OBSI name and shame


This is much more than an advisor providing unsuitable advice: regulation, distribution culture, advisor skill sets and much more lie at the heart of these 3 cases. 

Number 1, is obvious: just by reading the Connor Financial name and shame cases, it should be clear how current regulation facilitates disorganised sales led service processes.  Better organisation and structure that would be found in a best interests standards/fiduciary duty paradigm may well have obviated the unnecessary outcomes noted.

Number 2: note how much time is spent in the reports trying to prove the client’s knowledge or lack thereof and then compare this against the anarchy of the recommendations.  It would be far better if advisors were forced to provide structured, accountable, well thought out processes capable of delivering disciplined and appropriate financial solutions. 

Number 3: the KYC form, where the client selects %s in various risk compartments, is not helpful in relating the risk of the recommended investments to the risks they pose to the ability of their assets to meet financial needs over time.  Risk allocation is dependent on a number of factors: investment discipline; size and timing of financial needs and inflows to the portfolio; relative and absolute valuation and methodology for dealing with such as well as client risk aversion and risk preferences.  In fact, you cannot determine what the allocation of a portfolio should be without first going through an optimisation of all the relevant factors determining structure.  Investors need to be warned that the risk profile of the standard KYC is for sales profiling, more helpful to the advisor than the client and wholly inappropriate for solving complex financial needs.  

Number 4: it is clear from the reports that the advisor is attempting to provide a higher level of sophistication than he is capable of delivering.   This is a generic regulatory issue. To a large extent the blame and the liability for the outcome should rest with regulators and legislators for allowing a low standard, transaction based regulatory regime to continue for as long as it has. 

Number 5: the clients noted in these 3 cases have needs that depend on strategies and allocations that can safely manage capital depletion over time.  It should be clear that this is a fairly complex area (not even OBSI were able to provide the necessary modelling and analysis) and one which current skill sets, suitability processes and regulation are largely incapable of helping deliver.  

Regulation, distribution culture, advisor skill sets and much more lie at the heart of these 3 cases.

2 thoughts on “OBSI name and shame

  1. Andrew, thanks for the insightful information. I will add a thought or two from my perspective in case it helps anyone. While testifying in court in BC lately, in matters between an elderly (born 1920ish) investment client and an investment firm I noticed the extensive use of a new industry trick that had not occurred to me before. The trick looked like this in court:
    1. A commission salesperson is dressed up by the industry in the cloak of some kind of professional “advisor”, despite rules, laws, codes of conduct and promises to the contrary.
    2. When trusting and vulnerable clients then sit down with said “professional” they are thus inclined to accept the information told to them by this person as being fair, honest and in good faith in their best interests, when in fact this may no longer be true, nor eve be an industry requirement, (see http://www.osc.gov.on.ca/en/38075.htm )
    3. When the KYC (Know your client form) is to be filled out, and clients do not understand how, (risk, quality, short, medium, long term horizon) since they are not often experts themselves, who do they turn to to “walk” them through the form. Of course it is the commission salesperson who was posing as the professional in # 1.
    4. The commission salesperson knows the “future” so to speak, as far as which products he or she would prefer to sell to the investor, and uses this advance knowledge to “help” the client to fill in the form a manner helpful to the seller.
    5. The client usually asks a few questions, which are answered by the salesperson, and then the client nods in agreement, just as they would if they were receiving advice from another professional, say a doctor, about medical matters.
    (the trick, of course is in how the industry disguises commission sellers as something else to mislead the public into a false sense of trust)
    6. When all is said and done, and the client is sitting in court with the investment seller, “$10,000 “experts” in $4,000 suits” (quote by a courtroom observer) tell the court that the KYC is the most “crucial” document to outline the relationship, and the court believes this to be true.
    7. This ignores two facts, one being that KYC is a “process” of knowing your client and NOT a simple document. (see videos (Ellen Bessner) and comments March 14th to March 17th, 2013 here http://www.osc.gov.on.ca/en/38075.htm )

    Two is that it ignores that the KYC document being paraded in front of the judge by the investment firm, is a document most often “coached” into existence by the very person who might be the defendant in the case. In other words, the document that the commission salesperson “helped” the elderly victim to fill out, suggesting a certain asset mix, a certain risk tolerance etc…..just like your doctor might do with a program of treatment, this mix is most often suggested to the uninformed client as the “best” way to go.

    What is NOT disclosed to the uninformed client is that the “advisor” is not like a doctor, has neither the license nor the oath to “do no harm” to the client ( http://www.securities-administrators.ca/nrs/nrsearch.aspx?id=850 ) and may in fact be incentivized to act against the clients best interests for greater commission.

    Secondly these and the fact that the document being used AGAINST the client in court, was usually “coached” into being created and signed by the client by an “advisor/salesperson bait and switch”. The document is highly insufficient and suspect in being the “go to” document, as the industry claimed in this court case, and in fact might be the fruit of a poisoned tree, if filled out with the “help” of the defendant as I saw in my case.

  2. Larry is an experienced investor advocate and is also an ex broker with substantial experience. He has developed some very useful videos on this grey area which I would recommend.

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