Saturday, September 12, 2015
INVESTOR ALERT Pre-Signed Blank Forms
INVESTOR ALERT Pre-Signed Blank Forms September, 2015
When you sign a blank or incomplete form ,you put yourself in harm's way. Under securities rules, salespersons are obligated to deal fairly, honestly and in good faith with their clients and observe high standards of ethics and conduct in the transaction of business. Obtaining pre-signed forms from clients is contrary to this obligation. Salespersons ( aka “Advisors”) may only use forms that are duly executed by you after all information on the form has been properly completed and provided. This is why we urge you to completely fill in the form and retain a copy of the signed and dated original for your files.
Every client must be afforded the same protections, and that the expected conduct is no different if the client happens to be a family member. This principle applies where a spouse’s signature is forged, either by an advisor or by the other spouse. There is always a risk that the spouse who signs the other’s name, or who authorizes someone else to do so, is being deceptive. We are not aware of any circumstance where one person can be authorized to sign another person’s name to a document – a person may act as the authorized agent of another, or under a Power of Attorney, but in neither instance may the agent or attorney sign the other person’s name .
The know-your-client (KYC) , and suitability obligations are among the most fundamental obligations owed by registrants to their clients and are cornerstones of Canada's investor protection regime. If these are contaminated , the client-advisor realationship is contaminated.
What forms are involved?:Some examples of pre-signed forms noted by our team include KYC forms, blank trade order forms, Loan applications, RSP changes, cheques,CRA forms , U.S. Tax Cerifications , risk disclosure and acknowledgment forms, private placement subscription forms and New Account Application forms . In other cases, information on legitimately completed and signed forms may be subsequently altered or removed, or signatures may be physically cut from other documents and then used to create photocopied forms that appear to have been signed by the client. Be alert to any changes in your account statement and check all trade confirmation slips.
Why such a rule?: The existence of pre-signed trade order forms in client files may be evidence that an advisor is engaging in discretionary trading or even fraud. Some dealers and advisors have taken the position that pre-signed forms can be used appropriately in certain situations strictly for the convenience of a client. Securities regulators do not agree with this position. Any act of forgery is a step onto a steep and slippery slope of deception that is always potentially harmful to clients and actually harmful to the dealer and the securities industry as a whole. If you are not available to sign a document either wait or send a FAX or email or use a courier service giving specific instructions. Follow up to obtain a copy of the revised form.
A pre-signed form may allow an unscrupulous advisor to unduly increase your risk tolerance , investment knowledge, income, employment status or net worth or mis-state your objectives. Because every investment recommendation and every investment decision is based upon information contained on the forms, any inaccuracy in the information necessarily taints a recommendation or decision made based on that information. Further,the uncertainty about your risk tolerance impairs the dealer’s ability to comply with securities laws, to ensure that all investments are suitable for you. An incorrect risk tolerance could lead to unsuitable investment recommendations and undue losses . In the event of a complaint, the dealer may point to your signature on the form and deny your claim for restitution . Subversion of the KYC system is serious given that it is at the heart of securities regulation.
In the case of forms to be submitted to the Canada Revenue Agency or to Human Resources and Social Development Canada, there is the risk that you will be taken to have certified as to the accuracy of incorrect information that you did not have an opportunity to review.
Know Your Client (‘KYC’) information that is incorrect could cause a dealer to run afoul of Anti-Moneylaundering laws and regulations and could cause you trouble as well.
A potentially more significant risk is that a pre-signed form could be used for unauthorized discretionary trading or fraud. If you pre-sign a trading form, the risk of fraud is particularly serious with respect to this form, given that the form typically directs a dealer to do one or more of the following things: (a) switch the client’s funds within the same fund family;( b ) effect a purchase or sale of securities; or (c ) pay sale proceeds to a specified bank account or recipient. Responsible investors don't let themselves get exposed to wrongdoing by pre-signing blank forms.
Even in cases where there is no evidence of intent to use a pre-signed form for the purpose of discretionary trading or misappropriation of assets , the use of such forms destroys the integrity of the audit trail for activity in the relevant client’s account. Having a reliable audit trail is important to the dealer and to its regulators. A dealer's ability to assess its employees’ compliance with regulatory requirements, and a regulator’s ability to do the same, are both undermined if the very documents upon which the assessment relies are not genuine.
We consider forgery as the creation of a false document with the intent that it be acted upon as the original or genuine document. The use of pre-signed forms is therefore forgery .Forgery is fundamentally dishonest and it is harmful. That is why regulators prohibit pre-signed blank/incomplete forms.The sooner digital signatures are commonplace in the advisor world, the better.
Remember , your advisor /salesperson broker is not required to act in your Best interests. They are not fiduciaries. Don't sign anything you do not understand . Consider it a Red Flag if your salesperson says “ it's just for administation, sign it and I'll fill in the blanks”. Sign only a completed form ,cross out sections that do not apply and retain a signed/dated copy of what you do sign for your files. It's YOUR money. CAVEAT EMPTOR