Investor protection is a 3 way street..

I wanted to comment on a recent communication from the OSC Investor protection is a three-way street.   But first I wanted to refer people to a CBC hidden camera investigation on financial services’ product sales people:

On a CBC news report it was said that the Ontario Securities Commission were unwilling to comment on these findings.  I found the OSC’s unwillingness to comment on the results of the program disturbing, especially when communications like  Investor protection is a three-way street paint a picture of “advisors” dealing fairly honestly and in good faith with their clients – and note the use of the word to deal as opposed to advise, with no mention of conflicts of interest.

I would suggest that Investor protection is often a “dark and dangerous one way street”.  In fact, when an infraction happens, the advisor may no longer be at the scene of the transgression, the regulators are certainly not directly involved, the firm and the client are now in conflict and the investor has to set off on a long and often arduous road through the complaints process, and even then, as we know from the OBSI name and shame debacle, there is no guarantee of restitution, unless of course the investor wishes to eschew independent arbitration and take on the costs and uncertainty of litigation.  Or perhaps the 3 way refers to the risks of traffic moving in conflicted directions. 

The communiqué also refers weakly to suitability ,”Suitability analysis rests with your advisor”, when there is in fact no requirement to detail the suitability process, its limitations and its responsibilities.   The OSC needs to explain in this document what the boundaries of a minimum standard suitability analysis actually covers!  No mention of the fact that investors should leave their delusions over best interests at the door. 

And note the following with regard to what is actually happening:

An adviser can help you:

  • · set your goals
  • · build an investment plan
  • · design a portfolio
  • · choose suitable investments
  • · track your progress, and help you adjust as necessary

You can look to an adviser for answers to your questions about investment products and strategies. They can also act as a sounding board for your ideas and keep you motivated to stay with your plan.

The reason for the emphasis on “you” would not be clear to the investor.  It is you because it is the client in a non best interests standard who is responsible for the investment decision.  Unfortunately, and disingenuously, the “you” is separated from the functions so that it appears that it is the “advisor” who is building an investment plan and designing a portfolio, when it is in fact “you” who are doing this, and this is critical for defining and allocating responsibility for the transaction decision.    

This communication is all far too subtly spun for the investor to comprehend.  Yet again the regulators are failing to take responsibility for educating investors over the true nature of the relationship and the responsibilities and wooing them into a false sense of security.

It would appear that their main objective is to keep the lines of product distribution well greased and suitably protected by inveigling an aura of investor protection.    

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