The U.S. organization , the Public Investors Arbitration Bar Association ( PIABA) has issued a report highlighting how U.S. brokerages mislead investors as to the true nature of the dealer- client relationship.
They want Federal action to stop U.S. Brokerage Firms misleading investors about their role as fiduciaries, which Firms deny to block arbitration claims.
A number of OBSI recommendation cases cases further illustrate the two-faced issue . Equity Associates refused to compensate a retired couple in the amount of $83,386. After the couple sold their home, their advisor invested the proceeds in unsuitable medium-risk and high-risk mutual funds.Richardson GMP refused to compensate several investors in the amounts of $232,500 and $66,366. They entrusted their retirement savings to an advisor who ignored their investment objectives and risk tolerance.Armstrong & Quaile refused to compensate a retired couple for $34,000 after their advisor urged them to borrow to invest. They sold their investments after a market decline to cover a debt they could not afford to service.Monarch Wealth Corp refused to compensate a young couple, new to Canada, in the amount of $30,628. They borrowed to invest after being told by their advisor they would not incur any losses.Despite the Ombudsman's comprehensive independent complaint investigation, the dealers refused to accept accountability or provide restitution.
Other excuses that dealers use when responding to a client complaint include:
1. Blaming the investor- greedy , didn't pay attention to forms signed
2. Falsely claiming that because the account is a discretionary one, no duty of care is required
3. Wrongly asserting that the responsibility for determining suitability rests with the client
4. Incorrectly asserting that ,even though the investments are unsuitable, the dealer is not accountable because risks were disclosed to the client
5. Refusing to accept responsibility if "advisor " has sold products off the books of the dealer . Sometimes dealers are willfully blind if a " producer" is harvesting a client and when things turn ugly claim that they knew nothing about the egregious behavior and are not accountable.
A recent example of the latter practice involves a case involving FUNDEX Investments Inc. http://www.obsi.ca/images/Documents/IR/refusal/fundex_investigaton_mr_and_mrs_s.pdf . In that case FUNDEX argued that they had not approved sale of the exempt market product and the client must have known they were not dealing with FUNDEX. The OBSI complaint investigator found otherwise and recommended full restitution. The dealer refused and the victims must now decide if they wish to proceed with civil litigation or walk away with a hard lesson on who they can trust. From the FUNDEX website we note: " Since 1995, FundEX Investments Inc. has been providing independent financial advisors with an established, fixed fee business model that enables them to access a wide variety of quality investment products to best meet the needs of Canadian Investors."
Brokers and insurance companies are fighting hard to avoid becoming fiduciaries. They are currently held to the lower “suitability” standard. This means they can recommend investment products that may not be the best option available to help you reach your financial goals, as long as they are “suitable.” CAVEAT EMPTOR!