Note to CSA : Signature forgery impacts retail investors and wealth management industry

                                                                                     December , 2017

Note to CSA : Signature forgery impacts retail investors and wealth management industry 

Forgery or as regulators call it “signature falsification” takes place in two ways:

1. pre-signed forms, which involves salespersons (“advisors “) having clients sign a form that is blank or only partially completed, or altering an existing signed form without the client's written approval of the changes;

2. actively falsified forms, in which salespersons sign the client's name or initials on a document, or reproduce the signature in some way.

In some cases, signature falsification is being used by salespersons to engage in serious regulatory infractions and lawbreaking, such as unauthorized trading, cash transfers and theft (“misappropriation of funds” per the regulators).

This has been going on for years but It's something that has not caught the attention of the CSA in s meaningful way. For example , recent  disciplinary decisions by the MFDA include a one-year prohibition against a salesperson  who had obtained, possessed and used more than 200 pre-signed account forms over a two-year period, and a $1,500 fine and six-month prohibition handed down to a branch manager who had reviewed and approved the use of three forms with falsified signatures. Is this how Signature forgery should be disciplined from an “advisor” and Industry responsible for your retirement income security?

When deciding on disciplinary action in cases of signature forgery, the regulators say they consider factors such as whether the forgery resulted in financial harm to the client, the number of times the advisor engaged in the practice, and whether the advisor tried to mislead the dealer/ regulator during the investigation. We argue that they should consider that even one forgery is a sign of a serious ethics breach of trust.

The real impact of forgery is on the reputation of the entire advice industry. Like workplace sexual assault, it just gets worse over time and spreads like a cancer.  It can lead to document adulteration which involves changing or adding client information after a document has been signed. The changes usually involve risk tolerance, net worth or investor knowledge. For dual -licensed salespersons this unsavoury practice can lead to problems with insurance, the purchase of more expensive products like Segregated Funds or improperly signing people up for unwanted annuities. 

A corporate and regulatory culture that tolerates forgery is not one in which investors, especially the elderly, can feel safe. This will only become a more serious issue with changing age demographics. See SIPA Special report on forgery at http://www.sipa.ca/library/SIPAsubmissions/160%20SIPA%20REPORT_FalsifiedDocuments_20170526.pdf

Perhaps 2018 will be the year the CSA gets serious about salesperson practices including the misleading titles being used to build trust. We can hope.

Kenmar Commentary ….IIROC How Do I Get Money Back Brochure

                                                                                       December, 2017

Kenmar Commentary ….IIROC How Do I Get Money Back Brochure

http://www.iiroc.ca/industry/member-resources/Documents/IIROC_How_Do_I_Get_Money_Back_Brochure_en.pdf#search=brochure  (undated, no reference control number)

In the fall of 2017 we pointed out a number of deficiencies in the IIROC Complaint brochure. These included missing information, a need for better information on limitation periods, revealing the true nature of internal “ombudsman”, crystal clear text that after 90 days, investors have direct, unimpeded access to OBSI and the downplaying of the role of the Ombudsman for Banking Services and Investments (OBSI). Investment Industry Regulatory Organization of Canada (IIROC) have just issued a new brochure on how an investor can receive redress if they feel they have been treated unfairly or improperly by the IIROC registered firm. There is a separate brochure for making a complaint (see References) in addition to this one on seeking redress. You should read them both.

In this Guide we explain sections of the How Do I Get Money Back brochure and how they can be improved.

Background and Perspective

When an IIROC Member firm receives a complaint they must:

·         Assess every complaint fairly and promptly

·         Acknowledge the complaint promptly, usually within 5 business days. At this time, the firm may request additional information from you to assist them in resolving your complaint.

·         Unless your complaint can be resolved informally sooner, provide their decision to you within 90 calendar days, along with:

(a)         An outline of your complaint;

(b)         The results of their investigation and the reasons for their final decision;

(c)         Information about other options for seeking compensation, in case you are not satisfied with the firm’s response.

If your firm cannot provide a response within 90 days, they must inform you, explain the reason for the delay and provide you with the new expected response date. You do not have to accept this delay. You can take your complaint to OBSI after 90 days of filing your complaint.

The Ombudsman for Banking Services and Investments (OBSI) is the exclusive Ombudsman service for IIROC firms. OBSI is independent from the investment firms and has its own Board of Directors. It is overseen by the Joint Regulator Committee, a group consisting of several provincial securities commissions, the MFDA and IIROC OBSI works on fairness principles and is a non-legalistic, free dispute resolution service for clients of IIROC firms. Its decisions are non-binding- in 2015, 18% of its compensation recommendations were low-balled or rejected outright by investment firms.

IIROC is an Industry Self-regulating Organization that regulates its Member firms. It derives its authority via Recognition Orders from the constituent members of the Canadian Securities Administrators (CSA), a grouping of Canada’s provincial securities Commissions. IIROC is overseen by the CSA.

Comments on the new brochure

First off, we must say that OBSI has been given more prominence in the revised brochure. This is a real positive. We recommend inclusion of OBSI’s toll free Fax number [1-888 422-2865] for seniors and those who prefer to use FAX.

The brochure encourages complainants to act promptly due to statute of limitation periods. As such matters are completely new to the average retail investor, we suggest some additional helpful text viz..”  For further information regarding limitation periods in your province/territory, contact a lawyer or your provincial/territorial government”. In Ontario, the period is two years.

The brochure states” The first step in seeking compensation is to make a written complaint directly to your investment advisor [Emphasis added] and his/her firm. They must provide you with a substantive response to your claim within 90 days. But if you’ve tried that and haven’t heard back, you can go to OBSI or consider the other options outlined in this brochure”. Where it says "directly to your investment advisor and his/her firm we would like to see the word "AND" capitalized for emphasis.

IIROC Member firms are responsible to you, the investor, for monitoring the actions of their representatives to ensure that they are in compliance with the by-laws, rules and policies governing their activities.If you have a formal complaint, we do not recommend submitting it solely to your dealing representative (aka “salesperson” or “advisor”). Address the complaint to the Branch manager, compliance officer or other senior manager of the firm, perhaps with a cc to the salesperson.

The brochure should use plainer more prescriptive language as to when exactly you can file a complaint with OBSI. The law states that you may contact OBSI if the firm has not responded within 90 calendar days of the date you complained. In other words, if the firm has not responded to you within 90 calendar days, you can file a complaint directly with OBSI. You do not need to wait for a substantive response from the firm.

This new brochure has some significant improvements especially the text on the 180 day limit to file with OBSI.  “It is important to know that if you choose to  use a firm’s internal ombudsman, you will have less than 180 days to complain to OBSI as the 180 time limit begins to apply after the firm’s written response to you (not after you receive  a letter from the internal ombudsman). “ This is much increased clarity over the previous version. Please note that all references in the brochure to days refer to calendar days. Note also that during the 180 day timeframe, the statute of limitation clock continues to run down, a point we think should be made in the brochure.

"Although IIROC is not directly involved in the compensation process, all IIROC-regulated firms are required to participate in ombudsman [Emphasis added] and arbitration programs if the client chooses this option." This line may be confusing to investors regarding a firm offering their internal “ombudsman”; it may lead an investor to think he/she is required to use the  internal “ombudsman”.

The mention of a firm's internal ombudsman requires some further clarification from IIROC .We would add after "Some firms suggest you use their own internal ombudsman first" in brackets, "(internal ombudsman are non-independent employees of the firms’ or related affiliates)”.

We continue to ask IIROC to get rid of the internal “ombudsman “nomenclature. According to CSA Notice CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments  when using an internal ombudsman, registered firms should clearly indicate (with at least equal prominence to information about the internal ombudsman), among other things that the internal ombudsman is not independent and is employed by the firm [ Emphasis added]. This is Never done to our knowledge; in fact these internal “ombudsman” boldly assert that they are independent of the firm which raises the question why OBSI accepts such non-binding response letters as letters from a regulated firm. For its part, IIROC must enforce this CSA requirement in order to retain the integrity of the complaint handling process.

The brochure makes it reasonably clear that the use of an internal “ombudsman” is voluntary. However, the document does not disclose that internal “ombudsman” findings are not binding on the firm, that the statute of limitation clock continues to tick for any time you spend with this entity, they do not disclose their loss calculation methodology or that these entities are not regulated by IIROC. Such information would help complainants make an informed decision before deciding to use an internal “ombudsman”.

Since internal “ombudsman” are related to the firm and OBSI is firm-independent, we recommend you focus your redress efforts on OBSI. Be aware that there may be nudging to divert you away from CSA-mandated OBSI in an attempt to keep control of the complaint within the firm and corporate family.

There is a major disconnect on the scope of a complaint. The brochure limits scope to financial losses [Emphasis added] but the OBSI deals with transaction errors, fee issues, investment advice, unauthorized trading, misrepresentation, fraud etc. as well as direct losses. We feel strongly that a complaint can be more than the direct financial loss incurred. For instance, a complaint can also include opportunity losses if unsuitable products were recommended. It can also involve excessive fees, breach of confidentiality, forgery, defective disclosure and other inappropriate financial dealings with clients. Ignore what the brochure says and follow the guidelines in the OBSI complaint brochure.

The brochure rightfully states that “OBSI is Canada’s free, independent service for resolving investment and banking disputes with participating firms. IIROC requires all the investment firms it regulates to take part in the OBSI process.” OBSI provides an independent and impartial process for the investigation and resolution of complaints about the provision of financial services to clients. The OBSI process is confidential. Unlike a complaint filed with an internal “ombudsman”, a complaint to OBSI stops the statute of limitation time clock. This is a unique feature that should be considered before deciding to use an internal “ombudsman”. On next revision, the brochure should highlight these distinguishing characteristics of OBSI.

The sentence “Many firms will compensate the complainant but some choose not to.” is a pretty disparaging remark concerning OBSI, albeit technically not incorrect. OBSI does have the mandate to Name & Shame firms that refuse to accept its recommendations, a tool it has not effectively used. In view of the recent Joint Regulatory Notice on complaint handling, this remark seems odd coming from the regulator responsible for regulating these firms and who sits on the Joint Regulator Committee overseeing OBSI.IIROC have an obligation to act if they feel the firm has not handled the complaint fairly and in accordance with its rules. NOTE: IIROC gets to nominate a Director for a designated spot on the OBSI board. This current Director is from a IIROC-regulated firm that refused an OBSI recommendation and was Named and Shamed publicly!

In fact IIROC do claim to take note when a registered firm is involved in a refusal case or a pattern of repeatedly settling for amounts lower than OBSI recommendations (low-ball settlements). IIROC rightfully believe that this data can provide risk-based indications of potential problems with a firm's complaint handling practices, or raise questions about whether it is participating in OBSI's services in good faith or consistently with the applicable standard of care. IIROC have a variety of regulatory responses available if, after concluding an appropriate review, they come to the view that securities laws and rules have been breached. These may include, but are not limited to: recommending terms and conditions on the registration of the firm or registered individuals to mitigate risks in the area of concern; and initiating an enforcement investigation of the registered firm and/or registered individual relating to the issue. Unfortunately, we cannot find examples of where this sanction capability has actually been used.

The brochure provides some other options for dealing with complaints in Quebec, New Brunswick, Saskatchewan and Manitoba. Most have restrictions and limits that make OBSI the best choice in the majority of cases. These securities commissions can order a person or company to pay compensation in appropriate cases.  This however requires a preliminary finding of a regulatory violation which may take years to investigate and adjudicate, a point the brochure should note.

The Guide also points out the availability of IIROC Arbitration. It has a $500,000 compensation cap. It is rarely used by retail investors because of the legal costs involved and the more consumer-friendly, no-cost nature of OBSI. Any choice to forgo the right to access the courts of justice ,should be well informed.

This paragraph is very helpful “As an investor you can complain to IIROC and we will review your complaint to determine whether or not your advisor and/or firm has broken our rules. If we find that our rules have been broken, we may take disciplinary action including fines, suspensions or permanent bans. However, IIROC cannot provide compensation to you or force an investment firm or individual advisor to reimburse you.” It makes clear that IIROC is not in the loss recovery chain. They do however include disgorgement in their Sanction guidelines but they retain the cash, it is not turned over to the investor. Disgorgement includes include any profits, commissions, fees, profits  or any other compensation or other benefit received by the dealing representative, directly or indirectly, as a result of misconduct.

On the chart page - under the column heading "Time Limit to Complain" we would like to see the actual time limit numbers put on the chart rather that the answers "yes" or "no". This should be complemented by a flow chart (or a link to a flow chart) that would visually present the complex, interacting sequence of events. Based on years of experience with complainants, we feel these changes would add greatly to the brochures’ impact and value.

We recommend that the following paragraph be integrated into the brochure or link-referenced:  If you live in Ontario: the Investor Protection Clinic at Osgoode Hall Law School provides free legal advice to people who believe their investments were mishandled and who cannot afford a lawyer. The clinic is staffed with Osgoode Hall Law School students that are paired with supervising lawyers from law firms in Ontario. If the Clinic is able to take you on as a client, you will be paired with a student-lawyer team that will provide you with legal assistance. The Clinic may be able to assist you by: (a) writing a complaint letter on your behalf to the company or the regulator; (b) giving you options on how to proceed with your issues; or (c) even representing you at a hearing.You can find more information on the clinic’s process and an online contact form at this link.”

Under Questions? We would expand to “You can contact IIROC if you have questions about making a complaint or to discuss alternatives at InvestorInquiries@iiroc.ca  or toll-free at 1-877-442-4322 for greater clarity.

It should be noted that IIROC registered firms must comply with IIROC complaint handling Rule 2500B which has been criticized by Investor advocates as being outdated, , creates an escape path ( acknowledges internal “ ombudsman”) that subverts the CSA 90 -Day rule and has weak provisions for dealing with systemic issues among other deficiencies. It also attempts to “balance interests” of all parties instead of using analytical root cause investigation analysis

If IIROC  place emphasis on a balance of interests, as opposed to a fair assessment of the overall balance of  objective information from both parties, then this clearly has implications for the complaints processes within IIROC’s Member firms, in particular the highly misleading internal “ombudsmen “ of the major banks. This is especially so under what still remains a largely product and transaction distribution focused industry. The complaint risks being set up to fail if we use a conflicted set of interests to set the basis upon which complaints are deemed to have merit.Kenmar have filed an Action request to the CSA asking them to require IIROC to make the necessary amendments to the Rule.

Summary

Overall, we believe IIROC has addressed some of the important issues we raised. That being said, there are still some significant aspects of the brochure that need revision. The ideas presented here should be useful to IIROC.

Kenmar have for years pleaded with IIROC to create a designated Board seat for a Retail Investor and establish a Investor Advisory Committee modelled after the OSC’s successful and effective Investor Advisory Panel. IIROC have been consistent in their rejection of such proposals which suggests to us they may be uncomfortable publicly confronting many Retail Investor issues, including complaint handling. We feel it would be WIN-WIN.

The complaint handling process is a cornerstone of investor protection yet it is inherently adversarial in nature. Retail investors lack a knowledge of the applicable rules, terminology and their rights. They are unaware of the many potholes and bear traps that they will face during their complaint journey. It falls upon Securities regulators to do their very best to level the playing field. Informative brochures are one tool that can help make the complaint experience a safer one.

Reference

Making a complaint a Guide for investors http://www.iiroc.ca/industry/member-resources/Documents/IIROC_Complaints_Brochure_en.pdf

Anatomy of an internal Ombudsman: Office of The TD Bank ombudsman

Anatomy of an internal Ombudsman: Office of The TD Bank ombudsman

The Office self-identifies itself as an ombudsman. The Office will investigate complaints and act as a liaison between customers and all business areas within TD Bank Group in Canada, including: TD Canada Trust, TD Wealth, TD Insurance, TD Auto Finance, TD Commercial Banking, & MBNA. The Office does not report directly to any of these business areas .Complaints falling within their mandate are free of charge to TD customers.

TD’s If You Have A Problem brochure https://www.td.com/document/PDF/to-our-customer/td-customer-care-en.pdf  states under the heading Additional resources – external agencies states “If you require further assistance after the decision of the TD Ombudsman [Emphasis added], the following independent services can provide you with information and a further review of your complaint. Please use the information below to contact the agency that deals with the TD business group where your concern arose. These agencies may contact TD’s internal complaint resolution staff – including the TD Ombudsman’s Office – to facilitate their investigation and work toward the earliest possible resolution of your complaint”. This is incorrect – investors with complaints DO NOT have to engage with the TD’s “ombudsman” before they can access the Ombudsman for Banking Services and Investments ( OBSI). The brochure also does not warn investors that the statute of limitations time clock continues to count down while the investigation is in progress.

The TD-OBSI Relationship

A May 2,2011 NP article reported that sources had said that TD Securities, RBC Capital Markets Ltd. and Manulife Financial Corp. had filed an application with the Investment Industry Regulatory Organization of Canada (IIROC) for an exemption from the mandatory provision that requires them to resolve disputes through the Ombudsman for Banking Services and Investments (OBSI). The application was rejected but the fact it was made says something about TD’s aversion to OBSI.

In May 2011, Kerry Peacock, executive vice-president branch banking at TD Canada Trust, resigned from the 10-member board of OBSI in the wake of an attempt by TDWaterhouse Canada Inc. to opt out of using the services of OBSI. There was also pressure for Luc Papineau, a senior executive at TD Waterhouse, to step down from OBSI’s board. At the time, consumer advocate groups asked IIROC to replace Mr. Papineau, who was also a member of IIROC’s Quebec District Council, because of TD’s criticisms of the banking and investment industry mediator. Mr. Papineau and Ms. Peacock were two of the three industry representatives on OBSI’s board who were nominated by SRO’s.

In  October 2011, TD Bank Financial Group decided to withdraw all banking complaints from OBSI ( RBC did that in 2008 and National Bank November of this year).These banks now use ADR Chambers Banking Ombudsman (ADRBO), a for-profit mediator, to handle banking complaints that aren’t resolved by the bank’s own internal complaint handling process. ADRBO is regulated by the Financial Consumer Agency of Canada (FCAC).  Investment complaints involving TD and RBC still must go to OBSI.

At that time of withdrawal, OBSI’s annual report showed TD leading in complaints by consumers. TD was the subject of 131 banking case files opened by OBSI (33 % of the total) and 59 investment case files (15 % of the total).TD’s abrupt decision to leave - with just 5 days’ notice — created financial exposure to OBSI. Quick action to change its Bylaws preserved TD’s funding for the rest of OBSI’s fiscal year. The then TD ombudsman Paul Huyer said OBSI’s slow response time was an issue. He hoped to see all complaints resolved within 90 days by ADR Chambers. OBSI resolved straightforward banking complaints in 55 days on average, according to its report. But for all banking case files, the average response time was 126 days.

“Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer,” Peggy-Anne Brown, then OBSI Chair, said in her opening message to the report. “Make no mistake, this is a power struggle between the interests of consumers/investors and the interests of large and powerful financial firms.” she said.

The ombudsman’s Office

Ms. Kerry Robbins has been the TD Ombudsman since September 2014. Kerry has worked at TD for over 18 years in increasingly senior roles in a wide variety of areas, including Direct Channels, Branch Banking, and Real Estate Secured Lending. . Ms. Robbins therefore has friends and associates among bank staff. She has a BA from King’s College at the University of Western Ontario and a MBA from Anglia Business School in Cambridge, England. She is also listed as a Board Member of the Canadian Centre of Ethics & Corporate Policy.

According to TD, the TD Ombudsman’s Office is an independent body within the Bank charged with reviewing customer complaints that remain unresolved after the completion of Steps 1 and 2 of TD's internal customer problem resolution process.

According to the 2016 Annual report, the Office opened a total of 749 cases, representing an 18% increase over 2015. The average time to complete a review was 61 days, with 95% of the cases closing within 90 days. About 85% (637) of the cases were either not resolved or were partially “resolved” at least using TD’s definition. The majority of the case files originated from the Branch Banking network but 75 (10%; 6% in 2015) of cases related to wealth/ investments. This means that complainants who had a choice to use OBSI after the investment dealer decision chose or were nudged into using the unregulated TD ombudsman’s Office instead of CSA- approved OBSI, a non-profit agency supported by participating firm funding . It can make non-binding recommendation. According to an independent reviewer’s report, 18% of its recommendations are low-balled by investment dealers. Investor advocates argue that OBSI’s inability to make participating firms follow its recommendations is a denial of access to justice.

In March, 2017 there were media reports of “hundreds of current and former TD Bank Group employees” who described feeling pressured to meet high sales goals, with some claiming to have raised credit and overdraft limits without customer consent. Signature forgery was also reported. In response to the news reports, the Financial Consumer Agency of Canada (FCAC) moved up its review of the financial sector to April, during which it plans to focus on sales practices and whether Canada’s banks are following guidelines regarding express consent and disclosure.

Some TD ombudsman characteristics:

Location: TD Centre in Toronto. Co-located with senior TD executives, this is generally regarded as an indicator of non-independence.

Employment: It is not revealed who can terminate the ombudsman or under what conditions.

Coverage: Assumed to be all TD wealth units including discount brokerage.

Limitation clock: Unlike OBSI, a complaint to the Office does NOT stop the limitation time clock.

Reports to: CEO and Governance Committee of Board of Directors

Compensation source: TD - no detail provided-could possibly include salary, profit sharing, bonus program and stock options.

Funding: By TD Corporate from general revenues

Governance: Not revealed

Applicable regulator: Not regulated by CSA, IIROC or MFDA

Loss calculation methodology: Not disclosed.

Organizational Independence: Asserts independence from business units but is part of the same corporate family.

Social independence: As a long term TD employee , the TD ombudsman has a network of associates and friends among several TD business units to be investigated.

Standard. None cited. Typically would be ISO 10003 Quality Management – Customer Satisfaction – Guidelines for Dispute Resolution External to Organizations or the Forum of Canadian Ombudsman www.ombudsmanforum.ca/en/  We do not believe the TD ombudsman meets the criteria, particularly independence.

Decision stature: Unable to elicit a response to our enquiry- we believe recommendation is non-binding on applicable TD Bank business unit.

Dollar cap: Not disclosed

Forms to be signed: Not available on website

Target cycle time: 90 calendar days

Mandate Restrictions: Unless there are extenuating circumstances, the Ombudsman’s Office will not review complaints relating to bank policies, including credit granting or risk management decisions ;interest rate levels; other charges or fees that are disclosed; or matters where legal action has already commenced or has been concluded.

Summary

TD has a controversial relationship with the CSA-recognized Ombudsman, OBSI. The TD ombudsman is not independent. The internal TD bank “ombudsman “ service is strictly optional. There is no need whatsoever to utilize that service. After the investment dealer has submitted its final response letter or after 90 days of filing a complaint, complainants have an immediate right to access dealer- independent OBSI. They must file a complaint to OBSI however within 180 calendar days. A complaint to OBSI stops the limitation time clock while it conducts the investigation.

Given its lack of independence, unknown governance and opacity, the use of the internal “ ombudsman” is a questionable choice .It is a well  established fact that the more stages in a complaint handling process , the less likely a complainant is to see it through to completion .That is why investor advocates suggest going to OBSI after the firm has had two chances at satisfying the complainant.

The internal “ ombudsman'  issue should be addressed in the consumer component of the review of the Bank Act - along with many other issues related to OBSI, the FCAC, For-Profit external dispute resolvers, conduct standards etc.

References:

·         MEDIA RELEASE: CONSUMER AND INVESTOR ADVISORY COUNCIL TO OBSI ALARMED BY TD BANK DECISION  26/10/2011 https://www.obsi.ca/en/about-us/resources/Documents/MEDIA-RELEASE-CONSUMER-AND-INVESTOR-ADVISORY-COUNCIL-TO-OBSI-ALARMED-BY-TD-BANK-DECISION.pdf

·         TD Bank: Do you Really Care about Your Customers? https://www.linkedin.com/pulse/td-bank-do-you-really-care-your-customers-td-thebully/

·         FAIR Canada Letter to OBSI Joint Regulators Committee re Use of " internal Ombudsman" by Registered Firms When Responding to Investment Complaints   https://faircanada.ca/submissions/letter-obsi-joint-regulators-committee-re-use-internal-ombudsman-registered-firms-responding-investment-complaints/ 
·      PIPEDA Report of Findings #2016-006: An insurance company’s internal ombudsman office is not a “formal dispute resolution process” under PIPEDA - Office of the Privacy Commissioner of Canada In order to qualify as “a formal dispute resolution process” pursuant to paragraph 9(3)(d) of PIPEDA, as a basis for withholding access to personal information, the process’s purpose must be to resolve a dispute and the process itself must be formal. The formal process requirement mandates the presence of a framework or structure, either legislated or agreed to by the parties to the dispute; in other words, the resolution of the dispute must take place in accordance with recognized rules.https://www.priv.gc.ca/en/opc-actions-and-decisions/investigations/investigations-into-businesses/2016/pipeda-2016-006/

NOTE: The Investor Protection Clinic at York University’s Osgoode Hall Law School wants to hear from investors who believe that their funds have been mishandled . The Clinic is staffed by Osgoode students who are paired with supervising lawyers from leading business law firms in Ontario. Common issues that the Clinic may be able to help with include cases of an advisor, teller or customer service representative at a bank, insurance company or investment firm misrepresenting the risk of a client’s investments; funds being used in ways that a client was unaware of; an advisor making too many trades, resulting in high commissions or trading fees; a firm charging fees that were not explained to a client; and an advisor signing forms on a client’s behalf without their permission. These student-lawyer teams might assist a retail investor by, for example, writing a complaint letter on their behalf to the company or the regulator; giving a client options on how to proceed with their issues; or even representing the client at a hearing. This free service is well worth exploring. For more information about the Investor Protection Clinic, call 416-736-5538 or email ipc@osgoode.yorku.ca  .

Taken For A Ride With A Dishonest Advisor by Harold C. Blanes

This case delineates the experiences of a Normandy veteran in his interactions with an investment dealer.  He wanted safe GIC’s but ended up being sold expensive Segregated Funds with liquidity restrictions.  All his attempts to get the issue resolved failed - the firm, regulators and police. A lot of lessons to be learned by reading this case summary.

Lessons learned

• Your representative is not required to act in your best interest
• Keep a copy of your signed and dated account opening form on file- do not leave any blanks
• On account opening write down your objectives in plain words
• Keep notes of your meetings with your representative
• Check your transaction document(s) -report any anomalies immediately
• Read your account statement- report any anomalies immediately
• Get informed help when filing a complaint with the dealer
• All those providing personalized advice should practice under a fiduciary duty
• Regulators need to provide better protections for vulnerable investors

Taken For A Ride With A Dishonest Advisor by Harold C. Blanes

                                                                                               November, 2017

I have been one of the seniors that has experienced misrepresentation by a group that think they have the privilege to take money from old people, no matter who it hurts.

In 2007, I had to transfer my wife’s and my retirement savings from one corrupt investment company to another. This first company refused to let me have GICs, even though that was what I had invested in for decades. The sales rep with this company took it upon himself to decide that GICs were “not suitable” telling me: “You can’t live with that.”

The second company was given the job of managing my funds only because they said that they could sell me GICs. They showed me a chart claiming 4% - so my wife and I said that if we could get them all insured, we will take

them. The dealer rep, “K”, said: “You can get them all insured in blocks of $100,000. K, my wife, and I worked out a plan that would work. Here is the plan: My wife Gladys and I would each take $100,000. We would then take $100,000 between us, and our son Alan would take $`100,000. Alan and I would take $14,000 that remained of the $414,000 that was to be transferred out of the previous company that refused to follow my request.

K said that she could do that for us, and would treat us honest like she treats her mother, with her investments. K expressed outrage that any company would do what our previous company had done – to take money under false pretenses out of an account and lock it in for a seven-year term – without my knowledge or consent. She said that her company considers this to be “highly unethical” to do to anyone in their eighties, and that her company would never “lock in someone’s savings” this way. She said this in front of my son Alan, who distinctly remembers her statement, as do I.

My wife and I were very anxious to get our money out that other company. The previous company was demonstrated to be corrupt, and we were able to prove it in court. Gladys was very sick with cancer and heart failure. My family and I were very worried about her. K could see the shape she was in, and K told her where to sign – holding her finger in places indicating where to sign – since Gladys was at that time, legally blind. She therefore had to rely on the honesty of the broker, who was anxious to get on with the transfer of funds out of the other company. K took another document out for me to sign, which I was told was for the setting up of the transfer of funds, but in the small print – I found out later, was to be an authorization to put money into segregated mutual funds. The dealer/rep never said anything about segregated mutual funds – and I had told her that Gladys and I were dead against any kind of mutual fund.  K left my wife and I by telling us that she would go back to the office to get to work on transferring funds out of the old company. Before K left our house my wife and I both told her clearly that we wanted K to make sure that these funds are all in GICs. K said “That’s where they’ll be.” She said she would be back in a few days with the paperwork.

Gladys became very sick, and had to go to the hospital the next day. [Feb 2, 2007]. In about ten days, my appendix ruptured. I had to get to the hospital on or about Feb 12, 2007. Years later, we found out that while we were both in critical condition in the hospital, a “compliance officer”  by the name of Dwayne Gryzbowski – we presume who was working out of the Winnipeg office of Investors Group Financial Services Inc., made up our “risk tolerance” as “high”, without Gladys or I knowing about it. We were both at extremely low points with our ailments. ?

Gladys and I had no risk with GICs when we had bought them years earlier at Royal Bank. K asked me on March 15, 2007, after I was released from hospital what was the length of time I wanted to keep GICs. My reply was that I would keep them in for two years. K accordingly then marked the 1-3 year check box on the “Time Horizon” section of the form I was filling out.  K never gave me a copy of this contract and when I finally was able to get it, by court order, in 2014, my “Time Horizon” had been tampered with, and another check mark also appeared on the form for “3-6 years”. K. kept trying to convince me after I discovered that I had been put in what I had asked not to be put in – mutual funds – K kept telling me that “you wanted low risk not no risk”. My wife and I had wanted GICs that could not be manipulated by dealer churning, and other acts of unauthorized interference. We just wanted GICs and that was all. K promised us that, but never delivered.

Investors Group Financial Services Inc. appeared so desperate to manipulate our savings that they claimed that Gladys Blanes had asked that $19,000 be set aside for speculation to get the money that we lost with Canaccord back. This is the exact opposite of the kind of investor Gladys Blanes was. She had extreme COPD so any cause of stress made it impossible for her to breathe properly. She was completely against holding any speculative investment for that reason. It was only K who wanted to dabble in this speculation account. I was the one who signed the contract, and I know that there was no request to hold anything that was speculative. K made many mistakes and told so many untruths, even Tom McKichan from the investigations office had seen them and said in a memo to her that from now on she would have to be more careful. Yet a week later in January of 2010, he sided with the Sheila Vickery letter of August 17, 2009, which stated that there was no evidence of my ever having asked for GICs. This position is completely contradicted by the facts. Where is the credibility of that company? How can a company pretend that the request for GICs that was signed by me and the company on March 15, 2007 does not exist, or was not a direct, specific statement saying I am requesting GICs? Please see the comments of Canadian Fund Watch http://www.canadianfundwatch.com/2017/07/this-court-cases-teaches-investors-many.html

that shows what the LAW is supposed to demand in the verification of accounts when they are opened or modified. The fact that regulators are ignoring Judge Wallace’s ruling on what must happen for an investment account to be lawfully administered, shows that a training module for police and complaint takers must be created.

The statements made above are true and conform to the requirements of the Canada Evidence Act for meeting the test of being factual assertions. The request for GICs is contained in a document known as Documents INV00056-59.pdf, and the denial of this fact is seen in the letter from Sheila Vickery dated August 17, 2009 which claims that there is no evidence that I had ever asked Investors Group for GICs. The denial of the factual history, and to instead claim that I am of “failing memory” is dehumanization, and should not be indulged. The elderly need to be treated fairly and honestly.

DISCLAIMER

Information contained herein is obtained from sources believed to be reliable, but the accuracy is not guaranteed. The purpose of this Document and others in the series is to educate investors by bringing together personal experiences from a variety of sources. It is not intended to provide legal, investment, accounting or tax advice and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a professional should be obtained.

It’s time to review OBSI’s practices and Terms of Reference

On its website www.obsi.ca  OBSI states “OBSI can look at your complaint if: ..your firm [Emphasis added] gave you its final response on your complaint but you are still unsatisfied. Once you receive the final response, you have 180 calendar days to bring your complaint to OBSI.” This is not entirely accurate. OBSI will actually allow additional time if a complaint is against an IIROC ( or MFDA) dealer and the complainant used the services of the firm’s internal “ombudsman”. We do not support this policy as we regard it as potentially harmful to investors.

Sections 13.16(3) and (4) of National Instrument NI 31-103 REGISTRATION REQUIREMENTS AND EXEMPTIONS require registered firms within 90 days of receipt of a complaint to provide a written notice of a decision and/or written information about the steps the client must take to access OBSI’s independent dispute resolution services (which steps the client must pursue within 180 days of receipt of the written notice of the firm’s decision). [Emphasis added]

Our concern centers on OBSI’s practices and Terms of Reference as well as the provisions of applicable IIROC Rules (and MFDA) Policies incorporated therein:

Section 19 of OBSI’s Terms of Reference, which details Complaint Procedures (including a 90 day internal review and delivery of a substantive written response requirement), provides in part:

All Participating Firms are expected to have in place an effective complaint-handling system. Participating Firms that are members of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) are required to follow complaint-handling rules established by IIROC or the MFDA, as applicable, and are not subject to this section 19. [Emphasis added]

In IIROC’s complaint-handling rule, Rule 2500B, the use of internal ombudsman services beyond NI 31-103’s 90 day period is expressly contemplated. We have already filed an official complaint about rule 2500B with the CSA. Andrew Teasdale CFA has analyzed the deficiencies in this rule Fairness and balance in the complaint process where interests of the dealer and registered representative must be considered!  http://blog.moneymanagedproperly.com/?p=5846  and so has our analysis team IIROC Complaint handling rule needs an Update www.canadianfundwatch.com/2016/01/iiroc-complaint-handling-rule-needs.html

The IIROC 2500B rule states “Dealer Members must respond to client complaints as soon as possible and no later than ninety (90) calendar days from the date of receipt by the firm. The ninety (90) days timeline must include all internal processes (with the exception of any internal ombudsman processes offered by an affiliate of the firm) [Emphasis added] of the Dealer Member that are made available to the client. The client must be advised if he/she is not to receive a final response within the ninety (90) days time frame, including the reasons for the delay and the new estimated time of completion…”

It is therefore clear that OBSI’s TofR agrees to follow IIROC protocol via sec 19 and therein lies the issue. OBSI is indirectly allowing firms to extend the time for permitting a complainant to bring a complaint to OBSI . It appears that the OBSI board feel that investors should have additional time to file a complaint if they have utilized an internal "ombudsman" ( unregulated) even though the internal "ombudsman" does not provide a binding decision and is not a registered “firm” or even a representative of the firm. Indeed, the internal ombudsman specifically state they are independent of the firm. Although well intentioned ,accepting internal "ombudsman" complaint responses is not in keeping with NI31-103 which has a higher order of precedence than IIROC rule 2500B.

In addition, the complaint brochures of all the banks nudge complainants away form OBSI. For example , TD’s If You Have A Problem brochure https://www.td.com/document/PDF/to-our-customer/td-customer-care-en.pdf  states under the heading Additional resources – external agencies states “If you require further assistance after the decision of the TD Ombudsman [Emphasis added], the following independent services can provide you with information and a further review of your complaint. Please use the information below to contact the agency that deals with the TD business group where your concern arose. These agencies may contact TD’s internal complaint resolution staff – including the TD Ombudsman’s Office – to facilitate their investigation and work toward the earliest possible resolution of your complaint”. This is incorrect – investors with complaints DO NOT have to engage with TD’s “ombudsman” before they can access OBSI. The brochure also does not warn investors that the statute of limitations time clock continues to count down while the investigation is in progress.

Investor advocates encourage OBSI to proactively call out these diversions and to establish countermeasures.

It is our view that accepting responses from internal "ombudsman" can have adverse consequences :

1.   It unofficially recognizes internal "ombudsman" as the firm by acting on their reports although they are an unregulated entity

2.   It creates a  unregulated “competitor“ for OBSI 

3.   It can undermine the regulatory intent behind the CSA 90-day Rule

4.   It leaves complainants exhausted after 3 or 4 stages of  complaint manipulation by firms and their so-called internal “ ombudsman”-This exhaustion reduces their will to proceed on to OBSI  

5.   The complaint may exceed the 2 year statute of limitations timeline leaving complainants without any legal rights of redress

The benefits  of internal " ombudsman" to firms are however great:  (a) It keeps complainants away from independent OBSI (b) It allows a second chance to low ball (c) It avoids any risk of Name and Shame (d) It converts a binding offer from the regulated dealer to a non- binding recommendation and (e) It wears down the will and energy of complainants so they are more willing to settle for less than a fair amount. Few will have the drive to file a complaint to OBSI after passing over so many hurdles. 

We therefore call on the OBSI board of directors (a) respect the provisions of  NI31-103 and (b) amend section 19 of the Terms of Reference so that more complaints are directed to the sole CSA-designated Ombudsman, OBSI. Regulators also have a role here in educating investors as to the true status of internal "ombudsman".This will be a WIN-Win for all who support investor protection.


Related materials: 

FAIR Canada  Letter to OBSI Joint Regulators Committee re Use of " internal Ombudsman" by Registered Firms When Responding to Investment Complaints https://faircanada.ca/submissions/letter-obsi-joint-regulators-committee-re-use-internal-ombudsman-registered-firms-responding-investment-complaints/ 

CSA Notice on Complaint handling/ OBSI sets the bar for complaint handling  http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20171207_31-351_ombudsman-banking-services-investments.htm Joint CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments. The issues are articulated  in a joint Notice  from the Canadian Securities Administrators (CSA), IIROC and MFDA . The Notice  claims that some registered firms’ complaint handling systems fall short of the requirements of the Ombudsman for Banking Services and Investments (OBSI) and there are also concerns about the use of an internal ‘ombudsman’ by the bank-owned dealer’s.