Stop Thief!

January 18th, 2017

In fee-based investment accounts offered by major financial institutions, clients are told they’ll pay a fee based strictly on the size of the account and they are NOT supposed to pay any sales commissions or trailer fees. In reality, it turns out that some clients of major financial institutions were paying both fees and commissions and trailer fees at the same time.

Effective January 1st, the Canadian Securities Administrators imposed new disclosure requirements on the financial services industry which will now be required to disclose the fees they charge their clients and the rates of return they delivered. You’ll hear these new rules referred to in the press as “Customer Relation Model 2”.

When the financial institutions were preparing their systems and procedures to meet the new requirements, it emerged that several big Canadian investment firms were significantly over-charging their customers (aka “stealing”).

The excess charges which the Ontario Securities Commission announced last year were almost unbelievable:

CI Investments –  $156,100,000
CIBC – $73,260,000
BMO – $49,886,000
Scotia – $19,998,000

To those of us who have worked in the financial services industry this is profoundly unsettling, to say the least.

Tom Bradley, the president of Steadyhand, a mutual fund company, wrote in a December blog, “fee based accounts, which caused most of the problems here, are not complicated so the overcharging can’t be blamed on a systems error. I can assure you that in investment firms, inputs or factor that impact compensation are never overlooked (30 years of managing investment professionals allows me to say that).”

This certainly reflects my 35 years of experience in the life insurance industry. All of the sales people that I worked with knew to the penny how their commission cheques were calculated.

In the January 9, 2017 Report on Business, Rob Carrick said that “whether the issue is one of commission or omission on the banks’ part, the message sent is that banks have trouble restraining themselves from exploiting customers.”

Compared to the over-charges, the penalties imposed by the Ontario Securities Commission were meager in size:

CI Investments – $8,000,000
CIBC – $3,000,000
BMO-  $2,100,000
Scotia – $800,000

These companies stole a total of almost $300,000,000 and paid fines of $13,900,00 or about “5 cents on the dollar” when they were forced to return the money. No one was charged, no one went to jail. If there were any fines, firings, suspensions or management changes at these institutions, they were not reported.

What is particularly infuriating about this, is that the victims were not the top 1% or even 10% of the population. They were (are) our friends, families and fellow employees.

As I have said many times “Caveat Emptor, the person across the desk from you at a bank is probably a commissioned sales person.”