: Small Investor Protection Association - Submission

June 14, 2016

By email to: Fin.Adv.Pln@ontario.ca

Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives
c/o Frost Building North, R
oom 458, 4th Floor,
95 Grosvenor Street,
Toronto, Ontario,
M7A 1Z1

Re: Financial Planning/Advice Preliminary Policy Recommendations

Dear Committee Members,

The opportunity of expressing our opinion is once again greatly appreciated. The Small Investor Protection Association appreciates the time and effort of all the Committee members on this most important consumer issue.

We believe it is of utmost importance to recognize the life-altering impact on small investors who place their trust in our “regulated” financial services industry and believe the representatives have a duty to look after their best interests and that the regulators will provide investor protection and then experience devastating loss.

Since the late 1998 SIPA has communicated with many hundreds of small investors who have been victimized by the investment industry and to their dismay found that the regulators would not help them to gain restitution when their savings were lost by industry fraud and wrongdoing. In 2004 SIPA issued a report “the Small Investors’ Perspective of Investor Protection in Canada” http://www.sipa.ca/library/SIPAdocs/SIPA_Report_20040227.pdf in an attempt to raise awareness of the impact on the Canadian public and the desperation of the many victims. It included excerpts from hundreds of case histories of victims and detailed the failure of the regulatory system.

In the words of one small investor:

“Suicide seemed to be my only solution.”

The fundamental issues are well known and documented, yet industry has been able to evade any attempts at improving investor protection. Dr. Al Rosen, a forensic accountant who founded Accountability Research Corporation in 2002, in his review of the book “Thieves of Bay Street published in the Globe and Mail in 2012 states:

“Unfortunately for investors, the circumstances are simply that investors have very little protection in this country.”

With regard to the current Expert Committee recommendation we believe the “Introductory Comments” and the section entitled “What We Learned from Our Research and Initial Consultation” indicates that the Expert Committee has a good understanding of the issues and has completed a solid assessment of the present situation.

1. Regulation of Financial Planning in Ontario

With regards to the panels first recommendation regarding “Regulation of Financial Planning in Ontario” SIPA agrees less regulation is needed not more, but regulation must be effective with adequate enforcement. Objectives should be revised to include meaningful investor protection.

2. Harmonization of Standards

SIPA agrees that the education, training, credentialing and licensing of individuals engaged in the provision of Financial Planning be harmonized and subject to one universal set of regulatory standards. SIPA believes these standards must be included in statutes and not just more rules and regulations that are neither followed nor enforced.

3. Statutory Best Interest Duty

Having personally witnessed for two decades, the ability of the industry to evade the intent of regulation and their ability to distort the meaning of words, Statutory Best Interests Duty (SBID) in all probability might not help unless it is clearly defined in statutes to ensure that a fiduciary duty is mandated. We believe that fiduciary duty must be included in the Statutes for those who provide financial advice or sell financial products. At present, the industry is sales oriented and the so called “Financial Advisors” have no statutory requirement to even look after clients best interests. This is resulting in Canadians losing billions of their savings every year. If those selling a product cannot demonstrate that they believe its purchase is in the buyer’s best interest, why should that sale be allowed?

In the USA regulators have been unwilling or unable to provide adequate investor protection but the Department of Labor (DOL) has proposed legislation requiring a fiduciary duty for those handling retirement savings. However industry has managed to weaken the legislation. Fiduciary duty with regard to retirement savings is a good start but we believe this should apply for all small investors for many reasons including: asymmetry of knowledge, Canadians belief that regulators protect investors and their need for a professional adviser. Regulation properly defined by statute would be a good start. It’s a disgrace that there isn’t a legal requirement for a universal fiduciary standard of care. It is virtually impossible to have a sufficiently comprehensive set of regulations to cover every possible contingency.

Fiduciary is a legal term that comes from the Latin word fiducia, which means trust. Encyclopedia Britannica defines a fiduciary as "a person who occupies a position of such power and confidence with regard to the property of another that the law requires him to act solely in the interest of the person whom he represents."

  1. Put the client's best interest first.
  2. Act with prudence - that is, with the skill, care, diligence and good judgement of a professional.
  3. Do not mislead clients - provide conspicuous, full and fair disclosure of all important facts.
  4. Avoid conflicts of interest.
  5. Fully disclose and fairly manage, in the client's favour, unavoidable conflicts.

If these simple rules were adopted, investors would get to keep more of the returns that markets provide, all while taking less risk.

In summary, more rules will not help, statutes must be revised and deal with principles ... that is regardless of what people call themselves they must be held to a fiduciary standard when they offer advice or sell financial products.

SIPA has no doubt that industry will continue to oppose the fiduciary standard and is concerned that even a best interests standards with provisos may not be much improvement over suitability. That coupled with exemptions and multiple registrations (in terms that most will not understand "regulatory arbitrage") which appears to be on the increase in case a change does happen in the near future and it is not delayed by a need for more studies of expert committees.

4. Exemptions

Although SIPA agrees with your rationale we remain committed that it should be fiduciary duty because this is already defined by case history and SBID will no doubt be subject to massaging by the industry to the detriment of the consumer.

5. Referral Arrangements

SIPA agrees in part that ”no individual who or firm that provides Financial Product Sales and Advice or Financial Planning be permitted to pay a referral fee to a third party for the referral of a customer or prospective customer who is to be provided with Financial Planning or Financial Product Sales and Advice” but that this should be without exception. Exemptions are commonly used to circumvent regulations and often result in investor abuses.

6. Titles and Holding Out

SIPA agrees with the Expert Committee's rationale that all participants should be required by statute to use only registered titles approved by regulators and included in statutes. The existing use of so called “unregulated business titles” condoned by the regulators misleads the public and facilitates the defrauding of Canadian investors.

7. Central Registry

SIPA agrees that an “online central registry be created jointly by Regulators to provide a 'one-stop location' where consumers can access the information they need to perform a background check on their service providers and their firms.” The National Registration Database (NRD) is a start and supposedly is a national database, which is essential, as many representatives are registered in several provincial jurisdictions. However it needs to be more user friendly as consumers can be misled by the current application. It works well only if you know the system but may be misleading for first time users.

8. Financial Literacy and Investor Education

SIPA does not agree. SIPA believes it is grossly unfair to be placing the onus directly on the consumer while the industry is promoting itself as reliable and this deception is facilitated by the regulators. Consumers do not have to learn about medicine, dentistry, law, or even mechanics and plumbing. There are professional standards that can generally be relied upon but also consumer protection agencies available for redress. The investment industry deceives the consumer and controls the dispute resolution processes with the possible exception of civil litigation. However deep pockets and a seemingly endless litigation process with motions and appeals that can require three levels of court to achieve a final court decision results in this process not being fair to consumers. Seniors being required to spend ten years of their remaining life span seeking restitution as industry will appeal lower court decisions seems grossly unfair and unjust.

It would seem a tribunal for investment fraud is appropriate to handle cases for small investors who do not have the resources for a ten year legal battle.

9. Issues for Further Consideration

SIPA agrees – It seems that whenever something worthwhile appears to be happening the mandate is limited so that it is basically damage control. This is why SIPA will intentionally respond with issues outside the terms of reference because so many of these fundamental issues are hidden from the public.


The efforts of the Expert Committee are appreciated and in particular it is worthwhile to indicate “Issues for further consideration”. It is time for Government to become involved as the last two decades and more have made it clear that the investment industry is not interested in change that would truly provide investor protection. Instead we see the deception continuing unabated and facilitated by the regulators paid for by industry. Our comments extend beyond financial planning and apply to all sectors offering personal financial advice.

Although regulators are established to create a perception that pacifies the public, the mandates given to regulators are manipulated by the industry to limit the ability of the agencies to operate in a just and fair fashion.

This is precisely why SIPA recommended a National Investor Protection Agency in 2004. The national regulator (and for securities only) has been discussed for decades and it appeared that the "Wise Persons Committee" stated in their report "It's Time" that it indeed was time for Canada to have a national regulator to be in step with the rest of the world.

However banks and insurance companies are able to develop investment products that are not classified as securities although most investors do not know the difference between a mutual fund and a segregated fund ... until they have lost their money and it's too late for it to matter for them. They can easily operate beyond the mandate of the securities administrators.

Misleading business titles are used to gain trust so consumers may be fleeced with relative impunity. We see regulators making a show of disciplining respondents with headline grabbing fines that may never be collected. Indeed a study recently completed by SIPA with data provided by the regulators, indicates that the total of fines levied by the regulators but remaining uncollected is almost One Billion Dollars.

There is an abundance of evidence that individual investors are not well served by the Self-Regulatory Organizations (SRO) and industry sponsored organizations. Investor protection must be provided by an authority that is not industry or industry sponsored. It should be provided by a consumer protection agency that is not influenced by industry or rotating industry personnel.

There must be adequate objective facility for victims of investment industry wrongdoing to gain restitution within a reasonable time frame. The existing mechanisms are not suitable and the civil system is manipulated by the regulator-industry complex so that it fails the public.

The regulators and the government have relied upon the industry-regulator complex to do the right thing. It has not happened. Self-regulation and recommended best practices have failed to protect investors and many of our seniors have been deprived of their life savings because our leaders have failed to act responsibly. As this is a Public Interest Issue it is essential that Government must act to right this wrong. Apologies are not good enough. The Canadian public deserves better.

Canadians depend upon the investment of their savings for retirement security. The widespread concern over the losses experienced by Canadians caused over twenty organizations representing over two million Canadians to form the Common Front for Retirement Security.

Given the vital role that financial institutions play, the moral hazards are even more acute and it is therefore logical that the industry should be subject to higher ethical standards than other commercial sectors. Any system of advice giving must have a vehicle for the fair resolution of disputes. Government must accept responsibility for providing such a service because the current system has proven to be incapable or unwilling.

It is not a matter of more regulation, Government must act to protect all Canadians by revising legislation to incorporate a national investor protection authority that will work with all of the provincial regulators until such time that Canada is able to achieve one national regulator for all financial services similar to the Quebec model.

Yours truly

Stan I. Buell