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96% of registered advisors are actually salespeople
Most Canadians—including many financial journalists—believe that advisor and adviser are just spelling variations of the same word. But there are different meanings wrapped up in how those spellings are commonly used. And too often the word itself doesn’t mean much at all no matter which way you spell it.
Various government securities acts spell out the responsibilities of “advisers” to their clients. Meanwhile, the investment industry commonly calls their salespersons “financial advisors” even if they are not registered to act as advisors. At the Small Investor Protection Association (SIPA), we have seen a danger to investors in placing their trust and savings with sales people instead of advisors who have a fiduciary responsibility to act in their client’s interests.
A few years ago the Canadian Securities Administrators (CSA) confirmed to SIPA that “financial advisor” is an “unregulated business title” that can be used by anyone. Then why was it so difficult for small investors to learn this?
Regulators rightly stress the importance of checking to see that your financial advisor is registered. But it’s not enough to be registered, it’s important to see what they are actually registered to do. SIPA investigated the directories of registered representatives. We found that about 96% are registered as a “dealing representative” which is a salesperson without a requirement to look after a client’s best interests.
SIPA’s detailed search on the CSA website discovered there are only 4,076 persons in all of Canada registered in the categories where a true fiduciary, professional responsibility is legally required to be delivered to you as the investor. This means they must act solely in the client’s best interests.
But there are a whopping 118,126 financial salespeople, or dealing representatives, in Canada. Some may have little or no education, skill or proficiency beyond their dealer and product pusher training, to give you any worthwhile advice. They are registered to give you only “suitable” advice.
Since SIPA was founded in 1998 we have talked with many hundreds of small investors. As a result of learning their stories and the treatment they received the root cause of the problem seemed apparent.
Canadians are a trusting society and most Canadians believe they can trust their financial advisor. To be sure there are many “financial advisors” that are looking after their clients in the same way that there are many good sales people that are quite helpful to their customers. However the industry does not ensure that all “financial advisors” look after their clients’ best interests and regulators are failing to effectively address this issue.
On regulatory websites, it is relatively easy to determine if your advisor is, in fact, registered, but finding the classification requires considerable digging. Then one must access a document “Understanding Registration” to determine that a “dealing representative” is in fact a sales person.
The question then arises: “Why do regulators make it so difficult for investors to determine that their trusted advisor is in fact a commissioned sales person?” This fact explains why a trusted “financial advisor” might sell products with a high commission and encourage the use of leverage.
Bottomline, do check to see if your advisor is registered with regulators. But also check to see that your advisor is really an advisor.
This is a guest column by Stan Buell. Stan is president of the Small Investor Protection Association
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We are in the process of suing our Dominion securities advisor for his actions related to selling stock during the pandemic.
He had a complete meltdown and was not advised on how the pandemic would affect the market short term by Dominion securities managers.
We were reluctantly in PIM accounts, which were pushed on us by the advisor, so we would be included in wholesale buys/sells.
He seems to be hiding behind the contracts and being within client thresholds.
I would like to know if there are any rules on how PIM accounts are to be managed by an advisor?
Our advisor and RBC paint a very rosey picture of what it’s supposed to be, but unfortunately this advisor decided we needed to get out of stock at the worst time, causing my family a huge crystallized loss.
Let me know if there are any rules related to this, the bank had not been very helpful.
I have seen that this is a very misleading industry, where the banks value these high profile advisors more than the clients, that invest the money.
Robert Voelk, Did you get a response to your question ? I read the article.
>SIPA’s detailed search on the CSA website discovered there are only 4,076 persons in all of Canada registered in the categories where a true fiduciary
You should publish that list. You’ve done the work that the educated but frustrated layperson wants to do – why not share it?
I am trying to unlock a locked-in pension fund at my bank. I was given so much bad information that I decided to do my own research. I think I finally have the correct forms but they are so complicated. Do I need a lawyer to explain the forms or is there something simple that I am missing.