Fed up with bank fees and bank exploitation?

If the latest round of bank fee increases finally got you upset enough to take action , read this article.
Some apathetic folks are simply taking the approach " If you can't beat em, buy em" and are investing in bank stocks. Over the years the fees they collect from the docile can mean real gains and dividends for shareholders. In any event, there's a feel good emotion thaat some of the client gouging is coming back to you.

Case study : The reality of Investor Protection in Canada

This case will open your eyes . The sad reality is when you invest you have to be constantly on guard. There are many forces working against you and too few forces working to protect you from Bay Street shenanigans. Be aware that your “ advisor” is not required to act in your Best interests .

He/she may also be motivated by sales commissions to actually place you and your retirement  in harm’s way.  CAVEAT EMPTOR prevails in Canada’s “ Wealth Management industry “, an industry creating wealth but not necessarily for you.

Equity Crowdfunding poses significant risks for main Street

Equity Crowdfunding is coming whether we like it or not - you need to be ready.Companies raising capital on regulated, public stock markets must jump through all sorts of disclosure hoops intended to protect the public from fraud. When they raise capital in private markets, often for early-stage companies, they may generally tap only "accredited" investors--those who can prove they are wealthy and sophisticated enough to participate in what are inherently risky ventures.

What if you could remove both constraints, allowing issuers to offer securities to the general public without the rigorous disclosures required when "going public"? That's Equity Crowdfunding .

Read more here

Brokers get a mixed review on how they treat older investors: SEC- FINRA Report

One of the primary missions of the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) is the protection of investors, of which senior investors are an important and growing subset. As part of a collaborative effort, staff of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”)1 and FINRA (collectively, the “staff”) conducted 44 examinations of broker-dealers in 2013 that focused on how firms conduct business with senior investors as they prepare for and enter into retirement. These examinations focused on investors aged 65 years old or older; this report refers to these investors as “senior investors.”

The results suggest more has to be done.“..More than a third of brokerage firms examined by regulators made one or more potentially unsuitable recommendations of variable annuities to senior investors, a report issued Wednesday found.The greatest issue regarding these sales was whether it was appropriate to exchange variable annuity contracts in light of the fees incurred, according to the report on the treatment of senior investors by the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc.(FINRA), the self-regulator of brokers. Firms generated the most revenue from seniors by selling open-end mutual funds, variable annuities, equities, fixed-income investments, unit investment trusts and exchange-traded funds, nontraded real estate investment trusts, alternative investments and structured products, in that order..”.

This report highlights recent industry trends that have impacted the investment landscape and discusses the key observations and practices identified during the recent series of examinations with regard to securities sold to senior investors, training, use of senior designations, marketing and communications, account documentation, suitability, disclosures, customer complaints, and supervision. OCIE and FINRA staff are providing this information to broker-dealers to support their thoughtful analysis of their policies and procedures as they serve the needs of senior investors.

OCIE and FINRA staff are concerned that broker-dealers may be recommending unsuitable securities to senior investors or failing to adequately disclose the related risks. It is imperative that senior investors receive proper and understandable disclosures regarding the terms and risks related to securities recommended to them, particularly non-traditional investments.

The 41 page Report National Senior Investor Initiative is available at http://www.sec.gov/ocie/reportspubs/sec-finra-national-senior-investor-initiative-report.pdf

Stock buybacks: From retain-and reinvest to downsize-and-distribute By William Lazonick

Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades,” says University of Massachussetts at Lowell economics professor William Lazonick in a new paper published by the Brookings Institution. “Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize and distribute model.

 It is unlikely that the transformation of the U.S. business corporation from downsize-and-distribute to retain-andreinvest can occur without the leadership of the more visionary of current corporate board members, CEOs among them. In 2001, Jack Welch, upon his retirement as CEO of General Electric, published a book, Jack: Straight from the Gut, about his experience as a business leader.85 But it took Dr. Welch another eight years and a financial crisis to get his gut to speak to the absurdity of the ideology of maximizing shareholder value. In March 2009 Welch told a Financial Times reporter: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy…Your main constituencies are your employees, your customers and your products.” Perhaps the interviewer had a shocked look because Welch saw fit to reiterate: “It is a dumb idea. The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees.”86 Any business executive, business school professor, or business consultant who understands what it is that makes an enterprise innovative should know that, in this case at least, Jack Welch was right. Read this thought provoking article at
http://www.brookings.edu/~/media/research/files/papers/2015/04/17-stock-buybacks-lazonick/lazonick.pdf

 

Check your brokerage service and maintenance fees

NASAA research shows investor confusion over fees| . A new advisory from the North American Securities Administrators Association (NASAA) aims to help raise investor awareness about fees charged by broker-dealer firms for account services and maintenance. In the advisory, NASAA suggests investors focus on the timing, method and content of these sorts of fee disclosures. It calls on investors to not place assets with a firm without a current fee schedule, to ensure that they understand those fees, and to pay attention to any changes that firms make to those fees. Additionally, it says that investors should know the services that they could use regularly, and ask specifically about the terminology a firm uses for its services and the associated fees. http://www.nasaa.org/35290/informed-investor-advisory-understanding-broker-dealer-fees/ Full Report Are you an informed investor? Understanding Broker-Dealer Fees available at   http://www.nasaa.org/wp-content/uploads/2015/04/BD-Fee-Advisory.pdf Fees impact returns- make sure you know what fees you are paying and that you receive the services associated with the fees.Don't hesitate to ask about seniors rebates, asset-based discounts etc. -It's your money.

“Risk Literacy”

 Using domestic and international data, Director Annamaria Lusardi finds that knowledge of financial risk is strikingly low both in the population and across a variety of demographics. Across countries and age groups, individuals show little mastery of concepts such as risk diversification and the relationship between risk and return. Indeed, in financial literacy surveys assessing knowledge of interest compounding, inflation, and risk, respondents consistently performed worst on the risk-related question. Knowledge of risk is critical to making decisions about saving and retirement planning. These findings have implications for individuals, policy makers, and the financial and insurance industry. While individuals are facing increasingly complex financial and insurance instruments, their low risk literacy may limit their ability to use these instruments on a micro level, and—on a macro level—impede the development of wellfunctioning financial markets. Read the full paper here

Brokers misleading investors about fiduciary duty: PIABA Report

The U.S. organization  , the  Public Investors Arbitration Bar Association ( PIABA) has issued a report highlighting how U.S. brokerages mislead investors as to the true nature of the dealer- client relationship.

They want Federal action to stop  U.S. Brokerage Firms misleading investors about their role as fiduciaries, which Firms deny to block arbitration claims.

"Investors believe they are doing business with individuals they can trust, because the brokers use titles which imply trust, their advertisements give the impression they can be trusted, and the brokers say they can be trusted to look out for the best interests of their clients.  A survey of the major brokerage firms show consistency in the advertising, in the tone they take on their websites, and the impression that they intend to leave on investors," said the report's other co-author, Christine Lazaro, director, Securities Arbitration Clinic at St. John's University School of Law.

"Yet when that trust is breached, a survey of answers filed in arbitrations demonstrate that these same firms disclaim liability when held to account in arbitration, and rely on case law to say no such duty exists. The public face of the firms is that they hold themselves to the highest standards, while the private face of the firms, in the arbitration forum where everything is non-public, is that they are mere order-takers," she says. https://piaba.org/system/files/pdfs/PIABA%20Fiduciary%20Study%20News%20Release.pdf 

A similar situation exists in Canada.Some examples of what has been dubbed The Grand Deception:

A survey of business titles by the Investment Industry Regulatory Organization of Canada (IIROC) found  that there is a wide array of business titles in use by licensed representatives both across firms and, in some cases, within the same firm. Some of the more commonly used business titles that were reported through the survey include: Advisor, Financial Advisor, Financial Assistant, Investment Advisor, Senior Investment Advisor, Financial Consultant, Personal Finance Consultant, Financial Planner, Certified Financial Planner, Wealth Advisor, Investment Associate, Private Client Principal, Private Client Associate, Retirement Specialist, Consultant to Seniors, Vice President, Senior Vice President, and Managing Director. IIROC concluded that many of these business titles do not, on their own, provide a meaningful description of the type of services and/or investment products that a licensed representative can offer to a client. Some of these business titles imply that the individual carries out an executive function within a firm, for example, Senior Vice President, where the individual is not, in fact, a corporate officer of the firm. IIROC also found that there is a wide array of financial designations that licensed representatives possess and may put forward, in addition to their business titles, in their dealings with clients. While some financial designations, including professional designations like the Chartered Accountant designation, require a specified number of years of work or hours of classroom study, passing an examination, and continuing education, the requirements for others are much less rigorous. In fact, some financial designations may be obtained after a weekend seminar or through online self-study, with a self-administered examination.These titles facilitate sales person gaining investors’ trust  and enabling the sales persons to sell products and implement strategies that are not in the investors’ best interests.

Another common example is the recommendation of proprietary mutual funds (which often bear the name of the brokerage firm). There are often similar, less expensive index funds or other mutual funds available with higher expected returns. A fiduciary couldn’t recommend proprietary funds if they weren’t the best option. A broker has no such constraints and can do so with impunity.

How about this declaration ? Your goals are unique, and BMO Nesbitt Burns Investment Advisors are here to help you develop a plan that's right for your needs. Working with us you can expect open,trusted and transparent advice...  https://www.bmo.com/nesbittburns  Sounds like you'll be provided advice that is in your Best interests, eh?

A number of OBSI recommendation cases cases further illustrate the two-faced  issue . Equity Associates refused to compensate a retired couple in the amount of $83,386. After the couple sold their home, their advisor invested the proceeds in unsuitable medium-risk and high-risk mutual funds.Richardson GMP refused to compensate several investors in the amounts of $232,500 and $66,366. They entrusted their retirement savings to an advisor who ignored their investment objectives and risk tolerance.Armstrong & Quaile refused to compensate a retired couple for $34,000 after their advisor urged them to borrow to invest. They sold their investments after a market decline to cover a debt they could not afford to service.Monarch Wealth Corp refused to compensate a young couple, new to Canada, in the amount of $30,628. They borrowed to invest after being told by their advisor they would not incur any losses.Despite the Ombudsman's comprehensive independent complaint investigation, the dealers refused to accept accountability or provide restitution.

Other excuses that dealers use when responding to a client complaint include:
1. Blaming the investor- greedy , didn't pay attention to forms signed
2. Falsely claiming that because the account is a discretionary one, no duty of care is required
3. Wrongly asserting that the responsibility for determining suitability rests with the client 
4. Incorrectly asserting that ,even though the investments are unsuitable, the dealer is not accountable because risks were disclosed to the client
5. Refusing to accept responsibility if "advisor " has sold products off the books of the dealer . Sometimes dealers are willfully blind if a " producer" is harvesting a client and when things turn ugly claim that they knew nothing about the egregious behavior and are not accountable.

A recent example of the latter practice involves a case involving FUNDEX  Investments Inc. http://www.obsi.ca/images/Documents/IR/refusal/fundex_investigaton_mr_and_mrs_s.pdf . In that case FUNDEX  argued that they had not approved sale of the exempt market product and the client must have  known they were not dealing with FUNDEX. The OBSI complaint investigator found otherwise and recommended full restitution. The dealer refused and the victims must now decide if they wish to proceed with civil litigation  or walk away with a hard lesson on who they can trust. From the FUNDEX website we note: " Since 1995, FundEX Investments Inc. has been providing independent financial advisors with an established, fixed fee business model that enables them to access a wide variety of quality investment products to best meet the needs of Canadian Investors."

Brokers and insurance companies are fighting hard to avoid becoming fiduciaries. They are currently held to the lower “suitability” standard. This means they can recommend investment products that may not be the best option available to help you reach your financial goals, as long as they are “suitable.” CAVEAT EMPTOR!

Research paper on Ponzi schemes: Cam McCormick University of Lethbridge

The Earl Jones scam is a particularly interesting read.

GET MAD, STAY MAD: EXPLORING STAKEHOLDER MOBILIZATION IN

THE INSTANCE OF CORPORATE FRAUD AND PONZI SCHEMES

Abstract:Using a multi-case study, three Ponzi schemes were investigated: Road2Gold, Bernie Madoff’s empire, and the Earl Jones affair. This grounded study used an inductive bottom-up methodology to observe and describe stakeholder mobilization in reaction to corporate fraud. This research on stakeholder behaviour in Ponzi schemes articulates new theory for describing stakeholder behaviour and possible determinants for successful mobilization to action. The data presented here point to a useful distinction in the stakeholders in a corporate fraud: reluctant and engaged stakeholders. Reluctant stakeholders seek only interest-based ends, whereas engaged stakeholders have additional identity and ideological goals shared by a mobilized group.

Read the paper here 

Checklist: Was your complaint handled fairly?

It's no secret- investment dealers hate to admit they provided bad financial advice. They will try very hard to avoid accountability for losses.

The industry has a longstanding over reliance on form documents such as disclosure forms, agreements, account statements and KYC forms, seeking to meet regulatory KYC and suitability obligations; however, more and more, courts and regulators are looking to the record of direct communications between the advisor and client to assess the degree to which the advisor's recommendations and the client's instructions were truly informed regarding risk and suitability issues. In some cases the 'paper' is not a barrier to the imposition of liability for losses sustained by the client.That should be your mindset as you assess the dealer's response letter.

You should assume the relationship between you and the complaint investigators is adversarial regardless of the soothing words of fairness and unbiased investigation. Some very smart seasoned people are reviewing your complaint to ensure the dealer is immunized from providing restitution. This Checklist should help you determine just how objective the investigation has been  Read the Checklist here.  

Related readings :

Calculation of Damages: Securities Fraud & Protection Resource Center http://www.securitieslaw.com/information/calculation-of-damages.asp

Resolving Investor Disputes : Is your Advisor to Blame?

http://www.robertson-devir.com/pdf/Is%20Your%20Advisor%20to%20Blame.pdf

Compensation for Retail Investors :The Social impact of Monetary Loss https://www.asic.gov.au/media/1343636/rep240-published-May-2011.pdf