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Ed WaitzerPhilip Cheung

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.

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.

A new fiduciary requirement would also have the benefit of giving investors more time to launch legal action against financial advisers, adds investor advocate Stan Buell, who heads the Small Investor Protection Association, based in Markham, Ont.

That's because breaches of fiduciary duty carry a six-year statute of limitations, while normal lawsuits must be filed within two years. Many clients complain they cannot navigate the long complaints process and then organize a lawsuit in only two years.

But several lawyers who spoke last week at the conference poured cold water on the reform proposal, arguing that adequate legal protections already exist in common law so a change would have no practical impact.

Lawyer Joseph Groia said his first thought about the proposed reform was that "it was one of the goofiest ideas in enforcement that I've heard in a number of years."

He said regulators should focus on tackling the unregistered advisers who have caused many of the biggest investment fraud scandals in recent years. Legitimate advisers already have good rules in place to ensure they give proper advice to clients, he said. "Capital markets is without a doubt the most heavily regulated sector of our society," he said.

Securities lawyer Kelley McKinnon, former chief litigation counsel at the Ontario Securities Commission, said a fiduciary standard could have the unintended consequence of making legal cases move even more slowly in the courts if advisers fight harder because the potential penalties are greater.

And lawyer Laura Paglia said courts have demonstrated they will rule for clients who argue their advisers have breached the lower standard of "duty of care," without needing to argue there's been a higher breach of fiduciary duty. "We don't need it in Canadian law," Ms. Paglia said. "It's always been there in Canada through case law, through industry standards and regulations, and through expectations."

But Mr. Jones, who is still seeking redress for his losses, believes Canada needs better rules to remove incentives for advisers to act in their own interests. "If an adviser sells funds that are being promoted, and he gets top dollar for them and he neglects the needs of the client, that is wrong," he said. "This has to be clarified, no question about it. So many people have been taken to the cleaners unknowingly."

What's happening around the world?

Britain The financial services regulator passed new rules last week prohibiting financial advisers from receiving commissions from companies for recommending their products to clients, starting at the end of 2012. Customers will be told up-front what fees they are paying for investment advice.

The change means advisers cannot collect fees from mutual fund companies when they recommend their products, representing a major shift for the fund industry.

"What we've seen over the years is consistently bad advice over which products to be purchased, driven particularly by the fact that commissions exist," said Peter Smith, head of the investments policy department at Britain's Financial Services Authority.

Australia A parliamentary joint committee recommended last November that Australia should create a new fiduciary-duty standard for financial planners, requiring them to place clients' interests ahead of their own. The proposal is still under consideration.

United States Congress has been debating a proposal to introduce a new fiduciary standard for all financial advisers. The measure was originally inserted in financial reform legislation proposed by the Senate banking committee. But the measure was cut from the bill when it was put forward by the committee this month. Supporters are still lobbying for it to be included again as the legislation heads for debate by the full Senate.