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Ombudsman Under Fire From Financial Industry

Members of the financial industry hold themselves out as acting in the interests of their clients.  This is also the expectation and understanding of retail investors. However, the law does not currently require financial advisors and firms to act in their clients’ best interests. FAIR Canada believes that a clear requirement that financial advisors act in a client’s best interest would bring the law in line with industry’s advertising and marketing and help protect investors. 

There has been a considerable increase in the number of client complaints about unsuitable investments in recent years. Consumer complaints related to investments rose 73% in the last year alone. Instead of pressing for better protection for their clients, representatives of the industry are dealing with the increase in client complaints about unsuitable investments by seeking to repeal the requirement that they offer their clients the option to use the Ombudsman for Banking Services and Investments (OBSI) to resolve complaints. OBSI is the only free consumer-friendly dispute resolution service available to aggrieved investors. Instead, the investment firms want to be able to choose and directly compensate their own private dispute resolution service providers.  Representatives of several large investment dealers recently pressed Canadian securities regulators for an urgent meeting to obtain permission to replace OBSI. Retail investor advocates were not invited to the meeting.

OBSI resolves disputes between participating banking services and investment firms and their customers. It is under attack by the very industry responsible for its creation. Representatives of IIROC and MFDA member firms are seeking to remove the requirement under IIROC and MFDA rules that they participate in OBSI. Instead, the member firms want to be able to choose and pay their own private dispute resolution service providers. It should be remembered that OBSI was originally created by the industry to preempt the imposition of a more consumer-friendly statutory ombudsman. 

Regulators Hold Firm

According to media reports, the regulators rejected the industry request and encouraged the member firms to continue to participate fully in OBSI’s processes. Kudos to CSA Chair Bill Rice and OSC Chair Howard Wetston. [Editorial Note:  FAIR Canada understands that the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada have also stood firm on requiring all investment firms to use OBSI and they should also be commended for withstanding pressure from some of their largest members.]

FAIR Canada has issued a letter to regulators in support of the current requirement for IIROC and MFDA member firms to offer OBSI as a dispute resolution mechanism available to their clients. FAIR Canada believes that a single dispute resolution service provider is essential to investor protection in order to avoid fragmentation, inconsistencies, and serious potential conflicts of interest. Additionally, OBSI is charged with identifying and investigating systemic or widespread issues that arise from complaints in the course of its work, which would be very difficult to accomplish if a variety of private dispute resolution firms were used. Instead of permitting member firms to use private dispute resolution services, FAIR Canada urges reforms to strengthen the accountability and independence of OBSI. FAIR Canada also recommends the formal recognition of OBSI, through recognition orders issued by CSA members, which would improve oversight and accountability.

OBSI Public Consultation on Loss Calculation

On May 27, OBSI published a consultation paper inviting public comment on its approach to determining suitability and assessing investor losses. If OBSI determines that an investor incurred financial harm, OBSI will prepare a recommendation which is not binding on the parties. The overall objective of OBSI’s approach to measuring investor loss is to determine a reasonable estimate of the financial position the investor would be in had the unsuitable investment advice not been given and acted upon. OBSI’s consultation paper includes key principles upon which its assessment process is based.

FAIR Canada encourages both investors and other interested parties to review OBSI’s consultation document and provide comments.  The deadline for submissions is July 25, 2011. FAIR Canada will make a submission to OBSI and will post it here under FAIR Canada Submissions and Reports.

Investor advocates rally behind OBSI

Investor advocates have come out in support of OBSI, including SIPA and Kenmar Associates. SIPA has also written to Finance Minister Flaherty to set out its concerns. 

Media coverage of OBSI controversy

The Financial Post’s Theresa Tedesco has written a series of articles exposing efforts by the financial industry to pressure regulators to let them have their way:

Showdown looming between Bay Street and Main Street  (May 4, 2011)

OBSI dodges RBC, TD, Manulife bullet for now  (May 13, 2011)

Critics take aim at TD directors on OBSI  (May 30, 2011)

The Toronto Star’s Ellen Roseman has also weighed in with a consumer perspective:

Roseman: Brokers battle with banking ombudsman (May 24, 2011)

Roseman: Ombud for investors wants your help (May 26, 2011)

The Globe and Mail Rob Carrick says “Investor Advocate isn’t perfect, but it’s worth fighting for.“(June 1, 2011)

Note: The Executive Director of FAIR Canada is a member of the OBSI’s Consumer and Investor Advisory Council. The views expressed are solely those of FAIR Canada and not those of OBSI or the Council.

June 02, 2011