Really Bad Advisors

Spend a couple of hours with Stan Buell, head of the Small Investors Protection Association (SIPA) (which I did today at Charlottetown's The Brickhouse Kitchen And Bar) and listen to a few of the stories he has accumulated from his days helping the many abused investors who have lost millions to just plain bad advisors and it won't take you long to start thinking about who is in control of your money.

These people (the bad advisors) were apparently trustworthy, in some cases, vice presidents with large, apparently safe, banks and investment firms under the ever watchful eye of the self-regulating Investment Industry Regulatory Organization of Canada (IIROC).

Over our lobster mac and cheese and seafood chowder (both to die for, if you enjoy the type of catch that the local folks brought in that morning) we wondered why it was that the people who put their trust in these various scoundrels were so easily taken.

Certainly, the institutions backing them were a good part of the reason. The scary part was that even though, in many cases, investors did get some (definitely not all, after lawyer contingency fees, settlements, etc.) of their money back, the banks fought for years to protect these bad advisors (and themselves). So, in the case of one situation, after fighting 10 years over a couple of million dollars, the retired plaintiff got some of his money back and passed away 4 years later. Not a happy story.

Friends, I have in many past blogs tried to discuss the necessity of making certain that your adviser is fiduciarily responsible, but both Stan and I have come to the realization that many do not even understand what that means.

We think that we have to break it down into more understandable terms:

If and when your advisor sells you an investment (ETF, stock, bond, mutual fund), it is her / his responsibility to make certain that, at that moment in time, it is suitable for you (the Know Your Client rule). 

Beyond that, it is no longer his / her responsibility. You own it, you are responsible. Period. She / he is not. If that investment, somewhere down the road becomes unsuitable, it is not their responsibility to tell you to sell it. If they are good, they should, but as they are not legally accountable (i.e. no fiduciary responsibility), you are rolling the dice. It is all on you.

Did they advise you to use margin (use debt) to purchase that investment?

Uh Oh! More warning signals.

Stan spends his valuable time fighting the good fight, trying to get the governments to recognize how the self-regulating organizations have an extreme conflict of interest.

Have you seen the latest Bank profit results? 

The Wealth Management arms of these institutions are recording record revenues. I guess the pressured sales tactics as reported by CBC Go Public Investigation into Big Banks are working. 

At least the bank shareholders must be happy.

As a portfolio management company (like High Rock) registered with the Ontario or other provincial securities commission, we have a fiduciary (legal) responsibility to monitor and protect our clients' portfolios. That is why we are so very focused on risk.

We do not have the resources to compete with the advertising powerhouses of the financial industry (that allude to safety and security that may in actual fact be a myth), so we need to rely on continuing to tell the stories that Stan tells.

So have a look at the SIPA website and pass it on and help Stan tell his stories and get the message out there. Think about it. What if you were to lose everything to a rogue advisor? What would you do?

You may be richer than you think, but you may not be as protected as you think!