Ken Kivenko describes a complaint process

When the ombudsman comes calling

You’ve filed a complaint regarding bad advice and unsuitable investments that cost you money. At some point the ombudsman (or customer service or compliance officer) will come calling. You should assume that they are an adversary trying to nullify your complaint or minimize the amount of restitution. Ombudsman use the same biased restitution decision criteria as the firms that employ them or fund their operation. Don't be taken in by comforting words or a friendly smile. Your goal is to get your hard earned money back. If possible, have a friend or relative accompany you on any visits to act as a witness. Frankly, we view prevailing dispute resolution mechanisms and practices as industry- biased and unfair to small investors, seniors, retirees and immigrants. It is not an exaggeration to classify industry malfeasance as financial assault. There’s a reason Ombudsman don’t conduct or publish client satisfaction surveys –less than 1 person in 20 wins and of those, very few get the full amount of the claim.

First off, you don't have to answer every question they ask. You do not need to provide information that will be harmful to your case or is not relevant to your case. For instance, if they discover that you have substantial assets elsewhere they may attempt to argue that you implicitly have a high loss tolerance. They can and will use any data you provide against you if it helps limit restitution

Second, don't let your ego get in the way. If you really don't understand what that e-commerce fund was all about don't fake it. Ombudsman often try to present clients as more investment savvy than they really are. This provides them an argument for disqualifying or reducing claims. If the advisor didn’t prepare a Investment Policy Statement {IPS] for you or he/she breached it, your case is enriched. An IPS is regarded as one of the most basic documents between clients and advisers. The lack of an IPS is a sign of unprofessionalism. Note too that an unsuitable investment could also include one with inappropriate leveraging, a DSC early redemption penalty or one that causes you to be unduly exposed to tax liabilities. An adviser’s failure to effectively disclose investment risks, hidden commissions and high fees are also part of the equation-inform the investigator if this is the case. If you discover the brokerage firm or dealer failed to tell you that it received extra payments or incentives for recommending specific funds, your claim position is enhanced. The Portus hedge fund scandal is a recent example .

Third, they will point out to you that your monthly client statements clearly indicated you were losing money. So, they argue, you should have mitigated the losses and not let them accumulate. If however the statements are hard to interpret, you were told to buy-and-hold or cautioned that a whopping DSC early redemption fee would be applied, you'll have a stronger case. If you or your spouse were in ill health during the period, make this known to the investigator-this highlights the reason that loss mitigation wasn’t your priority at a time of serious family distress. There is an inherent conflict between the advice that mutual fund and stock investors receive to ride out the market downturns and stay the course for the long haul, and their duty to mitigate their losses as asserted by Ombudsman. If the firm's marketing literature portrays them as professional advisers, you should hand a copy to the investigator. Don’t hesitate to cite any firm –specific or industry conduct rules such as those from the MFDA (www.mfda.ca) or IDA (www.ida.ca) that support your position. Advisors have a role in loss mitigation; in fact the industry emphasizes that investors with advisors achieve better performance than those without. The stated purpose of ongoing embedded trailer commissions is to provide investors with continuing advice with respect to their portfolio, so hold them to it since you’ve already paid for it. If they didn’t suggest disposing of unsuitable investments, their case is weakened. Financial advice isn’t only about buying –it’s also includes selling.

Fourth, they may concede that you were sold inappropriate investments but may unfairly attempt to limit your compensation. Specifically actual market losses, sales commissions paid, DSC early redemption penalty fees incurred, impact on taxes especially in RRIF’s [gross-up], account closing fees, account transfer fees and accumulated interest from the agreed date of loss to the time of restitution payment should be included. Some argument can also be made for recovering the costs to file the claim if it involved out of pocket expenses to independent third parties to assist in articulating the complaint.

Fifth, Ombudsman also believe that inaction is evidence of agreement. Thus acquiescence on disputed unauthorized trades, will be used to negate claims. There should be positive two-way communication between a consultant and client. Since the consultant is the one providing advice, the obligation is there for confirming a transaction and ensuring the client understands the rationale for the transaction .If you have any evidence you queried the transaction, bring it forward.
Sixth, they may attempt to encourage you to walk away or settle for a token amount. You will be given a take- it- or- leave- it date for a decision on their proposed restitution. You might counter by demonstrating a strong level of determination. Some cases have settled successfully perhaps because of the threat of complaining to superiors, informing regulators, contacting the media or even involving law enforcement. In a presentation to the Ontario Legislative Committee on Finance and Economic Affairs, August 2004, John Hollander, a litigator, with the Ottawa firm of Doucet, McBride LLP, offered some insightful comments about the IDA and the OBSI. Mr. Hollander stated:
“The IDA and the OBSI routinely provide legal advice with substantial consequences to the investor and without accountability to the investor for the accuracy of the advice given. They tell clients there is no validity to the claim. The IDA and the OBSI provide legal advice, with neither the safeguards nor the accountability that apply to my profession. They tell clients their claims are ill-founded. My settlements and experts prove these opinions were wrong. Simply put, the IDA and OBSI are practicing law without a license”.

Finally, be aware that your NAAF or KYC may be used to support their argument. that you were greedy and willing to take on substantial risk. The problem with NAAF’s is that the terminology is imprecise and too often the salesperson fills in the form and has the client sign them. We are also aware of cases where clients signed blank forms and advisers signing on behalf of clients to provide a paper trail to cover their improper actions. KYC’s are notoriously inaccurate and often outdated -sometimes they are retroactively fabricated or altered to legitimize them. If you can demonstrate that your risk and loss tolerance is less than they portray, your case will be enhanced and the controversial KYC moved off the evidence table.

It seems fundamentally wrong to put the onus on the small investor who has lost a significant amount of their savings to prove his case, and accept the commission motivated adviser's word rather than place the onus on the firm to prove that they had taken every precaution to prepare an appropriate investment strategy that would not place a senior, retiree or trusting investor at risk of unacceptable consequences.

If the financial services industry insists on investors being liable for ascertaining whether the investment products sold to them are in fact suitable for them, and that investors are solely responsible for mitigating their losses when they become aware that something is wrong, then it is indeed a BUYER BEWARE industry.

There is a lot more to cover when dealing with an industry- paid or industry -sponsored ombudsman and we'll discuss these points in future issues. For now, this little article should heighten your awareness of what you’ll face and how to deal with some of the ploys.

Ken Kivenko April, 2005