By Ian Duncan MacDonald
Special to the Financial Independence Hub
Recently I read an article by a financial advisor with “25 years of experience in dealing with individual investors.”
He sees his role as a coach helping” investors ignore Wall and Bay Street hype and hysteria ….” As he sees it, only investment advisors can protect investors from themselves. He sees these ignorant self-directed investors as, “piling into the market after superior stock returns and before inferior returns,” “ignoring tax ramifications” and foolishly “investing for entertainment.”
When you give access to your money to an advisor you are immediately creating the potential for that advisor to use your money in their self-interest: not yours. While this advisor does address investment advisor fees, “The financial regulators require us to disclose them.” He does not touch upon the seemingly daily reporting of investment advisor thefts of client money nor all the “legal” but murky ways that investment advisors can siphon of your money.
(The “full-service fee schedule” account you signed probably allows all the following fees to be charged against your investment account: operating fees such as custody fees, interest charges on debit balances, fees for manages and fee-based programs, transaction fees, foreign transaction tax, issuer commissions, service fees, fee for managing funds, deferred sales charge, referral fee, etc). Self-directed investors are shielded from almost all of these fees.
On rare occasions investment advisors get charged with theft:
“Posted On Wednesday March 24, 2021
The Halton Regional Police Service – Fraud Unit has arrested a Burlington man in relation to a fraud investigation.
The accused was an investment industry professional who worked for a financial company that was registered with the Investment Industry Regulatory Organization of Canada (IIROC). Between 2011 and 2016, two victims invested a total of approximately $1.6 million with the accused to purchase insurance and other investments. The accused diverted the funds he received from the victims to his own bank accounts.”
The following is just the last month’s reporting of investment advisor IIROC disciplinary hearings plus their last statistical complaints report:
Statistics Filed by Dealer Firms (COMSET)
“IIROC rules require Dealer Members to inform IIROC, using IIROC’s Complaints and Settlement Reporting System (ComSet), when certain events occur, including when a Dealer Member receives a written client complaint, when criminal charges are laid against a Dealer Member or any of its individual registrants, or when a securities-related civil claim is brought by a client.”
|||March 31, 2021||2020||2019||2018|
|Number of reports in ComSet||297||1353||1107||1089|
|Number of events reported|
|Denial of registration or approval||0||0||0||0|
|External disciplinary action||1||0||3||4|
|Internal disciplinary action||16||34||31||27|
What is interesting about the above statistics is that complaints are rising and that only 2 out of 1,173 (or 0.0017%) complaints in 2020 resulted in criminal charges. Were the other 1,171 complaints frivolous? How is that possible? How many complainants did not follow through with the requirement to file a written complaint? How many investors are not even aware to what extent that their funds are being siphoned off by investment advisors?
The self-regulating investment industry imposes fines, suspensions, and reimbursements instead of filing criminal charges against thieves. For example:
“ ST. CATHARINES, ON, April 7, 2021 /CNW/ – Following a penalty hearing held on March 9, 2021, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) imposed the following penalty on Dean Martin Jenkins:
(a) a permanent prohibition from registration with IIROC; and
(b) disgorgement in the amount of $55,450.
Mr. Jenkins is also required to pay costs in the amount of $2,500.
The penalty decision can be found at:
In an earlier decision dated December 18, 2020, the Hearing Panel found that Mr. Jenkins facilitated the off-book purchase of high-risk syndicated mortgage investments for several clients. He also failed to tell his employer about the transactions.
The decision on Liability can be found at: Re Jenkins, 2020 IIROC 44
IIROC formally initiated the investigation into Mr. Jenkin’s conduct in October 2018. The violations occurred while he was a Registered Representative with the St. Catharines branch of Edward Jones Inc., an IIROC-regulated firm. Mr. Jenkins is no longer a registrant with an IIROC-regulated firm.”
Better to protect investors from advisors than themselves?
While some advisors concentrate on protecting investors from themselves, who is effectively protecting investors from the full-service investment industry? Many self-directed investors are self-directed because they have been burned by their relationships with the investment industry. With all the free stock data, inexpensive, easily accessible internet tools now available, it takes little effort to construct a safe self-directed portfolio that will generate both a generous income and good capital gains.
I am one of the many investors burned to the tune of several hundred thousand dollars by my relationship with an investment advisor. That experience motivated me to learn now to invest simply, safely, and well. Through the investment books I have authored, I have helped others gain total control of their portfolios.
Investment advisors are not going to hurt their income potential by teaching the public how to self-invest. Many of them have a limited understanding of serious self-directed investing. Is it time for self-directed investing to be added to our students’ curriculums?
After graduating from McMaster University, with $100 left in his pocket (but no student debt), Ian Duncan MacDonald hitch hiked home to Sudbury to work four months as a labourer in International Nickel’s smelter. In four months, he had saved enough to seek his fortune in the big city.
In Toronto, he was immediately hired by Dun & Bradstreet as a credit reporter. While he had expected to be a reporter for the rest of his life, D&B had other plans. Within four years, he was General Manager of their Marketing Services Division. Three years later, at the age of 28, he was responsible for the sales, marketing and advertising for all three divisions of the company.
At 32, he left D&B to build Screening Systems International Ltd, for a large conglomerate, which led to his interest in collections. Moving to Creditel of Canada Ltd. he became Senior Vice President. Subsequently bought by Equifax, he remained there until his retirement in 2005. In anticipation of his retirement he incorporated Informus Inc. to sell his art, his publications and consulting services (www.informus.ca.)