Advisor title misleading? Misrepresentation?

Read this if you are interested in discussion, debate, or the exploring some legal aspects surrounding the question of whether investment advisors are really salespeople masquerading as something that they are not. I am quite willing to be proven wrong on the topic by healthy debate.

Taking a short tour of some of the rules and regulations surrounding the use and or misuse of the “advisor” title, as it is either used or misused by a large majority of investment salespersons in Canada.

Starting with this OSC web site:
http://www.osc.gov.on.ca/Dealers/RegistrantList/regcategories.html#857

This site gives us a glimpse into the more than one thousand (yes,1000) registration categories in the investment industry

1 Category number one, “advisor” is found in approximately NONE of the fifty five pages of registrants at the largest investment firm in the country.


2 Category number 1083 (salesperson)is by far and away the most common category of registration found at this same firm.

And yet, most of the registered salespersons at this firm are claiming the title of “advisor” on their business cards, their web advertising, and their promotions, and have done so since shortly after 1987 in an effort to improve or alter the public image and the marketing results of their sales job.

http://www.osc.gov.on.ca/Dealers/Requirements/OSA/rrq_20050401_osa-ac-securities.jsp

For each individual seeking registration in an advising capacity, we require confirmation of education and investment experience to demonstrate that the relevant proficiency requirements of OSC Rule 31-502 have been met; i.e. the requirements of either per s. 3.1 of Rule 31-502. The details should be provided in the proficiency and employment sections of the 33-109F4. The individual should include letters from previous supervisors, or, in the alternative, the contact information for those supervisors, to confirm the investment experience. This information should be provided in paper format to the Registrant Regulation Section of the OSC.

http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part3/rule_20000623_31-502rule.jsp

(From this page we see the proficiency requirements for advisors, in short, they need to be finished the CIM course or partly finished the CFA course etc. to call themselves this title)

PART 3 PROFICIENCY REQUIREMENTS FOR ADVISERS
3.1 Securities Advisers and their Representatives, Partners, Officers, Branch Managers and Compliance Officers
(1) An individual shall not be granted registration as a securities adviser or a representative, partner or officer of a securities adviser unless
(a) the individual has been granted registration previously as a representative, partner or officer or an associate partner or associate officer of a securities adviser, investment counsel or portfolio manager or as a securities adviser, investment counsel or portfolio manager;
(b) the individual has
(i) completed the Canadian Investment Manager Program or the first year of the Canadian Financial Analyst Examination Program, and
(ii) established that the individual performed research involving the financial analysis of investments for at least two years under the supervision of a registered adviser; or
(c) the individual has been granted registration as such by his or her principal regulator, as that term is defined in National Instrument 31-101 Mutual Reliance Review System for Registration, and that registration has not been suspended or terminated.
(2) An individual shall not be designated by a securities adviser as the compliance officer under section 1.3 of Rule 31-505 Conditions of Registration or as a branch manager under section 1.4 of Rule 31-505 Conditions of Registration unless the individual has been granted registration previously as a representative, partner or officer of a securities adviser, investment counsel or portfolio manager.


“After two decades, I have yet to meet a registered salesperson, calling themselves an advisor, who had actually completed the requirements necessary to lay claim to the “advisor” title. Yet it was used extensively, as mentioned above, for marketing reasons.”

“It was (and is today) misused, in my opinion, in order to lead clients into the false sense of security that they were not dealing with self-interested salespeople, but instead were dealing with client-interested professionals. It was used to lend credibility and trust to client relationships that were then often abused and used to pursue the greatest sales commissions for the occasional bad sales rep. In addition, most of the firms advertising and promotion supported this trusted professional stance.”

“However, when push came to shove, as it did when 92 year old Norah Cosgrove of Toronto took RBC to task in small claims court, their statement of defense spoke to the truth and spoke volumes about the misleading aspect of claiming trusted professional status:

RBC stated something to the effect that at no time were they acting in a fiduciary capacity and they felt they owed “no duty of care” to this and presumably all other RBC clients. See Norah Cosgrove V RBC DS, Ontario Superior Court of Justice, small claims court file no. 03-SC-083313 for the exact wording of their statement of defense.”

“In summary, firms may talk the talk (when talk is easy), but fail to walk the walk. And when called onto the carpet by this disgruntled 92 year old client, to use one public example, they may recant even the talk. I maintain that use of the title, “advisor” on investment salespersons business cards commits each and every one of them to a fiduciary level of responsibility to the client, and to claim anything less is misleading and damaging to the public interest. This fiduciary level of responsibility to the client should and could be used by class action lawyers to obtain redress and compensation for all clients over the past decade or two, who have received a sales pitch by sales people, rather than the professional investment advice, as the firm and the representatives promised instead.”

“For a look to the future, and the potential size of the actions possible towards these firms, see the NASD web site and investor alerts: http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975&ssSourceNodeId=1249



In July 2002, NASD charged a broker with securities fraud involving, among other abuses, purchasing large volumes of Class B shares that kept his customers from taking advantage of the lower sales charges available through different classes of shares.


see www.investoradvocates.ca for discussion forums on this and related topics

Full Price Disclosure (from my local auto dealer)

"If only the mutual fund and investment selling industry would be as pro-active and forward thinking as the auto selling business". Today it appears investment salespeople are lagging behind auto sales in ethics.

Two points on this topic were recently noted:

My local Toyota auto dealer has begun to advertise that it's salespersons are now called, "product advisors". In much the same manner as stockbrokers and commission investment salespersons began referring to themselves as "investment advisors", a while back. Is the change in name backed by a change in methods? Time will tell, but in the case of the investment business, the commission compensation model is still paramount. It is still either an "eat what you kill" industry for most salespersons, and an "eat what you gather" industry for those who have converted to fees instead of commissions.

Second item, last weekend, I noticed a Cranbrook, BC, Toyota dealer advertising, "full disclosure" pricing on their vehicles. This is a welcome change after the decades of buyer beware pricing tactics found in the auto industry.
If the mutual fund industry were to follow this trend toward openess and honesty in the manners of compensation disclosure (instead of prospectus confusion), it would help considerably toward restoring the reputation of the industry. Without that, it will continue to drive the reputation of the industry into the ground.

The question is, will the auto sales industry step ahead of the investment industry as far as reputation goes...........or will the investment selling industry change course and come clean?