Posts Tagged "financial advisor"

How To Do A Background Check On Your Advisor

Posted by Preet on May 26, 2010 | 5 comments

The victims of Bernie Madoff and Earl Jones didn’t see what hit them until after the fact. These poor swindled investors all thought these were stand-up guys. Don’t make that same mistake – con men are smooth operators. Take a few minutes and do your own digging – here’s how:

How To Do A Background Check On Your Advisor

There are many different regulatory bodies in Canada and a securities regulator for each province and territory. It’s confusing so here’s a step by step guide of what to do…

Check To See If They Are Even Registered

1. Canadian Securities Administrators > National Registrant Search – this is a quick search for anyone registered to advise or sell securities in Canada (except Ontario, see the next step)  – CLICK HERE TO START YOUR SEARCH – All the boxes should be checked (except the “Clear All” box). Here’s a screen shot of what the settings should be. Don’t freak out yet if your advisor isn’t listed here, keep reading.

Click to enlarge

1(A). Ontario Securities Registrant Search – Don’t ask me why, because I don’t know, but for Ontario securities registrants you have to go straight to the OSC (Ontario Securities Commission) website as it is not handled by the Canadian Securities Administrators tool. CLICK HERE TO SEARCH ONTARIO SECURITIES REGISTRANTS.

Still haven’t found your advisor? Again, don’t freak out yet. I estimate only 125,000 of the roughly 200,000 financial advisors in Canada will be covered by Steps 1 and 1A. Some advisors are only “Life Insurance Licensed” and won’t show up in these first steps (and some may show up in all steps!).

2. Other Provincial and Territory Securities Registrant Searches

You never know, if you didn’t see your advisor yet, they may still be securities licensed but listed under the provincial commission websites. Step 2 is to check here. I would encourage you to check here even if you found them above – couldn’t hurt.

Still Haven’t Found Your Advisor?

Again (because why would it be easy?) you still have more places to check before getting anxious… Now we can assume your advisor is either a Life Insurance Agent (many of whom provide investments as well as life insurance policies), or is exempt from registration (you can check with your provincial regulator from one of the links above – call and speak to someone), or just maybe – they might possibly be the next Madoff or Earl Jones…

3. Check for insurance licenses

  • Alberta – Alberta Insurance Council – Web Search Form
  • British Columbia – Insurance Council of British Columbia – Web Search Form
  • Manitoba – Manitoba Insurance Council – Web Search Form
  • New Brunswick – Department of Justice – Insurance Branch – Web Search Form
  • Newfoundland and Labrador – Try calling 709-729-2570
  • Northwest Territories and Nunavut – Try calling 867-873-7308
  • Nova Scotia – Office of the Superintendent of Insurance – Web Search Form
  • Ontario – Financial Services Commission of Ontario – Web Search Form
  • Prince Edward Island – Web Search Form
  • Quebec – Autorites des Marches Financiers – Web Search Form (only available in French – can someone in QC confirm this check for insurance agents? I think it checks both securities and insurance registrants, but I’m not 100% sure)
  • Saskatchewan – Insurance Councils of Saskatchewan – Web Search Form
  • Yukon – Try calling 867-667-5111

Now We Have To See If They’ve Been Naughty

Next you should take a look to see if there have been any disciplinary actions taken against your advisor in the past…

IIROC Licensed Advisors

If they are licensed to sell stocks, ETFs or other individual securities (over and above just mutual funds) they are regulated by IIROC (Investment Industry Regulatory Organization of Canada) and you can do the following checks:

  1. Disciplinary Search: CLICK HERE
  2. Information Request Service: CLICK HERE – IIROC will return any public information within 7 days about the advisor in question that might be of “interest”

MFDA Licensed Advisors

If they are licensed to primarily sell mutual funds they are regulated by the MFDA (Mutual Fund Dealers Association) and you can do the following checks:

  1. Current Disciplinary Hearings – CLICK HERE
  2. Past Disciplinary Hearings – CLICK HERE
  3. Scheduled Disciplinary Hearings – CLICK HERE

Last But Not Least: Google Search Them

Just type in the advisor’s name (common names, full names, etc.) and if the name is very generic, then try narrowing it down by adding “advisor” or “financial” or the city in which they practice. A lot of advisors won’t have a big web presence, but this search might alert you to “other” red flags that you haven’t found from the above steps.

What If Something Doesn’t Look Right?

If the advisor is not registered, has had any actions against them, or has funny google results – call or email them with your concerns. You should be able to take it from here…

Good luck!

Preet

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The Financial Advisor Retirement Plan

Posted by Preet on Sep 8, 2009 | 3 comments

It is possible for an advisor to generate a $1 million bonus to themselves for relatively little work, and it probably happens more than it should.

A not too uncommon retirement plan for some financial advisors (I don’t want to lump all financial advisors together, but clearly there are those out there that are less than scrupulous), is to switch firms a few years before retiring. Why? Because they get paid a bonus to transfer their client assets and they can then sell their clients to another advisor at the new firm a few years later.

Advisor Compensation

I’m going to use a hypothetical example, although I do know that a situation pretty much exactly like this has happened many times before. An advisor who has had a successful career has amassed a book of client assets totaling $100 million over about 400 families. The average gross commissions being earned are going to be in the $1 million range, and if he/she is at a bank-owned brokerage firm, they are probably getting about 50% of that after hitting “the grid“. This means that their net commissions are $500,000 and this is what they would report on their income tax return as their income (they may pay salaries for assistants, and other overhead expenses, but we will leave that out for now for simplicity’s sake).

The Cross

Firms are always trying to recruit big producers. Depending on the profitability and business plans of the brokerages there are times when branch managers from competing firms can offer a recruiting bonus equivalent to the annual gross production of a broker. So from above, our financial advisor who was grossing $1 million in commissions could be offered $1 million to “cross the street”. There will usually be conditions included where “x percent of assets must be signed over in 12 months” or a pro-rating schedule applies. There may also be a clause stating that the assets and advisor must remain at the new firm for a minimum of 2 years, 3 years, or whatever, or there may be some sort of penalties.

The Walk

After the assets and clients have been transitioned it is possible for an advisor to then sell their book to another advisor at the firm. They can negotiate the price, but for argument’s sake let’s assume they decide on “one-times gross commissions”. In this case, since the gross commissions are $1 million, the purchase price would be $1 million.  The purchasing advisor can take a loan to pay the $1 million (in this case) and rather quickly pay off the loan with the commissions generated by the new assets under his/her name.

So What?

Selling a book of clients to another advisor is one thing because it doesn’t affect the clients from a purely monetary perspective. The fees they were paying will most likely stay the same. (From a non-monetary perspective, there are some other issues, but that is beyond the scope of today’s post). But with respect to the recruitment bonuses: that $1 million dollars comes from somewhere. Both advisors and clients should be asking “where?”. If these recruitment bonuses were not allowed, then commission grid payouts could be higher for advisors OR overall fees could be lower for clients (or net earnings could be higher for the brokerages).

Some might suggest that these are just investments from a brokerage’s perspective, they are paying now for a long term income stream. True, but they lose assets to other firms as much as they buy assets – so while there are some who are gaining more than they are losing, in many cases it’s just a costly game of musical chairs.

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