Check out the NASD site at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975
for info on how selling higher cost DSC shares is considered a breach of fiduciary responsibility by a trusted professional. (National Association of Securities Dealers, United States)
In August 2002, NASD affirmed a hearing panel decision that a broker made unsuitable recommendations to a customer. The broker had sold $2.1 million in Class B shares in two mutual fund families to a customer. The amount invested in one fund family was enough to entitle the customer to obtain Class A shares with no front-end load. The amount invested in the second fund family would have entitled the customer to obtain the largest breakpoint discount on Class A shares. NASD's National Adjudicatory Council held that a broker's suitability obligation includes the requirement to minimize the sales charges paid for mutual fund shares, when consistent with the customer's investment objectives. The broker's recommendation was unsuitable because the customer's purchase of Class B rather than Class A shares resulted in significantly higher commission costs, including the payment of contingent deferred sales charges upon sale of the shares. The broker was fined $40,000, suspended in all capacities for one year, and ordered to pay restitution of $55,567, plus interest, to the customer's estate. See Department of Enforcement v. Wendell D. Belden (PDF 40 KB).
In April 2001, NASD censured and fined a brokerage firm, suspended a broker and his supervisor, and directed that restitution be paid to its customers for, among other things, recommending that each of 15 customers purchase over $250,000 in Class B shares when it would have been more cost-effective for those customers to purchase Class A shares. NASD found the purchases were unsuitable in light of the amount sold, the sales and distribution charges incurred, and because the customers could have purchased the Class A shares with much lower sales charges and brokerage firm commissions. The same firm also recommended to 29 customers that they liquidate another mutual fund and purchase over $500,000 of Class B shares, when Class A shares would have been the more cost-effective purchase at the time because a temporary marketing promotion offered by the fund eliminated the sales load. See NASD Regulation Censures and Fines Stifel, Nicolaus & Company, and Two Individuals for the Unsuitable Sale of Class B Mutual Funds.
This kind of behavior, unfortunately is considered "standard industry practice" for the time being in many offices in Canada.
Tuesday, May 17, 2005
Why are 80% of funds sold with a DSC option?
Check out the NASD site at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975
for info on how selling higher cost DSC shares is considered a breach of fiduciary responsibility by a trusted professional. (National Association of Securities Dealers, United States)
In August 2002, NASD affirmed a hearing panel decision that a broker made unsuitable recommendations to a customer. The broker had sold $2.1 million in Class B shares in two mutual fund families to a customer. The amount invested in one fund family was enough to entitle the customer to obtain Class A shares with no front-end load. The amount invested in the second fund family would have entitled the customer to obtain the largest breakpoint discount on Class A shares. NASD's National Adjudicatory Council held that a broker's suitability obligation includes the requirement to minimize the sales charges paid for mutual fund shares, when consistent with the customer's investment objectives. The broker's recommendation was unsuitable because the customer's purchase of Class B rather than Class A shares resulted in significantly higher commission costs, including the payment of contingent deferred sales charges upon sale of the shares. The broker was fined $40,000, suspended in all capacities for one year, and ordered to pay restitution of $55,567, plus interest, to the customer's estate. See Department of Enforcement v. Wendell D. Belden (PDF 40 KB).
for info on how selling higher cost DSC shares is considered a breach of fiduciary responsibility by a trusted professional. (National Association of Securities Dealers, United States)
In August 2002, NASD affirmed a hearing panel decision that a broker made unsuitable recommendations to a customer. The broker had sold $2.1 million in Class B shares in two mutual fund families to a customer. The amount invested in one fund family was enough to entitle the customer to obtain Class A shares with no front-end load. The amount invested in the second fund family would have entitled the customer to obtain the largest breakpoint discount on Class A shares. NASD's National Adjudicatory Council held that a broker's suitability obligation includes the requirement to minimize the sales charges paid for mutual fund shares, when consistent with the customer's investment objectives. The broker's recommendation was unsuitable because the customer's purchase of Class B rather than Class A shares resulted in significantly higher commission costs, including the payment of contingent deferred sales charges upon sale of the shares. The broker was fined $40,000, suspended in all capacities for one year, and ordered to pay restitution of $55,567, plus interest, to the customer's estate. See Department of Enforcement v. Wendell D. Belden (PDF 40 KB).
Financial Post Article, Investors Miffed
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
HOME : FEATURES : COLUMNS :
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
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