Source: http://investoradvocates.ca/viewtopic.php?f=1&t=173&view=print
Timestamp: 2019-04-25 03:04:28+00:00

Document:
Misconduct and malpractice. Investment industry "best and worst practices". Information to improve public protection. Expert witness services for industry and investors. Forensic investment analysis. • View topic - GET YOUR MONEY BACK!
Re: GET YOUR MONEY BACK!
If you have one of the 120,000 falsified investment “advisors” in Canada, or one of 600,000 non-advisor-licensed “advisors” in the US, then you are in a financial relationship with someone who is hiding something essential from you. i.e., you are a victim of professional deception, and also likely being financially harmed as a result. That is the real game in nine out of ten investment relationships today.
This means that most investors seeking help with their life savings, are actually being blindfolded to the truth of whom they are dealing with. They are being kept in the dark...intentionally.
The tremendously sad thing about this is not just that it is a form of abuse against millions of people, but that more than ten thousand regulators are paid as handmaids to ensure that none of this darkness ever comes to light...This is called regulatory capture.
The lawyer for the plaintiff (victim) is often unaware of the underlying illegality that is committed when a sales agent “fakes” or hides his sales agent license from the customer. Some call it fraud (in the engineering and medical industry, people are put in jail for just this kind of fraud), but the “F” word is not able to be utilized as yet against some of the wealthiest and most powerful corporate entities. Perhaps that will change in time, but for now call it unlawful and untruthful. Call it intentional deception if you like. Call it placing obstacles in front of the blind, to unjustly enrich the “guide”. It is wrong by any measure and it is a simple form of abuse by the powerful over the weak.
I force a day when financial abuse by financial professionals is revealed and curtailed in not only the court of public opinion, but the much slower courts of law.
2. Negligent, untruthful and unlawful misrepresentation of the specific truthful and lawful license and/or registration category of the sales-agents of the defendant, contrary to the “representation” requirements of the Ontario Securities Act. Section 44 of the Act gives but one example of representation requirements.
3. Such misrepresentation is also contrary to the required principles of fairness, honesty and good faith dealings in investment regulatory bodies such as IIROC and Mutual Fund Dealers Association (MFDA), one or both of whom who have jurisdiction over the defendant.
4. Such misrepresentation is also contrary to the false and misleading advertising requirements found in the Competition Act.
5. The untrue and unlawful misrepresentation of the license/registration category of the agents of the defendant, did constitute a deceptive and unfair marketing practice, which but for this deception, the clients would not have placed their trust nor their money with the defendants.
6. It is believed that #5 above constitutes causation in a legal sense.
7. The untrue and unlawful deception is found to be widespread within the defendants corporate sales practices and practiced (as of July 17, 2018 CSA records) by the defendant, which advertises its investment “advisors” on it’s web site and other advertising found on the date above, while Canadian Securities Regulator (CSA) records show that only one (1) member of its the defendants firm holds this actual registration, whilst four thousand and thirty-six (4036) persons at the defendant’s firm are found to be registered in the sales capacity, which registration category is now referred to as a “Dealing representative”. The “dealing representative” category has existed since 2009 and prior to this date it was titled the “salesperson” category for greater clarity for the public.
8. With knowledge of the defendant, the registration categories for sales-licensed persons and advice-licensed persons have been significantly altered, the most recent alteration in January of 2018 when all remaining traces of the descriptive word “Salesperson”, were cleansed from documentation by securities regulators. This enabled a systemic cleansing of the most accurate description of what a sales agent does, and it was replaced with a term which confused and prevented the plaintiff(s) from obtaining fair, honest and good faith information. Information which would allow them to identify the marketing deceptions of the defendant.
9. “But for” the salesperson deception, and its subsequent systemic coverup through the removal of the word “salesperson”, the plaintiffs would never have knowingly invested their money and their trust. The defendants owed a duty of disclosure of these material facts to the plaintiffs, which they failed to deliver.
10. The net result of the concealment of the salesperson licenses and the subsequent promotion of non-adviser or (advisor) licensed persons as if they were licensed as advisors (or advisers), constitutes a nationwide systemic bait and switch, which is contrary to all industry rules, laws and principles of common law, decency and honesty.
11. But for this widespread systemic practice of misrepresentation, the plaintiffs would not have entrusted their money to non-licensed, or falsely represented, so-called financial advisory professionals.
12. It is well understood that the qualifications, roles and obligations of a sales agent are distinctly and dramatically different from those of a registered professional fiduciary adviser, and the defendant did all they could to misdirect the plaintiffs, confuse them as to those roles and lead them to making false assumptions about the relationship they were in.
13. The deception of the defendants was done with knowledge of laws, rules and codes of conduct of the defendants. Hence it appears that the defendants deliberately and with intent to unjustly enrich themselves, violated many of these principles, rules, laws and promised honesty to the plaintiffs.
14. The end result of the acts of the defendants amount to an intentional effort by the defendants and industry-paid regulators to place a blindfold upon hundreds of thousands of clients, and using that ‘advantage’ or “information asymmetry”, to unjustly enrich themselves, at the expense of the plaintiffs.
15. Hundreds of millions can be demonstrated as the harm to a very broad spectrum of investors, of which this class represents.
A class action lawyer sent me the following recently and I am sharing it here for those who are caught in a professionally designed financial services trap...for those for whom, “placing obstacles in front of the blind”, has been the self serving business practice of your financial “advice’ giver.
Follow me at Investment System Fraud Group on Facebook to keep more up to date, and to engage in the court of public opinion.
You may have noticed that some of the proposed reforms to NI 31-103 fortify the statutory prohibition on confusing presentation of qualifications.
There is no doubt about the bad industry practice and the need for reform.
The problem would be causation in any legal case.
See the new #13.18 in the new Division 7 re misleading titles.
Section 13.18 prohibits registrants from, among other things, using titles or designations that could reasonably be expected to deceive or mislead existing and prospective clients.
Certain titles can be confusing to the average investor or imply that a registered individual performs a particular function at a firm or has particular expertise. Similarly, titles can give rise to certain client expectations or help to create an unfounded feeling of trust, reassurance or prestige. Registered firms should keep these considerations in mind before authorizing their registered individuals to use specific titles. Particular scrutiny should be given to the use of titles that convey an expertise in seniors' issues or retirement planning to confirm that any registered individual using such a title is appropriately qualified and competent in that area.
• been issued by a reputable or accredited organization.
Registered firms should recognize that some types of clients, such as seniors, may be particularly vulnerable to misleading designations. If a registered firm permits their registered individuals to use designations of any kind, including those that suggest an expertise in retirement planning, registered firms must have procedures in place to confirm that those designations are not misleading.
If a registered firm uses advertising that exaggerates the products and services available to clients, this could reasonably be expected to mislead a client as to the products and services to be provided as well as to the nature of the relationship that may exist between the registrant and the client.
If a registered firm holds itself out as independent but offers proprietary products, this could reasonably be expected to mislead a client as to the products to be provided and as to the nature of the relationship.
If a registered firm or its registered individuals hold themselves out as being in a fiduciary-like relationship with their clients but the registrants do not actually conduct themselves to the standard of a fiduciary then this could reasonably be expected to deceive or mislead a client as to the nature of the relationship between themselves and their registrant.
A registered individual's sales activity or revenue generation are distinct from their proficiency, experience, and qualifications. If a prestigious sounding title, designation, award, or recognition is tied to a registered individual's sales activity or revenue generation, this could reasonably be expected to deceive or mislead a client as to the proficiency, experience, or qualifications of that registered individual.
For example, if membership in a registered firm's "President's Club" is based partly or entirely on a registered individual's sales activity or revenue generation, the registered individual must not use that recognition or award.
A registered individual must not use a corporate officer title, such as president or vice-president, unless their sponsoring firm has duly appointed that registered individual to that corporate office pursuant to the corporate law applicable to their sponsoring firm. The use of a corporate officer title is also still subject to the general rule set out under subsection 13.18(1) and firms must consider whether the use of a corporate officer title would be misleading prior to approving their use.
The use of false titles is considered to be misrepresentation and is illegal under most Securities Acts in Canada and the US. It is also contrary to the laws and rules of the Competition Act of Canada and criminal codes.
None of these rules or laws have been enforced in Canada, to my knowledge, which raises much larger questions for another time, but for the matter of getting your money back I suggest a strong poker face, and a some proof or finding of fraud may get your bank/dealers attention.
I have seen clients attempts this only to be faced with ferocious financial industry lying, delaying and denying, so be prepared that getting money out of a bank is not easy, even when you have been deceived or defrauded, but you can be the judge of what lengths you are willing to go to in order to obtain justice and redress. Privately filed criminal charges may also be a last resort if all else fails.
I would like to ask ABC Bank if it is true that most ’advisors’ of ABC Bank, and in specific, the ‘advisors’ that ABC Bank allowed to give me financial advice on my investment accounts are/were then legally registered or licensed in the category of “advisor” as they represented to me and in ABC Bank advertising?
Or, are they legally registered as “dealing representatives”, which is further clarified as ‘salesperson’ under that registration category, with the Canadian Securities Administrators?
I feel that if this question can be answered by you, I will be saved the trouble of having to retain legal counsel and ABC Bank may be saved the trouble of having to do similar.
Failing a prompt response to this question I feel that ABC Bank may leave me with no other alternative than to continue my search for “fair, honest and good faith” services and answers to my question through legal counsel.
I once again, thank you for making my account “whole”, returning me to a financial position as if I had never stepped foot into a ABC Bank ‘advisor’ relationship, to prevent much ado over not very much money. This is more a matter of principle than a matter of the dollar value of my account. I would like my initial investment value returned to me, with a nominal and reasonable amount of interest for the years that I feel I have wasted due to the misrepresentation from the concealment of your "dealing representatives” (Salespersons) titles.
Thank you for your prompt attention to this concern, which will allow me to put this matter to rest.
"One of the things brought up at the MFDA Hearing regarding my dad was of course the inappropriateness of the DSC fees with my dad being in his 80's.
Legal counsel from the MFDA also went into questioning this 10% free units which I am not sure I fully understand so correct me if I am wrong. The advisor sells on a DSC basis and gets a 5% commission up front and thereafter a 0.5% trailer. But if each year he moves the allowable 10% to an FEL his trailer is now 1%. Am I getting the game they play correct?"
--What is a false pretence under the Criminal Code?
Under Section 361., (1), a false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it. Subsection (2) states that exaggerated commendation or depreciation of the quality of anything is not a false pretence unless it is carried to such an extent that it amounts to a fraudulent misrepresentation of fact. For the purposes of subsection (2), it is a question of fact whether commendation or depreciation amounts to a fraudulent misrepresentation of fact.
misleading in light of the circumstances in which it was made.
￼No Dealer Member or Approved Person shall use any business or trade or style name that is deceptive, misleading or likely to deceive or mislead the public.
unless the person is registered in accordance with the regulations and in the category prescribed for the purpose of the activity.
media quotes about violations of the public by so-called-professionals.
2. "Anything else is fraud, because the seller is delivering a service different from what the consumer thinks he or she is buying. " Edward Waitzer article, Financial Post · Tuesday, Feb. 15, 2011) (Mr. Waitzer is a Bay Street Lawyer and former Securities Commission chair, and this quote ( by another person) appeared in his article.
The Honorable Jean-Pierre Senécal, J.S.C.
￼¶ 263 The defendant attributed to Migirdic fake titles, i.e. "vice-president" and "vice-president and director", in addition to letting him use the title "specialist in retirement investments". Those titles were false representations that misled the plaintiffs, hid reality from them, disinformed them, comforted them in their confidence in Migirdic, reduced their distrust, and contributed to Migirdic's fraud. The defendant committed a fault in terms of its obligation to inform and advise, in addition to misleading the plaintiffs.
First, you might start by searching out the name and license of your "advisor", and comparing it to what "title" they have represented themselves to you with. It is against the Securities Act in many provinces (section 34 BCSC) to misrepresent their title, and it also offends several self regulatory rules against title "inflation" (puffery:).
This notice dated jan 9th, 2014 from the Canadian Securities Administrators speaks loudly to a regulatory regime which is captured and loyal to the industry, while wilfully blind to industry harms to the public. By way of example, while reading thousands of words in this release, applicable to the interests and treatment of investment customers, nowhere is it found any discussion of fees, costs or expenses as being one criteria in the "suitability" requirement.
For an industry which relies heavily on pushing the most expensive, most harmful to the customer, product, the ability to capture and corrupt the regulators into such wilfully blind enabling, is evidence of a failed regulatory regime. Please read if it might pertain to your own case, and pay particular attention to the areas that discuss "suitability" requirements.
While the CSA image below speaks proudly of PROTECTING INVESTORS, sadly the claim does not bear weight.
25 pages of information related to suitability. 100 mentions of the word "suitability", and virtually nothing to speak to, or interfere with the industry practice of maximizing revenue, or the conflict between maximizing investment performance to the client, and maximizing revenue for the dealer. All discussion walks around this explanation, buries it is "subjective" terms, which cannot be nailed down. All discussion relies on principles of each registrant’s general duty to deal fairly, honestly and in good faith with its clients, which of course is up to the discretion of the industry itself to enforce or ignore.
This clients can be abused on a "cost" basis, which coincidentally is where the money for themselves comes from, with impunity.
I feel that for any regulator to be so cleverly vague about the issue of investment fees and costs, where they relate so heavily to any discussion of "suitability" is to show that they are deliberately trying to obfuscate. It speaks to a lack of professionalism by the regulatory bodies involved.
Advocate comment: Although the industry does have some well written codes and promises, the troubling thing is that the industry relies on the industry to enforce them, and as a result, the client is left unprotected, while the industry makes off with the money, 99 times out of one hundred.
The industry standards that promise, "honesty, fairness and good faith" are but one case in point. They (the IIROC registered investment dealers) promise it to the public, they just do not have to deliver it, unless there is that one-in-one-thousand, client who has the emotional and financial strength to take the dealer to court. Then, and only then will those three items be brought into play by a judge, and that is only a one-off chance, since the dealer will bring in "experts" to spin the judge in several directions, all of which lead to confusion and not conviction.
End result, is that the odds get into the "lottery-level" that an investment customer will actually obtain delivery of the "promise" of "honesty, fairness and good faith". Sorry for the pessimism. Just the messenger.
HOW DO YOU PROVE YOUR BROKER CONTROLLED THE ACCOUNT EVEN THOUGH IT IS LABELED NON-DISCRETIONARY?
There are two general types of investments accounts: non-discretionary and discretionary. A non-discretionary account requires the broker to obtain authorization before it makes any investment decisions. A discretionary account allows an investment broker to make account transactions without the client’s prior approval. The problem is twofold: (1) brokers often treat non-discretionary accounts as if they were discretionary, and (2) brokers do not adequately explain the difference between the two accounts to the customer.
Suppose you, the average investor, open an account with a brokerage firm. Chances are you will do so without knowing whether the account is discretionary or non-discretionary. Down the road, the broker messes up, defrauds you, and makes grossly unsuitable investments. You want to take legal action, but you are uncertain. What will be the broker’s defense? He will say the account was non-discretionary and deny responsibility. In other words, he will blame you. He will say you were in control of the account, not him. No doubt, this is news to you. After all, the broker acted like he was in control. There was implicit understanding that he was in control. The only basis the broker has for saying that he was not in control is the non-discretionary status of the account.
How do you overcome this defense? How do you prove that the broker was in control, even though the account was non-discretionary? Answer: You have to prove the broker “assumed” or “usurped” control of your account.
A broker is not insulated from a charge of unsuitable trading merely because the customer did not vest the broker with formal written discretionary authority. Rather, where it can be shown that the customer-broker relationship is such that the broker in fact manages the trading in the account, control will be found. (In re Thomas McKinnon Secs., CCH Fed Secur L Rep ¶ 99104 (1996, SDNY)).
Typically, this occurs when the customer evinces such trust and confidence in his or her broker that the customer invariably follows the broker's advice and recommendations. (See Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977); Mihara v. Dean Witter & Co., 619 F.2d 814 (9th Cir. 1980)).
The question is whether the customer has sufficient understanding and financial acumen to evaluate the broker's recommendations and reject them when the customer thinks it inappropriate. (See Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977); Carras v. Burns, 516 F.2d 251 (4th Cir. 1975); Newburger, Loeb & Co. v. Gross, 563 F.2d 1057 (2nd Cir. 1977)).
Where the customer is relatively naive and unsophisticated, and the customer routinely follows the broker's advice, control will generally be found. (Mihara v. Dean Witter & Co., 619 F.2d 814 (9th Cir. 1980); Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (9th Cir. 1980)).
While an otherwise intelligent customer will not be allowed to hide behind a mask of ignorance, the customer's sophistication and success in one area of life will not necessarily mean that he or she will be found sophisticated enough to understand all the risks of a particular investment or trading strategy, so as to protect the broker from a finding that the broker controlled an account. Clark v. John Lamula Investors, Inc., 583 F.2d 594 (2nd Cir. 1978); Cruse v. Equitable Sec. of New York, Inc. 678 F.Supp.1023 (SDNY 1987).
Whether or not a broker controls the trading in his or her customer's account is a question of fact. Control may exist as a result of an express written agreement between the broker and the customer, or may be inferred from their particular relationship. (Fey v Walston & Co. 493 F2d 1036, CCH Fed Secur L Rep ¶94437, 18 FR Serv 2d 835 (7th Cir. 1974); Newburger, Loeb & Co. v Gross (1977, CA2 NY) 563 F2d 1057, CCH Fed Secur L Rep ¶96148, 1977-2 CCH Trade Cases ¶61604, 24 FR Serv 2d 42 (2nd Cir. 1977), cert denied 434 US 1035, 54 L Ed 2d 782, 98 S Ct 769, appeal after remand (CA2 NY) 611 F2d 423, 28 FR Serv 2d 602).
To determine whether a broker exercised de facto control over trading in a non-discretionary account, courts look to several factors. Zaretsky v. E.F. Hutton & Co., 509 F.Supp. 68 (SDNY 1981); In re Thomas McKinnon Secs., CCH Fed Secur L Rep 99104 (SDNY 1996).
Of critical importance are the personal characteristics of the customer, such as his or her age, education, general intelligence, and business and investment experience. Control is likely to be found where the customer is particularly old, young, lacking in education, or was inexperienced in the stock market or lacked financial sophistication. Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (9th Cir. 1980) (finding control when customer was particularly old); Kravitz v Pressman, Frohlich & Frost, Inc., 447 F.Supp.203 (Mass. Dist. Ct. 1978) (finding control when customer was particularly young); Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (E.D. Mich. 1978) (finding control when customer lacks education); Carras v. Burns, 516 F.2d. 251 (4th Cir. 1975) (finding control when customer lacks education or is inexperienced in the stock market or is lacking financial sophistication).
Another factor closely examined by the courts is the relationship between the broker and customer, whether it was an arm's length business relationship or a combination of business and friendship.
Also significant are the reliance placed on the broker by the customer. Fey v. Walston & Co., 493 F.2d 1036 (7th Cir. 1974); Petrites v. J.C. Bradford & Co., 646 F.2d 1033 (Fla. 5th DCA); Marshak v. Blyth Eastman Dillon & Co., 413 F.Supp. 377 (ND Okla 1975).[flash=] If a broker has acted as an investment adviser, and particularly if the customer has almost invariably followed the broker's advice, the fact finder may consider this as evidence that the relationship is discretionary and that the broker owes a fiduciary duty to the customer[/flash]. Patsos v. First Albany Corp., 433 Mass. 323, 741 N.E.2d 841 (Mass. 2001).
A course of dealing in which a broker executes trades without client's prior approval suggests that the account is discretionary for purposes of broker's fiduciary duties; similarly, if a broker has acted as an investment adviser and client has frequently relied on that advice, there is a strong indication that the account is discretionary. In re Murphy, 297 B.R. 332, 41 Bankr. Ct. Dec. (CRR) 226 (Bankr. D. Mass. 2003).
Past evidence of following broker's advice will establish control. If a broker has acted as an investment adviser, and particularly if the customer has almost invariably followed the broker's advice, the fact finder may consider this as evidence that the relationship is discretionary and that the broker owes a fiduciary duty to the customer. Patsos v. First Albany Corp., 433 Mass. 323, 741 N.E.2d 841 (Mass. 2001).
(5) if the broker offers advice on a specific transaction that was "unsound, reckless, ill-formed, or otherwise defective."
Stewert v. J.P. Morgan Chase & Co., 2004 WL 1823902, 2004 U.S. LEXIS 16114 (NYSD 2004) (citing Kwiatkowski v. Bear Stearns & Co., 306 F.3d 1293, 1302-03, 1307-08 (2d Cir. 2002)).
If you can establish the above elements, the broker will not be able to hide behind the non-discretionary account defense.
Search for the name COSGROVE on this same web site (http://www.investoradvocates.ca) to see what this dealer "defence" looks like.
If your financial product salesperson has represented to you that he/she is an "advisor", then it is incumbent upon them to act like it, as a principle of common law.
The following link is to a pdf document describing what the "best interest" standard looks like as of 2013 in Australia. It could be used as a guide for your legal counsel to argue whether or not you actually received what you were promised.
"communicate clearly, both verbally and in writing, with clients to ensure that you are, and can prove that you were transparent with them and encouraged them to make choices that are in their best interests."
Are advisors merely salespeople who view their clients as "fee machines," as many have claimed? Clients with this view will always be weary of their advisors. From a litigator's point of view, what leads to lawsuits is client mistrust and suspicion, even if the money lost in the account was as a result of market fluctuations and not because of any breach by the advisor.
All eyes are then on the advisor when a client loses money, alleging that there's an inherent conflict of interest in the manner in which advisors are compensated. A suggested solution is to outlaw commissions and trailer fees and insist on fee for service. But what about Mr. and Mrs. Smith, who have a relatively small account and buy and hold for the long term? If the regulators mandate fee-based accounts, the Smiths may be worse off. Furthermore, isn't it generally better for clients to have more choices rather than less? If the client is engaged in the process and the advisor is transparent with solutions, alternatives and the costs associated, isn't that best for the client?
However, the view at the moment is that there should be mandated standards, reflected in more regulation, mandatory documents to deliver to the clients and more forms to sign. Is this a solution to the problem when clients have no patience for paperwork and often don't even rip open the envelopes when they receive mail from their dealers? Will clients find they are being better serviced with less options, more mail to open and more forms to sign?
Do your clients trust you?
What do you do to establish and maintain that trust?
Is it true that if clients believe that you have their best interest at heart they are less likely to sue you, even if they think something has gone wrong?
If clients' expectations have been managed, do you think they will be less likely to sue?
If you are transparent about the sum of fees charged to clients, do you think clients will be less likely to sue?
I believe the answer to all of these questions is Yes. So, what do you do to ensure that you act, and the client understands that you are acting, in their best interests, their expectations are managed and you are transparent with fees? Clear, concise communication with a supporting paper trail is the answer.
Glen Gowland, head of Bank of Nova Scotia's private client group, got it right when he said: "I do not apologize for charging for advice. But a client should know what they're paying for, they should be able to understand how much they are paying for that, and then be able to measure, "Did I get good value for what I paid?"
So, you need to ensure that you leave the acronyms at the office and communicate clearly, both verbally and in writing, with clients to ensure that you are, and can prove that you were transparent with them and encouraged them to make choices that are in their best interests. That's the roadmap to building your business with trust.
"communicate clearly, both verbally and in writing, with clients to ensure that you are, and can prove that you were transparent with them and encouraged them to make choices that are in their best interests".
So, any customer, who has been abused by these, "salespeople who view their clients as "fee machines,...." need only prove two things. First that their "advisor" was no such thing, and carried no such license, and second, that they failed the written requirement to ""communicate clearly, both verbally and in writing, with clients to ensure that you are, and can prove that you were transparent with them and encouraged them to make choices that are in their best interests".
Most typical investment product salespeople will not be able to meet either of these criteria. Professionals will have no difficulty with either. Thanks to Ms. Bessner for this article. Further posts in this topic, have videos and further information of her work, which I feel are helpful to those clients seeking to prove investment victimization by non-professionals, posing as professionals.
Those stakeholders that support the introduction of a statutory best interest standard felt that the current regulatory framework for advisors does not adequately protect investors. Many also felt that targeted regulatory responses are also required in several specific areas, including titles, proficiency, suitability and conflicted compensation practices. Several took the view that recent international regulatory developments have left Canadian standards at a lower level than those in leading jurisdictions.
Those stakeholders that do not support the introduction of a best interest standard explained how the current regulatory framework, coupled with recent Canadian regulatory reforms, provided a robust, flexible and principled regulatory foundation that affords strong investor protection and that addresses the investor protection concerns identified in the Consultation Paper. Most of these commenters also suggested that although there was no evidence of actual harm to investors under the current framework, if there were such evidence, the appropriate regulatory response would be targeted.
4. More work is needed…..
 identify the key themes that emerged from the best interest consultation process.
In October 2012, the Canadian Securities Administrators (CSA or we) published CSA Consultation Paper 33-403: The Standard of Conduct for Advisers and Dealers: Exploring the Appropriateness of Introducing a Statutory Best Interest Duty When Advice is Provided to Retail Clients (the Consultation Paper). We received numerous comment letters on the Consultation Paper and conducted three consultation sessions in June and July 2013.
advisors1 adequately protects investors and (b) what regulatory response is required.
2) A best interest standard must be clear.
3) The potential negative impact on investors and capital markets must be carefully assessed.
4) More work is needed.
1 References to “advisor” in this Notice mean, unless otherwise specified, advisers and/or dealers (and their representatives) that provide securities advice to clients.
2 Available online at http://www.osc.gov.on.ca/documents/en/S ... fiduciary- duty.pdf.
The Consultation Paper posed a variety of questions and requested comments from all interested stakeholders on the issues raised in the Consultation Paper. The CSA received 93 comment letters from a range of stakeholders, including investors, investor advocates, advisors, industry advocates, academics, law firms and professional associations. The list of commenters and copies of the comment letters are available online at http://www.osc.gov.on.ca/en/38075.htm.
o other policy solutions that need to be considered.
3 The transcript of the Investor Roundtable is available online at http://www.osc.gov.on.ca/documents/en/Securities- Category3/oth_20130618_33-403_transcript-roundtable.pdf.
4 The transcript of the Industry Roundtable is available online at http://www.osc.gov.on.ca/documents/en/Securities- Category3/oth_20130625_33-403_transcript-roundtable.pdf.
o costs of introducing a best interest standard, and o the impact on capital raising.
o John Fabello (Partner, Torys).
o Should dealers (and their representatives) be subject to a best interest standard when providing advice to retail clients? What would the consequences be of introducing such a standard?
o What other policy options could securities regulators consider in addition, or as alternatives, to a statutory best interest standard?
We also had informal meetings with a variety of stakeholders to both explain the Consultation Paper and solicit feedback on the issues raised in it.
We thank those who have contributed to our consultation process to date by responding to our request for comments and/or by participating in the consultation sessions. We have gathered a great deal of information from this process and will be using it to inform our approach going forward.
 There was significant disagreement about (a) whether the current regulatory framework for advisors adequately protects investors and (b) what regulatory response is required.
o Those stakeholders that support the introduction of a statutory best interest standard felt that the current regulatory framework for advisors does not adequately protect investors. Many also felt that targeted regulatory responses are also required in several specific areas, including titles, proficiency, suitability and conflicted compensation practices. Several took the view that recent international regulatory developments have left Canadian standards at a lower level than those in leading jurisdictions.
5 The transcript of the Panel Roundtable is available online at http://www.osc.gov.on.ca/documents/en/Securities- Category3/oth_20130723_33-403_transcript-roundtable.pdf.
solutions to these problems, not a statutory best interest standard. Regarding the relevance of international regulatory developments, we heard that the regulatory context is different, that those jurisdictions had different experiences and regulatory starting points, and that it is too early to definitely determine their impact in any event.
 A best interest standard must be clear.
o There was broad agreement that a best interest standard, if adopted, should be as clear as possible and include sufficient guidance to ensure all advisors understand how to comply with the standard. Many questioned whether certain restricted business models and certain compensation practices could continue under a statutory best interest standard.
 The potential negative impact on investors and capital markets must be carefully assessed.
o Many commenters strongly believe that the potential for negative impact on investors and capital markets from unintended consequences of a statutory best interest standard is significant. The main concern was that a best interest standard could result in advice that is more expensive, less accessible and too conservative.
 More work is needed.
forward with a statutory best interest standard or other regulatory response.
Below, we discuss each of these key themes in detail. The themes underscore that the issues surrounding a best interest standard are complex, and some aspects of the issues are interrelated to the issues surrounding the separate CSA consultation on mutual fund fees initiated on December 13, 2012 (Mutual Fund Fees Consultation).
Those stakeholders that do not support the introduction of a best interest standard explained how the current regulatory framework, coupled with recent Canadian regulatory reforms, provided a robust, flexible and principled regulatory foundation that affords strong investor protection and that addresses the investor protection concerns identified in the Consultation Paper. Most of these commenters also suggested that although there was no evidence of actual harm to investors under the current framework, if there were such evidence, the appropriate regulatory response would be targeted solutions to these problems, not a statutory best interest standard. Regarding the relevance of international regulatory developments, we heard that the regulatory context is different, that those jurisdictions had different experiences and regulatory starting points, and that it is too early to definitely determine their impact in any event.
 commenters from a variety of backgrounds touched on the importance of financial advice as part of a financial plan and expressed a concern that, because of the current regulatory framework, most Canadians are not receiving holistic advice but instead are receiving overly narrow, transaction-based advice on securities products.
the standard applies and improving the chances of the client securing some restitution. The greater impact, however, may be that existence of the legislated duty and greater chance of success in court will influence the behaviour and standards of advisors and their firms, both reducing the losses and encouraging out of court settlements.
 it would enhance the professionalism of the financial services industry and enhance public trust and confidence in the industry, thereby assisting the financial advice industry in its ambition to be recognized as a profession.
o addressing in what situations a fiduciary duty will appropriately be found to exist between an advisor and his or her client.
 since several of the Recent Canadian Reforms, including the SRO reforms relating to conflicts of interest (which now requires addressing conflicts of interest in a fair, equitable and transparent manner, and considering the best interests of the client), are not yet fully implemented, it is premature to conclude that the rules applicable to management of conflicts of interest are less effective than intended.
 in common law jurisdictions, a best interest standard will create legal uncertainty because courts will no longer be able to rely on existing jurisprudence relating to the content of the suitability obligation or fiduciary duty. They will have to develop new law on the meaning of “best interest” as defined by the CSA.
Many commenters felt that jurisdictions such as the United Kingdom and Australia have made important strides in investor protection and, in the case of Australia, in introducing a best interest standard. They claimed that the investor protection concerns identified by regulators in these jurisdictions mirror the investor protection concerns with the current regulatory framework in Canada. These commenters suggested that Canada is lagging behind in this area, leaving Canadian standards at a lower level than those in leading jurisdictions, and should adopt a best interest standard to afford investors with similar protection as is provided in those other jurisdictions.
 the policy responses in other jurisdictions were designed to deal with market failures and deficiencies that arose in those jurisdictions. Since Canada does not exhibit these same issues and has its own statutory framework that includes a duty to deal fairly, honestly and in good faith with clients that may not have existed in some of the other jurisdictions, any move toward adopting similar reforms in Canada would be unnecessary and misguided.
 the CSA should take advantage of the fact that the international reforms in the U.K. and Australia are now in force and that we should carefully review the impact on these reforms in those jurisdictions before deciding whether to pursue similar reforms in Canada. Some also suggested deferring any decision in Canada until the U.S. approach is finalized.
There was broad agreement that a best interest standard, if adopted, should be as clear as possible and include sufficient guidance to ensure all advisors understand how to comply with the standard. Many questioned whether certain restricted business models and certain compensation practices could continue under a statutory best interest standard.
 it would be impossible to establish objective standards or guidance to determine whether one investment is “better” than another in every way. The review of trades against such a standard would not be practical and would depend on the extent of supervision expected by regulators.
 the risk that product cost would be a determinative factor in this best interest advice analysis. According to these commenters, cost is only one factor that advisors should consider when providing product-based advice (other factors include performance, reputation of fund manager, investment strategy, track record, product reputation and stability). Their concern is that cheaper investment options would be pursued by advisors purely because they are cheaper at the time of acquisition, rather than focusing on the likelihood of reaching higher risk-adjusted returns over the client’s time horizon. The commenters believe this implication to be simplistic and lacking in context as the least expensive option is not necessarily the “best” option for a client.
 that this standard may be interpreted by investors as providing perfect advice or guaranteeing positive investment returns. We heard that if a best interest standard is implemented, it would need to be clear to investors, regulators and the courts that the duty to act in a client’s best interest should not mean that advisors would have to give “perfect” advice, provide “perfect” service, or provide a guaranteed positive investment outcome.
 whether the know-your-product (KYP) obligation under a best interest standard would require firms to be knowledgeable about the entire universe of securities products and the feasibility of such an expectation.
 how this requirement would apply to those dealers (i.e., mutual fund dealers, exempt market dealers and scholarship plan dealers) that are restricted in what they can offer their clients or for those that focus on specific sector or product specialties as a business decision. Some also questioned whether these business models could continue to exist at all and suggested that the current proficiency requirements were not sufficient enough to expect these advisors to be proficient in other kinds of products. See additional discussion below under Key Theme #3.
Other commenters believed it should be fairly straightforward to determine when advice would be in the client’s best interest. One commenter suggested that the criteria should include such factors as: (a) suitability (risk of loss, volatility, etc.); (b) diversification within current asset holdings; and (c) whether the client is able to hold the investment for any anticipated or requisite illiquid period. This commenter suggested that other important criteria would include the following: conflicts of interest must be eliminated or disclosed; decisions must be based on the whole portfolio rather than by security; and execution must always be in the client’s best interest and not based on soft dollars or on a commission’s basis.
 commission-based accounts would be banned (or restricted) in favour of fee-based accounts, which may not be accessible to low and medium-income investors and may not be the best option for clients that undertake frequent trading.
 advisors acting as principal (which currently allows for liquidity through market making, principal trading, and bond trading from inventory) would be banned or restricted.
 advisors selling proprietary products (which currently allows advisors to recommend underwritten offerings, proprietary products and affiliated issuer products) would be banned or restricted. This is particularly relevant for those dealers that focus on certain types of securities, such as mutual fund dealers, scholarship plan dealers and exempt market dealers as well as those advisors that are part of a large integrated distribution model.
In contrast, many commenters from the investor community felt strongly that conflicts of interest were often not addressed and that when they were, disclosure was industry’s preferred response. They felt that a best interest standard should, in most cases, require avoidance of any conflicts of interest, especially conflicts of interest involving advisor compensation. They felt that this was the clearest way to address conflicts in the context of advisory services.
Many commenters strongly believe that the potential for negative impact on investors and capital markets from unintended consequences of a statutory best interest standard is significant. The main concern was that a best interest standard could result in advice that is more expensive, less accessible and too conservative.
 supervision and back office procedures.
 if they already act in their client’s best interest (as many advisory firms claim), then there should be minimal impact on cost of introducing this standard. So only advisors not acting in their client’s best interest would incur material costs.
 when the interests of both the client and the advisor are aligned, this may result in fewer compliance and legal issues, thus reducing these costs and ensuring that retail clients do not need to resort to litigation, which is a path to redress that many clients cannot or will not pursue.
 the increased costs for industry associated with implementing a best interest standard would be passed along to clients, making those services too expensive for many Canadians.
 it may cause a shift away from commission-based accounts, which for smaller investors, or those with more limited trading activity, are less expensive than fee-based accounts that often require minimum assets or a minimum fee.
 smaller profit margins for advisors may result in advisors increasing their minimum assets/account size (some suggested minimums of anywhere from $100,000 to $350,000), making advice less accessible.
 although large, integrated financial organizations will be better able to adjust to and/or absorb these costs, small and mid-market advisory firms will be less able to withstand these costs increases and will lead to their increased competitive disadvantage and their further decline.
 it may motivate firms to de-prioritize customers with small accounts.
 it may motivate firms to narrow the range of products available on their platform as the liability associated with choosing the “wrong” product for a client may drive firms to offer lower risk products that are viewed as having less liability risk. This would have the effect of lowering client returns since higher risk investments create the potential for higher returns.
 Canadians would receive less financial advice overall which would likely diminish Canadians’ overall personal saving and investing.
 there is some preliminary evidence that the U.K. may be experiencing an “advice gap” where, because of the increased costs of advice as a result of its recent reforms, low-income U.K. investors who, before the reforms, were receiving advice are no longer receiving advice after the reforms.
 claims of increased costs to investors ignore the agency (monitoring) costs that clients are incurring today as a result of the suitability standard. In particular, a best interest standard will result in lower investor agency costs of monitoring the advisor since the new standard will require that the advisor put the client’s interests first.
Some commenters expressed concerns that a statutory best interest duty has the potential to be interpreted as requiring the dealer to offer all types of securities. For many, this would call into question how dealers that are only allowed to deal in one type of security (e.g., mutual fund dealers, exempt market dealers and scholarship plan dealers) can comply with this standard. As a result, commenters have questioned if the introduction of this standard will lead to an elimination of the traditional retail dealer, and if we will have a situation where the industry goes to two extremes: discount brokerages on one end of the scale (where a best interest standard may not apply) and portfolio managers on the other end (where a fiduciary duty already applies).
In this vein, some commenters pointed out that unless the best interest standard was “business model neutral” and carefully qualified to take into account all business models, these more narrow business models may not be feasible. These commenters point out that reforms in Australia and the U.K. allow restricted advice and scaled advice, respectively, to be provided. Some commenters preferred the Australian approach where even the so-called “scaled” advice has to consider the best interest of a client.
Some commenters did not support qualifying the best interest standard because they felt such qualification has the potential of causing more confusion as to the level of service and investment advice being received. These commenters felt that any standard short of a full fiduciary duty applied uniformly will continue to perpetuate unequal investor protection. Further, these commenters felt that if there were a lower tier of duty for certain dealers and therefore the duty would not be applied equally across the continuum for providing advice, the investor protection concerns outlined in the Consultation Paper would not be addressed. Other commenters took the view that instead of having different standards and rules for advisors depending upon the advisor’s registration category and rather than drafting a standard with numerous carve outs (which adds complexity and dilutes its perceived benefits to investors), the CSA’s investor protection goals can be more easily achieved through targeted policy initiatives.
 it would be impossible to ensure that a common principle would be adopted across all jurisdictions, and be applicable to all competing products in any particular jurisdiction. Creating a single compliance and supervisory oversight framework for those products with national distribution would be problematic, with the likely result that Canadians would find themselves being treated differently on a regional basis, with investors in smaller provinces at the greatest risk for reduced choice and access.
Other commenters disagreed. They felt that a statutory best interest standard would clarify that a fiduciary duty was always owed at common law and therefore clients in non-managed accounts would not need to be concerned whether the relationship with their advisor demonstrated the relevant interrelated factors sufficient to result in a fiduciary relationship. They believe that a statutory best interest standard would have a positive impact on advisor-client litigation because the parties would be clear at the outset that the advisor’s fundamental duty is to put the client’s interests ahead of their own.
 this may create an “advice gap” since investors may stop seeking advice as clients are generally unwilling to pay directly for advice, which preliminary evidence suggests may be happening in U.K. as a result of its recent reforms in this area.
Several commenters urged the CSA to consider alternatives to banning certain compensation arrangements so that advisors could receive compensation in respect of product sales but which would be neutral to the type of product being distributed. This would presumably eliminate the concern that products offering higher compensation would attract advisors to sell those products over other equivalent products with a lower compensation structure.
Some commenters submitted that permitted fee structures and compensation methods would need to be fully consistent with the duty of care established by a best interest standard. Most of these commenters stated that certain conflicts of interest, especially those related to embedded commissions, should be avoided altogether. These commenters expressed difficulty in understanding how advisors could meet a best interest duty to their clients while accepting payments from a third party.
Finally, there was broad acknowledgement that the issues around embedded compensation in the mutual fund context are explored in more detail in the Mutual Fund Fees Consultation and that CSA staff working on both projects should coordinate their analysis in this respect.
Many commenters expressed the concern that a statutory best interest that applies only to securities products and related advice could create an opportunity for regulatory arbitrage for those advisors that are also licensed to offer non-securities products such as insurance products, which fall within a different regulatory framework. For example, these advisors would be subject to a best interest standard when selling mutual fund products but another standard when discussing segregated fund products. Commenters are concerned that this could potentially create product sales arbitrage opportunities. Some commenters felt that without a common standard of conduct that applied to all financial products, the CSA should not attempt to strengthen the standard only in the securities context. Others felt that despite the CSA’s ability to regulate only the securities context and the potential for regulatory arbitrage, such concerns should not discourage the CSA from introducing a best interest standard.
dependent on advisors do not require this standard. In addition, it was pointed out that there are permitted clients that may not be sophisticated clients such as pension committees or charitable organizations that would benefit from a best interest standard.
Some commenters suggested that contractual adjustments could be allowed by some investors such as sophisticated institutional investors or certain sophisticated retail clients to opt out of a best interest standard. However, other commenters were critical of this approach and stated that if the registrant had an ability to modify the standard by contract, there would be the potential for abuse and misuse of the advisor's position, which negates a key rationale for the standard in the first place and that too often, such contractual variations would become the rule in the industry, rather than the exception.
Many commenters suggested further work that should be completed before moving forward with a statutory best interest standard or other regulatory response.
The following sets out the main areas where further work was suggested by commenters. Several commenters from the investor community felt that the CSA should proceed as soon as possible rather than delay this initiative with further study or research.
Ensure the investor protection concerns are well defined.
As discussed above, many commenters not supportive of a best interest standard stated that there was not sufficient evidence of one or more problems or that a best interest standard would solve these problems. Many industry commenters suggested allowing the Recent Canadian Reforms to become fully implemented before evaluating whether any investor protection concerns with the regulatory framework remain. Many commenters from the investor community disagreed, arguing that the concerns are sufficiently defined and evidenced.
Consider adopting the Québec model.
Several commenters suggested conducting further research to compare the effect on investors and advisors of the standard of conduct for advisors in Québec versus the common law jurisdictions in Canada. Depending on the result of this comparison, the CSA should consider whether this model could be adopted by the common law jurisdictions in Canada.
Many commenters stated that the CSA should conduct a robust Canadian cost-benefit analysis (CBA) before moving forward. Suggested areas of focus for the CBA should include the consideration of the transition from commission-based accounts to fee-based accounts, the effects of pricing low balance accounts out of the market and the resulting effects on middle class investors. Many commenters from the investor community disagreed, arguing that a best interest standard will not lend itself to traditional cost-benefit analysis.
Many commenters suggested that the CSA take the opportunity to allow the reforms in the U.K. and Australia to fully implement and analyze their regulatory impact before deciding whether to introduce similar reforms in Canada. Many also suggested conducting a detailed assessment of the initiatives within their jurisdictional context, including the current regulatory framework, retirement savings policy, and the market failures identified by those regulators.
Some suggested that the CSA conduct further legal analysis of what a fiduciary duty will mean for the sale of investment products. The analysis should include a survey of the principles from case law, the application to the investment industry of those principles, and a prospective understanding of the implications of a fiduciary duty. Consideration should also be given to the practical reality of how long it might take for case law to settle on an agreed understanding of the scope of a statutory best interest standard.
Consider the Other Policy Options.
As discussed above, commenters identified a variety of Other Policy Options in addition, or as an alternative, to a statutory best interest standard that the CSA should consider before deciding on its policy direction.
Coordinate with other financial-product regulators.
Many commenters highlighted the risk of regulatory arbitrage (i.e., the risk of advisors and/or clients seeking out non-securities products) with the introduction of a best interest standard or any other regulatory response that differs significantly in the regulatory approach of non-securities financial products. Commenters have requested that we make every effort to coordinate with other financial product regulators to ensure they is a consistent approach to the regulation of financial products for Canadian retail investors.
A number of the key messages from industry participants and investors set out above are similar to those that have emerged from the Mutual Fund Fees Consultation. We refer you to CSA Staff Notice 81-323 – Status Report on Consultation under CSA Discussion Paper and Request for Comments 81- 407 Mutual Fund Fees, published concurrently with this Notice, for an overview of the key themes provided by stakeholders in response to that separate consultation.
The similarity of the feedback received from stakeholders demonstrates a connection between the two consultation initiatives and suggests a need for CSA staff to coordinate their policy considerations on these initiatives going forward.
Accordingly, in collaboration with the Mutual Fund Fees Consultation initiative, CSA staff continue to consider and discuss the information gathered through our consultation process with a view to determining next steps. We anticipate communicating in the coming months what, if any, regulatory actions and/or research we intend to pursue.
Financial Advisor Chicanery: Imagine a two-tiered health care system in which some doctors were legally obligated to do what's right for their patients and others, like snake-oil salesmen of yore, could recommend whatever treatments made them the most money, as long as they didn't kill patients outright. Now imagine that the shysters did all they could to blend in with the real doctors. That's effectively the type of system we have today among the people Americans count on to tell them how to invest their life's savings. Registered investment advisors must, by law, put clients' interests first. Many thousands of other "advisors" at places like Morgan Stanley, Merrill Lynch and smaller shops are held to a much lower "suitability" standard. In essence, even though these people often refer to themselves as "financial advisors" or by some other comfort-inducing title, they're really glorified salesmen. Some do a great job serving their clients. Others don't. It's up to them. Under the law, as long as they avoid putting an 85-year-old widow into an exotic derivative with a 20-year lockup, they're bulletproof. Few clients know this fiduciary-suitability gap exists. The suitability crowd has worked tirelessly to keep the standard low and the distinctions murky. The cost to the public is incalculable but huge.

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