I recently read a quote that stated: “I don’t want to be unduly critical of the regulators, but they have dropped the ball. Their mandate is investor protection and yet the investor, the individual investor, is the last person on the totem pole that they ever think about.”
This quote comes from Glorianne Stromberg, the former Commissioner of the Ontario Securities Commission.
She went on in the same article: “For as long as I’ve been around, I’ve heard people say: ‘If it ain’t broke, don’t fix it.’ Well you know what? It is broken. It’s badly broken, and it’s the most vulnerable people who are suffering from it. It’s not lobbyist, it’s not the institutions and it’s not the entrepreneurs. It’s the individual investor who is exposed to things they have no concept of.”
Wow!
Here’s what else she said which is what I’ve been saying for years. “When products are pushed back down the chain, representatives then “pretend they’re offering advice. They hold themselves out as offering advice, but it’s all a sales transaction. Their compensation structures are designed to force those so-called advisors or representatives to deal in those products (proprietary products or those underwritten by the company), or they’re without a job. They’re setting up irreconcilable conflicts of interest on all sides of every transaction.”
This is what I wrote about in my book The Financial Navigator: Managing Your Success. The financial services industry is designed to protect itself. From a practical point of view it’s getting worse every day. The theme of today is “cover your ass”.
Having clients sign form after form saying they know what they’re doing doesn’t mean they know what they’re doing but from a legal point of view, it apparently does. This brings us back to the concept of fiduciary duty. I believe the reason the financial service industry is opposed to this is that it will make them responsible for the advice they give and the actions they take on behalf of clients. It would force them to act in the client’s best interests and not allow them to hide behind waiver number 2012 or form 316.
I totally agree with Ms Stromberg, the system is broken and, in my opinion, the only way it’s going to get fixed is to remove the conflicts of interest and let independent advisors give independent advice.