Bad Advisors Coast To Coast

If you like juicy tales of  the bad element getting caught in their "cheatin' ways", try scrolling through the Investment Industry Regulatory Organization of Canada (IIROC) disciplinary cases for your entertainment pleasure. Here is one that caught my attention, just with the sheer number of allegations and the time period through four, count em', four different financial institutions: Wellington West, National Bank, Industrial Alliance and Aligned Capital and their respective compliance departments over a 7 year period. 22 pages of riveting tales of not knowing the clients, making unsuitable and unauthorized trades and losses in the vicinity of $1,000,000. All with clients  born before 1950 (i.e. older than 70 now).

Or for more harrowing tales, you can visit the Mutual Fund Dealer's Association of Canada Enforcement page and have a look at the bad things that some of those folks have been getting up to.

Do you know the one thing that each of the institutions under the self-regulating bodies have in common? They are not under any fiduciary obligation to the client. That means good luck getting any part of your losses returned to you in any kind of reasonable time frame. Even if the bad advisors are sanctioned and fined, the record of payment is dismal.

In an April 2019 press release, the Small Investors Protection Association (SIPA) stated: " Canadians are losing their savings due to systemic fraud and wrongdoing by a financial services industry that does not put clients' best interests first, disregarding laws or rules and regulations. It has been possible to defraud tens of thousands of clients for up to a decade as indicated by recent No Contest Settlements by paying fines to avoid admitting responsibility and litigation."

The Canadian Foundation for Advancement of Investor Right's (FAIR), "strongly believes that a statutory best interest standard is necessary, desirable and feasible, with respect to securities advisers, dealers and individual registrants in their conduct towards retail investors." but that current proposed amendments by the Canadian Securities Administrators (CSA)

"will not achieve the profound shift necessary to ensure Canadians receive the objective, professional financial advice that is needed and rightfully expected".

The CSA has their own enforcement division if you are interested in more investigative reading.

The point is, that unless your wealth management team is a discretionary portfolio manager (as we are at High Rock), you are going to be vulnerable and must pay extremely close attention to the advice that you are being given. Even if it is suitable at the purchase point, once past that, your advisor only need take a "standard of care", which does not legally bind him or her to ensure continuing guidance. In other words, once you buy it, you as the investor are now liable for whatever happens next. Losses are on you, not your advisor (unless of course the investment was unsuitable in the beginning).  Even if it was unsuitable, it could be years, if ever you are able to recover.

 What happens to your retirement then?

We know that our High Rock client readers understand this and hold us to our code of conduct. For all of you other friends that take the time to check in on my perspective (ranting, drivel, whining, etc.), give it some thought. The potential implications are huge.