May 5 2008 by Ellen Roseman
CTV’s program, W-Five, recently told the story of a dairy farmer in Nova Scotia who inherited $155,000 and put it all with RBC Dominion Securities. Within a year, the account was worth only $134,000. Another 10 months later, it was down to just $1,800.
The broker was churning the account — making 126 trades in a 20-month period alone — to earn commissions. He’s since left the industry. His boss was fined $70,000 for failing to supervise his employee. And the dairy farmer collected an amount (which he’s not allowed to disclose) from RBC as compensation for his losses.
I’ve told such stories myself and given space to readers (see first comment, Leveraging Misery), so I’m glad Paula Todd highlighted abuses on W-Five. I’d love to see stronger regulation of stockbrokers, mutual fund sellers and commision-based financial planners, but I’m not confident anything will change.
Here’s the problem: No one listens to ordinary investors. Canada’s securities regulators set up task forces to study what should be done for investors. But do they include investors on these task forces? Almost never. The most recent example of exclusion is the Purdy Crawford-led committee working to restructure asset-backed commercial paper.
The Ontario Securities Commission decided to break the tradition. In 2005, it announced the formation of an investor advisory committee to give direct input on important issues. I was one of 10 people selected for a two-year term.
Our term ended last December and we agreed not to talk publicly about what went on behind closed doors. So I’ll just say this: We didn’t accomplish much. We were more like a focus group than a policy-making body. We never put out any reports on what we were doing or discussing — though we did try. We were divided about many issues and rarely reached a consensus. Still, it was a useful exercise.
The OSC didn’t announce new committee members after our term ended. Nor did it consult us. So I was surprised to see a story in this month’s Investment Executive about what it planned to do to replace us. Basically nothing. The experiment is over.
Instead of listening to a committee of investors, the OSC and self-regulatory organizations will listen to each other. They will talk about issues that concern investors — and invite a few investors to chat from time to time — and that’s all.
Here’s how OSC vice-chair Larry Ritchnie justifies the decision:
The IAC was â€œextremely usefulâ€ but it had â€œrun its course.â€ Regulators have decided to try something new and, hopefully, better.
This new approach will represent progress because it brings together the four primary organizations with responsibility for retail investor protection; it will also aim to generate investor input from a broader array of voices than a formal investor committee can produce.
There is no one voice for retail investors. We are all retail investors.
Come on, guys. You’re retail investors second and industry insiders first. You’re the last people I’d expect to understand what happens to the dairy farmer from Nova Scotia who hands over the first substantial sum of money he’s ever had to a commission-hungry snake in a suit.
It seems to me there are many articulate people who can speak for investors. There’s no lack of input. The bigger question is: When will the regulators and SROs start listening to investors? And taking action on what they’re told?