This web site is dedicated to investment fund investor education and protection. The multi-billion fund industry plays a key role in the savings and retirement plans of millions of Canadians. Many industry practices provide beartraps for the unsuspecting investor and securities regulations have not kept up with the pace of change in the industry.
We're pleased to provide a Checklist that should help you protect
your savings nest egg. Once you retire or stop working full time, there is
little room for error when it comes to your investments. A loss when you are 35
years old gives you years to recover—and leaves you the opportunity to delay
retirement if you must-but a mistake when you are 65 or 70 years old can be
devastating and irrecoverable. Elderly investors are disproportionately
targeted by unscrupulous brokers (aka “advisors”).The Investment Industry Regulatory
Organization of Canada has published Guidance for dealers on how senior
investors should be treated and protected. http://www.iiroc.ca/Documents/2016/87c0e6d5-8054-4e88-9b56-9a079b8c35aa_en.pdf
Here's a Checklist you can use to assess the actual treatment you have
·Does your broker use a title that truly reflects his/her
qualifications? Be aware many brokers use made up titles like VP that are
unrelated to their qualifications or registration. His/her actual registration
is Dealing representative or salesperson.Check for any limitations or
·Does your broker routinely explain products, costs and
associated risks before selling them to you?
·Ask your broker regarding his experience in managing a RRIF
account that requires a minimum annual withdrawal and special skills.
·Ask your broker if you have been sold any product ( like
a mutual fund sold on a deferred sales charge basis) with early redemption
penalties or minimum hold periods? If so, ask why.
·Ask your broker to demonstrate with comparative
mathematical calculations that your account type is the most appropriate and
cost-effective for you. ?
·Do you receive confirmation slips from your dealer for
·Do you receive a Monthly account statement? Do you check
it for errors or unexplained or confusing transactions?
·Has your broker provided you with a report detailing your
rate of return for each account and the annual fees you have paid?
·Do you have a well-articulated Power Of Attorney specific
to investments filed with your dealer? (as applicable)
·Did your broker develop a documented Investment Policy
Statement with you?
·Did your broker ask you to provide a trusted person
·Did your broker tell you that he/ she works to an advice
standard that is not required to be in your best interests? i.e. it is not a
·Were you informed as to how your broker is compensated?
·Were you informed by your broker of any
·Do you and your broker have a common understanding
regarding the objectives for each investment account?
·Do you and your broker agree on the time horizon for each
·Are you comfortable that your broker understands your
risk tolerance and capacity? Your true level of investment knowledge and
·Are you and your broker clear as to the composition of
your net Worth?
·Has your broker asked about your cash flow needs?
·Has your broker asked as to the composition of your
annual income? If not, consider informing him/ her.
·Has your broker asked about your debt obligations? If not,
consider telling him/ her.
·Has your broker asked about your insurance coverage? You
decide if he should know this.
·Have you informed your broker of any medical issues that
may be relevant to his/ her provision of advice?
·Do you have a signed/ dated copy of your Know-Your-Client
·Has your KYC been updated at least annually?
·Ask your broker whether he/she is licensed to sell other
products like annuities or Segregated funds? If so ,be aware you might be sold
a product that is not processed through your dealer and could be unsuitable for
·Has your broker asked you to sign blank forms? If so, raise
a Red flag.
·Has your broker tried to borrow money from you? If so, raise
a Red flag.
·Has your broker attempted to get you to make investments
not processed through the dealer? If so, raise a Red flag.
·Has your broker attempted to have you assign them as a
trustee or executor? If so, raise a Red flag.
·Are you being pressured to take out a Home Equity Loan or
establish a margin account? If so, raise a Red flag.
·Have you been asked to write a cheque in the broker's name
or the name of an entity other than your dealer? If so, raise a Red flag
·Have you been asked to increase your risk tolerance for
no apparent/valid reason? If so, raise a Red flag.
·Were you informed on how to file a complaint?
·If you have filed a complaint and are not satisfied with
the response, escalate the complaint within the firm. Consider getting some
help in articulating your complaint.
·If you have a complaint or issue with your account, act
quickly. If your dealer is bank-owned do not allow the dealer to nudge you to
the internal:” ombudsman”.
·Has your dealer informed you that if you are dissatisfied
with their handling of your complaint, you can refer it to the Ombudsman for Banking
Services and Investments (www.obsi.ca), an independent and free
dispute resolution service?
NOTE: For seniors,
many investor advocates consider a fiduciary duty as an important consideration
in the client-advisor relationship. Tell your broker IN WRITING, that you are
relying upon them 100% for fair, honest and professional investment advice that
is entirely in your interest and in the interests of none other…..in
other-words, you are assuming that your financial relationship with the broker
is one of a fiduciary level of care, as it is understood in law. Ask them to
confirm this in writing to you and to reply if they cannot confirm this
standard of care to you in writing. If not a fiduciary, you may be sold
products and services that, while not unsuitable, may not be optimum for you
and may be more expensive than other available alternatives.
advocates always suggest you inquire as to the method of compensation
of "advisors" (actual registration category is Dealing
representative or salesperson). This is because most “advisors”
work to the suitability standard. Under this standard these advisors
are not required to act in your best interest. They need only
recommend investments that are suitable; not the best or cheapest or
least risky. Knowing the method of compensation gives valuable clues
as to how they will behave and how you might be able to interpret
this ALERT we look at the compensation grid, a grid that depicts what
percentage payout advisors will receive based on sales in a certain
period of time. These
complex grid structures are designed by the dealer to skew the
recommendations made by investment advisors. The
grid clearly puts "advisors" in a conflict-of-interest as
the more they sell, the higher percentage commission rate they will
speaking, advisors will be compensated more richly for producing
higher overall annual commissions (as seen by the general increase in
payout as you move down the columns). They will also be compensated
more richly for generating higher commissions per transaction (as
seen by the increasing payouts from left to right). This could be
done by trading larger positions or by selling higher commission
generating products (like the 5% upfront payout for Deferred Sales
Charge mutual funds).
how a Reps “recommendations” can be modified based on how the
grid is structured. In this example, high “producers” are highly
rewarded and Reps with low sales volume are given little incentive to
retain the status quo (that could mean incentive to sell more product
, or they resign due to lack of income). Further, incentive is given
to placing trades that generate higher commissions as well (either by
looking for more money to get the client to invest,recommend
leveraging , putting them into a higher allocation to equities which
generally generate higher commissions than fixed income products, or
charging higher commissions on stock trades).
dealers have creative exceptions to the grid, with sales of certain
types of products given special payout rates. For example, a dealer
may give special incentives to sell proprietary actively-managed
mutual funds, new equity issues that it underwrites (IPO’s), or
securities of which it has excess inventory that it is eager to
reduce . These exceptions and bonuses can be permanent or temporary.
All can be harmful to the unsuspecting investor.
full-service brokerages all have different grids. Fixed payouts can
vary with some paying higher than 70% and some paying lower. And not
all flat-fee dealers charge the same flat fee to their advisors. The
dealers are free to structure the commission payouts as they see fit,
and there are no specific rules or regulations which they have to
comply with other than certain disclosures.
by-product of some grids is that by the end of the year, if a Rep is
near the next production level (i.e. He/she has generated annual
gross commissions of $375,000 for the year), then by finding a way to
generate another $25,000 in commissions in the final month moves the
Rep up a grid level. The new payout may apply retroactively to all
commissions for the year. For example, let’s assume that our broker
has $399,999 in gross commissions for the year. If they ended the
year at that level (and assuming all tickets were at the $500+ level)
then they would have earned $195,999.51 in net commissions. If they
made only one more dollar of commissions (gross) then they jump up a
grid level and their net commission jumps to $204,000. So that $1
dollar in extra gross commissions was worth about $8,000 (net) to the
advisor. Imagine the incredible motivation to sell that $1 to an
unsuspecting retail investor.
sales bonuses traditionally have been referred to as "flavor of
the month" promotions. The concept of offering special sales
incentives for certain products, especially in-house products, has
come under increasing fire since they can put the financial advisor's
interests at odds with those of his or her clients. As a result, a
few firms have done away with such special incentives, and tout their
"open architecture" approach that leaves the financial
advisor undistracted in seeking the best investment vehicles for the
client. Calls for securities firms and financial advisors to be
subject to the more stringent fiduciary standard, as opposed to the
looser suitability standard that traditionally has bound them,
often have cited practices such as "flavor of the month"
promotions and trailer commissions as evidence that regulatory reforms are necessary.
grids and sales targets are coming under greater scrutiny as the
Investment Industry Regulatory Organization of Canada (IIROC) steps
up an assessment of how the country’s investment dealers handle
compensation-related conflicts. Investment dealers will be required
to turn over their compensation grids as a standard item in every
upcoming business compliance exam, so the self-regulatory agency can
“better review dealers’ treatment of compensation-related
conflicts,” IIROC has said. The grids will help determine whether
clients are being put into investments that trigger richer rewards
for Reps and dealers. A 2014-2016 IIROC review, which looked at how
well investment firms are meeting a requirement to manage
compensation-related conflicts in the best interest of the client,
found that firms were relying too heavily on disclosure of conflicts
without first addressing them with clients in another way. In other
words, CAVEAT EMPTOR- the grid is after your money .