Tuesday, October 10, 2017

Mutual Fund Performance Ads- Better not read



Mutual funds are a cornerstone of our Canadian savings and retirement systems. There are thousands of mutual funds in Canada, holding a total of more than $1.4 trillion in assets. Mutual fund ownership is widespread. As of 2015, 33% (4.9 million) of Canadian households held mutual funds. Mutual funds account for 31% of Canadians’ financial wealth.


Consistent with the long-term investment horizon of many fund investors, more than half of investors’ mutual fund holdings are in equity funds, i.e., funds that invest in stocks. The portfolios of equity funds are either passively or actively managed. Passively managed funds typically are index funds, managed to track the returns of a specified market index, such as the S&P/TSX. Most equity funds, however, are actively-managed in an attempt to beat the market (or a specified benchmark) by superior stock picking, market timing, or both. Actively- managed funds typically engage in more research and trading activities than do Index funds, and thus generally have much higher costs to manage (or what's known as "MER's") 



Uninformed investors bear the burden of fund selection

With the job of deciding how to allocate money among different mutual funds increasingly falling on individual investors, our nation’s retirement income security depends to a growing extent upon investors making wise fund choices. An extensive body of research has examined how investors choose among the vast number of funds available to them. In general, the studies have found that most fund investors are uninformed and financially unsophisticated—unaware of the investment objectives, composition, risks, fees and long-term impact of expenses on their funds. Investors, however, do pay great attention to funds’ historical returns. Indeed, studies have found that this might be the most important factor to the typical retail investor choosing among funds.



Past performance not a good indicator of future results

Studies of actively-managed equity funds have found little evidence that strong past returns predict strong future returns after fees. This is a very important fact.  Chasing performance is therefore a fool’s game and not a good reason to select a fund. Fund companies advertise their high-performing funds because they have proven effective at exploiting and encouraging investors’ tendency to chase funds with high past returns.  Simply put, investors tend to put their money with fund managers who have succeeded in the PAST, despite the fact that this will not mean that the fund manager will succeed in the future.



Mutual Fund Ads: inherently problematic

Investors receive these performance ads via email, newspapers, TV/BNN, social media, so-called “free lunch" seminars and directly from fund salespersons. Such promotions are consistent with the old adage “Mutual funds are sold not bought ". Fund companies use performance advertisements much more often during stock market upswings (and at RRSP time) than downswings, because they have higher returns to advertise when the stock market has been performing well. This phenomenon is very important. It means that the timing of performance ads encourages investors to make a major investing mistake: chase past returns.


Performance ads may prompt investors to buy equity funds primarily when recent stock returns have been high. This is the opposite of what investors should do- buy low, sell high .In many performance ads, the implication of continued high performance is not subtle. Statements such as "superior proven performance" or "superior risk- adjusted performance" are both vague (superior to what?) and exaggerated (is the performance repeatable or does it imply certain future returns? Such headlines touting the advertised fund’s “proven” performance are understood as saying that such past performance predicts likely future performance.



What the regulators Say

Canadian regulators have recognized the troubling tendency of mutual fund investors to chase past returns. Regulations specify how funds may calculate and present past performance in their ads. The rules also require that performance ads include a warning:



Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund Facts before investing. Mutual funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or any other deposit insurer. Their values change frequently and past performance may not be repeated. The unit value of money market funds may not remain constant. 


The mandated warning, however, is not a sufficiently robust disclosure to convey that strong past performance is not a good predictor of strong future performance. Instead, it merely informs investors that past performance may not be repeated in future results, that returns vary, and that investors in the fund might actually lose money. Even this light warning is subverted by putting it at the bottom of the ad page in fine print, light black over grey background.



So what to do?

So, how does one select a mutual fund? Start by reading this easy to read article 5 Things to Know Before Choosing a Mutual Fund  https://retirehappy.ca/choosing-a-mutual-fund/ When it comes to choosing a mutual fund, a basic portfolio approach that is consistently implemented gives you the best chance of optimizing your returns. Asset class mix and low fund costs are key determinants of portfolio performance. Understanding your investor type and your risk tolerance/ capacity as well as knowing how to select key information from a fund profile (Fund Facts) will help you ensure that the funds in your portfolio are congruent with your financial goals and objectives.



Investors should understand that some periods of below average performance are inevitable. At such times, investors should remain disciplined in their investment approach and avoid the temptation to chase performance.



So, think twice about chasing past returns based on fund ads. It may be harmful to your financial health.


Ken Kivenko                                                                      November,2017

Sunday, September 17, 2017

How the investment industry delays reform          


         
In The seven tactics unhealthy industries use to undermine public health policies

While many of the health industry techniques are slick, we still think the Canadian investment fund industry lobbyists are world class. Some examples of the methods used:

      ·         Hire senior regulatory staff promoting  reforms

·         Lobby Minister of Finance to come down on regulators

·         Attack independent empirical research

·         Attack the researcher that created the independent research

·         Fight  independent research with industry funded research

·         Have former regulators publicly condemn reforms

·         Divert attention towards better disclosure or financial literacy

·         Use fear mongering- Small advisors will be left to fend for themselves

·        State that retail Investors will be scared away if details on fees are fully disclosed 

·       Claim that regulatory reforms could cause a shortage of advisors

·       Boldly assert that trailer commissions do not skew recommendations- the Big  Lie

·       Claim that there is no convincing evidence that indexing has an advantage over active management

·        Argue that Targeted reforms are good enough - no need for a Best interests standard

·        Suggest that small investors need comprehensive guidance on taxation and estate planning

·       Imply that mutual fund  "advisors" ( registration is actually salesperson) provide holistic planning

·       State that advice is free with mutual funds

·       Support freedom of  payment scheme choice for unsophisticated investors

·       Use  gross dollars "saved" as a metric to justify advice

·       Claim that the value of  conflicted advice is over 3% of assets

·       Argue that  similar problems in other jurisdictions are different

·      Let media know who pays the advertising bills

·      Claim that greater advice integrity will make advice unaffordable for the mass market

·      Assert that rural communities will lose access to advice

·      Rip into robo advisors

·      Support political candidates that are industry-friendly


Let us know of any other approaches so we can keep the list up to date.

Sunday, September 3, 2017

Why do investors lose money

There are many ways for investors to lose money . Many are preventable. Click here for details

Tuesday, August 29, 2017

Streetproofing Guide for Senior Investors




Every October is investor education month in Canada. All the securities Commissions will remind investors to check the registration status of their “advisor”. You should do that but be forewarned the process isn't easy. Be aware that the title “advisor” has no legal meaning – it won't match any of the registration categories. If you see they are under “strict supervision”, it's time to change advisors.



Our concern is with those “advisors” that are registered and how senior investors can be exploited. Yes, they are required to follow IIROC and MFDA rules but the rules aren't as tight as you'd think and they aren't enforced to the necessary degree by the industry self-regulators. As Vanguard founder John Bogle has remarked “The scandal isn't what's illegal, it's what's legal”.



Advisors are required to sell you suitable investments but they are NOT required to act in your best interests. Senior financial abuse and exploitation continues to be one of the most prevalent and “lucrative “enterprises in Canada.



Approximately 30-35 % of all complaints received by regulators involve seniors. I suspect the elderly statistics are distorted as it’s my experience that the elderly are usually reluctant to formally complain for many reasons. Seniors often avoid publicity or litigation due to the embarrassment of having been bilked. They may unduly blame themselves for losses, are reluctant or unable to formulate a complaint or unaware that something is amiss.



A 2007 Canadian Securities Administrators Investor Study: Understanding the Social Impact of Investment Fraud, estimates that over one million adult Canadians have been the victim of investment fraud. The study shows it is a common occurrence in the lives of many Canadians, with almost one-in-20 having been victimized.



Regulated “advisors” also are quite capable of fraud but the real abuse is more subtle- unsuitable investments, undue leveraging, high cost products,

account churning and lately, reverse churning and pension commutation.



1. Check registration: Engage with registered dealers and advisors with good reputations.

2. Don’t fall for investments that promise “guaranteed” or exceptionally high returns: If an investment seems too good to be true, Run.

3. Avoid investments that are advertised as “risk free”: All investments have risk. As a general rule, the greater the potential return, the greater your risk of losing money.

4. Don’t be rushed into an investment by high pressure sales tactics .Always take the time to evaluate and understand an investment before purchase. Always be leery of “once in a lifetime” opportunities, or investments that are only available “for a limited time.”

5. Be wary of inflated titles: A few advisors may use inflated titles to market themselves such as Vice President , Seniors Specialist and the like. Too often, these are meaningless. Don’t be intimidated by the titles.

6. Be wary of professional designations: Some advisors may use professional designations to market themselves as retirement or senior specialists. While real professional designations require rigorous study or extensive education or experience, some may be relatively easy to attain, and

may even be available to individuals with no experience.

7. Avoid “Free lunch” financial seminars for seniors: These seminars may be carefully scripted sales presentations designed to prey upon seniors’ fears. Some of these seminars may pitch investments that may be unsuitable or fraudulent.

8. Make sure that you clearly communicate your investment objectives to your advisor: Don’t let him/her steer you into investments that are not in line with your investment objectives, risk profile or time horizon.

9. Never sign a blank or incomplete document: Always take the time to review documents you are asked to sign, and ensure the document is filled out completely and signed/dated.

10. Take great care in filling out the NAAF/KYC form .Anything you declare can and will be used against you in the event of a complaint. Don't exaggerate investment experience or risk tolerance.

11. Never make payments to an advisor: When making an investment, use a method of payment that can easily be tracked. Make payments only to the registered dealer, NEVER to an individual.

12. Avoid any personal financial dealings with your advisor: You are not a bank so don’t start lending out money. Avoid assigning POA or executorship to an advisor.

13 Get a second opinion: If you have questions about an investment and the advisor fails to fully or satisfactorily explain things, consult a different financial professional.

14. Ask questions: Some advisors may use language or jargon with which you may be unfamiliar. If you don’t understand something, ask for a clear explanation.

15. Contact your provincial securities regulator . Every province has a Commission/agency devoted to protecting people from financial abuse and fraud. Contact your provincial securities regulator if you suspect you’ve been treated badly or targeted as part of a financial scam.



And above all, read your account statements and trade confirmation slips. If something appears amiss, act quickly to get it resolved. Do NOT let problems accumulate.



The following are the most basic questions that seniors, and investors in general, should ask when facing the decision to make an investment:



· Do you have a fiduciary duty to me? If yes, get it in writing on Company letterhead.

· How are you compensated?

· Can you explain the investment to me without using industry jargon?

· Do you use Investment Policy Statements?

· What risks are associated with the investment/program?

· What are the investment cost in terms of commissions and fees?

· Are there additional or ongoing fees?

· Are there early redemption charges associated with this investment?

· What are the pros and cons of this product re taxation?

· Why is this investment suitable for me? What are the alternatives?

· What type of reports will I receive and how frequently?

· How easy is it to sell or convert the investment to cash if I need money quickly?

· What happens if I have a complaint?



If the salesperson can’t or won’t answer your questions in writing and to your satisfaction, the investment may not be right for you. Ask questions and stay informed about your investments. Seek help if you believe you are being targeted or have been a victim of financial fraud or abuse.



Some light reading to protect your assets:



Pursuit of a Financial Advisor Field Guide – v13 A MUST read for retail investors.




Understand Investment Jargon The Steadyhand Investment Dictionary




The Responsible Investor http://faircanada.ca/wp-content/uploads/2011/03/The-Responsible-

Investor-MoneySaver.pdf  



Why Your Financial Adviser Should Be a Fiduciary http://www.aaii.com/journal/article/why-yourfinancial-

adviser-should-be-a-fiduciary  

Sunday, August 13, 2017

Kenmar Guidelines for regulator inquiries Offices


                     

Inquiries offices at securities regulators play an important role in the investor protection chain. When handled effectively many issues can be put to bed quickly and painlessly. People who take the time to inquire/complain should be viewed as invaluable sources of information. An inquiry or complaint should be welcomed as an opportunity to resolve a problem, revise a rule or change a policy. Yet in our communication with retail investors, they tell us the satisfaction level with inquiries Offices is less than satisfactory. Complaints range from non-responsive, impatient and dismissive to abrupt and insulting. The most frequent complaint by far are responses that investors perceive as bureaucratic bafflegab that fail to answer the specific issues raised. This can result in a chain of communications that result in caller frustration and even anger.



Here's some ideas for improvement:



·         Access - phone, mail, email, FAX - physical offices – convenient operating hours

·         Languages-provide most common in the region

·         Response times to inquiries- state target times clearly and keep to less than 3 days for most inquiries : explain if a delay is necessary

·         Know your caller - elderly, vulnerable investor, veteran, recent immigrant, despondent due to losses....Tailor response to the type of caller.

·         Understand the issue (s)- realize retail  investors need help articulating the issue(s)

·         Listening- apply assertive listening principles – try to understand the underlying issue(s)

·         Respect- never insult the intelligence of  callers , never ridicule

·         Clarity- avoid use of  investment industry jargon, acronyms and legalese in communications

·         Plain language- use plain language principles.

·         Remember, the majority of Canadians have low financial literacy.

·         Linear response - answer  specific questions asked, not questions not asked ; be forthright and straight to the point

·         Patience- retail investors, especially complainants, need to be treated with a lot of patience- this is a new process for most ; do not close file prematurely

·         Compassion and empathy  - show understanding and be tolerant of  occasional outbursts of caller frustration 

·         Facts and evidence- use objective material and references;  do not ignore or dismiss caller evidence and paperwork

·         Updates- provide periodic updates as required

·         Responses- address the issues raised point by point in easy to understand terms; invite caller to contact you for further information

·         Referrals- explain why referral is being made to another agency, provide full and clear contact information to referral

·         Nest steps- if caller unsatisfied , explain/ suggest escalation procedure

·         Satisfaction Survey - conduct  caller annual satisfaction survey , publicly release results and commit to addressing issues identified



We believe that Inquiries Offices have an important role to play in investor protection. Taking the time to listen to the Voice of the Investor is a WIN –WIN for all stakeholders.



DISCLAIMER

Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The material does not constitute a recommendation to buy, hold or sell. The purpose of this Document and others in the series is to educate investors by bringing together personal finance information from a variety of sources. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained.

 

Monday, August 7, 2017

The Discretionary Account


There are two general types of investments accounts: Non-discretionary and discretionary. A non-discretionary account requires the representative to obtain client consent before he/she makes any investment decisions. With discretionary accounts, investors delegate day-to-day investment decisions to their portfolio manager (PM). That differs from non-discretionary accounts where clients must make final trading decisions on each transaction.

Because a discretionary account allows a dealer representative to make account transactions without the client’s prior approval, a common law fiduciary duty will virtually always arise with such an account. A fiduciary duty may also arise where the client has a non-discretionary account depending on the actual power or influence that the representative or dealer has over the client, and the extent to which the client relies on the representative or dealer.

Discretionary accounts are suitable for investors, such as busy executives, business owners and others who don’t want to be involved with portfolio management. These accounts are most suitable for investors who prefer a balanced approach to investing and have a long time horizon. Discretionary accounts usually have higher minimum investment requirements, often starting at $250,000. Fees are usually based on assets under administration, which at least in principle, motivates portfolio managers to perform well because their fees are linked to portfolio performance. Do not hesitate to negotiate fees. Fees are generally tax deductible in non-registered accounts.

In a fast-paced financial world, delegation can make a difference. Consider an advisor with a 150 clients in non-discretionary accounts, each holding a particular stock. Should the markets take a turn for the worse or the company post unfavourable results, the representative must contact each of those clients for approval to sell the position. This can be a serious disadvantage when a situation warrants immediate action. A good PM can take emotion out of the equation by making the decision for the client in a timely manner.

Likewise, the PM is better positioned to seize buying opportunities. When the markets dip and a good quality stock inexplicably drops in value, he or she can again act immediately.

Portfolio managers use different investment management approaches and styles. Some managers are product specialists, some adopt a certain style such as value, growth or momentum, and some offer a combination of products and styles.

As with any account, the PM will need to know your KYC parameters such as net worth, time horizon and risk profile (tolerance and loss capacity) and your investment objectives.

The PM doesn’t invest without restriction, but is bound by the parameters outlined in a jointly developed Investment Policy Statement. Investors may even establish constraints based on such things as personal principles and specify stocks to avoid from industries they feel are socially undesirable. You can instruct your personal PM that you don't want to invest in booze companies, or you don't want to go near junk bonds, or that you want half of your holding always in GIC’s .The investor has more peace of mind knowing that discretionary accounts are subject to greater governance and oversight .

But for some investors, discretionary accounts aren’t suitable. Passive Investment management strategies, which are characterized by low portfolio turnover, are generally more compatible with non-discretionary accounts. The same would be true of a “buy-and-hold” strategy. The fewer the trades, the less client meetings or phone calls necessary to gain authorization to execute transactions. Clients who like to be hands-on with their investments will also be better served by a non-discretionary account.

The qualifications to be a portfolio manager require higher levels of education and experience than other advisors. However, when choosing a portfolio manager, investors should seek even more distinctions, including access to high quality research and freedom from any influence toward proprietary products. The PM should have a clear communications plan and be readily available to answer clients’ questions. Above all, you need to be able to trust your PM and the dealer. You can check registration and disciplinary history at http://www.securities-administrators.ca/nrs/nrsearchprep.aspx

Here's some questions to ask before signing up for a discretionary account:


        ·         What services are provided?

·         What are all the fees and expenses associated with such an account? Obtain in dollars and percentage terms.

·         Are you a fiduciary? If yes, obtain confirmation in writing, If no, reconsider this type of account. See this sample fiduciary form from the Small Investor Protection Association http://www.sipa.ca/fiduciaryOath.html

·         What are your qualifications and experience?

·         Can I see a sample Investment Policy Statement?

·         How do you manage cash in the account?

·         What is your trading strategy? Expected portfolio turnover?

·         How do you effect tax optimization?

·         Have you ever been sanctioned or disciplined by a regulator?

·         Can you supply references?

·         What information and reports will I receive? On what frequency?

·         Can I access my account online?

·         What is the complaint process in the event of a dispute? Is OBSI available?


If your account is not discretionary and your advisor has been making trades in your account without your permission, contact the Compliance department of your investment firm right away and document your complaint. If you are not satisfied with the response of the Compliance department contact your provincial securities regulator for more information about your options and where to go for help.
Be sure to take the time necessary to review carefully all the information when filling out the applicable account forms. And do not sign them unless you thoroughly understand and agree with the terms and conditions and fees they impose on you.

DISCLAIMER

Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The material does not constitute a recommendation to buy, hold or sell. The purpose of this Document and others in the series is to educate investors by bringing together personal finance information from a variety of sources. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained.

Sunday, July 30, 2017

What the Limitation Act means for retail investors


 


During the investing lifecycle, chances are you may have a complaint against your dealer/advisor. The complaint process has always been a painful experience. But in 2004, retail investors faced a new challenge to their ability to recoup undue investment losses caused by bad advice .The new challenge was reduced statute of limitation time periods.



In 2004, provincial governments started to standardize statute of limitation time periods. As a result, most provinces ended up reducing the limitation period. For example , effective Jan 1, 2004 the Ontario Government ( several other provinces have similar statutes known as Limitation Acts ) implemented legislation reducing limitation periods (the time within which plaintiffs must take the initiative or lose their right to take civil action) from six years to two years. The basic limitation period under the Act is two years from the date on which the claim is discovered, or ought to have been discovered whichever is earlier, by the person entitled to bring the claim. Nailing down these dates of course isn't always easy. Some special limitation periods that remained are nevertheless subject to some of the principles established by the Act concerning minors, incapable persons, dispute resolution and the 15 year Ultimate limitation period.



At least in Ontario, an agreement  ( called a  “tolling agreement” ) to let an independent third party mediate or arbitrate the dispute will suspend advancement of the limitation period for the duration of the arbitration or mediation process, but if that process fails to resolve the dispute, the limitation period countdown resumes where it left off. 



So, retail investors now have to act much more quickly if they feel they've been a victim of dealer/advisor wrongdoing. For unsophisticated investors, seniors, retirees, widows, recent immigrants and others the shortened Limitation presents a real challenge.



Most victims of industry wrongdoing, that results in significant loss of their life savings, can take a year or more to come to grips with this life-altering event, and to determine what action they must take. The stress of a life-altering event such as the loss of a hard earned retirement nest egg can be so debilitating that it can lead to depression and the inability to make a rational decision. In this mode, it’s unlikely an investor will have the emotional strength to file a claim or take civil action in a timely manner



Handling of complaints by industry participants, the OSC, SRO’s, and internal Ombudsmen services commonly cause delays 6 months or more. A complaint investigated by the Ombudsman for Banking Services and Investments (OBSI ) stops the limitations clock but OBSI will not consider restitution claims until they have progressed through lengthy time- consuming industry and industry- sponsored processes. Even after OBSI makes a recommendation for compensation, this recommendation is non-binding so the next step involves a decision to institute civil action.



The move by some provinces to reduce the limitation period for lawsuits from six to two years tips the playing field even more against investors and in favour of the bank-owned brokerage industry. In Canada, a complainant has two remedies: A lawsuit or a complaint to the OBSI. OBSI has a target of 180 days to resolve a complaint but some can take more than a year. Before an investor can benefit from this free "service" he or she must proceed through the bank-owned brokerage firm's manager, compliance officer and then , on a voluntary basis, the individual ombudsman of the bank involved. Unlike OBSI , a complaint to an internal bank “ ombudsman” does NOT stop the limitation time clock. For reasons we can only surmise, banks actively encourage the use of their own " ombudsman" ahead of the real Ombudsman, OBSI.



Once all that's finished, then the investor may take the case to OBSI. But OBSI won't accept a case if the investor has already sued. All of which amounts to a Catch-22 because jumping through all those bureaucratic hoops within two years is no mean feat .



Canadian investors will find they have no legal remedy if they go to regulators such as the Investment Industry regulatory Organization of Canada (IIROC) That’s because IIROC doesn’t fully investigate each complaint and those investigations it undertakes can take more than two years, by which time they will have lost the right to sue. ( the statute of limitations time clock does not stop with a complaint filed with IIROC)



So, by the end of this turbulent cycle of events, two or three years can pass leaving the investor with no recourse with the oppressive Limitations Act in place. The ability to seek compensation through the courts can be lost forever. This is why lawyers suggest their early involvement with a case to ensure all aspects of the case are considered.



Usually, the lawyer will require a period of time to investigate the material facts and to determine whether the investor is on a solid footing in filing the complaint and whether a cost/benefit analysis supports loss recovery actions. The time required will depend on the complexity of the claim. The lawyer will assess the investor’s right to sue and provide an opinion with respect to the practical merits of starting a court action or an alternative dispute resolution process. This takes time and the limitations clock keeps ticking.



To be sure, litigation is no panacea. The process is lengthy, stressful and expensive with no certainty of success. Expect to face some of the sharpest lawyers around. That's why investor advocates promote increased professional qualifications for advisors and the assumption of a fiduciary duty to clients. Prevention, rather than remediation, is a far better solution that will lead to superior outcomes for investors.

Until such time as the Limitation Act is amended, investors are encouraged to (a) ensure their KYC is up to date, (b) establish an Investment Policy Statement with their advisor, (c) carefully examine their client statements / trade confirmations upon receipt, (d) look at bottom-line account trends and most importantly (e) ask questions and complain promptly whenever something doesn't feel right.



If at any time you’re not sure of your rights or what to do, consider consulting a lawyer. This is certainly one area where professional advice can pay big dividends. Failure to do so in a timely manner could mean you get ZIP even if your restitution claim is rock solid.







Tuesday, July 25, 2017

This Court cases teaches investors many lessons





We urge investors to read this judicial decision . It has a number of lessons that can help ordinary Canadians prevent a lot of problems.


Here are a few:


  • Contact the applicable regulator to check on the background of your advisor
  • Understand that advisors are not required to act in your Best interests
  • Understand that many advisors are paid by sales commissions
  • When filling in forms, be modest about your investment knowledge , risk tolerance  investment experience and financial position. Never leave any block blank.
  • Retain a signed  and dated copy of your account application form ( KYC )
  • Place orders to buy and sell carefully and ensure trade confirmation slip matches your instructions. If not, contact the dealer immediately
  • If not happy with action /explanation, file a formal complaint without delay
  • Provide  KYC updates  to dealer when your personal situation changes
To review the case click here 

Sunday, July 23, 2017

Should I use the institution's internal “ombudsman “?


Investment dealers are required to respond to a complaint within 90 days. Offers for compensation are binding on the dealer.
After you receive a response to your complaint from the dealer ( or bank) you have a few choices. You can accept the decision, abandon the complaint altogether , use IIROC binding arbitration ( if an IIROC dealer), take legal action , refer the complaint to the Ombudsman for Banking Services and Investments (OBSI ) or the firm may “encourage” you to use their internal "ombudsman". The banks and insurers have created these entities to give the institution a second chance. We view the diversion from regulator-approved OBSI as an unnecessary step.
It is well known that the more steps in a complaint process, the greater chance the complainant will give up and drop the complaint. If the internal “ombudsman” confirms the dealer position, most complainants will not have the will or fortitude to start all over with OBSI .It is entirely possible a complainant with a very valid claim could be shortchanged.
An internal “ombudsman” is run quite differently than Ombudsman authorized by regulators. Such entities lack the transparency  real and perceived independence and disclosures as compared to true  institution - independent ombudsman services such as a OBSI.Recommendations by an internal " ombudsman" are non-binding on either party.The use of an internal “ombudsman” is entirely voluntary but you may be nudged by the dealer to use it, rather than OBSI. Once you receive the final response from the dealer , you have 180 calendar days to bring your complaint to OBSI. Before consenting to use an internal “ombudsman” you should be informed. There are risks and pitfalls to consider. You need to ask some questions before giving consent.
The list of questions we provide is comprehensive. But don't worry about asking them all. After the first few questions , based on our experience, you will quickly become uncomfortable with the responses or worse, you will not get any responses. That's why Kenmar suggest going directly to the Ombudsman for Banking Services and Investments (OBSI) if you intend to pursue your complaint. At least that way you can avoid being rejected a second time by the same institution.
OBSI is a free, institution-independent ombudsman service endorsed by securities regulators and overseen by them. Unlike a bank or insurer internal " ombudsman", a complaint to OBSI stops the limitation time clock. Compensation can be recommended up to $350,000 .In 2016, nearly half ( 45% ; 150/323) of investment complaints ended with monetary compensation - average $ 15,552 . The latest OBSI satisfaction survey showed that 75% of respondents rated the quality of service as good / very good. Visit www.obsi.ca for more information
These are the questions an investor should be asking before voluntarily opting to use an internal bank ombudsman:
Performance statistics
> In what percentage of complaints do you recommend restitution greater than that offered by the dealer?
> What is the average and target time to investigate a complaint?
> What are your user satisfaction statistics?
Independence
> Have you ever been employed by the dealer/ bank before becoming ombudsman?
> Is any part of you or your staff compensation package tied to bank profitability?  
> To whom do you report?
> Do you receive company stock options? Shares?
> Who approves your annual operating budget?

          > Are your offices and locale physically separate from the dealer/bank ?
> Are you overseen by a regulator or other independent organization?
> Are you periodically audited by a third party and are the results made public?
Administration
> Do you assist Complainants in formulating their complaint?
> What is your loss calculation methodology?

> How does your investigation process work?
> Is there a dollar limit on your recommended compensation? 
          >What happens to my case file records after you provide me with a response?
> Do you deal with systemic issues ?

Tuesday, July 4, 2017

Transferring Accounts can be unpleasant



It should be no surprise there's an increase in the number of Canadians looking to transfer their accounts away from expensive, conflicted and abusive firms. Scandals like double dipping, expensive products, high fees, conflicted advice, risky Off book sales and even misappropriation of assets are key drivers. Investors are looking for trustworthy fee- only advice , fiduciary advisors, low cost robo -advisors and even discount brokers for those who want to control their own financial destiny. But transferring an account isn't that simple. There may be hefty account transfer fees and a lot of stalling before your account is transferred.


Virtually anyone who has ever transferred an account from one dealer to another is aggravated as to why the process takes so long. We would argue that it takes so long because there are no enforced regulatory requirements around maximum timelines and basic corporate behaviour is such that a dealer is slow to transfer out client money since that directly impacts firm revenue. To facilitate this, the MFDA, IIROC and the CSA should consider regulations regarding account transfers including maximum transfer times and apply fines for non-compliance.

Further,there is the potential for client harm resulting from delays in the transfer of accounts . And perhaps worst of all, restrictions of the type of securities that can be transferred.

In 2016 the MFDA asked all Members who sell proprietary investment products whether they permit clients to transfer those investments in-kind to other registered dealers or if instead clients are required to redeem the positions and transfer in-cash.  Several Members stated that some or all of their proprietary mutual funds or other investment products are exclusively distributed by the Member and therefore cannot be transferred in-kind. The MFDA has received complaints from investors who were unaware that certain mutual funds could not be transferred to another dealer.  In some cases, these investors incurred early redemption penalty fees to redeem their securities and convert to cash. There may also be tax consequences to a redemption and transfer in-cash versus a transfer-in-kind. Non-transferable assets deters mobility of consumers and therefore hinders competition for consumers business.

Kenmar feel that dealers that offer proprietary mutual funds or other investment products that cannot be transferred to other dealers, should, at a minimum, clearly disclose this to clients at account opening in their relationship disclosure document.  Where only certain specific funds or investment products cannot be transferred in-kind this should be specifically disclosed at the point of sale of the particular investment product.  In both instances, the disclosure should include a specific discussion of any potential fees or tax consequences that may result from a redemption and transfer in-cash. We’ve asked the MFDA an IIROC to issue Investor ALERT Bulletins on the issue.