Monday, December 26, 2016

Registration Check is necessary but not sufficient

Several times a year our securities regulators/ CSA routinely promote the importance of checking to see if your advice giver is registered. We believe this can actually be a disservice to investors, giving them a false sense of security that if their person is listed that they can then breathe a sigh of relief that all is well. The CSA says “Although most investment advisers are honest and work in your best interest, you still need to carefully choose who you deal with. Before investing follow these simple steps: …” This is not accurate- there is NO regulatory requirement that “advisors” act in your best interests .In fact, the industry works on the basis of suitability which is a very low standard.

ANOTHER EXAMPLE "To prevent fraud [emphasis ours], use the National Registration Search to check if your dealer or adviser is registered. Such registered dealers and “advisors” can cause and have caused a lot more damage through mis-selling and overcharging ( and sometimes fraud) than an outright fraudster and there are many more of them. Still, it is important to ensure your advisor and their dealer is registered because if they are not, this is a clear red flag.

Perhaps most importantly of all ,the CSA says “The CSA furnishes all data and information products on this site with the understanding that neither the CSA, nor its contractors and employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information on the site.” ( ) Now isn’t that reassuring? This is precisely the kind of fine-print liability-dodging the regulators rightly give the industry a hard time for. An investigative report by found that as of May 2016, there were 51 instances of MFDA or IIROC reps whose full disciplinary records from 2013 to 2015 do not appear on their CSA profile pages ( ).

Information regarding registrants who were registered prior to September 2009 is not available on National Registration Search (NRS). You will need to access this information from your local regulator. This historical information is not available through NRS as the system was updated to summarize registration categories across jurisdictions (precipitated by September 2009 Registration Reform).

The current system is very complicated and necessitates the search of several databases. It also requires the consumer to know the registered name of the firm, although this may not be the business name the investor knows. It certainly can’t be done in 10 seconds as the CSA implies.

The CSA website is difficult to navigate to get any relevant information like registration category. If by chance an investor does stumble across the registration category unless they pursue it further they would have no idea what it actually means. But if they do, it makes it clear what a dealing representative really is – A Salesperson ( ) So ignore all the fancy titles, this descriptor tells it all.

Another issue involves names. Unless you use the exact name in NRD, you may get a No name found result. Duplicate names are another challenge. They can arise when researching SRO disciplinary actions in the CSA and insurance databases. While the uncertainty this causes could be remedied by cross-checking other identifiers, lingering ambiguity in some cases can force you to exclude the data point altogether. Financial consumers working with someone registered across multiple jurisdictions could have a hard time doing research on their prospective advisor. Investor advocates have proposed a national identification number for each registered or licensed person in the financial industry that will be the same across each regulator. Maybe one day that will happen.

The CSA’s Check Registration site only deals with securities registrants, does not include criminal sanctions as part of the person’s disciplinary history, and appears not to be consistent with respect to terms and conditions (for example, historical terms and conditions that are imposed as a result of a Director’s decision or a Commission order in Ontario are included in the database, but you have to contact the British Columbia Securities Commission for this information in BC).

This is a major problem when it comes to what investors are relying on for information about their financial “advisors”. The CSA suggests the registration reports as being complete and helpful to investors but, in reality, these often omit information about “advisors” that is highly relevant and necessary for investors to make informed decisions about who they may want to engage. In general, “advisor” profiles are thin on information that would be relevant to a consumer doing due diligence. For instance, the professional qualifications (e.g. Certified Financial Planner) are not provided. You can validate these by contacting the applicable professional society. If the individual has received a warning or caution letter, it will not show up on the system.

No information is provided that a registrant may also be registered as a life insurance agent with an insurance industry regulator. Securities regulators should consider including a disclaimer on their lookup pages indicating registered persons may have multiple registrations, and that consumers should consider searching the applicable insurance database, among others, for disciplinary actions.

We do not believe that the average investor is sufficiently familiar with registration categories to know whether a firm or individual is selling investments that they are qualified to sell or provide advice on once they are aware of the person’s registration category.

The advantages of dealing with a registered dealer is that they are under a regulatory regime, participants must meet minimum qualifications and the dealer is responsible for the recommendations made to you. You also have access to the Ombudsman for Banking Services and Investments in the event of a complaint (although they unfortunately cannot make binding recommendations) that can’t be settled with the dealer.

The major issue with a non-registrant is that they are likely selling products with no prospectus that are either high risk or outright fraudulent swamp land. When things go wrong (and they will) the person will be long gone and you will be unlikely to get your money back. The non-registered firm and/or individual may have administrative sanctions against them, but that won’t result in money back to you, the investor.

Unless an investor is employed in, or otherwise familiar with the securities industry, the chances are not high that the CSA website Are They Registered will provide them sufficient relevant meaningful information necessary to make informed decisions about who they may want to engage. There is nothing wrong with getting people to check the registration as one of the steps, but there also needs to be a robust warning about the limitations of the registration information with respect to the details provided.

We strongly recommend you read a companion article ABOVE the LAW- Checking an advisor’s registration available at

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