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-
Investor-MoneySaver.pdf
Why Your Financial Adviser Should Be a Fiduciary http://www.aaii.com/journal/article/why-yourfinancial-
adviser-should-be-a-fiduciary
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