Tuesday, March 09, 2004

A terse memorandum on RBC Investments letterhead left little room to wiggle.
The stern directive, thought Larry Elford, a 16-year veteran financial advisor with RBC Investments, was his employer’s way of cocking the corporate pistol and aiming at a 16-year career spent in pursuit of his clients’ best interests, a mission from which he had yet to waver, but one which was becoming increasingly perilous to his future job security.
The three paragraphs threatening him with potential termination were penned not for any breach of ethics or legalities. Quite the contrary; Elford was being court marshaled, as he had been a scant two years earlier, for championing the rights of investors, a value on which his employer, apparently, placed less weight than on its own pecuniary interests and that of its other advisors.
In his regular investment column in the Lethbridge, Alta., Sunday Herald of May 19, 2002, in the middle of a lengthy piece on guaranteed investment funds, Elford, a regular contributor to the newspaper for a decade and recipient of congratulatory memos from RBC’s head office for his writings, penned this offending paragraph:
“If you shop around, you should not have to pay a front-end or back-end fee to buy them and your only expense will be the annual management fee that every mutual fund charges to operate.”
A fairly innocuous statement and a piece of advice, felt Elford, investors have a right to know. But not one, apparently, that the Royal Bank wants widely circulated because it triggered, 10 days later, this grammatically fractured reprimand:
“By having this article published without obtaining prior approval. . . you have contravened IDA regulations as well as (the) firm’s policies. . . Should any re-occurance be brought to our attention or other breach of conduct, it will be grounds for further disciplinary measures that may result in the termination of your employment.”
What Ward Degenhardt, RBC’s Lethbridge office manager, failed to charge in his threatening memo was that Elford had written anything inaccurate or untrue. Neither was the newspaper cautioned about printing misinformation.
Instead, the memo mentioned Elford’s failure to obtain RBC’s pre-publication blessing. Not that doing so seemed all that important, considering Elford had been published regularly for years with RBC’s apparent carte blanche approval.
The matter, of course, had nothing to do with obtaining approval and everything to do with the fact Elford had stood high waving a flag at investors –some of whom, supposedly, have trusted their savings to RBC - alerting them to look for funds which charged them no fees front and back.
“It’s been made clear to me I was chastised for mentioning clients can purchase funds without paying commissions,” says Elford today. “It made other advisors uncomfortable.”
Elford admits his first reprimand surprised him for the sheer fact he believed he was following RBC’s written code of ethics which exhorts financial advisors to go soar above the letter of all “legislative and regulatory requirements” to insure the “highest ethical principals are integral components of every business transaction and relationship.”
It’s a code Elford believes in himself, especially when it lights the bonfire of “integrity and fair dealing” so that “every transaction or activity that we are involved in will stand the test of complete and open public scrutiny,” as RBC penmanship would put it. Too often, however, he feels as if his employer is more content keeping the public gaze away from ethics which are quietly hung in a rear closet when RBC financial advisors gird themselves in the quest for higher profits.
‘RBC is constantly raising the bar on ethics, but there is a big difference between talking the talk and walking the walk,” he says. “When I got the first reprimand, I didn’t believe in this day and age you could be chastised for trying to do your level best for clients. On the second occasion, I realized it was true. You can be punished if you are too many steps ahead of your firm’s top producers. I was pushing the envelope, but I’ve always done so on the side of the client.
“For them to go on record opposing what I had done is extremely shortsighted. It changed everything I believed in.”
There were quiet, almost whispered accolades from fellow investors both inside and outside the RBC perimeter. But even the praise carried ominous warnings. “We agree with what you’ve done,” they said. “We just hope you keep your job.” But some workmates campaigned within RBC to have Elford censured or dismissed.
“It has made it extremely difficult to go to work,” he says. “It was making other advisors look bad.”
And that, it appears, is more important to RBC hierarchy than customer satisfaction. Elford took his concerns up the corporate ladder to Edmonton and then through the strata that is head office in Toronto. His courage was lauded, but he was again ordered to refrain from any more such nonsense.
“At all levels I got the same answer: ‘what you’re doing is great, but keep your mouth shut.’ The higher I took it, the more I sensed they were trying to hurt me. I was pounding my head against a wall.”
The memo has put Elford in the dicey position of knowing that the next column could be his last, Charter of Rights and Freedoms notwithstanding. Either he can drop his column, tiptoe around such breaches of RBC policy as putting client interest first, or publish and be damned.
“I’ve been walking with a rock in my shoe for two years,” he says now. I had to decide whether to leave the firm or get someone in the company to listen to me. I went straight to the top and got harassment and intimidation for my efforts.”
Elford believes the only time the Royal Bank changes its tone is when its laundry is washed in public. The glare of publicity pays for another round of ethics tutorials from a self-righteous head office before everyone heads back to business as usual.
“My dad didn’t teach me to go to work for people and take advantage of them,” says Elford. “It’s been a long two years, but if I have to hide the truth and toe the line and lie to Mr. and Mrs. Public when they’ve put their faith in me, I’d sooner go and pump gas.”
And so a veteran advisor who has always placed his clients before his own profits is faced with some agonizing decisions. He can take his battle to a court of law or to the court of public opinion. Either forum he chooses likely means his career with RBC is over.


Conflict of interest is a shifting perception in many professions, from journalism to medicine to politics. It is often measured on an open-ended scale and open to the vagaries of public interest. Doctors who accept free trips from drug companies have recently been under heightened scrutiny by a public which wants to know it is being prescribed the best prescriptions possible, not ones which will earn their prescriber a week in the Bahamas.
Larry Elford was fairly new to the investment business when he began to question why members of his profession were given lavish rewards for selling particular mutual funds when, in fact, those funds may not have been the best buys for their clients. Wasn’t the practice, he wondered, a conflict of interest? It was often, he says, a question of whether a broker should sell the best mutual fund possible or head to the beach on someone else’s American Express card. When Bud Jorgenson, a Globe and Mail business journalist began to openly question the practice, Elford was encouraged; someone had stepped up to blow the whistle. He finds it difficult today to admit his naiveté when he thought his company would share his elation.
“We talked about it in the boardroom. I said I thought Jorgenson was right. My views were extremely frowned upon by management. I was looked at as if I had three eyes. There were guys being given yearly trips to the Indy 500.”
It was the end of Elford’s virginity. “It was the first instance I had run into of the keep-your-mouth-shut philosophy. I realized then there were other motivating factors beyond client benefit. I realized there was a code of silence – almost mafia-like, which, when broken, gets you fired. I was 27 years old.”
At first blush, the all-encompassing RBC code of no media contact was enforced. But Jorgenson kept writing his articles and the Globe kept publishing them. Slowly things began to chanage.
“It was the first experience I had with the power of the media,” says Elford, still slightly in awe. “It actually changed the policy of a very powerful company into following its code of ethics instead of just talking about it.”

Elford’s comfort level with RBC took another whack when he was criticized by management for his stand on mutual fund deferred sales charges, or DSCs. He considers the practice insidious because it lulls investors – his clients – into a false sense of security by making them believe they are free and clear of investment costs.
Basically, clients are told when they plunk down their money they won’t be hit with front-end loads (fees paid at the time of purchase). Instead, every penny will be invested and put to work for them immediately. They leave with a peaceful, easy feeling, safe in the belief their investment advisor has gone to bat for them to secure them the best deal available.
What they are often not told is they face the potential of heavy penalties should they pull out of the chosen fund before the term expires. Their money is invested for a set number of years, and should they decide to move their cash they will be charged a penalty based on every year they fall short of this time frame. Thus the elation they felt when diving into a fund can be tarnished should they climb out early.
That in itself might not worry an ethical broker. After all, there are similar penalties assessed on bank loans, vehicle leases and similar purchases. But in most cases, those penalties are clearly explained before signatures are applied. The customer knows what lies down the road. That is not often true in the case of mutual funds.
Increasing Elford’s unease – which has patently deteriorated into disgust – is the penchant many agents have for pushing clients to jump from fund to fund without knowledge of the penalties they are accruing.
“Markets change quickly and yesterday’s hot funds are replaced by the next great thing to come along,” he explains. “Seven years is too long a time to be trapped in any one fund. Clients were getting hurt with redemption charges. They couldn’t switch funds without this a burden.
“There is always something better coming along two or three years later; clients pay a huge penalty to take advantage of it.”
Much of the industry started to recognize the problem in the late 1990s. Elford, in attempting to stay on the leading edge of his industry, began advising clients against DSCs, a decision which cost him and RBC money, but ultimately proved to be in his customers’ best interests.
“Our business is one of earning client trust. We lead you to believe we are there for you. Instead, you won’t know until years later – or not at all – if an agent was abusing that trust. It’s one of the great mysteries of the business how we can represent ourselves as your servants, then sell you funds which give us the highest compensation.”
Underpinning the problem is the voracious competition involved in the industry. There are no salaried agents; no one earns a guaranteed wage from their employer. Instead, they live and die by their hustle and guile.
The DSC practice alone might not have been enough to pull Elford over to the “dark side,” but yet another line was drawn in the game of “don’t know-don’t tell” he felt compelled to cross. When agents are rewarded by their clients’ naivete or lack of investing sophistication, they are ripe for abuse. And that, he says, has become an industry mantra. Agents are financially rewarded every time a client has to pay a DSC. The more often they switch funds, the more an agent makes. Thus it is in the agent’s – not the client’s – best interest to convince the customer to switch as often as possible, rolling up deferred charges like a gleaner in a fall rye field.
“Agents who are in a get-rich-quick mode can trigger a five-per-cent fee to the client for getting a client to move (the DSC) and earn another five per cent when they purchase a new fund,” says Elford. “Some do it over and over.”
Curiously, in a business which prides itself on high ethical behavior, so much remains hidden from the customer. It’s become a contradiction with which Elford has long been uneasy.
“As I say, this is supposed to be a relationship of trust. My role is to earn yours so that you’ll go through fire and brimstone with me. I have the ability to take that trust and either do what’s in your best interest, or do what’s best for me.
“The client is considered to be an asset looking to get milked by some ‘advisors.’ That’s a dangerous thing.”
Ah, but that “milking” can be done in numerous ways by less scrupulous advisors who want not merely to put their hand in one pocket, but two. The practice of “double dipping” isn’t confined to the investment business, but it has certainly been refined there. It has become so bloated and so blatant, the mystery isn’t how or when it’s done, but why consumers still stand for this fiscal sleight-of-hand.
Again, says Elford, one must look south to determine the industry standard he’s prefer to follow. The U.S. banned the practice of double dipping some time ago. In Canada, it continues unabashedly unabated and, in fact, has been honed to an art form.
“It is a huge revenue generator and helps any agent up the ladder of success where each rung is a measure not of how an agent has contributed to the financial well being of clients but of how often and lucratively clients have contributed to the financial well being of RBC. The backslapping which accompanies the release of each “ladder” is, says Elford, more akin to an Amway convention than an investment corporation.
“It has become known as the “Ladder of Litigation” because often the highest revenue generated was not done so in the most legal fashion.”
So widespread is double dipping, and so accepted as a fact of doing business, it is boasted about in corporate hallways. Elford recalls an instance in 1999 in which an agent, with mutual funds of $37 million, used double dipping to hit the client on both ends of a transaction. Elford took the matter to RBC’s compliance department hoping for an admonition and, perhaps, an eventual edict from management to cease and desist.
“They blew it off. Instead, I was chastised for speaking up. There is no clear rule against double dipping in Canada. You’re basically on your own. Even the compliance department looked the other way.”
Clients, therefore, are not advised of the practice, nor do they ask. It’s a bit like telling off-colour jokes in church. Instead, many older clients are still cognizant of the old days when fees were iron clad and high. When they’re offered a reduction in the front-end fee, they believe they’re getting a deal.
Elford’s frustrations are only exacerbated when he attends educational seminars in the U.S. where tighter regulations squeeze dirty secrets such as double dipping until they pop like a pimple, hopefully before the public notices. Upon his return home, he again faces the same shoddy practices.
“You learn things down there we haven’t even addressed yet and you try to put them to work here to be on the leading edge, only to find yourself out of step and getting into trouble for speaking up. We shouldn’t be allowed to represent ourselves as our clients’ faithful advisors and at the same time not be able to do what’s in their best interests.”
What, and have to accept a rung down on the Ladder of Success? So profit driven is the industry, clients bear a frighteningly close resemblance to warehoused seniors who, as long as the money doesn’t run out, are seen merely as assets rather than patients.
“Agents who make $100,000 a year are considered losers,” says Elford. “They’re at the low rung on the ladder of success. “I’ve informed my clients I don’t take part in sales competitions.”
Ethics can be so tedious to some organizations. They spend mints of money developing high ethical standards and even more on advertising to publicly brag about their sense of honesty, yet when they are faced with their own set of rules, they chafe under the weight.
RBC has an online ethics test which its financial advisors are expected to take. In fact, anyone with access to the Web site can take – and easily pass – the test. Why? Because the software alerts you to wrong answers and gives you the answer to resubmit. Anyone who can’t record 100 per cent on this exam probably can’t use the phone, either.
Elford has taken his issues to the highest levels of the Royal Bank only to be harassed and intimidated to where he no longer feels part of the RBC family. His “Tough Love” approach to the parent firm for whom he has toiled graciously all these years has not made a dent in the corporate facade.
“The only way the company has changed in the past is if the issue is publicized in the media. Once a matter is in the public domain, the company snaps to attention. I’m sure that’s common in other large firms.”
He has also taken his concerns to regulatory agencies who astoundingly have told him they can only deal with consumer complaints, not with those initiated within the industry.
And he’s not alone in his beliefs, he’s only alone in standing up for what he believes.
“He’s not supposed to have an opinion on behalf of RBC,” says a close workmate and confidante who requests anonymity. “When he sent out a flyer explaining to clients about front-end and back-end fees, other brokers went on the rampage because it made them look bad.”
She admits when the fees were exposed five years ago, there wasn’t much of an outcry from the public, partly because the level of understanding is not particularly high.
.”People don’t understand they pay fees,” she says. “The publicity only served to antagonize others in the firm. Larry felt if he was doing these great things, he should be allowed to tell people.”
Brokers who do charge the extra fees are not crooks, she says, as long as they’re up front about it with their clients.
“If everything is on the table, that’s OK. “But then you should be able to defend charging them.
“All of this has become a personal issue for Larry,” says his colleague. “He’s not wrong in what he’s doing, yet he has been reprimanded for it. This company is not looking for people with their own opinions.”
Elford’s colleague is also considering a move elsewhere.
“It would be preferable to me if something would happen which would allow me to stay; if we could deal with our clients as we like,” she says. “But there’s always been an open door elsewhere. It’s hard to imagine staying after all of this.”



Perhaps if he hadn’t spent almost two decades selling its wares and singing its praises, and perhaps if his own moral code wasn’t so hot-wired to the truth, Larry Elford could have found an easier gambit against the Royal Bank than king pawn to knight three. But in what had rapidly become a chess match of life, Elford hung in and hung on, knowing RBC was determined to checkmate him if it could.
Fall turned to winter and, while he pondered his next move, RBC minions were gearing up for a showdown. Approval for his newspaper column was less than hearty and sanctions for his advertisements and newsletters to clients were denied. His e-mails disappeared into the ether without being answered, phone calls went unreturned.
“Larry Elford? We don’t know him,” seemed to be the stock answer when his name came up. Wording for an important new concept for index-linked bonds, ammunition against the stingiest bear market since 1929, was a victim of corporate foot-dragging, garnering neither approval or refusal and placing Elford and his associates in limbo.
“We were in a Catch-22 in the middle of the worst market environment in 75 years,” he says. “And on top of that, I appeared to have been singled out for retribution.”
The Herald column, through which RBC had enjoyed free advertising for several years, was being edited by Toronto until, like a toothpaste tube, it was squeezed until there was nothing left in it to interest readers, unless they wanted to read of the bank’s high moral tenor.
Working in a office which resembled a DMZ, handcuffed by an employer seemingly determined to break his spirit and worrying daily about protecting clients’ money in the midst of an economic calamity, Elford knew his own gears were running dry and, if the situation didn’t change, were in danger of seizing.
“You can’t leave the office after a day of that and come home as a loving husband and understanding father,” he says. “I knew I had been slipping. I had been living in an angry, bitter and depressed sort of way for a number of years.
“I didn’t used to be an angry person. I thought it was just middle age that had jumped up and slapped me one day. You know, you’re wearing out and stuff happens.”
But Elford is convinced now that the swings in his temperament and the erosion of his ability to handle the rigors of home and office were not so much related to aging as they were to his growing anxiety with his employer’s attempts to muzzle his complaints about RBC’s lack of candor and apparent moral double standard.
“I could always handle clients, co-workers and markets,” he says. “It wasn’t until this code of silence thing that it got out of hand. After eight hours a day, day after day, it had compounded to where I had had enough.”
“I was worn out, beat up.”
And yet he walked the tightropes of his existence, balancing the need to earn a living with the fear of dismissal, balancing his relationship with trusted clients with an employer bent on his destruction, balancing a work atmosphere that was sucking the light from his day with his responsibilities as a family man. This was the three-ring circus of Elford’s life as 2002 drew to a close.
He and the RBC employees who worked for him began plotting their course to leave the bank’s employ and find solace and substance elsewhere. Like prisoners, they met clandestinely, careful of what they said and to whom, less they give RBC a cause to fill in their escape tunnel.
Elford and his associates went to work for ScotiaMcLeod in a separate locale, armed with desks, phones and computers in an otherwise empty office. They had been warned RBC was unlikely to accept their leaving benignly and would be watching for any opportunity to shut them down.
Prudently and with some degree of paranoia, Elford was careful to make sure every miniscule IDA regulation was followed, even as RBC employees cruised the street outside each day taking photographs in hope of catching some evidence of missile buildup.
Some insiders later told Elford it was the roughest they’d ever seen RBC play. His clients were told he and his team had left “in the middle of the night” and left no forwarding address.
“They tried to plant seeds of doubt with our customers. We realized we had been working with a bunch of used-car salesmen.”
However, says Elford, the innuendo spread by RBC merely served to convince many clients to stick with him and his team.
“They helped us immensely,” he says. “We couldn’t have asked for worse competitors.”

His new employer was pleased to have reaped a harvest of experience and expertise at a time when the finance industry most needs it. Proven professionals switching allegiances to competitors happens in other areas, but in the investment world the ramifications can be explosive. In fact, there were moments of terror.
Phone calls were made from RBC in Lethbridge to head office in Toronto alerting Royal Bank hierarchy of the defection.
Top-floor RBC boffins then dropped a dime to their counterparts at ScotiaMcLeod to warn them about an Elford plot to publicly humiliate RBC at a client meeting. The Royal threatened to subpoena everyone at the public meeting, basically ScotiaMcLeod customers.
Anxious calls were then made back to ScotiaMcLeod in Lethbridge to ascertain if this was, in fact, true. It wasn’t, but deep breaths were required for ScotiaMcLeod to stay the course with its new employees.
He had been at ScotiaMcLeod for 20 days and was as close as he had ever been at RBC to being fired.
“We were under very close scrutiny,” says Elford. “RBC did what it could to poison our relationship and keep about $100 million in assets. We were warned RBC, upon losing half its office and millions in revenue, would not take it lying down.
“ We were told later by RBC employees they had never seen this level of vindictiveness.”
The harassment didn’t stop at streetside spying. Almost daily, a courier brought yet another threatening letter from an RBC lawyer in Toronto advising Elford his future would best be served in another line of work or, even better, another city. The company also wanted him and his cohorts to hand over their personal computers. He knew he could be in for a lengthy court battle in a legal war he knew he would lose by attrition.
Gallows humour pervaded the office in an attempt to keep the harassment in context through “Paranoid Thought Of The Day.” But in reality, there was little to laugh about.






Elford is fond of a quote by James Baldwin: “The price one pays for pursuing any profession is an intimate knowledge of its ugly side.” How one reacts to the discovery that their chosen field has a darker element to it depends on whether their own moral code meshes with, condones or accepts it with quiet desperation. For Elford, acceptance was the very most he could stomach and even that, after a time, became impossible.

Elford’s pride in his ethical treatment of clients provided the bulwark of his career. His intransigent refusal to lower those standards to better reflect the changing philosophy of RBC was non-negotiable. The months of struggling to maintain those ethics with clients on one hand while warding off incursions by RBC to force him to change was a daily sword fight no amount of swashbuckling derring-do could ultimately win.
For Elford, the highest price by far was not watching as a few unethical advisors or managers at RBC ran up the bill to clients by double dipping or overcharging commissions. It came long after this started, when he finally realized he had stopped being a husband to his wife, or a father to his children, due to the stress of trying to survive and thrive in an environment where ethics were treated as nothing more than words on paper.
Author Yann Martel writes: “People move because of the wear and tear of anxiety. Because of the gnawing feeling that no matter how hard they work, their efforts will yield nothing, that what they build up in one year will be torn down in one day by others. Because of the impression that the future is blocked up, that nothing will change, that happiness and prosperity are possible only somewhere else.”**
Yet, Elford still maintains he is fortunate for the opportunity fate has handed him. He knows fighting RBC is a difficult and ultimately dangerous war. He’s already picked up a few hits, some of which he’ll carry with him a long time. But he believes the risk is worth the opportunity to prove the mettle of his ideals and to hope for improvement in the industry he has chosen to spend his efforts.


**Life of Pi by Yann Martel.