Thursday, November 30, 2017

The Banking complaints process -as demonstrated by the real life experiences of a consumer

Anyone that has to file a complaint with a bank, should read this letter. It has been our position for a decade that the complaint system is broken. We continue to call for a statutory Ombudsman service completely free of industry influence. Our regulators and lawmakers must start listening. This letter was sent by Mr. Stenzler to senior officials at the Financial Consumer Agency of Canada and the Ombudsman for Banking Services and Investments. We continue to caution about the use of so-called bank " ombudsman".

November 27, 2017

To whom this may concern:

RE:  The Banking complaints process – as demonstrated through the real life experiences of a consumer

I have personally gone through the banking complaints process twice in my lifetime; once in 2010 against the Royal Bank of Canada and again in 2014 against the Bank of Nova Scotia.  While I understand that there are many interests staking out various competing positions ostensibly based on THEIR subjective interpretation of the fairness and appropriateness of the current banking complaints process, I am of the belief that the true experiences of the consumer must be taken into account by all stakeholders in order to understand what is really happening under the current rules and how those rules should be changed for the better.  The consumer, being a key participant in the banking complaints process, is also a stakeholder in that process.   Below, I offer you my personal experiences of the banking complaints process as one of the many consumer voices that deserves to be listened to on this matter. 

My complaint against the Royal Bank of Canada (“RBC”) alleged that RBC employees were responsible for a privacy breach that directly resulted in the termination of a multi-million dollar business deal to which I was a party.  My complaint was escalated through the four internal stages established by RBC – that complaint was rejected as having no merit by each of those stages.  Finally, through mediation at the ADR Chambers Banking Ombudsman, RBC agreed to pay me compensation in the sum of $50,000 based on my initial complaint.

My complaint against the Bank of Nova Scotia (“BNS”) alleged that a bank employee made additions, in his own handwriting, to my personal statement of net worth (“Statement”) without my knowledge and consent and forwarded that Statement to other employees of the BNS representing that I had authorized his additions (i.e. I alleged that the bank employee committed the criminal acts of forgery and the uttering of a forged document).  My written complaints were escalated according to the stages set out by the BNS.  My complaint was ignored by the bank employee who I alleged committed the aforementioned crimes, ignored by his manager and summarily rejected by the BNS Office of the President.  In his investigation the BNS Ombudsman concluded that the bank employee did in fact make additions to the Statement after I had signed it and without my knowledge or consent yet reasoned that he did so in order to help me qualify for a loan (that is, this supposed independent Ombudsman concluded that a forgery of a document by a bank employee took place, that the forged document was uttered to other bank employees but that all of these acts were acceptable because the bank employee had a benevolent purpose guiding his actions).

Ultimately, OBSI rejected my attempts to have them investigate my complaint on the basis that the subject matter of the complaint (a banker’s criminal activity) was outside of their mandate.  The matter is now in litigation before the Ontario Superior Court.

While the specifics of my stories are not what truly matters in this debate (and I am more than happy to discuss and/or provide records to anyone who may request them in support of the truth of what I have written herein), what truly matters is the way in which I, as a consumer, was treated by the banking complaints process under the current regulations/rules – that treatment was neither fair nor reasonable by any standard.  I wish to state that I was born in Canada and I speak and write English proficiently.  My language skills, along with my desire to fight for what I believe is right, were instrumental in my being able to navigate the nuances of the banking complaints process.  I have spoken to numerous other bank consumers and I can reasonably conclude that many consumers do not file complaints about the banks because they are intimidated by the banking complaints process, do not understand their rights or how to navigate the process itself, are afraid of the possible negative consequences of complaining about their bank, do not possess the written or oral skills to effectively advocate for themselves and/or simply give up on a process believing that they have no chance of succeeding against a bank. 

It takes a great deal of time, research, self-confidence and strong communication skills in order to voluntarily enter into what is an adversarial process against a well-financed, highly trained adversary who has unilaterally established the rules of that process.  Let’s be honest here, the number of lodged consumer complaints against a bank represents a “drop in the bucket” of the complaints that consumers could lodge if those same consumers believed they had any chance at being treated fairly by a process that is currently heavily stacked in favour of the banks.   

Both of my bank complaints were initiated in writing and forwarded to the bank employee who I alleged was directly responsible for the complaint.  Prior to formalizing my complaints, I had to research the respective bank’s complaints process as it differs somewhat from bank to bank (this entailed online readings of the banks respective websites, Government of Canada websites and blogs about how to formulate an effective complaint to a bank).  I formatted the complaint in my best “legalese” and made copies of what I believed to be records that supported my complaint (without legal guidance, I was left to make decisions about what to include in my complaint based on what I believed to be best knowing that the complaint could or would be scrutinized by bank lawyers who would view my submission in order to determine if I could be an effective adversary – after all, this is an adversarial process by definition and if bank lawyers conclude that I am not a competent advocate they are more inclined to advise bank employees to “blow-off” my complaint). 
After submitting the initial complaint I was left to wait, indefinitely, as there are no guidelines stipulating if, when or how that initial complaint is to be addressed.  In fact, with respect to my BNS complaint, it was totally ignored by the BNS employee (that is, it was neither acknowledged nor responded to).  Is it fair or reasonable that there are no rules requiring an employee who has received a complaint to acknowledge it and act on it in a timely manner?

Unsatisfied by the RBC employee’s response, and after waiting about three weeks for no response from the BNS employee, I escalated both complaints to their respective bank managers.  In order to do this I had to research who these managers were (this was done by telephoning the respective banks central telephone numbers), obtain the managers contact information and finally resubmit my complaint (with supporting materials) under a new cover letter which had to be drafted to include the response (or in BNS’s case the lack of a response) to my initial complaint.  Would it not seem reasonable that the bank employee who received the initial complaint be responsible for forwarding it to the proper next level person after either being asked to do so by the complainant (if he/she has received a response) or within a reasonable time frame (eg. 14 days) if the bank employee choose to not respond to a complainant? 

Again, as in the previous stage, there is no requirement under any rules that require a manager to acknowledge receipt of a complaint or respond to that complaint in any set time frame or at all (and apparently there are no consequences for a manager’s failure to acknowledge or respond to a complaint).  As I stated earlier, the BNS manager chose not to acknowledge or respond to my complaint and apparently did so with impunity.  Is the lack of any rules during this second stage of the banking complaints process either fair or reasonable to a complainant?

An unsatisfactory response from the RBC manager and a lack of response from the BNS manager resulted in me escalating the complaint further.  Again, I had to research who and where this next party in the process was, redraft a cover letter and resubmit my complaint with supporting records as if nothing I had done prior to this step had taken place.  Again, is it not reasonable for the bank managers to have the responsibility of forwarding a complaint to the next level if requested to do so by the complainant?  As a consumer I can only conclude that the banks complaints process is designed, in part, to wear out the complainant – does this repeating of steps mandated by the process and placed on the shoulders of the complainant in any way contribute to a fair and reasonable dispute resolution process?

The third level of complaint within the RBC complaint’s process resulted in my receiving a formal acknowledgment in writing of RBC’s receipt of my complaint and a statement as to how they intended to conduct their investigation.  The third level of complaint in the BNS process resulted in me receiving a telephone call from someone who identified themselves as “Trevor from the Office of the President.”  In that telephone call “Trevor” advised me that I would not be receiving a written response from the Office of the President and that his office had summarily rejected my complaint – he offered no reason for his shocking statements and given that his statements were made verbally and without me being able to authenticate the source of his telephone call, I did not believe him to be authentic at the time of the call. 

I never did receive anything in writing from the BNS Office of the President in response to my complaint; thus, I concluded that “Trevor’s” telephone call was real.  Is it reasonable for someone to call me and offer me only verbal statements in response to a written formal complaint made as a bank client and alleging that a bank employee engaged in criminal activity?

The third level RBC adjudication of my complaint resulted in RBC concluding that while my complaint may have some merit with respect to a breach of confidentiality, that breach, if it occurred, did not result in me losing any money.  RBC did advise me in writing of my right to escalate my complaint to their internal ombudsman.  With respect to BNS, they did not advise me of my right to escalate my complaint to their internal ombudsman either in writing or verbally.  Nonetheless, in both cases I escalated my complaints to the bank’s respective Ombudsman’s offices.  And yet again, I was required to resubmit my complaint in its entirety to the Ombudsmen’s offices as though I had taken no previous steps in the complaint’s process.  The Ombudsmen’s offices acknowledged my complaints in writing and set out time frames as to their respective investigations.

The RBC Ombudsman requested that I execute an agreement as a precondition to their investigation.  The BNS Ombudsman agreed to conduct an investigation into my complaint without me having to execute any agreements (despite the fact that the BNS website sets out that a complainant must execute an agreement as a precondition to an ombudsman led investigation).  In both cases, in entering into an agreement or not, I made my decisions to proceed with the process without the benefit of independent legal advice (is it reasonable or fair for a complainant to enter into agreements with a bank that may affect his/her rights going forward without the benefit of legal advice?  Should a complainant be expected to engage the services of a lawyer at this time in the complaints process?).  In conducting their respective investigations neither ombudsmen requested any further information/documentation from me (aside from that which I originally provided to them) nor did either ombudsman apprise me of the information or documentation provided to them by bank employees or agents. 
As such, if a bank employee or agent made statements to the bank ombudsman that were demonstratively false, I was not made aware of those statements nor was I given an opportunity to provide the ombudsmen with the evidence that I possessed that would prove the employee’s claims as false (should there not be fair and open disclosure of all evidence to both sides of a dispute if that dispute is supposedly being investigated by an independent ombudsman who only wants to ascertain the truth of the matter?).

My investigation of the bank’s ombudsman determined that: a) the bank ombudsman was not truly an ombudsman by any stretch of the definition of the word ombudsman; and b) the bank ombudsman was an employees of the bank, being paid by the bank who, in most cases, was previously a long term employee of the bank who came from other departments within the bank had established relationships with other bank employees; and c) that the ombudsman worked within premises populated by other bank employees; and d) that the ombudsman was hired first and foremost with a mandate to protect the bank from litigation liability.   It is clear to any reasonable person that the ombudsman’s inclusion in the dispute resolution process is solely for the benefit of the banks.

The banks use of the title “Ombudsman” is designed to intentionally deceive the consumer into believing, incorrectly, that their investigator/employee is supposedly acting independently and fairly throughout his/her investigation.  This is obviously misleading at best, an intentional fraud at worst.  How can an investigator from the bank’s ombudsman’s office be impartial given that he/she is an employee of the bank, may have existing relationships with parties being complained about and is ultimately accountable to the legal team of the bank?  – Who’s kidding who here?  The use of the title “Ombudsman” is not being made in good faith by the banks as the banks know that the ombudsman’s true purpose is to protect the bank at the expense of the consumer (no ombudsman elsewhere in the world has such a disguised purpose).  In contrast to his/her true purpose, the bank ombudsman is marketed to the consumer as that of a fair, impartial and independent investigator. 

The bank’s use of misleading titles such as ombudsman, vice-president and advisor is intentional and serves the purpose of hiding the true motivations and allegiances of those title holders.  Advisors and vice-presidents (outside of true corporate vice-presidents) are really salespersons while bank ombudsmen are truly – while I don’t know how else to say this – shills for the bank’s legal team.  Why is this bastardization of nomenclature allowed by regulators?  How many consumers, believing that a supposedly impartial ombudsman has ruled against them, abandoned their complaint?  Do regulators truly believe that bank ombudsmen are fair to the consumer despite being employees of the bank?

The RBC ombudsman did not rule in my favour; therefore, I escalated my complaint to the ADR Chambers Banking Ombudsman (the “ADRBO”).  Having never heard of the ADRBO prior to being referred to them by the RBC Ombudsman, I was quite concerned when I learned that they were not a government funded organization but rather a private organization that was compensated directly by RBC – the optics of this clear conflict of interest was very concerning.  Again, I had to formalize my complaint directly to ADRBO by resubmitting my entire complaint with supporting materials which now had to include the decision of the RBC Ombudsman.  And yet again, in order to take advantage of ADRBO services, I had to enter into a lengthy agreement without the aid of independent legal advice.  So I ask, is the consumer being fairly or reasonably treated throughout this process by having to enter into numerous agreements without legal advice? 

ADRBO suggested that the parties agree to non-binding mediation – I agreed to their suggestion again without the aid of legal advice.  I prepared for a day of mediation where I was to stand, as an individual, opposed by two RBC lawyers in front of a mediator who himself was a lawyer.  Would a lawyer as arbitrator take me, a non-lawyer, seriously or would he be predisposed to favour the presentations of lawyers like himself?  Was this process going to be fair to me?  As I stated earlier, I was victorious in the end and received a settlement of $50,000.00.  I was told through four stages at RBC that my complaint had no merit (at least in terms of cost consequences); however, it was ultimately determined that my complaint did have merit and was worthy of compensation.

The bank’s lawyers told me that the monies paid to me proved that the complaints process does work for the consumer.  I informed the bank’s lawyers that the fact that I had to stay the course for over ten months, jump through a large number of hurdles, commit to endless hours of repeated document preparation and submission and attend to a full day hearing on my own behalf in a process I had no previous experience with, demonstrated to me that the process was neither fair nor reasonable and does not work (despite the outcome).  How many other complainants could have or would have done all that I was required to do in order to receive some level of justice?  How many others would have been intimidated by the process and dropped it without receiving any compensation?  How would someone who does not speak or write English as a first language have done through the various stages in this process?  Clearly, this process can work but only for a select few?

The BNS ombudsman offered his decision in writing and set out my right to appeal that decision to the OBSI.  I made that appeal and was subsequently advised by the OBSI that issues alleging forgery are not within their purview.  So despite the fact that I followed the bank’s complaints process, I was apparently not entitled to have my complaint investigated by the OBSI.  At the suggestion of the OBSI my complaint was translated into a civil suit that is currently in litigation.  Is it fair or reasonable that the OBSI limit itself to only certain ill-defined categories of complaints?  Should consumers be advised to contact the OBSI at the initiation of a bank complaint to see if that complaint falls within the OBSI mandate?

My intention in forwarding this letter to you is to apprise you of the real life steps (and possible outcomes) one must follow in order to comply with the current banking complaints process.  While I have many suggestions as to how this necessary process can be made better (and fairer), I will withhold those suggestions in favour of my belief that at this time voices such as mine should be heard and understood prior to any attempts to correct the flaws in a system that is both complex and necessary.  I wish to remind you that within the current banking complaints process I have, at times, had my complaints ignored (without consequences to those who did the ignoring), have had to wait indefinitely for responses (or lack thereof) from bank employees, received verbal rather than written correspondences in response to a written submission of a banking complaint, etc.  Is this truly the process that regulators wish to defend?

I am happy to share my experiences with anyone who cares and am always willing and able to provide documents and other materials in support of my story.  The current banking complaints process is demonstrably in need of an overhaul.  If bankers, banking lobbyists and self-regulating organizations dominated by banking interests support the status quo, this should be a sure sign to everyone else that current regulations and oversight are not working.  We can do better. 


Dr. Gary C. Stenzler 




Sunday, November 5, 2017

Decompounding – the tyranny of fees

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. “- Albert Einstein 

Indeed, the magic of compound interest is the best way to build a retirement nest egg. It is also true that the greater the return rate, the greater the amount accumulated.  Conversely, the less the return rate, the less there is to compound.

You can't control the markets or a fund's performance, but you can control what you pay to invest. Controlling costs is smart, because costs reduce your net investment returns.

Vanguard founder John Bogle refers to the decompounding impact of fees on long term returns as tyrannical.

Most Canadians shrug off investing expenses but don’t realize the impact of decompounding due to annual and other fees. These fees/expenses include but are not limited to front end loads/commissions, early redemption penalty fees, management fees,  trading expenses , minimum annual account fees, switch fees, account transfer fees , advisory fees etc.

To calculate returns on a $100K investment at say 7%, use the compound interest calculator at .If you've done everything right, you should see a "future value" of $1,497,475.78 This is what an investor would end up with after 40 years at a compound annual average growth rate of 7%. To figure out the return, subtract the original $100,000, which gives you $1,497,475.78.

But what if the annual rate of return is 5 %? The only number you need to change is the rate of return– let’s assume 5 per cent due to fees. Hit "calculate," and you'll get a future value of $703,998.87 for a return of $603,998.87.

You'll notice that the return has been cut by more than 50%- and all because of “just 2 %” in fees charged every year. In the case of actively-managed mutual funds , the S&P Indices Versus Active ( SPIVA) Scorecard, the data routinely shows that for five-year periods, the below benchmark performance pattern repeating across all categories, after fees. The 10-year period data also show further struggles for active managers, with typically less than one-quarter of funds outperforming.

Here's something else to consider: The longer the time horizon, the bigger the bite that fees take. As the time horizon approaches infinity, the proportion of returns eaten up by fees approaches 100 per cent. That is the tyranny of fees in action.

Why does this happen? Because, over extremely long time periods, even small differences in compounding rates have a gigantic impact on returns.

The adverse impact of fees is twofold: An investor pays an ever-increasing amount in fees as account balances grow, because many fees are based on a percentage of assets. And fees also strike a blow to the portfolio’s returns. That’s because every dollar taken out to cover management /advice costs is one less dollar left to invest in the portfolio to compound and grow. So in addition to paying potentially tens of thousands of dollars in avoidable fees, research shows that an investor gives up many times that amount in lost portfolio returns over time (“opportunity costs”).

Several economic forecasts project that market returns may be lower in the future so the impact of fees on returns and savings will be even larger .Fees are the silent killers of investment returns. amplified by decompounding over time. Don't make the mistake of thinking even 0.5% doesn't matter – in the long run, the impact is huge.

Before investing, always consider whether an investment is appropriate for your financial goals, situation, time horizon and risk profile.

The cost of investment fees is one of the drivers behind the Canadian Securities Administrator’s new fee disclosure proposals, designed in part to give investors better clarity about how much they’re paying in fees for advice. Some products like mutual funds include ongoing trailer fees intended to provide advice but they can also skew advisor recommendations in addition to increasing the MER.

Understanding the long-term impact of fees - especially slight differences between similar products - is up to financial consumers. You also need to laser focus on the value and cost of financial advice which is less tangible and quantifiable.

Control your own financial destiny or someone else will. 

Thursday, November 2, 2017

The Ombudsman for Banking and Investment Services (OBSI,

Per its Terms of Reference , OBSI is an independent non-profit organization that operates in the public interest and is incorporated under the Canada Not-for-profit Corporations Act. OBSI is Canada's sole CSA recognized independent dispute-resolution / Ombudsman service for investors and small businesses with a complaint they can't resolve with their investment firm ( or bank). They are overseen by banking and securities regulators as well as a board of directors, the majority of which are not currently involved with the financial services industry.. A Consumer and Investor Advisory Council provides input to the Board on prevailing financial consumer issues. OBSI should not be confused with internal bank “Ombudsman” who are not independent of the bank or related investment dealer.

While they can only investigate complaints about firms that participate in their service, most banking services and investment firms in Canada do participate in OBSI. OBSI can recommend compensation up to $350,000. In Canada, and around the world, regulators and ombudsman offices in financial services are typically funded by the industries they cover, as opposed to the general taxpayer. There is no charge for the service.OBSI is able to handle inquiries in over 170 languages.

OBSI can consider your complaint if:
·   your firm has had 90 calendar days to deal with your complaint but has yet to provide you with its final response, or

·  your firm gave you its final response on your complaint but you are still unsatisfied. Once you receive the final response, you have 180 calendar days to bring your complaint to OBSI.

OBSI is neither a court nor a regulator, and they do not fine or discipline firms or individuals. Their recommendations are not binding on either party, but they have over a 80% record of acceptance of their recommended settlements from both firms and clients. The alternative, civil litigation, is out of reach for complaints involving less than $250,000. OBSI work on fairness principles and hold dealers accountable rather than individuals, which is a real positive for the retail financial consumer.

If you disagree with OBSI investigation conclusions, and: believe they have failed to consider the issues or information provided, have new information that not previously provided , or have reason to think their decision is unfair or unreasonable, then you can request they reconsider the decision.
While OBSI do not handle matters that have already been through a court or an arbitration, if a client is not satisfied with their conclusions, investors are free to pursue their case through other processes including the legal system and IIROC arbitration, subject to statutory limitation periods. Unlike dealer-related internal bank “ombudsman”, the statute of limitations time clock is stopped while OBSI investigates complaints.

OBSI has some warts that you should know about:

·         Their recommendations are non- binding 

·         They cannot properly investigate investment portfolio complaints involving insurance products like Segregated Funds

·         That do not have the mandate to investigate systemic issues 

·         Their Board does not have a dedicated Retail financial Consumer Member in the same way industry participants do.

In addition there are a few other issues you should be aware of. Investor advocates have questioned the accuracy of published complaint statistics/disclosures, complained about a board policy that allows bank-owned investment dealers two FINAL response letters that undermines regulatory intent and a process that enables a significant number (18%) of low-ball settlements that evade public Name and Shaming.   

Notwithstanding these warts, OBSI is known for fair settlements and user satisfaction is relatively high – 70 % of investor respondents to a satisfaction survey strongly agree that the final written recommendation was clear (55% of banking respondents strongly agree). About 90% of investors felt that their complaint had been dealt with promptly.

Of the multiple and convoluted options retail investors have for compensation from their investment dealer, OBSI is the most practical for the average retail investor. OBSI, while imperfect, is the most consumer-friendly alternative for those seeking compensation. The “hand holding” type of service provided by OBSI is essential because most retail investors cannot effectively articulate a legitimate complaint even if they have one.