Wednesday, March 23, 2005

improper mutual fund practices lead to $81 mil fines

From Wednesday, March 23, 2005 Washinton Post newspaper comes the following:

By Brooke A. MastersWashington Post Staff WriterWednesday, March 23, 2005; 5:29 PM

"Citigroup, JPMorgan Chase and American Express Financial Advisers paid a total of $21.25 million to the NASD, formerly known as the National Association of Securities Dealers, to settle allegations that they collected excess commissions from more than 50,000 households by selling high-fee "class B" mutual fund shares when the investors could have bought another class of the same funds for less. In addition to the fines, all three firms will convert the shares into the class that pays lower ongoing fees, and reimburse customers who have already sold the shares for the extra fees they paid."

Here in Canada we have yet to awaken to the similar sounding and acting sales practices, being disguised as professional investment advice. The fact is that 80% of the mutual fund sales in Canada for many years now have gone into the higher compensating (and higher penalty to client) DSC funds, which have the deferred sales charge.

Further, when comparing two otherwise identical mutual funds, except for the compensation paid to advisor, a popular Deferred Service Charge (DSC) fund, which pays 5% to the advisor without disclosure on client confirmation or client statement, has grown over SEVENTY TIMES as large as an identical fund that has no hidden commission structure[1]This growth was achieved despite a higher management cost to the client, and a multi-year penalty to the client to exit the fund. [1] . (Source, Ontario Securities Commission Fair Dealing Model proposals, appendix F, "Compensation Bias", page 12)


This does not speak very highly of the amount of professionalism in todays financial services industry.

Alberta Securities Commission comes under investigation

from todays Financial Post comes an article about our Alberta Securities Commission being held to account by numerous insiders and former employees who allege improprieties within. "Securities watchdog turmoil
Alberta commission facing review, lawyer denies claims"

Theresa Tedesco
National Post
Wednesday, March 23, 2005

This article explains a lot to me, as I had worked with the ASC enough times to realize that they were rather dysfunctional in the role of public protection.

The following is my letter of support to Alberta Finance Minister Shirley Mclellan, who is coming under fire in the legislature for her tough approach:

March 23, 2005

To: Finance Minister for Alberta Shirley McLellan Fax: (780) 428-1341
From: Larry Elford, CFP, CIM, FCSI Associate Portfolio Manager (retired 2004)
Re: Alberta Securities Commission

Dear Mrs. McLellan,

I write to thank you for your bold efforts on behalf of the public interest in the province. I understand the pressure you must be under for taking on this problem, and I want you to know I support you.
I am aware that some of those accused will simply take the Bill Clinton (or the Lord Conrad Black) approach of , “deny, deny, deny”, and that this will not hold up forever.
I have no knowledge of the personal side of the issues in question, but my professional life required me to be in close contact at times with the Alberta Securities Commission, and to watch them in action.
I feel that my experiences with the Commission lend credibility to allegations made by others that the Commission was simply not doing it’s job as advertised.
I will keep it short for now, but I have a few examples of my own which show the Commission brushing aside, and selectively enforcing or choosing to not enforce our provincial Securities Act.
Given the recent resignation of the Ontario Securities Commission head, after being caught in deceptive public statements about his department (six days prior to his announcement), and the following news: Toronto, March 17, 2005
Michael Lauber, the CEO and Ombudsman of the Ombudsman for Banking Services and Investments, will retire June 30th, the organization announced today……………….it appears that there is a bit of a wholesale change of guard taking place, and it could not happen at a better time.
Canadians have been too long victims of financial predators and the current crop of regulators is as much part of the problem as the predators. Please accept my congratulations on your steps in this direction and my offer of support in any way that I may be of assistance.
Best regards.
Larry Elford, 521 Fairmont Blvd, Lethbridge, Alberta T1K 7G3, lelford@shaw.ca