Two financial advisers are under scrutiny by an industry watchdog for the advice and information they provided to an undercover tester in a Marketplace investigation last month.
In Show Me The Money, we sent a fitness instructor into ten banks and investment firms with hidden cameras to test financial advisers. While some advisers fared well in the test, others gave inaccurate, misleading or inappropriate advice.
Although it declined to talk to us on camera or view our footage before our story aired, the Investment Industry Regulatory Organization of Canada (IIROC) sent us a statement this week. It says it is "disappointed and concerned about what we saw in the episode … we take seriously complaints made about IIROC-regulated firms and their representatives."
The regulator also says it is "looking into the conduct" of an adviser at Edward Jones and another who worked at Dundee Wealth (now called Hollis Wealth and owned by Scotiabank).
The adviser from Dundee Wealth suggested that if the tester invested $50,000 in "safe" products she could earn $5,000 within a few months and up to $20,000 within a year. Former financial adviser Preet Banerjee, who reviewed the hidden camera footage for Marketplace, called the advice "atrocious" and "ludicrous."
The Dundee adviser also neglected to ask the tester about her debts, an apparent contravention of the so-called "Know Your Client" guidelines which advisers are supposed to follow.
Parent company Scotiabank called the conduct "an isolated incident", telling Marketplace the adviser “would not typically manage requests of this nature." It said the employee "made a mistake and in doing so, contravened our guidelines and industry standards." Scotiabank suspended the adviser immediately before broadcast of the episode, saying it was “taking the matter seriously and reported it to IIROC."
The adviser from Edward Jones wrongly explained mutual fund management fees to the tester, saying that fees are paid only on profits derived from the investment. Banerjee called the explanation "incredibly misleading" since management fees are paid annually on all monies that are invested, regardless of profit or loss.
According to a statement, the adviser is "no longer associated with Edward Jones." The company did not answer requests for additional details.
Meanwhile, IIROC says it is "in contact with the firm and we are discussing what we saw on the tape and our concerns."
In its statement, the watchdog also says, "Our inquiries will also include reviewing the actions these two firms have taken to deal with the issues identified and to ensure that in-firm training and appropriate supervisory controls are in place."
And IIROC confirmed that it is "in the midst of conducting our own Mystery Shopper program" in conjunction with the Ontario Securities Commission and the Mutual Fund Dealers Association. IIROC would not provide additional details but says a report will be issued in 2014 and "will help inform the investing public on the elements of quality advice."
Response #1 from Investment Industry Regulatory Organization of Canada (IIROC)
17 March 2014
As requested, here is a response from IIROC to your follow up inquiry.
- We are disappointed and concerned about what we saw in the episode that CBC TV Marketplace aired.
- We take very seriously complaints made about IIROC-regulated firms and their representatives.
- We are following up directly with the two firms (that we regulate) with which we have concerns based on what we saw in the program.
o IIROC is looking into the conduct of the individual who provided advice to your mystery shopper.
o Our inquiries will also include reviewing the actions these two firms have taken to deal with the issues identified and to ensure that in-firm training and appropriate supervisory controls are in place.
- We expect that IIROC-regulated firms and their staff comply with our conduct rules and adhere to high levels of ethical and proficiency standards. Tools we use to regulate investment dealers include policy-setting, proficiency standards, ongoing education, compliance examinations, investigating complaints and enforcement action such as fines, suspensions and expulsion.
- To enhance investor protection, it is just as critical that investment firms ensure that their staff are appropriately trained and act fairly, honestly and in good faith with their clients and in accordance with our rules.
- IIROC is committed to enhancing investor protection and to improving the quality of advice provided to retail investors. We are currently in the midst of conducting our own Mystery Shopper program, together with the OSC and MFDA, so that we can get first-hand knowledge about investors’ experiences and take any necessary action.
- The information we gather about investors’ experiences, combined with our oversight and compliance examination program, will be shared with the firms we regulate to improve compliance and help to prevent harmful activity.
Response #2 from (IIROC) to Marketplace additional questions seeking clarification – 18 March 2014
1) Marketplace: The two IIROC regulated companies are: Dundee Wealth (now Hollis Wealth) and Edward Jones?
2) You are looking into the conduct of the Dundee Wealth advisor. I am surmising this because parent company ScotiaBank informed us that it had contacted IIROC.
Yes, we are looking into the conduct of the Dundee Wealth advisor.
3) You are not looking into the conduct of the Edward Jones advisor.
That is not correct. We are in contact with the firm and we are discussing what we saw on the tape and our concerns.
4) When you write that you are currently conducting your own Mystery Shopper test, does that mean that the mystery shoppers are actively visiting financial advisors at this moment?
To ensure the integrity of the mystery shops, we are not disclosing the details. We expect to issue a final report in 2014. The results will be used to help inform IIROC’s operational and policy activities. As well, the results will help to inform the investing public on the elements of quality advice.
5) Can we expect the results of your Mystery Shopper test to be released publicly, and in the autumn? Or will the results be released privately, only to the firms regulated by IIROC.
See above response.
Response from Edward Jones – 13 March 2014.
The company did not respond to follow-up question asking whether the adviser had been dismissed or ceased association of his own accord.
████████ is no longer associated with Edward Jones.