Fair Advice Now!

Grim Testimony

On a sunny afternoon in the autumn of 2004 a middle aged widow, I will call her Judith, came to see me in my office. She was a person who had gone through some very hard times in her life recently and been regaining her composure and optimism again. During her infrequent visits I felt obliged to give her my full attention. I could only surmise on the well-springs of her new-found sense of calm.
Of all my clients, she was pobably the one I was most concerned about disappointing.

Were there the rumblings of a distant autumn storm in the air? I don't recall for certain, but I have a sense that there were.

She had a GIC for $2500 coming due and she wondered if she could invest it in something with a better return but the least possible risk.
I gave her some information on a balanced fund, a seg bond fund, and the Portus funds, including BancLife Trust.
We agreed to meet again in a month or so after she had had a chance to read the material and think things over.

After she left I realized I had not checked to see if our dealer was actually offering the Portus products.
I had given the information to her mainly because of the rave reviews the Portus funds had been getting in the financial pages as
an innovative hedge fund offering a minimum guaranteed return if held for several years. It had been the leading fund company in sales in Canada for months now and the Manulife advisors were selling it hand over fist, particularly the BancLife Trust which had a small life policy attached to it and which offered a referral fee to insurance advisors, being available through insurance dealers only.

I immediately picked up the phone and called our insurance manager at his office near Toronto. He was busy but asked me to send down the Portus material and he would check it out.

This didn't sound promising. Well, I thought, if the client wants the Portus, I can pass her on to a colleague at an insurance dealer to buy it.

The Manager called back the next day.
"Looks great to me", he said, "but we don't offer it".
"I don't know why. I guess it's because
our company offers a similar hedge product and they don't want the competition".

THE AUDITOR

I forgot all about Portus until the day of our compliance audit some weeks later. After the Auditor went through our papers she closed the last file, brushed aside a blond lock of hair from over her ice-blue eyes, and tossed out a question:

"Do you deal in any alternative investment funds or hedge funds, anything like that?", she queried.
I wasn't sure what she was driving at.
"You mean like Portus", I ventured.
"Yes. You know our company doesn't deal in Portus.".
"You mean it's illegal" I probed.
"Oh no" she responded. "it's just that our company doesn't deal in it. If you have some deals through an outside MGA (an insurance dealer), there's no problem".
Then she picked up her bag and left.

Of course Judith came in the following week and said she wanted the Portus BancLife Trust. She particularly liked the life insurance component and wanted to make her daughter the beneficiary. I was stuck.

I had obtained my insurance licence four years ago when the company had just been involved in a merger. The insurance department was then temporarily closed for new business.
A colleague at the office advised me that many of them did business with another dealer accross town for insurance and told me to go and see them. I did and the insurance dealer agreed to licence me. I had reported all this to my dealer and even put a few seg fund trades through this
outside MGA.
After some hesitation, I took the Portus application forms from Judith and told her I would have to put them through the outside dealer.
She left and I put the forms aside to await a cheque she would order from her bank. I had told her we would look it all over again when the cheque came.
I started thinking how to talk her out of it. To get some more information
I called the MGA. The person at the other end insisted it was a great product and the capital was guaranteed.
Since it was saleable on an insurance licence there could be no conflict with my main dealer. He said the product was not even covered under the rules of the Mutual Fund Dealers Association, of which my dealer was a member.
Halloween with all its witches and goblins was upon us.

THE TRANSACTION

When Judith came in again she had news. She had actually met and spoken with the fund's representative somewhere in town and he had sold her on the Portus product.
I knew I was stuck!
I went over the forms, particularly one from the MGA setting out that I was not selling her the Portus product but providing a referral only. She said it was okay and signed.
I thought little of this transaction over the next few months.

My company was experiencing all kinds of administrative problems due to a recent merger. The news was that the company wanted to combine smaller offices under a single branch to cut costs. People who worked in the smaller offices were afraid of losing their management fundng and had begun to complain.
I had recently concluded a purchase of some assets from a representative who had retired. About a dozen clients also had securities accounts at an outside discount broker and the retired rep was pushing me to pay him a sum of money for the acquisition of these accounts.
I asked my Regional Manager for a statement that I could not pay for these accounts as I did not have a securities licence. His response was that he could not become involved as the whole thing was part of a private deal between myself and the retired representative.
The former representative was threatening to sue me and I complained to our Head of Compliance that it was in the interests of the company to express a view about this illegal transaction.

The Compliance Head eventually agreed in writing that I could not buy the securities accounts.
When the Regional Manager got wind of this he hit the roof. I was going over his head and was obviously a troublemaker!

SUSPICIOUS DELAYS

Then all kinds of delays and problems suddenly arose at regional office. Ads I wanted to get into newspapers for RRSP season were held up for weeks. One day the Regionl Manager sent me an email insisting my website, which had been under revision by head office for months, be closed down.
The website was an important source of information for a large group of clients I had who were particularly interested in Socially Responsible Investing. It was also an important source of referrals.
I made a list of all these admistrative problems at the dealer which were causing me considerable business harm and requested a meeting
at the regional office.
Then came a number of enquiries from our Compliance Department regarding my sole Portus client; asking how I had done my due dilligence on the transaction.
I reported the comments made to me about Portus by the Insurance Manager and the Auditor. The very next day I got an angry email back from the Insurance Manager disputing he had had anything to do with my non-compliant sale. The Manager repled in kind with a message saying my career was endangered by my non-compliant actions.
The financial news was full of the stop trading order against Portus by the OSC and the ongoing investigation.
Outside my office window winter was making its last gasp with the biggest snowstorms in years.

CHILLY MEETING

The Regional Manager got back with an email proposing a meeting on April 20th, 2005.
I knew something was in the wind.
Before I flew down to Toronto, the company brought in one of its top managers from the mutual fund business affiliate to do some public meetings. He extolled the virtues of tobacco stocks like Reynolds which had made gains despite the tech crash and 9-11. He regreted that Talisman had been forced to withdraw from profitable oil operations in Sudan because of some idealistic but foolish protestors. In after dinner conversation I commented that managers who had no scruples in making profits from products which were causing lethal diseases or providing oil royalties to buy weapons to comit genocide were not likely to be trusted by investors. They were more likely to consider such managers the moral equivalent of persons who take the money of their fellow citizens and run off to South America, I suggested.

In deference to our guest of honor I tried to confide my opions to a few colleagues nearby. Was I overheard?

The next day I flew down and arrived at the meeting, accompanied by my assistant at 10 a.m.
The Regional Manager, the Insurance Manager and their assistant were all in the room- looking stone-faced. The latter was wearing her trenchcoat as if she was having trouble keeping warm.
The Manager gave me an envelope and told me to read the letter inside. He had an uncomfotable look on his face. I though at first it was due to an ill-fitting suit.
I had not come all this way
just to read a letter. I had proposed an agenda for the meeting a week ago and requested the managers to suggest changes. They had not.
I began to read over my agenda of outstanding administrative issues, commenting on each item.
The Manager interrupted me to say I should read the letter.
I agreed to add it to the agenda and continued.
When we reached the item mentioning the undue delay in approval of my website, the Manager remarked that my website was still "online".
I told him my webmaster had said it was closed although all changes requested by the company had been made.
I asked the Manager what changes were still required. He could not answer.
Then I came to the item refering to my view that a December cutback in commissions by 5-10% was a contractual violation because it had been announced unilaterally, without negotiations. I had raised this issue numerous times since the announcement and received no clear response. This time there was no response, unless it was in "the letter".
I finally opened the letter. It announced my immediate termination for the sale of a Portus product, refering to it as an illegal sale of a security without a license.
There to deliver the letter to me was the Insurance Manager who had told me it was "a great product" and the Manager who had said, four months earlier, that whether or not I acquired a whole book of securities accounts, it was not a company concern.
Apparently the administrative problems being faced by the company due to the recent merger were getting out of hand. To address the issues on my agenda that morning would have required the recognition of serious compliance and management errors.

SHUT DOWN

When I got back to my home office the company sign on the door was gone. Our secretary was looking rather startled. My associate manager had been ordered to go around the office with the cordless phone in his ear while the Regional Manager told him to remove files with the company name on them, the compliance manual, the rubber stamps, the sign from the window and other personal property I owned. With the closure of the branch the two other advisors had to scramble to collect their files and take them home. Hundreds of clients were thrown into total confusion as to the location of their advisors and documents. My over 200 clients were turned over to another representative to manage. Two office assistants had their jobs put in immediate jeopardy and one's health benefits were cut off without notice while on sick leave.
My own career is on hold while the OSC investigates my case. Meanwhile, the results of a decade of business building are fizzling away like sand through an hourglass.
All this as result of a compliance action, supposedly "to protect the investing public" from greedy advisors.
In my case, the measure of my greed was an $85 fee!

The furor over Portus in the media is getting louder by the day.
The management had gone through my clients and found the one widow among them with a Portus investment.
In the prevailing atmosphere the managers at my company must have felt the same sense of exoneration as the elders in Salem must have felt when someone criticizing them was suddenly linked with witchcraft.
I ran into a client who told me Judith was in the hospital now. So far she had not been involved. What would I tell her if she called and how would all this affect her hard won peace of mind?
I played with the thought of ringing up the OSC officer who was reviewing my termination. I knew several colleagues who had sold Portus and were keeping their heads low by not responding to requests for information. Perhaps the OSC would restore my business if I were to offer three or four names? I never made the call but the thought passed my mind.

One can only wonder how many other opponents of management abuses in the financial services industry are being fingered and silenced as the Portus witch-hunt continues.

posted by Thunderer @ 6:11 AM 0 comments

Portus Abuses

We have received increasing information from colleagues that the Portus investigation is leading to numerous abuses which contravene the intent of most securities regulations as well as basic rights of advisors.

These include:

Threats of termination to advisors reporting the role of dealer management in promoting Portus products.

Vetting of information provided to the MFDA and OSC to sanitize the image given of dealer management and blacken that of advisors and assistants.

Outright falsification of information.

The use of the inquiry to accumulate assets in the hands of a few large branches under the pretext of compliance requirements, a process which is actually reducing the level of service to clients and the accessibility of advice
by clients while increasing dealer profits.

The Advisors' Clarity Initiative asks all advisors to write in their experiences either using the Guestbook or by email to accrue@email.com. Requests for confidentiality will be strictly observed.

posted by Thunderer @ 7:20 PM 0 comments

The Decline of an Excellent Profession

THE ADVISORS CLARITY INITIATIVE

This blog is launched as an initiative for financial advisors who have become interested in sharing viewpoints on developments within their dealership(s) in Canada.

In the past few years we have seen a growing emphasis on asset-gathering into larger dealerships through a series of mergers. This is usually justified by management as being the result of requirements for improved regulation and client service.

What has infact happend is that the ratio of advisors to clients has been drastically reduced, the remuneration of advisors has been cut back and the salaries and profits of the larger dealerships and their managers have soared.

There as been an extensive move to eliminate the advisor and replace him/her with technical account management systems, often at enormous cost. This has led to a deterioration of advisor working conditions as well as of access to services by clients.

Traditionally the independent financial sector consisted of a large number of small and medium-sized low capital intensity businesses which produced modest incomes for advisors and relatively good personal services to a modest number of clients with whom the advisor was able to maintain a congenial relationship. This was the knd of relationship decribed by Nick Murray his his famous book, "The Excellent Financial Advisor".

The competitive environment emerging after a series of reverses in the financial services industry from the Asian crises of the late 90s to the "tech crash" to the end of the "long bull" at the arrival or the new millenium and continuing with the terrorist threat and the decline of the U.S dollar has led some of the larger players in the industry to close in on and buy out the small independent advisor sector.

This has been led by larger investment houses incorporating mutual fund businesses, gradually eroding the independent advice sector to a skelton of its former self. Self-regulatory organizations such as the IDA and the MFDA have used compliance requirements and regulation
as a tool to achieve this end with little intervention from public watchdogs like the OSC or investor organizations.

The intermediaries between the dealerships and the investing public, the advisors, have been poorly organized and equipped to deal with these developments. This is regrettable since the interests of investors and advisors are so closely aligned.

This blog is intended as a forum to provide independent advisors an opportunity to exchange views on these developments in order to become better informed in efforts to enhance their own professional competence as providers of services to members of the public who have placed their financial security in our hands.

To this end, your comments as an independent advisor or member of the investing public, are welcomed.

Join Blogspot to enter your views or make quick comments in the guestbook where you can also get in touch to join The Advisors' Clarity Initiative.

posted by Thunderer @ 2:23 PM 1 comments

Life Under the Inquiry

"Terminated".

My colleague was dumbfounded when he hung up the phone. He walked slowly back to his hospital bed and lay down.
When he slept he might have heard again the shouts of the rebels invading Freetwon in 1999- the sporadic gunfire startling condors into flight, and the flash of machetees.
Before the mad rampage was over, many of his friends were dismembered and his wife disappeared- kidnapped, perhaps lost forever.
When he opened his eyes again, he saw
the receding snowbanks of late April
outside his hospital window and knew he was safe in Canada. A refugee with his brother, mother and young daughter, Lily.
In a place of sanctuary. Far from the
maurading raids of the rebels who called themselves "liberators of the people" while they pillaged and robbed.
Or so he had thought until the phone rang.

My colleague had been able to use his experience working as accountant for the UN in his home country to land a job as an unlicensed office assistant at the Thunder Bay office of our investment dealer.
It was one of the coldest winters on record and the waits for the irregular bus service in 40 below weather chilled him literally to the bone. The cold was completely beyond his experience.

Soon his legs developed sores as the cold exacerbated an old complaint.
He was limping noticeably and colleagues at the office urged him to see a doctor. He finally got an appointment after Christmas. By then every step was agony.
The doctor ordered him hospitalized at once and told him he was in danger of losing the use of his legs.
By April he was responding well to treatment and well on the road to recovery. The doctor prescribed medications and bandages for use after his release. Only a fraction of the costs were covered by OHIP but he had his group benefits from the investment dealership.
Or so he thought.
Then came the telephone call from the insurance company. His benefits were terminated without notice.
On his salary my colleague knew the medications were now beyond reach. But would he have a salary ?
He knew there had been heated exchanged about a 5% commission cut between the dealer and me.

He went to visit his colleagues at the investment office near the hospital to find out what was happening. Everyone looked pale.

He learned that the office had just been raided.
"We had one Portus client" said a colleague. I had been temporarily terminated as well as the funds to run the office and pay salaries.
A company agent came in and went through all our books and records.Even personal effects. He took down the sign in the window and everything with the company logo. He went through all the desks and cupboards with the regional manager on the cordless phone talking in his ear.
Most of the stuff was our own property.

We called him to bring back some sign material which did not belong to the dealer. A furtative meeting was arranged in a parking lot. When the dealer's man opened his trunk to return the signage I saw he had all kinds of files in there too. Probably still has. There were some things about the former dealer's views of compliance and client confidentiality I never understood.

The termination without notice had included my colleagues benefits.
The phone calls and probing emails from the company's compliance department about the single Portus transaction had already been coming in almost daily when my colleague was hospitalized at the end of February. Now it is mid July!
Clients ask how long the situation will continue. No-one knows. The Ontario Securities Commission had stopped trading in the Portus hedge funds and some dealers had responded by terminating advisors dealing in the product directly with Portus. I had made the deal with an outside insurance company after consulting with the dealer.

My colleague had not dealt in the fund but his benefits were terminated too.

Almost six months have now passed and the regulators continue their investigation. Clients call daily to ask if the office will reopen.

No-one can answer their questions.

The protectors of the public interest continue to probe. There are rumors of firings of advisors at other dealers who made tens of thousands by selling Portus without telling their managers.

At our office there had only been one Portus sale producing $85 in commissions, made through an insurance dealer.

Someone from the OSC called a few weeks ago and asked questions about an ethical investment club I attend, links on my website, what I do in my part-time business and who I associate. The questioner said he would have news on the re-registration by June 14th. It sounded hopeful.

Instead there were more questions from the OSC about the site of an ethical investment group linked to the manager's main site. The site gave an account of the shareholders' initiative at Talisman Oil in cooperation with several church groups. That initiative had led Talisman to withdraw from the Sudan and cancel its royalties payments to the government which was complicit in the terrorizing and torture of tens of thousands of
non-adherents to the state religion in the Darfur. My colleague and I had covened meetings during RRSP season where we had spoken about abusive mining corporations.

The company had brought a fund manager to Thunder Bay who had praised the opportunities in companies like Talisman. and Phillip Morris. I had responded with an email questioning the wisdom of promoting companies profiting from genocide and disease. Might there be a public moral outcry against such a fund company leading to investor flight?

There was no direct response.

Then came a barrage of questions from the OSC about the socially responsible investing site.

A week has passed, then another- no news.

A staff member said he crossed the street when he saw a friend or client approaching. "Who wants to talk about being investigated?"

My colleague knows his food money for the family is running low. There were no new clothes for Rose to wear to school. His prescriptions remain unfilled. He cannot help recalling the time he was hiding from the rebels in Freetown.

The regulators continue their incessant probe across Ontario "in the public interest".

An agreement has been reached with a new dealer but the office stays closed.

I am unable to reopen the office as the OSC holds back registrations as the investigation continues.
Can this all be about one hedge fund transaction for $85?

At the office no-one knows when to schedule their vacations. A staff member has booked time with a stress therapist.

A New Canadian from Europe who works, part-time, recalls stories of political persecuting told by her parents.
"Perhaps there will be more questions?
More raids? Perhaps I should go back home? Leave the country for awhile?.

She was not kidding.

No-one knows when, or if, anyone can work again.

No-one knows when it will stop.


A Former Branch Manger

posted by Thunderer @ 1:11 PM 0 comments