Protecting ourselves against unscrupulous financial advisers

Ivan Cons

Unfortunately, this summer we became aware of a seemingly impossible financial fraud committed against many Montrealers, including seniors, some of whom are incapacitated or isolated geographically from their children.

The financial regulators, in this case the Autorité des Marchés Financiers (AMF), seldom heard from in the past, emphasize that one of the problems with Earl Jones was that he was unlicensed – as if his having a license would have changed his behaviour or prevented people from becoming victims. If we go back five years, there are many examples of licensed brokers in insurance and mutual funds perpetrating similar fraud or promoting products that were not duly registered. One only has to refer to the AMF website (www.lautorite.qc.ca) or the headlines in our local newspapers.

How should we protect ourselves in a financial transaction?

• Make sure you have legitimate copies of paperwork handed to you by the broker upon completion of a transaction. The broker can provide you with his own in-house statement, but there should also be a statement from the company with whom you are dealing sent directly to you.

• Look for a track record. Look for companies that offer a genuine array of products and who you can access by phone and also with a private code online. Verify whether the company or product is registered and licensed in Quebec. Start your search for a track record by simply googling the person’s name. You can also look for past infractions on the AMF website.

•The moment you hear a story about a better return than is available at your financial institution or a teaser about a product that will save you taxes, investigate it thoroughly. Many advisors use the words tax or tax savings as a lead in to sell a product. Often these tax savings are negligible or are designed for a very small, wealthy segment of the market.

• Ask to see the tax opinion from the company on its letterhead. Have them remove it from their vault and show it to you, or better still, verify if a documented opinion exists with either revenue department. Some brokers suggest that clients leverage and borrow or remortgage and invest the proceeds for tax savings and future opportunities. Many clients do not understand the peril they may put themselves in. Ultimately, clients are responsible for their own actions, not the broker. Make sure you clearly understand what you are getting into. Make sure the tax free product comes with a get out of jail free card.

• Be wary when you hear the words offshore. Offshore is where you take a vacation – not where you should invest your money. While you may come back from an offshore vacation, your money will likely disappear. Carefully check the name of the company in which you are being advised to deposit your savings. Scammers often create company names that sound similar to genuine financial institutions,giving them an appearance of legitimacy. Ultimately there is no foolproof way to protect yourself, but you can take simple prudent measures to greatly reduce risk.