Readers' Response
Dateline: 06/18/99
A couple of weeks ago I wrote about broker trust. (Can You Trust Your Broker? - June 2, 1999). After relating several case histories of investors who had been steered wrong by their brokers and lost their savings in bad investments and telling you about several lawsuits pending as a result, I concluded that ultimately, the investor has to take responsibility. "Every investor owes it to himself to understand some basics about investing," I wrote. "Seek counsel. Listen to advice. But ultimately, the buck stops with you! Don't let someone else do your thinking for you".
The column sparked several letters of response from people actively involved in the issue and so I'm reprinting their responses here. Because they are public figures I am using their full names (with their permission) rather than just their initials.
The first is from Jim Roache who has been engaged in a protracted dispute with Nesbitt Burns over alleged broker malfeasance. His case is still before the courts.
Thanks for the Article - Well Balanced
You conclude however "Listen to advice. But, ultimately, the buck stops with you! Don't let someone else do your thinking for you."
The courts do not agree - when there is a fiduciary relationship as in my case. See Hodgkinson Vs. Simms.
It states that one must look at the nature of the relationship to determine trust and reliance. The KYC (Know Your Client) Rule is central. It is not even an excuse to say that securities sold at a profit if they were unsuitable.
In Re Adelaide Securities Ltd., 1968, OSCB 57 at 77 OSC, it states "Whether one (the broker) believes one or more of these purchases to be stupid or naive , gullible or greedy, this does not make them (the client) fair game...the salesperson must show greater wisdom than the investor who comes to him and perhaps even refuse to sell ...the investment...when he or she knows the investor does not understand the risk."
See as well Froebel vs Claxton in the BC Supreme Court, 'The client made up his own mind because he was no expert". The Court found for the Plaintiff in the full amount plus costs.
All the Best!
Jim Roache
Jim makes some good points here. The question is one of Breach of Contract. The nature of the broker-client contract and the obligations it imposes on brokers can be loosely compared to that of a doctor and his patient. While the client's health may not be at risk, his financial health certainly is.
In a follow-up exchange Jim comments "Too many people are being hurt and there is no effective means of redress available. I want to alert as many small investors as possible to the danger of dealing with even major institutions, let alone discount brokers and others". Investors take note!
Be sure to visit Jim's website where he extensively chronicles his case.
The next letter came from Stan Buell, founder of the Small Investor Protection Association. I have edited it slightly.
Re: Can You Trust Your Broker?
I have just read your article "Can you trust your broker?" forwarded to me by Jim Roache.
Unfortunately everyone does. At least until they have lost when they have been hoodwinked by their broker. My investigation from 1996 to 1998 revealed such information that I could not sit back and say I have things under control. I tried on my own and soon realized the individual is powerless to effect change unless the individual is powerful in their own right. Hence the Small Investor Protection Association.
Thank you for writing about SIPA. Some of our members represent larger groups of victims. One such group from Ancaster who are pursuing a claim has 65 participants out of about 100 who suffered loss.
We are trying to identify groups and individuals who have an interest in helping individual investors who have had problems, and in working towards a better system that will acknowledge the need for a well regulated industry that provides fair treatment for investors. The current self regulation fails to provide adequate protection for individual investors and is prone to being used by the unscrupulous to take advantage of seniors, widows and new Canadians in particular.
While it is good advice for people to look after their own money, most will have neither the knowledge nor the time to do this. That is why the industry exists - to provide a needed service. Even though one may be capable of doing many things, it is generally necessary to depend on others for services (electricians, plumbers, doctors, dentists, etc.) in order to have the time to devote to one's own profession.
We need a federal regulator with the power to order restitution when the brokers break the rules and cause clients grief. Anything less than this will be a compromise.
Stan Buell
Small Investor Protection Association
Stan's letter also noted that SIPA had 140 members as of June 1st. Be sure to visit the SIPA website where he keeps an archive of case histories and many links of interest.
While both Jim and Stan were mentioned in my article, I neglected to mention my next correspondent, Joseph Killoran. Joe is a former broker who left the industry because of ethical concerns. He blew the whistle on mutual fund salesman Dino DeLellis who has since been banned from selling securities by the Ontario Securities Commission and who is now facing criminal charges along with two associates. Joe has been crusading extensively for reform in the mutual fund industry in particular. His letter is edited slightly.
Re: Can You Trust Your Broker?
I enjoyed your "Can you trust your broker?" article.
I was baptized by Merrill Lynch in 1983 to be a "financial mechanic". I left the industry by choice in August 1988 and I've been on a lonely crusade seeking redemption since then by trying:
Have you read Glorianne Stromberg's recent report? She adopted, validated, recommended and expanded upon many of my consumer/investor educating, decision facilitating, field leveling and safety protecting ideas, including:
Will you be covering today's (June 14th) presentations to the Mutual Fund Dealers Association (MFDA) SRO Board of Directors by their five committees? The Chair of the Sales Practices Committee, Lou Calderisi, President of The Financial Planning Group, was the fellow that the OSC fined $20,000 for his personal failure to oversee the hidden to consumer/investors terms and conditions that the OSC put on Dino DeLellis's license when TFPG was allowed to hire DeLellis in February 1996!
Ed Waitzer told me on August 29, 1997, "Of all the qualified people, including myself, who could have represented investors in the Stromberg, Steering Group, OSC/CSA, etc. processes, none of us were acceptable to the industry." With Calderisi as Chair of the MFDA SRO Sales Practices Committee, have we got a case of the foxes deciding when, how and what consumer/investors DESERVE to be told, SHOULD be told, MUST be told what is happening to their collective monies!
Best regards,
Joe Killoran,
Joe hosts an interesting website called The Frugal Bugle where he has published an extensive Investment Fund Checklist that you can have your broker or investment advisor and yourself complete to ensure mutual understanding and full disclosure of expectations and responsibilities.
Thoughts? Comments? Why not post them on our Bulletin Board! Or email me!
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Little investor, beware! - A cautionary tale from the Financial Post's Linda Leatherdale.
Report Urges Improvements in Investment Protection - This account of the Stromberg Report comes from the Toronto Sun.
The Stromberg Report - Here is a detailed summary of the report at the Strategis website.
The Canadian Banking Ombudsman - This organization tries to settle disputes between banks (presumably including their brokerage arms) and their customers. Board has five members from the banking community and six independent members.
Investment Fraud Net Links - My collection of Net Links on investment fraud.
06/16/99 - Best of
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Internet Update: Our Internet Update feature will return next Friday.