More advisors behaving badly: We’ll see you in court, plaintiffs say
I see these types of headlines all too often. This week, Clare O’Hara, wealth management reporter for The Globe and Mail, outlined a class action lawsuit against a BMO advisor and BMO Nesbitt Burns. The case alleges that from 12 families, 27 investors each lost between $600,000 and $16 million as a result of their advisors executing on some very risky investment strategies.
The multi-plaintiff suit suggests that the clients all had low risk tolerance levels. Yet, clients were placed in a risky pair trade that involved short-selling bonds and taking long positions in preferred shares.
Huh? you say? Yeah, I’m with you on that.
On my blog and on social media, I hear from too many investors who’ve been treated poorly. That’s not to suggest most advisors are “bad”—we’re talking bad apples here. But those bad apples overflow the basket at times.
I email with Ken Kivenko on a regular basis. He’s a tireless investor advocate at Kenmar, a consulting firm that assists investors who’ve been wronged. Ken also operates Canadian Fund Watch. It’s a full time endeavour for Ken to keep up with the investor abuse and mistreatment. Too much of this crap also goes on by way of the mutual fund sales force. Ken commented in an email to me:
“Canadian investors are being exploited. Many advisors are compensated by sales commissions and must meet demanding sales quotas. The suitability standard is a low standard allowing expensive, unsuitable products to be sold. Sometimes, of course, there is fraudulent activity such as forging client signatures or using blank signed forms. When clients complain, they are treated poorly, lucky to get cents on the dollar in compensation. Major reforms are needed. This is more than a regulatory issue, it is a socio-economic issue.”
Perhaps that’s why advice-only planning is picking up steam. In MoneySense this week Jason Heath answered the question: What does a fee-only financial planner do, exactly?
It’s conflict-free advice. That means the financial planner is not selling (or paid through or by) any financial products. But, as Jason points out, more regulation is needed in this area as well.