Saturday, 28 January 2017

CANADIAN SECURITIES ADMINISTRATORS CONSULTATION PAPER 33-404 - PROPOSALS TO ENHANCE THE OBLIGATIONS OF ADVISERS, DEALERS, AND



Alan Blanes is a University of the Fraser Valley Graduate, a Financial Rights Activist and a member of the Council of Canadians. He has been fighting to expose the impunity racket of our Financial Regulators who allow financial theft by large firms be perpetrated on a mass scale as well as fighting for his own fathers money which was stolen by such a firm.

 The following is a look at his recommendations to the OSC on policies concerning the best interest factor and conflict of interest management in relation to regulations and policies for Financial Dealers and Advisors/Advisers.

Via email Sept. 30, 2016

Josée Turcotte, Secretary

Ontario Securities Commission

20 Queen Street West, 22nd Floor

Toronto, Ontario

M5H 3S8

Fax: 416-593-2318
 
E-mail: comments@osc.gov.on.ca



Me Anne-Marie Beaudoin, Corporate Secretary

Autorité des marchés financiers

800, rue du Square-Victoria, 22e étage

C.P. 246, tour de la Bourse

Montréal, Québec

H4Z 1G3

Fax: 514-864-6381
 
E-mail: consultation-en-cours@lautorite.qc.ca



Alberta Securities Commission

Autorité des marchés financiers

British Columbia Securities Commission

The Manitoba Securities Commission

Financial and Consumer Services Commission (New Brunswick)

Nova Scotia Securities Commission

Ontario Securities Commission

Financial and Consumer Affairs Authority of Saskatchewan
 
CANADIAN SECURITIES ADMINISTRATORS CONSULTATION PAPER 33-404




PROPOSALS TO ENHANCE THE OBLIGATIONS OF ADVISERS, DEALERS, AND

REPRESENTATIVES TOWARD THEIR CLIENTS
 
 
http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20160428_33-404_proposals-enhanceobligations-

advisers-dealers-representatives.htm
 
 
As a family member who has seen systemic violence perpetrated against the savings of my parents, by an investment culture that is seeking to emulate the racketeering

practices that are seen by the historical de-regulated examples of Enron and Wells Fargo,

I am pleased to have the opportunity to provide input into the regulatory priority setting

process which so greatly affects the quality of lives of seniors. I first and foremost want

the whole service sector in Canada to understand and internalize the Universal

Declaration of Human Rights - and to understand and memorize Article 29 of that

Declaration - and henceforth ban the idea of mindlessly sending people with grievances

to a quagmire of un-motivated and apathetic “resources” that refuse to acknowledge any

duty to help to focus and document the veracity of complaints. Article 29 of the UDHR

holds that we have a duty to the community to ensure that everyone’s rights are

protected. That is the opposite from the self-regulating crimes against the elderly in

Canada - purely as a maximization of profit in the shortest term strategy.

My father Harold C. Blanes and I, are glad to see there is less dependence on disclosure
 
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to investors and the transaction, and more obligations placed on dealers and advisors to

provide good advice. We see merit in the OSC Seniors Advisory Committee. We also

would feel that a follow up process on reports to regulators and service agencies that

serve the needs of people who have been traumatized by criminal practices - should

become a standard feature of an accountable - and authentic - governance system.

We generally agree with all of the targeted reforms. In fact, we have been led to believe

that these practices are routinely being applied to the advice they receive. It is disturbing
 
to find out that there is n o explicit requirement to consider product/account costs against

the client's investment needs and objectives . S imilarly, the fact that there is no explicit




requirement that registrants take reasonable steps to update KYC information at least

once a year casts doubt on the quality of the advice. Perhaps most disturbing of all is the
 
 
observation that :”The self-regulatory and industry organization investor complaint




experience shows there is consistent and ongoing non-compliance with many of the

current key regulatory requirements, with the unsuitability of investment

recommendations being the primary basis for complaints to OBSI for the past five years,

case assessment files for IIROC for the past three years and allegations in MFDA
 
 
enforcement cases for the past three years”. In the case of Harold C. Blanes, the



regulators have been made aware of the fact that a brokerage had no Know Your Client

form on Mr. Blanes - nor would one be appropriate since he was in an order taking

relationship - not an advice-seeking role. Yet this company - while he was hospitalized

mysteriously moved his GIC application into an “unavailable” status and created an

imaginary “moderate risk” status - then while he was in a coma, moved him to “high

risk” that was not found out until he got disclosure of his records by launching a Supreme

Court of BC action.

It is not only the CSA that has observed deficiencies in Canada's wealth management

industry. SIPA and FAIR Canada also have detailed numerous issues. Now a new report

from JD Power provides still more evidence that reforms are needed. According to the

study, despite Canada’s wealth management industry promoting a goals-based approach

to advice, nearly half of full service Canadian investors say their advisors fail to deliver

on even the first stage of that process, which helps them set goals that reflect their risk

tolerance, according to the J.D. Power 2016 Canadian Full Service Investor Satisfaction
 
Study,released today. The study identifies three broad stages of goals-based investing:



setting personal goals; implementing a strategy to achieve those goals; and monitoring

progress. Only slightly more than half (54%) of investors indicate their advisor helped
 
set goals and discussed risk. Barely one-third (34%) say their advisor effectively




delivered on all three stages.
 
 
http://www.jdpower.com/press-releases/jd-power-2016-canadian-full-service-investor-s

atisfaction-study
 
 
An IIROC r eport Managing conflicts in the best interests of the client n oted that



when it came to compensation-related conflicts, most firms sampled lacked a meaningful

process to identify, deal with, monitor and supervise compensation-related conflicts. For

example, most firms did not have mechanisms in place to identify advisors who

recommend products that yield higher fees and bonuses, when there are other suitable

but less expensive alternatives available. They also did not have a process in place for

implementing additional monitoring of advisors approaching compensation thresholds
 
based on the amount of revenue generated. The report states: Although most Dealer


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Members responded that they always put clients’ best interests first, we found

little supporting documentation as far as compensation-related conflicts were

concerned. ..”
 
 
 
http://www.iiroc.ca/Documents/2016/F58C9465-AFC5-42F3-A5D1-6C5BFDF19CF3_en.pd

f
 
A recent OSC report airs concerns over advice to seniors. The Report states:
“Through recent compliance reviews or investor complaints, CRR and the Investor Office,

have detected concerns related to the provision of investment advisory services or sales

of products to vulnerable investors; in particular, senior investors, but also investors with

other vulnerabilities (e.g. a diminished cognitive capacity, a severe or long term illness, a

physical disability, mental health problems, a language barrier). Senior investors,

especially those who may have diminished capacity, are vulnerable to investment advice

that is unsuitable, investment fraud and financial abuse. OSC staff is concerned with

issues related to senior investors because: they are growing as a demographic, both in

terms of population and also in terms of household investable assets, they are relying on

investments to fund retirement costs, and in some instances agreeing to invest in

high-risk products to generate a desired level of income, and they may have a reduced

investment time horizon to recover from financial losses, they may not understand the

risks and investment features of the product they have invested in.We are prepared to

take serious regulatory action when we find unsuitable investments.”
 
 
http://www.wealthprofessional.ca/news/osc-report-airs-concerns-over-advice-to-seniors-otherregulatory-
 
red-flags-211059.aspx Report at



http://www.osc.gov.on.ca/documents/en/Securities-Category3/20160721_sn_33-747_annual-r

pt-dealers-advisers.pdf
 
As set out in Consultation Paper 33-404, the best interests standard “would require that

a registered dealer or registered advisor shall deal fairly, honestly and in good faith with

his or her clients and act in his or her clients’ best interests.” The registrant’s conduct

would be held to that of a prudent and unbiased firm or representative, acting

reasonably. Harold Blanes supports the immediate adoption of a best interest standard

for registrants.

Seniors overwhelmingly indicate that they believe their investment advisor is already

required to act in their best interest. If this is the belief among Canadians, but not the

reality, there is a serious problem. This problem is perhaps best summarized by Ed

Waitzer, former Chairman of the Ontario Securities Commission, when he repeated the

following quote:
 
If the product sold is that of advice, then that advice should be in the best interest of the

client. Anything else is fraud, because the seller is delivering a service different from

what the consumer thinks he or she is buying.
 
 
Dehumanized and ignored defrauded clients understand that some oppose the

imposition of this long-overdue standard on the basis of existing mechanisms in place to

protect investors. Some believe that a best interests standard would create legal

uncertainty. The problem with the current system is that it creates a false sense of

certainty for investors who already believe registrants are acting in their best interests
 
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when it comes to advice bearing on their financial viability into the future. While we do

not agree that the best interests standard would create uncertainty, if uncertainty is to

exist, registrants are better positioned to deal with that uncertainty than are the victims

of poor investment advice.

The elderly are the fastest growing segment of our society and they are also the financial

backbone to our country's economy. They are living longer and need to save more than

ever before. Many don't have Defined Benefit pensions or indeed, any Company pension

plan, to fall back on.

Three trends - a huge number of people suddenly turning older, the prospects of longer

lives but fewer guarantees of financial security, and at the same time a substantial

percentage of our national wealth in the hands of seniors - have the makings of a perfect

storm, a demographic tsunami .Financial abuse of seniors is a rapidly growing problem,

often being called the “Crime of the 21st Century.” This is backed up by IIROC, MFDA

and OBSI statistics that show that seniors are disproportionately represented among

complainants. All investors are vulnerable under certain circumstances but seniors face

so many unique challenges that most regulators define seniors as Vulnerable investors .

See APPENDIX 1 for details regarding this vulnerability.
 
SPECIFIC Recommendations
 
 
Know Your Client The proposed changes clarify the existing obligations of KYC. It is



important that registrants should implement policies and procedures to ensure that both

the client and the registrant that reviewed the KYC information with the client sign and

date the information and it be approved by supervision. People need to have the uses to

which the KYC will be put explained to them. Risk profiling should be included in the

targeted reforms given the serious issues evidenced in the OSC Investor Advisory Panel

sponsored PlanPlus report.

We suspect a standardized NAAF/KYC template would be useful. One key information

element should be contact coordinates for a Trusted Person.

We would also like to stress that the data about clients' net worth and cash flow should

be as accurate as possible .If a client's cash-flow and debt-management information is

inaccurate, advisors could be - without intending to - providing inappropriate advice.

Someone carrying 18%+ credit card debt should be advised to pay it off before investing

more money in the market. Cash flow and debt, in addition to net worth, show risk

capacity (the amount of risk the client the client can handle) and not just risk tolerance.

Not all forms provide debt and cash flow entry blocks, so this should be corrected.

A defective KYC leads to inappropriate advice to investors . The Small Investor Protection
 
Association www.sipa.ca has issued a Report The Know Your Client Process Needs an




Overhaul
 
 
http://sipa.ca/library/SIPAsubmissions/500%20SIPA%20REPORT%20-%20KYC%20Proce
 
 
ss%20Needs%20Overhaul%20-%20201607.pdf which provides constructive suggestions



for improvement. We strongly encourage the CSA to review this report and unpublished

IIROC research and take the necessary corrective actions. The discretion, the complexity

of the processes and the asymmetry of knowledge and experience place the professional

advisor and the firm in a position of great responsibility and the elderly investor in a
 
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vulnerable position. KYC information should formally be updated at least once per year.
 
Advisor Proficiency. Applying these reforms will have no positive impact to the financial



consumer, unless assurance is provided that the advisor has been equipped with the

necessary support tools/systems, knowledge, skills and abilities to act in the client's best

interest. Without appropriate proficiency standards, a best interest standard is

meaningless. Advisors need training in how to develop and document an Investment

Policy Statement, a key tool in improving client-advisor communications perform and

perform a accurate suitability analysis. For RRIF accounts, we believe they will need

additional training to competently advise on de-accumulating accounts used by retirees.
 
Relationship Disclosure Investors must be informed as to the nature, scale and scope



of the advice they will receive for the fees paid. It is insufficient for a disclosure merely to

state the firm "may" limit investment recommendations without specifically disclosing the

extent to which the firm in fact does so. There should be a documented finding that the

limitations and restrictions do not prevent advisors from providing advice in those

investor's best interest. Greater clarity will allow retail investors to make more informed

decisions of the type and scope of advice they need, if they need personalized advice at

all or if the cost of advice brings sufficient value.
 
Dealer Sales Practices NI81-105 Mutual Fund Sales was released back in 1998.It likely



is in need of an update to reflect prevailing compensation/inducement practices and sales

communication channels such as social media and the internet.It still refers to the now

defunct IDA! It is very important that regulators routinely enforce NI-105 violations. We

are particularly concerned about “Free lunch” seminars and misleading ads .
 
OSC Staff Notice: 33-743 - Guidance on sales practices, expense allocation and


other relevant areas developed from the results of a OSC targeted review of



large investment fund managers
 
 
http://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20140619_33-743_guide-sales-expense.
 
 
htm is interesting to explore.This Staff Notice provides guidance after finding numerous



breaches of NI81-105. In previous reviews, similar guidance has been provided regarding

breaches. And so the endless guidance cycle continues. It is our view that this cycle is

not effective. Unless dealers are held to account for breaches via regulatory enforcement

sanctions and fines, there will be no improvement in dealer and fund manufacturer

behaviour. A better solution would be to simply prohibit many of these archaic conflict

ridden practices altogether. NI81-105 was written at a time in the early development of

mutual funds when dealers did not promote their services as advice and advisors were

called salespersons. A modern wealth management industry should shun many of the

sales practices permitted under-105. Cooperative marketing activities should be among

the first to go. Until 81-105 is updated , it absolutely should not be applied to other

products.
 
Manage titles and designations The wealth management industry is using made up

and meaningless titles to deceive investors. Titles like Retirement Expert are especially



harmful. The regulators should narrow down the list to a few meaningful ( to clients)

titles and routinely enforce their use. The SEC was so worried about the deception it
 
released a Bulletin "Senior" Specialists and Advisors: What You Should Know About


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Professional Designations” https://www.sec.gov/investor/pubs/senior-profdes.htm .

Suitability The “suitability” regime does offer some protections for investors, but it’s



certainly inadequate in today’s investing world. Other jurisdictions have moved beyond

the suitability regime.In practice, it really just boils down to not providing unsuitable

recommendations. The wide spectrum of “suitable “choices complicates complaint

disputes for investors. Shrewd dealers can and do deflect liability in all but the most

obvious cases of unsuitable advice. If the CSA truly want world class investor protection

they need to ensure that the investment advisor is considered a fiduciary or at least

works to a Best interests standard. The Suitability regime is the soil that allows
 
conflicts-of-interest to thrive. T he Cummings report and other independent research clearly

shows that conflicts-of-interest result in non-optimum investment recommendations. Product



cost is pushed aside as a suitability factor while professional risk profiling is virtually

non-existent as evidenced by the PlanPlus report. The result? --salesperson

recommendations are skewed towards higher cost products resulting in lower investor

returns and impaired retirement security. Accordingly, we support the targeted reform

making cost an explicit parameter of suitability and the inclusion of the proposed

overarching Best interests principles. In the final analysis the only things that are

suitable are:

1) Contracts that adhere to Sections 361-363 and Section 380 of the Criminal Code of

Canada; and

2) The Common Law of Contract that holds equal benefit of all parties to the contract

and absolute full understanding and knowledge of all conditions. Any attempt to

get signatures when a person is just released from hospital after being in critical

condition in an intensive care unit for weeks, needs to be reviewed for the

volitional authenticity of the contract. In Harold Blanes’ case, the broker hid a GIC

contact since 2007 and when he challenged the management of this company -

the management in the Kelowna office were claiming that the client had a faulty

memory and they disavowed having a GIC contract with the client. The regulatory

system has demonstrated itself to be so plagued by regulatory capture that all

they can say is: “We sympathize - but our hands are tied.” How many other clients

have had to endure the soul-destruction of this aiding and abetting crime role for

regulators?

These principles will be especially useful as new products are developed, new account
 
types introduced and in unique situations where rules are inadequate. See Suitability

from a Retiree Perspective: Kenmar Associates ,




http://www.canadianfundwatch.com/2013/08/suitability-from-retiree-perspective.html
 
 
Make Tax an integral component of advice Tax issues are integral to a

KYC/suitability analysis. For retirees, non--investment considerations such as tax,



government benefit programs and estate planning are key aspects of the advice

relationship. That implies a need for increased advisor tax knowledge. Where should

assets be located? Should the client convert his/her RRSP to an annuity? Should they

contribute to a RRSP or a TFSA? Should the client borrow to invest? Which products are

most tax- efficient? The best possible way to pay less tax is if the financial advisor takes

tax matters into consideration. With Canada's high personal income tax rates, income

taxes are a key consideration in investment decisions and financial planning. Retired
 
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investors count on after-tax income from investments to cover some or all their living

expenses.
 
Improve Dealer Complaint handling We believe that much better redress



mechanisms are needed to protect seniors. Current dealer complaint handling is

adversarial and unfair to complainants. Investment losses hurts seniors more than any

other group, because when seniors lose their life’s savings, they lack the time to rebuild

a nest egg. There's no second chance for recovery. Fair and timely complaint

investigation is a critical dealer obligation to clients and is entirely consistent with a Best

interests Standard of Care. IIROC and MFDA complaint handling rules need an overhaul

coupled with robust enforcement. Financial services should be designed so that they

make the hard times easier – whereas, in reality, some of the threats vulnerable retail

investors face when interacting with financial services make an already stressful situation

worse, and result in further harm for consumers.
 
Act on OBSI Independent Reviewers recommendations As regards OBSI, we agree



with the CBC when they released a report saying that OBSI is not an authentic

Ombudsman. We see in the the independent reviewer’s report that at least 17 examples

of utter lawlessness and systemic impunity for violations of indictable laws - that affirm

the gross error of allowing self-regulation of the industry. If there was a willingness for

the industry to police itself - that would be a different matter. What we have, in reality as

a gross abdication of adherence to the law - and regulators saying “We are not allowed to

look at the criminal code”. To reiterate - we have to have a clear commitment to put the

criminal code and the common law of contract in its full scope as the primary regulative

tools. If the industry can accept that and conform to British Common law practices of

maintaining records and reasons for judgements - then we would begin to be making a

valid overhaul in the practices that are totally unacceptable currently.
 
https://www.obsi.ca/assets/2016-Independent-Evaluation-Investment-Mandate-1465218
 
 
315-e9fa5.pdf In 2015, 18% of non-backlog complainants who OBSI considered should



receive compensation received less than OBSI recommended (on average $41,927 less);

including 3.5% who were at risk of receiving nothing. We expect the percentage when

OBSI is not involved and retail investors are on their own to be far worse. It is a key

reason that the regulatory system is not providing clients the anticipated regulatory

outcomes.

The recommendations are consistent with the needs and wants of retail investors. The
 
report concludes that "OBSI is not a true industry ombudsman, it is a dispute-resolution

service." Perhaps most importantly, the report recommends that OBSI move beyond



cases by case dispute resolution and take a strategic approach using intelligence from

casework. We support that role for OBSI.

Harold and Alan Blanes believe that OBSI needs fundamental changes in governance,

investor participation and operational processes. Seniors need and deserve a fair,

efficient and trustworthy Ombudsperson who can provide a definitive outcome. Any

practices that obstructs fair and efficient resolution of disputes, such as the creation of

internal ombudspersons by investment firms, should be banned.
 
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Specifically, Harold Blanes recommends:

1. binding decisions with right to review under stipulated conditions

2.. at least one designated investor representative on the Board of Directors

3 a formal complaint system for complaining about OBSI practices

4 published cycle time target in absolute days not in a probabilistic manner 80%/180

days

5 a mandate to investigate systemic issues like UK Financial Ombudsman Service

6 a mandate to provide a report annually re opportunities for industry to improve its

processes and practices- ie function as a true ombudsman

7. conduct an independent review of OBSI every three years

8. IIROC and MFDA to revise their complaint handling rules to interface better with OBSI

and address investor advocate identified deficiencies.

We encourage the CSA to negotiate an omnibus agreement with CCIR and/or others as

appropriate so that investment portfolios containing investment-like products can be

dealt with by OBSI. Splitting a complaint up as between OLHI and OBSI is harmful to

investors and is inconsistent with contemporary portfolio construction principles.

Some changes in process are necessary to accommodate seniors and other vulnerable

investors.eg priority processing, assistance with complaints, POA issues, suitability

criteria tailored to elderly complainants (eg DSC).
 
An Australia study from ASIC’s Consumer Advisory Panel (CAP) Compensation for retail

investors: the social impact of monetary loss (REP 240)




http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-240-compensationfor-
 
 
retail-investors-the-social-impact-of-monetary-loss/ into the social impacts of



investors suffering losses due to licensee misconduct was commissioned to better

understand the personal consequences of investors not being fully compensated. The

impact of the monetary loss was immediate on investors without a financial buffer, for

others the first six months from when they discovered their loss were critical. Most

investors received none, or only a few cents on the dollar back .Investors had little

knowledge of existing avenues of redress, such as their financial service provider’s

internal dispute resolution system or the external dispute resolution scheme they

belonged to .Investors were reluctant to commence legal action to recover their

monetary loss, particularly where they blamed themselves .Some investors suffered

‘catastrophic loss’ as their loss was ‘so significant their life will never be the same’. Some

felt prolonged anger, uncertainty, worry and depression.

We also believe that regulators must reconcile the OBSI fairness standard with industry /

SRO rule based approach. We suspect it will be problematical because dealers do not,

generally speaking, resolve complaints fairly, honestly and in good faith as required by

OSA. The process is adversarial and loaded with conflicts of interest.

If the CSA and industry cannot adequately respond to the independent review

recommendations, a statutory Ombudsman like the UK FOS may be needed. In fact, it

was the industry itself that persuaded the Minister of Finance not to do so because the
 
industry could be trusted to set up a well-oiled Ombudsman service. See Canada's

Banking Dispute resolution System 2012 report by the Consumers Council of Canada


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delineating the history of OBSI
 
http://www.consumerscouncil.com/site/consumers_council_of_canada/assets/pdf/cccban

kingdisputeresolution.pdf
 
 
Other Recommendations
 
 
Enhance Enforcement: Without diligent enforcement, all the rules of the world and



even a best interest standard will not protect the retail investor. The SRO's spend too

little resources on prosecuting dealers. Even when they do, sanctions are modest in

comparison to the harm done to investors. Dealers need to be held accountable for the

actions and inactions of their representatives. This includes personal financial dealings,

off- book transactions and abuse of regulatory arbitrage. Collection of fines from

individuals is very small and as a result there is minimal impact re: deterrence (Per the

2015-16 IIROC Annual Report , IIROC assessed $2,399,069 in discipline penalties
 
against individuals and just $1,547,500 in discipline penalties against firms . Only 16 %



($373,680) of fines assessed against individuals were collected). Altogether , securities

regulators are owed nearly $1 billion, a truly astonishing figure. If the SRO’s applied root

cause analysis , we feel most of the enforcement effort would be directed at dealers

rather than dealer representatives .

Canadians have unduly lost millions of dollars due to mis-selling of return of capital

funds, leveraged ETF’s, Reverse churning, DSC early redemption penalties and leveraging

including Home Equity loans as well as high cost products. Seniors appear to be a special

target. Better and more timely enforcement would make a huge dent in the amount of

losses incurred and thus lead to better retirement income security for Canadians. Please

refer to the penalties for theft in the Psalms as referenced by the Harold and Alan Blanes

submission to the OBSI Public Consultation from February 2016. Psalm 22 advises that if

an ox is stolen - it requires several times the ox as the appropriate restitution. So long as

any gain is made to a deceptive broker for fraudulent misrepresentation, this only serves

as an incentive to continue bad faith dealing. The industry needs to start to understand

that the violated client needs restitution of orders of magnitude more than the loss in

order to make brokers know that deception is absolutely prohibited, and will prove

drastically uneconomic to even try to get away with it.

https://www.obsi.ca/en/resource-room/public-consultations/independent-evaluation-of-o

bsi-investment-related
 
Change Fund Facts Risk Disclosure : Mutual funds are popular with seniors. We are



therefore concerned that the deceptive disclosure of risk in Fund Facts will mislead

investors and be used by dealers to defend complaint cases against investors. These

ratings have been demonstrated to be misleading and not robust but are used in pre-sale

solicitations to justify fund purchases. All investor advocacy groups have criticized this

disclosure. We recommend that the CSA abandon the approach based on the standard

deviation and consider some of the more robust suggestions by advocates , professional

advisor Associations and industry participants.
 
Adopt a Canadianized version of NASAA Model Act : In February of this year, the



North American Securities Administrators Association (NASAA) announced that its

membership has voted to adopt a model act designed to protect vulnerable adults from
 
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financial exploitation. The model, entitled “An Act to Protect Vulnerable Adults from

Financial Exploitation,” provides new tools to help detect and prevent financial

exploitation of vulnerable adults.
 
http://www.nasaa.org/38777/nasaa-members-adopt-model-act-to-protect-seniors-and-v
 
 
ulnerable-adults/ We urge the CSA or provincial legislatures to introduce a provision that



would permit dealers to temporarily block transactions if the transaction appears

suspicious.
 
IIROC SRO : A very significant number of public interest association members have



accounts with investment dealers that are regulated by the investment industry

Regulatory Organization of Canada (IIROC). A recent OSC Advisory Panel report
 
http://www.osc.gov.on.ca/en/52056.htm on the efficacy and effectiveness of IIROC is



very troubling. The letter from the IAP, responding to IIROC's latest strategic plan, also

criticizes IIROC's commitment to standing up for the interests of retail investors and

condemns the self-regulatory organizations (SRO) effort to involve retail investors in its

governance and policy development process. "We believe that unless IIROC, under the

direction of its Canadian Securities Administrators (CSA) overseers, reforms its culture

and governance, it will continue to fail in its mandate to protect investors," the IAP's

letter states.
 
http://www.investmentexecutive.com/-/battle-over-best-interest?redirect=%2Fsearch
 
 
Seniors depend on regulators to keep the investment industry in line and if its principal

regulator is not up to the job, this leaves the elderly and other vulnerable investors

exposed to wrongdoing. We urge the CSA to act promptly to deal with the issues at

IIROC. They are supposed to act in the Public interest.

We are also very concerned about an IIROC proposal that would allow stockbrokers to

act as executors or trustees. We recommend the CSA intervene and prohibit such an

arrangement except for immediate family members.
 
We recommend that the CSA publish a Guide similar to the Financial Self-Defense

Guide for Seniors - by the CFP Board .Such a Guide would help protect consumers from



advisor abuse and fraud.
 
https://www.google.ca/search?q=cfp+guide+protecting+senior+investors&ie=UTF-8&oe

=UTF-8&hl=en-ca&client=safari
 
 
The CSA may wish to review the results of a research project, Vulnerable Investors

and the Enforcement of Securities Laws which will be carried out by a research team



under the direction of Professor Stéphane Rousseau, Business Law and Governance Chair

at the Université de Montréal. They will examine the decisions of the principal Canadian

self-regulatory bodies – the Investment Industry Regulatory Organization of Canada

(IIROC), the Mutual Fund Dealers Association of Canada (MFDA), and the Chambre de la

sécurité financière (CSF) – over the last five years in Ontario and Quebec, with a view to

determining whether and to what extent vulnerability is taken into consideration in

disciplinary proceedings against dealers and their representatives. To date, decisions of

self-regulatory bodies have not been fully analyzed in relation to the types of investors

involved and, in particular, their vulnerability. The project will also hold roundtables with

representatives of regulators, investor groups and intermediaries. The issues, findings

and potential solutions proposed at the roundtables will inform the project’s final report,
 
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which will include recommendations for regulators and decision-makers and will

contribute to a better understanding of how standards of conduct are enforced in the

context of wrongdoing against vulnerable investors.
 
Address Issues with Powers of Attorney We recommend uniform rules for Powers of



Attorney in Canada/Ontario. We strongly oppose enabling advisors to act as Powers of

Attorney for their clients.
 
Summary and Conclusion
 
 
 
We believe the planned targeted reforms accompanied by the proposed Best interests

principles will go a long way towards making the taking of advice more safe for retail

investors.

Harold Blanes and a number of other of his Canadian Legion veteran colleagues who

returned from World War II believe that the best interest standard should apply to the

overall financial situation of the investor, however recognizes that there are situations

where a limited number of products are offered by a registrant – banks, for example. In

these situations, registrants should be held to the best interest of the investor in relation

to the products offered, but there is a heightened need for transparency. These

registrants should be required to explicitly inform investors in writing that they only offer

a select line of products and there may be other products available that are better suited

to the investor. This information should be disclosed and acknowledged prior to any

advice or dealings taking place.

Registrants need to be held accountable for their actions. The need is heightened with

the rapid increase in the number of senior citizens. Failure to address identified problems

will leave to a growing crisis in the near future. These reforms are as much

socio-economic as they are regulatory .The status quo is simply unacceptable – the

protection Canadian investors already believe they have needs to be explicitly provided.

We urge you to address the failures in the existing system. Seniors and investors across

Canada deserve better.

Thank you for the opportunity to share the concerns of many of the exploited frail elderly
 
across Canada. We agree to public posting of this Comment Letter.



Sincerely,

Alan Blanes, for:

Harold C. Blanes, member of CARP Chapter 30 - Okanagan
 
RESEARCH DOCUMENTS
 
 
 
11
CARP Submission to the Ontario Government Expert Committee to Consider

Financial Advisory & Financial Planning Policy
 
 
http://www.carp.ca/wp-content/uploads/2014/11/CARP-Submission-Ont-Gov-Expert-Co

mmittee-Financial-Advisory-Financial-Planning-Policy-Alternatives%E2%80%93Sept2015

.pdf
 
 
Submission to the OSC on Priorities for Fiscal 2017 - CARP




http://www.carp.ca/wp-content/uploads/2016/06/16-05-09-CARP-Submission-to-Ontario

-Securities-Comission.pdf
 
 
CARP calls for a Fiduciary Duty for advice givers
 
 
http://www.carp.ca/wp-content/uploads/2013/12/CSA-Consultation-Paper-33-403-Fiduci

ary-Duty.pdf?e4b50d
 
 
OSC IAP Seniors Roundtable: Facilitator's Report
 
 
http://www.osc.gov.on.ca/documents/en/Investors/iap_20141212_facilitators-report-sen

iors-roundtable.pdf
 
 
Seniors, Suitability and Ethics
 
 
http://fpawi.org/downloads/Symposium_2011/2._2011_symposium___ethics___seniors_

suitability_handout. pdf
 
 
Guidance on compliance and supervisory issues when dealing with senior

clients
 
 
http://www.iiroc.ca/Documents/2016/87c0e6d5-8054-4e88-9b56-9a079b8c35aa_en.pdf
 
 
The role of compliance in securities regulatory enforcement: York U



The researchers make 30 recommendations all worthy of consideration.
 
http://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?article=1116&context=repo

rts
 
 
PROTECTING SENIOR INVESTORS: REPORT OF EXAMINATIONS OF SECURITIES
 
 
FIRMS PROVIDING “FREE LUNCH” SALES SEMINARS – U.S. Securities and



Exchange Commission
 
https://www.sec.gov/spotlight/seniors/freelunchreport.pdf
 
 
2009 Free Lunch Seminar Report : AARP




http://www.aarp.org/work/retirement-planning/info-11-2009/freelunch.html
 
 
Stromberg report on mutual funds (1998)




http://www.sipa.ca/library/SIPAdocs/Stromberg_InvFunds-Oct1998.pdf
 
 
Giving Small Investors a Fair Chance: CARP 2004




http://www.sipa.ca/library/SIPAdocs/CARP-SIPA_Report_20040928.pdf
 
 
Purse Strings Attached: Towards a Financial Planning Regulatory Framework
 
 
.The report reveals that the pace of reform has been slow for an industry entrusted with

the retirement security of Canadian consumers. “It’s time all employees of the financial
 
12
planning industry in Canada face the reality-they need to employ a uniform standard of

care for investors, complete with a full disclosure of how they’re being compensated,”

notes Jonathan Bishop, co-author of the report. The research reveals Canadian

consumers are potentially leaving thousands of their retirement dollars in someone else’s

hands by conflicts of-interest .The report concluded that the time remains ripe for

provincial consumer and finance ministries to work towards a regulatory framework for

financial advisors.
 
http://www.piac.ca/wp-content/uploads/2014/11/pursestrings_attached_final_for_oca.pd

f
 
 
Suitability, Minimum standards and Fiduciary Duty: A. Teasdale CFA



http://www.moneymanagedproperly.com/newsletters/Suitability,%20Minimum%

20Standards%20&%20Fiduciary%20duty.pdf
 
Protecting Senior Investors : IIAC




http://iiac.ca/wp-content/uploads/IIAC-Working-to-Protect-Senior-Investors.pdf
 
 
Failure to address suitability processes is in itself a breach of a regulatory fiduciary
 
 
 
duty: Teasdale CFA. http://blog.moneymanagedproperly.com/?p=1977

Held to a Higher Standard” – Should Canada’s Financial Advisors Be Held to a

Fiduciary Standard? The implementation of a fiduciary standard would have



widespread implications for the financial industry, as advisors would be required to

ensure that all recommendations were in the best interest of their clients, including the

minimization of all fees and expenses, which is typically at odds with the advisor’s goal of

maximizing revenue from a client account. This literature review will explore the various

issues associated with the fiduciary standard debate in Canada, with commentary,

analysis, and perspectives from both the consumers and providers of financial advice. It

also includes findings from a variety of academic sources on the subject of a fiduciary

standard, and its potential impact on the financial advice industry.
 
http://dtpr.lib.athabascau.ca/action/download.php?filename=mba-15/open/punkon-aprjfinal.

pdf
 
 
Fact Sheet: Middle Class Economics: Strengthening Retirement Security by
 
 
Cracking Down on Conflicts of Interest in Retirement Savings | whitehouse.gov




https://www.whitehouse.gov/the-press-office/2016/04/06/fact-sheet-middle-class-econo

mics-strengthening-retirement-security
 
 
Retirement Security - theZoomer: Television For Boomers With Zip!



Great feature story on advisors and retirement security Lawyer Harold Geller , Alan

Goldhar ,Keith Ambachtsheer, John DeGoey, Cary List and investor Peter Whitehouse

explain the sorry situation. A strong argument for Best interests is made.
 
http://www.thezoomertv.com/videos/retirement-security/
 
 
The Flaws In Canada’s Financial Adviser System
 
 
http://www.highviewfin.com/blog/the-flaws-in-canadas-financial-adviser-system/
 
 
Why A Fiduciary Standard For Investment Advisers Is Urgent And Crucial
 
 
 
http://faircanada.ca/wp-content/uploads/2012/06/Why-A-Fiduciary-Standard_-Kivenko.p
 
 
13
df
 
 
The value of advice: An investor viewpoint Kenmar Associates




http://www.investingforme.com/pdfs/reports-studies/Advice-An-Investor-View.pdf
 
 
The Best Interests Advice Standard - Canadian MoneySaver




https://www.canadianmoneysaver.ca/the-best-interests-advice-standard/
 
 
The Canadian Securities Administrators 2016 Investor Education Survey
https://www.securities-administrators.ca/aboutcsa.aspx?id=1475 revealed that there

has been a steady increase since 2006 in the percentage of Canadians working with a

financial advisor, from 43 % in 2006 up to 56% this year.
 
 
How Fund Fees are the Best Predictor of Returns : Morningstar




http://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of

-returns.aspx
 
 
Global Fund Investor Experience Study : Morningstar June 2015
 
https://corporate.morningstar.com/US/documents/2015%20Global%20Fund%20Investor%20

Experience.pdf
Why you should care about your Investment Costs : Invisor




http://blog.invisor.ca/care-investment-costs/
 
 
Report outlines best practices regarding seniors and DSC mutual funds - IE



In December 2016 the Mutual Fund Dealers Association of Canada (MFDA) issued
 
a bulletin on that details the results of a compliance sweep that it carried out during the



year. The compliance review looked at the use of DSC mutual funds, particularly with

senior clients, and dealers' supervision, suitability assessment, and disclosure practices in

this area. The review uncovered several problematic practices, including: clients over age

70 that were sold DSC funds; clients who were sold funds with DSC redemption

schedules that are longer than their investment time horizon; and evidence of poor

disclosure of the redemption fees at certain firms. The review also found room to

improve supervisory practices in this area. "Overall, there was a lack of consistency

across [dealers] on how to supervise transactions involving seniors who purchased DSC

funds," the MFDA bulletin notes.
 
http://www.investmentexecutive.com/-/report-outlines-best-practices-regarding-seniorsand-

dsc-mutual-funds
 
 
APPENDIX 1
 
 
 
AGE VULNERABILITY A research paper Old Age and the Decline in Financial Literacy

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1948627 found that households



over age 60 own half of the discretionary investment assets in the United States and are

increasingly responsible for generating income from these investments to fund

retirement. Studies in cognitive aging show that older respondents experience a decline

in cognitive processes closely related to financial decision making. They investigated
 
14
whether knowledge of basic concepts essential to effective financial choice declines after

age 60. The researchers found that financial literacy scores decline by about 2% each

year after age 60, and the rate of decline does not increase with advanced age. Results

from regressions censored by respondent groups and financial literacy topic areas

suggest that the decline is not related to cohort effects or differences in gender or

educational attainment. However, c onfidence in financial decision making abilities does

not decline with age. Unwarranted confidence and reduced abilities can explain poor

credit and investment choices by older respondents, the authors conclude.

The cognitive limitations experienced by those with diminished capacity can render them

unaware that they are in harm’s way. That is, they are unable to read the cues in others’

behaviours as menacing, exploitative or as potentially dangerous. Moreover, after the

fact they may not be able to appreciate that they have been mistreated.

It's long been known that seniors are especially vulnerable to the financially devastating

impact of advisor mis-selling, misrepresentation, lack of proficiency and scams.

Conditions such as physical and mental health issues such as stroke,

Alzheimer's/dementia, isolationism, dramatically increase vulnerability of the elderly.

Seniors are also more vulnerable because trust in advisors is unduly high, increasing

their susceptibility to defective advice. Widowers or seniors distant from their families

have less opportunity for “second opinions”.

Seniors can be particularly vulnerable because they often have to live on fixed incomes

and are having difficulty coping with low interest rates and tepid market returns. As a

result , they may be tempted to chase returns by investing in risky products. Investment

losses hurts seniors more than any other group, because when seniors lose their life’s

savings, they lack the time to rebuild a nest egg. There's no second chance for recovery.

All seniors are vulnerable. Those who are socially isolated are vulnerable because they

are less likely to seek advice before a purchase, and because the sales pitch itself

addresses an unmet need for social interaction, resulting in their feeling obligated to be

friendly or compliant in return. On the other hand, victimization studies have found that

seniors who have active social lives and experience a broad array of consumer situations

may also be vulnerable simply because of increased exposure ( and of course attractive

net worth). Advisors may join a club or church group simply to gain access to a network

of new potential clients and their financial assets while pretending to bond with

individuals.
 

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