Financial Advisor Scam

The financial services advisory profession was shaken by a scam announced early in July 2009. Although the facts are still being gathered by the authorities, it appears that a Montreal resident, posing as a financial advisor for many years, has run-off with approximately $50 million in client funds.

It has been reported that Bertram Earl Jones was not registered with any securities regulator, not affiliated with any securities dealer or insurance distributor and has no professional designation. Yet for years he befriended Montreal residents and convinced them to entrust their savings to him and his company. For some, it was their life savings. Now his personal and corporate bank accounts are empty and Jones is nowhere to be found.

The problem only came to light when his clients started to receive cheques that were not honoured by his bank and no one was answering his phones. His phone message indicated that his company was not in a position to return funds.

Since Jones was not licensed there was no authority looking over his shoulder. This could make it difficult for clients, as there is no regulatory protection to get their money back from industry sources such as the Canadian Investor Protection Fund.

Let’s hope that Jones is in jail by the time you read this, however there are some lessons here for consumers dealing with financial advisors. Do your homework before placing your trust, and hard earned cash, with any individual or corporation. For your protection you should be dealing with a licensed person. That person is often sponsored by a larger organization who oversees compliance and industry regulations. Better yet, the person should also be affiliated with professional organizations.

The regulator and licensing body in Ontario is the Ontario Securities Commission (OSC). Mutual fund distributors are also required to be members of the Mutual Fund Dealers Association (MFDA). These regulatory bodies enforce the regulations and code of professional conduct that are designed to protect the consumer from scoundrels like Jones.

Professional organizations include: the Institute of Advanced Financial Planners (IAFP) who is responsible for the R.F.P. designation. The Financial Planners Standards Council (FPSC) is responsible for the Certified Financial Planner (CFP) designation. The Chartered Life Underwriters Institute issue and monitor the Certified Life Underwriter (CLU) designation. These are just a few of the professional organizations with which financial planners can be affiliated. Credentials in a professional organization assure consumers that there is another layer of credibility. Each of these bodies has minimum education standards and requires annual certification.

Here are a few additional tips for your protection. Never issue investment cheques that are payable to the individual planner. All cheques should be written payable to a trust account and you should receive confirmation of your investment shortly after your cheque is cashed. It sounds like the Jones clients weren’t getting anything except letters from Jones himself. The Jones crime will probably come down as a case of a rogue individual posing as a legitimate financial planner who was nothing more than a common criminal.

Do your own due diligence to ensure your advisor is legitimate and that there are safeguards in place for your protection. As it stands today, anyone can hang out a shingle and call themselves a financial planner. No licence is required until financial products are sold. And there is no requirement in Ontario to be a member of a professional organization.