Open letter to Investment Industry

an open letter to Canada’s investment industry
PLEASE OPEN YOUR BUSINESS CONDUCT AND PRACTICES TO THE LIGHT OF DAY
We regret having to make this plea in public, but the practice of hiding financial irregularities behind confidentiality agreements, gag orders and industry codes of silence is far too prevalent and the undersigned have lobbied far too long with no result.

We are talking about examples where ordinary Canadians do not get treated with the professionalism they deserve, and rather than fix the problem, they are beaten down using legal methods and a seemingly inexhaustible imbalance of strength over the client. We wish to ask you to start to do the right thing, as all industry participants promise to do, but some fail to live up to.
Specific examples include

Please apologize to 92 year old Norah Cosgrove, an Ottawa resident who trusted her financial advisor, and was disappointed in this trust. Your firm terminated the advisor in question, but when Mrs Cosgrove took her claim for $10,000 to small claims court (case ???) your defense was that you felt you did not owe this elderly client a duty of care. Your entire industry promises a duty of care to a professional standard of conduct to it's clients, and to state less in a court filed legal document is simple wrong. Please allow this woman to understand why you would let her advisor go, supposedly with some cause, and yet deny, deny, deny any wrongdoing to her, the client. Please correct this.

Please cease your legal action against 80 yr old Pola Goldfluss of Toronto. She has already survived the loss of her husband, as well as her ordeal during the holocaust. She also has already been granted a settlement of some $250,000 from her investment dealer for investment advice that was supposedly not represented properly to her. To turn around, and then sue this client, for the same $250,000 on a legal technicality is simply harsh, unusual and unfair to the clients you serve. Why, pray tell did you agree to give her back her money in the first place if she did not have legitimate concerns, and now to say that the settlement agreement that she signed, was not signed by you, and need not stop you from pursuing her is simply irresponsible abuse of your level of power. Please cease and desist. (see TD Waterhouse vs Pola Goldfluss.

Please stop asking clients who have been abused by the industry to sign confidentiality agreements promising to never reveal details of the wrong they suffered, or the settlement they received. Asking them to do this is in violation of at least one firm's code of ethics which states, "each and every transaction we are involved in will stand the test of complete and open public scrutiny". All the other firms no doubt have similar promises of ethical behavior in the public interest. We simply ask that you now live up to them.

For example, when the 92 year old Kelowna, BC resident this last year was helped into an assisted living facility by his financial advisor, and told by his advisor that he would help him sell his condo, he was not aware that it would ultimately end up registered in the name of the advisor. Nor was he fully aware of much of the details of the transaction. The fact that it was done with no money going to the elderly client, no appraisal of value, at far below market comparable properties, and at a zero percent interest loan to the advisor was not only hidden from the client, but from his family, the public, and the regulatory authorities. It remained hidden for as long as possible, and was not properly revealed to regulatory authorities except by private industry advocates who expressed concern for this client. What were you thinking and where was your responsibility to act properly? This is not behavior appropriate to a business that claims, "the highest standards of trust and integrity".

Please stop using money to purchase silence and escape from prosecution over things that should be fully and openly investigated and properly prosecuted. Members of the public are not allowed to buy their way out of the situations they find themselves in, and nor should our most trustworthy financial institutions. For the gentleman in Kelowna to receive title to his own condominium back, he was required to sign an agreement that started out, "for value received". I consider giving the man his home back after removing it from his fraudulently, and calling it giving him something of value is adding insult to injury. Please immediately reconsider and remove all future bans on open and honest transparency in your company and your industry. It will assist in restoration of public trust in our financial firms.

Please remove internal rules that prevent industry employees from speaking out on issues in the public interest. This is holding back the move towards trust and integrity that this industry so loudly proclaims. How can we possibly expect complete trust and integrity when there still exist internal rules forbidding employees from revealing indiscretions without approval of management. This internal code of silence has acted in the past kind of like asking an abused child to take his complaints to his abuser. Until this policy of keeping everything "inside the firm", is updated to our times, violations of trust and integrity will be an ongoing problem.
If you will recall when mutual fund sellers used to be able to obtain free vacations if they sold enough dollars worth of one fund or the other.

When Bud Jorgensen of the Globe and Mail started to investigate this practice many years ago, I was told by my then manager, "anyone who talks to the press about this is fired immediately. I found that a rather unsettling and startling comment to come from someone in and industry of trust. I have since learned that this same manager was enjoying his annual trips to the Indy 500, courtesy of a mutual fund company. Please remove internal codes of quiet, codes of silence or gag orders on ethical irregularities. they belong with the Cosa Nostra, not one of our most important industries.

Please remove the internal policy, written or unwritten of not informing clients of the most economical methods of investing. The promise made to most clients is to place their interest ahead of those of the industry, and to do otherwise is a failure of this promise. How many clients have been told that mutual fund commissions were deregulated in 1987, and that clients now have choices as to whether or not to pay commissions when buying most mutual funds? If the industry is truly in the business of serving as trusted professional advisors serving the client interests, I am at a loss to understand why no full service investment dealer that I am aware of has advertised this fact to clients. Is it because they are stuck in the uncomfortable position of claiming the status of trusted professional advisor, while having to act out the role and earn a living as commission salespersons?

Do clients realize that fully 80% of the mutual funds sold in the last five years were sold utilizing the highest choice of remuneration available to the advisor? Is this service in the client interest or in the industry interest? For data source view the sales figures on mutual funds at the Mutual Fund Dealers Association of Canada website.

If you multiply the 5% commission earned on every DSC (deferred sales charge) mutual fund choice by the amount of sales, it will partially explain the ease with which some members of your industry are able to earn billions of dollars each year. Perhaps it is time to address the details of those many mutual fund choices available to your trusting clients before class action parties force you to do so.