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Rob Carrick

Investor advocate isn't perfect, but it's worth fighting for Add to ...

No one is more friendless than small investors when they’re in a dispute they can’t resolve with a big financial firm.

Really, their only ally is the Ombudsman for Banking Services and Investments, which decides in favour of the financial industry more often than it does for individuals. Somehow, though, OBSI has annoyed some of the country’s biggest financial companies.

Frankly, it’s hard to imagine a stronger endorsement of the job OBSI is doing. And yet, this court of last resort for the small investor is at risk of being sidelined into irrelevancy.

Financial industry regulators have helped to beat back a recent offensive against OBSI by a group of firms that includes RBC Dominion Securities, TD Waterhouse, Manulife Financial and Investors Group. But a potential new risk has emerged through a federal government initiative affecting dispute-handling in the banking sector.

You may never have heard of OBSI and you probably won’t ever need it. But if you value the idea of having a no-cost, impartial place to take unresolved disputes with the financial industry, take a moment to tell regulators and government you back OBSI (see sidebar).

OBSI, founded in 1996, is funded by the financial industry and run by a board with a majority of independent members. This organization is not perfect. Bogged down by complaints from investors who got burned in the 2008-09 stock market crash, it’s not turning around cases as fast it’s supposed to. And from the investor’s point of view, OBSI takes the side of the industry in roughly two-thirds of cases.

“They appear to take the position of the broker at face value, and they grill our clients like crazy,” said John Hollander, an Ottawa lawyer who specializes in cases of allegedly wronged investors and has had some dealings with OBSI.

Alternatives

Even this level of investor advocacy is apparently too much for some of the biggest names on Bay Street. In an e-mail, an RBC spokeswoman said the bank strongly supports the existence of an independent dispute-resolution service, but it’s not satisfied with OBSI. “We do feel there are significant flaws with OBSI’s governance, service level and complaint adjudication process, which ultimately compromise its ability to appropriately address investor concerns,” she wrote.

RBC dropped out of the banking side of OBSI a couple of years ago (you can choose to use an alternative on the banking side, but not for investing disputes) and now uses an arbitration service called ADR Chambers, where retired judges, lawyers and dispute-resolution professionals rule on cases. Recently, RBC and some other firms asked regulators for leave to use ADR for investing disputes and were rebuffed.

What’s the word on ADR? Mr. Hollander is familiar with the outfit because it handles disputes through an arbitration plan offered through the Investment Industry Regulatory Organization of Canada. He said ADR might be able to offer a comparable service to OBSI, but in IIROC cases that ADR has handled, he’s found it puts investors at a disadvantage to the industry.

Poor Advice

In an attempt to placate critics, OBSI last week issued a discussion paper on how to value investor claims against investment firms when it’s determined they’ve offered clients poor advice. Bay Street’s problem with OBSI is that it’s too liberal in determining settlements in cases where investors are found to have been wronged. Instead of just calculating the loss to date, OBSI also looks at missed opportunities to have made money in a properly designed portfolio. OBSI’s critics would also like it to find investors at least partly at fault in more cases.

What’s odd here is that OBSI has been using the same system of valuing losses for years without facing a mutiny. Now, after a big increase in the number of complaints handled by OBSI following the 2008 financial crisis, some of Bay Street’s big boys want new rules.

There’s also a back-door threat to OBSI that comes out of an obscure section of the 2010 federal budget about requiring banks to be part of an approved third-party dispute resolution body.

The question is, which body? OBSI is already doing this job, and so is ADR Chambers on behalf of RBC’s banking business. If new rules being drafted by the Finance Department allow the creation of a roster of OBSI alternatives, then we end up with a situation where banks can pick the resolution option that works best for them.

On the banking side of things, this is no big deal because banks have become pretty good about resolving disputes with clients. The real risk is that a precedent of allowing financial firms to choose OBSI alternatives will be set for both banking and investing, where disputes with clients are more expensive and thus harder to resolve.

Your choice as an investor: Help protect OBSI, imperfections and all, or stand by while the investment industry tries to find a more compliant arbiter of disputes with customers.



HAVE YOUR SAY



Some big financial firms aren't happy with the Ombudsman for Banking Services and Investments, which provides a free, impartial service for resolving disputes between individuals and banks and investment firms. Here's how you can help preserve OBSI's role as a court of last resort for wronged investors:



1. Contact financial industry regulators:



Investment Industry Regulatory Organization of Canada



publicaffairs@iiroc.ca



Canadian Securities Administrators



csa-acvm-secretariat@acvm-csa.ca



Mutual Fund Dealers Association of Canada



mfda@mfda.ca



2. Contact Finance Minister Jim Flaherty:



jim.flaherty@parl.gc.ca



Mr. Flaherty has been trying to create a national securities regulator and his department is also working on new rules for dispute resolution in banking.

 

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