CTV W-5 Investigates Broker and Lack of Investor Protection

Here is a terrible story of a man who’s account went from $217,000 to $0 in the matter of years. What’s even worse is that his previous broker (who went on maternity leave) had him predominantly in more conservative investments (Government of Canada bonds and the like), but the replacement broker racked up 74 stock trades in one year (and it looked like mostly high-tech stock positions).

The two-part video also highlights the fact that while the IDA (Investment Dealers Association) can fine brokers, they cannot ‘compel’ payment if the broker just decides to leave the industry. Meanwhile the investor almost never sees a single penny of that fine as restitution – according to the spokesperson from the IDA, he knew of only ONE case that an investor received restitution.

The two-parts are each about 10 minutes long and you can start watching by clicking here.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
Related Posts
Showing 8 comments
  • Leslie

    I work for an investment counsel firm that manages money for high networth individuals. Watching this program made me angry for a whole lot of reasons. The broker & his supervisor and the brokerage firm encouraged & rewarded this behaviour–a commission/ bonus based compensation system that puts generating revenue for the employer broker ahead of clients’ interests. How do they reconcile that with an industry ethics code that demands an advisor or planner always act for the client’s best interest? I know this is not unique to RBC and the problem is in the regulatory and compliance issues in financial services. Preet touched on this recently when discussing how easy it is to become an advisor. It’s incumbent upon a self-regulated industry to properly police itself or a third party will be forced to step in. IDA & MFDA claim they can best represent the interests of consumers without interference from the government. Clearly they cannot, based on this program. Even the OSC and its other provincial counterparts tread lightly on matters of this nature. Restitution should be awarded when there’s been blatant mismanagement, along with the fine; and,the regulatory bodies should be able to have these monies owing classified in such a manner they cannot discharged through bankrupcy.

  • harddrive

    To see an individual client have his portfolio " churned " in this manner is beyond belief. The Branch Manager paid his fine of 70,000.00 ( wonder did he pay or RBC pay ) and the Broker declined to pay his fine after all he has a new job selling cars….Hughie the Car Salesman.The IDA is proud of their actions and was able to add to their account/s an additional 70,000.00 not to any benefit of the investor.

  • harddrive

    Did forgot to add….the know your client form that is part of dealing with a client , Conservative to Speculative Investemts in a year????
    As I recall approximately 17,000.00 in Gross Commissions generated….Hughie did well at 50% and RBC and Branch Management did not do badly either

  • Al

    Stories like that (I caught the espisode too) really make the industry look bad. I’m reasonably comfortable handling my own investing, but if I wasn’t I’d be inclined to put all my retirment money in GICs after seeing that. You’ll know the reputation of investment advisors has hit bottom when Hughie is seen as taking a step up in career paths going to used car sales.
    The IDA is obviously ineffective, so external regulation is likely necessary.

  • Zahid Jafry

    Preet, great job on http://www.wealthyboomer.ca. That was a great interview with Jonathan Chevreau.

    An absolutely awful story, and I have heard quite a few. To broach the last comment, the Branch Manager is obligated to pay from his personal assets.

    The one thing I didn’t like about the segment is the lack of respect toward OBSI (Ombudsman for Banking Services and Investments) in resolving the matter. OBSI is a private organization, so unlike the IDA and MFDA, they’re are not financed by its members. IDA and MFDA are more concerned with policing (and yes, the jury is out on how effective they are) brokers. Restitution, simply, is not their concern.

    OBSI, on the other hand, is totally independant. The services are free, and the clients can take legal action if they don’t find the judgment satisfactory. While it is true that their judgements aren’t binding, their decisions are agreed to by both parties almost all the time. Furthermore, while they cannot order restitution over $350,000, many clients, including the exploited dairy farmer, can really get some justice.

    If a client feels that their has advisor has commited some sort of malfeasance on their account, file a complaint with OBSI. The news segment really should have stressed this! Unfortunately, it was only briefly mentioned by the anchor after the segment.

    File a complaint with the IDA (or MFDA, if you’re dealing with a mutal fund dealer), as well….however, just so the advisor can be disciplined. Don’t count on them for restitution.

    Zahid Jafry
    Onus Consulting Group

  • harddrive

    This story I think highlights the need for Professional Advisors to very aware of their client’s objectives and to ensure that these goals are adhered to by both the Advisor and the Client.
    The " Know Your Client " form that is completed by the clients gives an indication to the Advisor of the client’s objectives , knowledge and other related information.
    Clearly, unless the client gave instructions that were contrary to the original form , then the Advisor has an obligation to update this information. It seems unreasonable that this particular individual within a year went from a bond portfolio – conservative to a speculative portfolio – high risk.
    In the industry most clients are aware or should be aware that their Advisor will be compensated through commissions, trailer fees and other compensation. Like lawyers as an example their income is earned from generating an activity. This is not a negative towards commissions or fees for service but rather an industry standard.
    I would suggest the Hughie the Car Salesman had but one purpose…..to generate commissions for himself , his manger and the firm.

  • Sylvio Gagnon

    Concerning Zahid Jafry, Onus Consulting Group
    comments on the independence of the Ombudsman (OBSI) I want to inform him and every one else that the Ombudsman’s salary and office expenses are paid by the Banks. Inevitably, this casts a shadow on his independence. I have had a complaint with the OBSI for over two years now. Three investigators have been assigned to my case so far and I do not see a final resolution coming soon. I can truthfully say that the OBSI listens to the banks more than the victims. In the end, the public image will dictate what the banks will do. That is the sad situation of our justice system.

  • Babe Winkleman

    It is very clear that both the IDA and the MFDA are controlled by the banks and major financial institutions. I have been an advisor for 20 years and have seen the same scenario play out over and over and over.

    IDA and MFDA are more about financial instituions implementing their business plans and passing liability to the advisor. It also does a good job of securing their revenues.

    Clearly when nobody is being reprimanded and any fines collected are not forwarded to the victims there is a big problem.
    As I have said many times, "If you steal $300,000 from an old lady, you GO TO JAIL!! Simple. No need to fill out forms or collect fees for a beaurocracy that does nothing but pester fee paying registrants.

    Persecute the offenders, implement ONE governing body that actually governs and it’s over.

    Clearly the banks yield far too much power and political influence. Read between the lines people.