportunity to remind you what their website says

“We’re here to help you build your financial future and live a great retirement.”
When you are told the remediation plan is being handled by an independent monitor or an accounting firm you can be reasonably confident in the fairness of the calculations. Note however that an independent party may be given parameters which undermine the appearance of independence.If the disbursal of funds is being managed by the dealer- assume the worst and you will never be disappointed. 

So, when you get a remediation letter, read it carefully. Ask questions. What are the tax implications?How were the numbers calculated? Be skeptical. You may get a better deal via OBSI or civil litigation. Never forget- it’s your money. If the dollars are large, consider getting professional assistance.Know your rights.


Tuesday, July 10, 2018

What the heck are "Service fees" ?


More fee issues in mutual fund land

The industry has been plagued not only with high fees but with numerous scandals regarding overcharging, double billing, not applying breakpoints and charging for advice and not providing it.

There is also an important issue with trailers in “D” series funds used by DIY investors. The issue of discount brokers being compensated for "services" that they may or may not have provided to investors is one that deserves more attention. 

There are no mutual fund disclosure documents I Fund Facts, Simplified Prospectus) that define what is meant by "services" in the phrase "services and advice" that is the material phrase in the definition of a trailing commissions.  There does not appear to be a common definition applied to services by different mutual fund stakeholders. 

Our general impression is that the term “services” was left intentionally undefined by mutual fund companies so that different dealers can be left to interpret this term as they see fit and to their advantage under differing circumstances. However, the agreement to invest in a mutual fund is one between the mutual fund company and the investor - the definition of services rests with those parties (not the dealer) and most likely with the party that did not draft the mutual fund agreements (the investor). In our view, these D series trailer commissions are actually a redundant charge for services already implied in the Agreement the investor has with the discount broker.

As big a travesty as payments for advice that was not provided is the travesty of hundreds of millions of dollars of Canadian's wealth being transferred to dealers (discount and full service) each and every year for "services" that have never been defined. 

How can a retail investor know if he/she received a service that has no definition?  How can a dealer claim to have provided an investor with services when there is no definition for services?  Can a dealer double dip - charge you for a service through your mutual fund holdings that you have either already paid?  Can a dealer charge for a service for which there is no direct charge under the terms of your Relationship Disclosure with your dealer (e.g. access to quotes, research reports)? 

According to a paper released in January, 2017, by the Canadian Securities Administrators (CSA) that discussed the topic of discontinuing embedded commissions. there are a total of $30 billion held in mutual funds at discount brokers. And $1.5 trillion in other accounts. At a 0.25% rate estimate for services  this translates into about $3.75 billion per annum for “ services”.

Regulators should be examining this charge.

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. Not all investor losses are due to advisor malfeasance.We are also seeing many errors due to negligence, inattention, lack of proficiency and infrequent communications. Errors include bad tax advice, failure to make timely  RESP  contributions ( for grandchildren) , excessive RRIF withdrawals, HELOC borrowing to invest while client carries large credit card balance , outdated designated beneficiary, dividend stocks in RRIF instead of margin account , seriously outdated KYC  ,unfit-for-use client risk profiling process , poor proficiency re de-accumulating accounts  ,one or no face-to-face  meetings per year etc.. Too often the dealer  "he says-she says"  argument goes unchallenged nearly always to the senior's  detriment .Click .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.


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