5/17/2005 5:54:58 PM
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Financial Post
The Professional Financial Advisor
Toronto-based Financial Advisor John De Goey offers thoughts about fee-based advice, holistic planning and capital markets.
By John De Goey Tuesday, May 17, 2005
The litany of malfeasance occurrences over the past number of years has caused virtually everyone to become at least a little jaded about how the industry works.
It should come as no surprise that the financial services industry is less than credible in holding itself out as a true profession. The litany of malfeasance occurrences over the past number of years has caused virtually everyone to become at least a little jaded about how the industry works- sort of like politics. Rather than recount the track record of transgressions here, let’s consider the current opportunity to implement positive and meaningful change by making improvements to restore investor confidence.
For starters, the federal government has signaled a strong intent to press forward with a single national securities regulator. Most stakeholders agree. Still, it should be obvious that the larger concern is not the structure of securities regulation in Canada, but the efficacy. If regulators can’t protect consumers from misrepresentation and fraud, the structure hardly seems relevant. No matter what form our regulatory framework ultimately takes, there should be a clear focus on enhanced consumer protection.
Second, since an ounce of prevention is worth a pound of cure, disclosure at the point of sale needs to be overhauled considerably. This is especially true with regard to so called “manufactured” investment products: mutual funds, segregated funds, structured notes, universal life insurance policies and hedge funds. Most people don’t understand the risks they’re taking because the risks are couched in legal language in the middle of an imposing technical document called a prospectus. The cigarette industry dealt with this problem by putting stark wording about risks and limitations on product packaging. Investment products would be well advised to follow suit. That way, no one would be able to say they weren’t aware of the risks involved when buying one of them.
Third, and most important, politicians need to address the industry’s tarnished reputation head on. Concerned stakeholders, including the Small Investor Protection Association, the Consumers’ Council of Canada, Democracy Watch and the Canadian Association of Retired Persons have long been making actionable suggestions. Call them Mainstream Investors For Fair Disclosure (or MIFFD). These groups will be using their considerable resources in the upcoming federal election campaign to ensure that consumer interests are heard. A number of prominent consumer advocates are lending a hand, too.
One of the reasons consumer issues are seldom addressed in the political arena is that consumers are just too disparate and disorganized to work together. Often, the diverse hodgepodge of consumer concerns lacks sufficient focus to be clearly articulated and acted upon.
That’s not the case this time.
Previously, the industry has pointed to the lack of consensus regarding what ails it as a de facto expression of reasonable functionality. The logic is that if stakeholders can’t even agree on what’s wrong, then things must not be that bad. That has been the industry’s position for a decade now. In that time, we’ve had sales trips, inappropriate advice, market timing, Bre-X and Portus, to name only a few more recent debacles.
Nearly a decade ago, Glorianne Stromberg warned that this would happen if meaningful steps weren’t taken. There’s an old saying that “if it ain’t broke, don’t fix it”. The flip side is that if it is broke, you’d better get right to work or there will be hell to pay on Election Day.
John J. De Goey is a Senior Financial Advisor with Assante Capital Management Ltd., member CIPF and author of The Professional Financial Advisor. The views expressed here are the personal views and opinions of the author and not those of Assante and are not endorsed in any way by Assante. jdegoey@assante.com
