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-


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


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