When Robert Jones invested his retirement savings with a financial adviser at a large brokerage firm, he believed he held moderate-risk mutual funds and other products that would generate income he could live on.
But after losing $300,000 of his portfolio in a matter of months in 2008, Mr. Jones – who did not want his real name used while his case is still under review – pulled the plug on his adviser and launched a complaint, alleging he had discovered that he owned inappropriately risky mutual funds and that his adviser had made unauthorized trades in his account.
So far the 65-year-old resident of Richmond Hill, Ont., has worked his way through the complaints department at his brokerage firm, the firm's ombudsman, the investment industry self-regulatory organization and, most recently, the Office of the Ombudsman for Banking Services and Investments. His next step could be legal action.
“It is a very frustrating exercise to go through all of these channels and try to find somebody who would acknowledge there was wrongdoing, and then find somebody who has what it takes to do something about it,” Mr. Jones said.
For investor advocates in Canada, complaints about inappropriate investments and difficulties navigating the system to seek redress are typical – and regulators report their numbers are increasing.
It is a very frustrating exercise to go through all of these channels and try to find somebody who would acknowledge there was wrongdoing, and then find somebody who has what it takes to do something about it. — Investor Robert Jones
Law makers in Britain, the United States and Australia have recently introduced legislation to strengthen investors' legal rights and raise the professional bar for investment advisers. Canadian investor advocates complain that no similar initiative is on the radar screen here.
“We're struggling with the problem of how you deal with advisers who sell clients products that are more in the adviser's interests and their firm's interests than the client's interests,” said Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (FAIR).
FAIR and the Hennick Centre for Business and Law at York University banded together last week to hold a conference in Toronto on the idea of introducing a higher professional obligation – called a fiduciary standard – for investment advisers in Canada, hoping to spur regulators to consider reforms.
A fiduciary standard (already the norm for doctors, lawyers and some other professionals) is a legal requirement that an adviser must put a client's interests first. That includes avoiding conflicts of interest and making the best recommendations for the client even if it means lower fees for the adviser.
In legal terms, breaches of the fiduciary standard can result in tougher penalties and can give advisers less legal leeway to argue clients shared a portion of blame for investment decisions.
In countries where fiduciary standard rules have been adopted, regulators were responding to concerns about sales of complex, high-fee products to ordinary investors. Advisers were accused of ignoring more suitable alternatives for regular investors because they would have paid lower fees to the advisers.
While Canada has not joined the global reform movement, it is clear that concerns about poor advice are growing.
Doug Melville, Canada's Ombudsman for Banking Services and Investments, said investor complaints filed with the Toronto-based OBSI have soared 300 per cent over the past three years. After the market crash, he said many investors discovered their investments were more risky than they had realized when markets were buoyant. “What we saw last year was an explosion of realization about the problems,” he told the FAIR conference last week.
Securities lawyer Edward Waitzer, director of the Hennick Centre, said a new fiduciary standard in Canada would especially benefit investors before cases ever hit the legal system.
He believes the standard would clarify professional duties for advisers, leading to better advice in the first place. “Having some sound principles to underlie the relationship might be a good starting point,” he said last week.
