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Complaint guide can avert investing woe

The Toronto Star - Money Talk - April 19, 2001

Complaint guide can avert investing woe


IF YOU FALL victim to bad investment advice or damaging trading practices, you cannot turn to a regulator to recover losses.

Your only options are to persuade your adviser or his or her employer to make things right, request binding arbitration or file a lawsuit - a long, expensive and risky process.

Threatening to complain to a regulator will sometimes help get the attention of an adviser, supervisor, compliance department, company president or ombudsman. Actually filing a complaint to the Ontario Securities Commission, Investment Dealers Association or the new Mutual Fund Dealers Association comes next.

Just in time for Investors Education Week, the Ontario Securities Commission is publishing a pamphlet to help guide you through the complaint process. It would be best to read it before you have reason to complain. Hints on documenting your dealings with your adviser could actually avert a financial mess.

In the pamphlet A Step-By-Step Guide To Making A Complaint, there is a sample form that can help investors record their dealings with a stock broker. Building a paper trail could strengthen your case if you run into trouble, and aid you in writing a chronology of events documenting your complaint. More important, the sample form - which you would be wise to fill out each time you take investment advice - will cause you to think twice about the tip you are getting.

There are spaces on the form for you to detail the time, place and source of the advice, the price of the investment, the printed material you will be sent to read and your specific instructions. Space is also provided for notes on why the broker or sales person is making the recommendation, how the purchase or sale will meet your investment objectives and what the risks are.

Too often, investors and their advisers forget the details of the application form that was filled out when the person first came to the investment firm. That form should be the map for all future actions.

The application form sets out a person's net worth, income and investment objectives. Those will determine what investment recommendations may be appropriate and what are not.

Clients have good reason to ask for reimbursement of losses if they can show that they received inappropriate advice or were advised to make an excessive number of trades.

A woman I met on a whale-watching cruise last summer had sold her house and moved in with her mother to save money to buy a better house in a couple of years. A mutual fund salesperson persuaded her to invest the money in a portfolio of high-tech stocks, plus one mining stock. You can probably guess the rest. Her savings of $91,500 had fallen to $39,582 when she e-mailed me a month ago.

Did she get appropriate advice? Absolutely not! Any adviser worth his or her salt would strongly urge a client who has a time horizon of a year or two before they need some money to stay out of the stock market.

Only an idiot would recommend an investment portfolio so poorly diversified when the money was intended to be used to buy her permanent shelter.

Should she be covered for her losses? I would say so. But she may confront a few problems. The adviser wasn't even a stock broker. He agreed to direct her on how to invest the money if she would bring her retirement savings plan to him for investing.

If she had read something such as the OSC pamphlet on complaints, or another new publication called With Whom Are You Dealing For Your Investment Services?, she might have realized how to better protect herself.

She would have a much simpler time demanding compensation if she had dealt with someone licensed to deal in individual securities.

Although there is no guarantee, one would expect that a licensed broker with a reputable firm would not have taken such a cavalier attitude when dispensing advice. She would also have a clear chain of command to pursue when seeking redress.

In these days of volatile markets, investors would be wise to proceed with caution. Either of the two OSC pamphlets is a good first step to becoming informed.

Reprinted from the Toronto Star