What went wrong?
BREAKING RULES
Your financial advisor may be breaching rules, regulations and laws with your money.
Inform yourself about how regulators, laws and regulations protect you, your family and your investments.
YOU SHOULD ASK QUESTIONS:
- Did your financial advisor promise profits on investments and “systems” that would protect you from losses.
- Did your financial advisor tell you to borrow money or use the equity in your home, business or farm to invest on your behalf.
- Did your financial advisor, in any way, fail to provide due diligence.
- Did your financial advisor fail to fully explain the likelihood and potential size of losses you might incur on high-risk investments.
- Do you believe that your financial advisor did not fulfilled a continual obligation to you.
DID YOU KNOW...
KYC
Financial advisors must conduct the KYC (Know Your Client) process meticulously, by interviewing clients to get to know them and their needs, and introducing them to the concepts involved in the investment process. They must make sure they have a sound knowledge of the products or services they recommend, carefully matching specific stocks, bonds, mutual funds or insurance investments to their clients’ needs.
You Pay Fees
When your investments fail, your financial advisor is free to head off to greener pastures, with a pocket full of fees, while your life is in turmoil and your financial security is in tatters.
Risk
The most common problem we see in our work to recover financial losses of investors is the failure of a financial advisor to explain risks in a clear and understandable way. Many advisors will paint a rosy picture of potential returns to the investor, without fully explaining the likelihood of a loss or the potential size of the loss. The fact is that the potential gain in an investment always coincides with the potential loss. In other words, the higher the possible profit, the higher the possible loss and the greater the likelihood of sustaining that loss.
Life Insurance
The beneficiary or the estate does not have to accept the decision of the life insurance company. They can make the claim in court. Or, they can accept the decision, but insist on a return of the premiums. Not the premium for the last year, but all of the premiums from beginning. After all, if the policy was void from the beginning, the payments should never have been accepted. If the insurance company was not at risk to pay the death benefit, it should not be allowed to keep the money that paid for that risk.
Ongoing Relationship
While most financial advisors properly implement the initial steps in a financial strategy, many fail to follow through with the process. Your financial advisor is paid not only to plan the right financial strategy, but also to work with you to ensure that the strategy continues to suit your needs. Once your advisor has established effective communication and made appropriate recommendations specific to your circumstances, you can make informed choices. Once you do so, your advisor must:
- implement your informed instructions
- keep up to date with any changes in your circumstances
- regularly review your investment products and your circumstances to ensure that the investments continue to meet your needs
- keep abreast of changes in products, investment values and market forces that might cause you to suffer avoidable losses
- inform you of the benefits and risks of holding and selling investments and purchasing more or alternative investments
- continue this process for as long as there is a client-advisor relationship
Due Diligence
Financial advisors are responsible for the advice they give you, and cannot delegate this responsibility to a third party. Due diligence involves performing a service with a certain standard of care and ethics. It commonly applies to a voluntary process, but it can also be a legal obligation. To perform due diligence, your financial advisor must:
- thoroughly investigate your needs
- carefully research and recommend suitable financial products for you to consider
- regularly review your needs and your investments to make sure they remain compatible
COMMUTED PENSIONS - Did you cash in your pension to invest in the market? Investors should be well
COMMUTING YOUR PENSION
Pensions are valuable assets. They protect workers in retirement. They last for life. Often, they last for a spouse’s life, too. Some pensions can be “commuted”. This means they can be terminated in return for capital that can be invested.
In commutation, the retiring employee releases the pension plan from all claims in return for a cash payment that is advanced to a “Locked-In Retirement Account” or LIRA. This is similar to an RSP, but generally not cashable except in periodic instalments. The employee will likely also receive a taxable cash payment that can be rolled into an RSP, if there is "room". If not sheltered in an RSP, the taxable portion is often taxed at the highest marginal rates, near 50%.
It takes an expertise in math, such as an actuary, to calculate the risks and benefits of commutation. Clients cannot do this for themselves. The actuary hired by the pension fund is not in a position to give advice to the client.
Commutation often appears to involve over $1 million. Who would not be tempted to grab the cash? The safe choice is the pension. An investment has more risk. The client bears all the risk when they choose an investment over the pension.
- There are substantial taxes up front. Often greater than the client would ever pay from the monthly pension.
- There are commissions and fees to pay, often very substantial and, also often, undisclosed. There are no fees to receive a monthly pension.
- Markets go drop a lot every few years and you can suffer a terrible loss. It's a cycle. You can only recover from a loss if you stop withdrawing money. Who can live on nothing?
- Financial advisors claim to be excellent asset managers, but they often do under-perform the markets by the amount of their fees or more. Is your financial advisor that much better than all the others?
The bottom line - why take the risk?
Here is a link to a summary of considerations. Did your advisor explain these considerations to you:
" Considering your pension options when leaving an employer
by Sergiu Hirtescu CFP®, FCSI®, CIM®, RRC®
Division Manager at IG Wealth Management
There are generally three options to choose from when members of a defined benefit pension plan have the option to commute their pension:
- Take the pension and commence monthly payments on a date allowed by the plan (usually between age 55 and 65).
- Transfer the pension’s commuted value to another registered pension plan (if the new employer’s plan permits a transfer).
- Transfer the pension’s commuted value to a locked-in account, where the commuted value of a defined benefit pension represents the present value of the lifetime pension payments as calculated under the plan’s benefit formula. This benefit is usually comprised of an amount that can be transferred to a locked-in account (under provincial or federal pension legislation) on a tax-deferred basis and an excess amount that is subject to immediate taxation.
Considerations for options 1 and 2
- Is there a reduction of the pension benefit if the payments start prior to the normal retirement date?
- Is the pension indexed to inflation before and after retirement? If so, is there a cap on the annual pension increase?
- What is the amount of the pension benefit that will be paid to the surviving spouse?
- Does the plan provide for a guarantee period where the remaining monthly pension payments in the period will be made to the estate or beneficiaries if the plan member and spouse dies? How long is the guarantee period?
- Does the plan provide for a bridging benefit, for example, a supplemental pension paid only to age 65?
- Is the pension plan in a significant deficit position that could create a significant risk to the client if the sponsor becomes bankrupt?
- Are there benefits that will be stopped if the Pension Option is not elected? If so, what would it cost to fund these benefits independently? (i.e., group life, extended health care, dental, vision care plans).
- Are there health concerns that could shorten life expectancy?
Considerations for transferring the commuted value to a locked-in account.
- Does the commuted value have an excess amount that would be subject to immediate taxation? If so, is there RRSP carry-forward room to shelter some of this amount?
- What is the required minimum rate of return to produce a sustainable payment from the investment assets that is equal to the retirement income the Pension Option will provide?
- What asset mix is reasonable to generate this minimum rate of return and is this consistent with your risk tolerance?
- What other current and post-retirement income sources are available?
- Is re-employment, which could delay the start of withdrawals, a consideration?
Types of risk
Mortality Risk
Mortality risk is the possibility that the individual, and the surviving spouse if applicable, will not live to the anticipated life expectancy. This means the total pension payments could be less than the actuarial value of the benefits earned by the plan member under the pension plan. In a LIRA, LIF, PRIF or LRIF, mortality risk is not an issue, as the full value of the LIRA, LIF, PRIF or LRIF is payable to the beneficiary or estate at death.
It is possible to provide a hedge against the mortality risk when selecting the Pension Option by purchasing a “last-to-die” life insurance policy, which will provide a tax-free lump sum benefit to the beneficiaries of the surviving spouse. Mortality risk can also be mitigated if the pension provides a guarantee period.
Sustainability Risk
The sustainability of the invested assets is a factor to be considered with respect to the Transfer Option. The higher the annual payouts, given an assumed investment return, the higher the risk that the invested assets will be depleted during the client’s lifetime.
The sequence of investment returns is also an important consideration. During the accumulation phase, it does not matter that the returns will be higher in some years and lower in others, provided that the long-term rate of return is equal to or exceeds the assumed rate of return.
However, when regular payments start, the sequence of returns become important. Investment losses in the first few years of the payment period could result in a higher risk of depleting the retirement assets
Investment Risk
Investment risk is the possibility that if the Transfer Option is chosen, the long-term investment performance of the locked-in assets might be lower than anticipated. Investment risk is not a factor with respect to the Pension Option, as the payouts are guaranteed, and may be indexed.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities."
COMPLEXITY - INVESTMENT RISK
After commutation, the client has to invest the money, in the LIRA and in the taxable account. Hopefully - and it is only hope - the investment returns are greater than the monthly amount the pension would have paid - guaranteed. Investment returns are not guaranteed. Markets drop. Investors lose money even with good advice.
If the markets drop and the client still withdraws money, then the balance remaining must increase even more just to break even with the pension. After fees.
CONFLICT OF INTEREST
Financial advisors who recommend commutation face a major conflict of interest. If paid a commission to sell the investments after commutation, they are well compensated for the commutation. In the event of a financial disaster and subsequent law suit, “Who benefits?” In this case, it may be the advisor. The client may have lost investment money and cannot afford to live in the lifestyle assured by a monthly pension.
FOR MORE INFORMATION
I am experienced with these claims. If you commuted your pension and want our opinion, complete the form in the Contact Us fields, above.
LEVERAGED FUNDS - Borrowing to invest is a strategy described as "Leverage". Investors should know
THE MYTH OF LEVERAGING
Regulators and most dealers discourage leveraging for retail investors, and especially near retirement. It is just too risky. Clients suffer losses by borrowing money to invest. Their loss may have occurred due to higher risk that results from borrowing to invest. Problems occur when:
- Clients do not know how much they owe;
- Client do not know the market value of what they own;
- Clients can no longer pay the loans;
- Clients do not know if they have lost money;
- Clients have no idea how much they owe compared to the value of your portfolio, or
- Clients are not aware of how they pay fees or pay interest.
You can buy different investments but increase the risk to up the potential gain. High risk means increased risk of losses. And you always have to pay the interest and the costs of investing (commissions and fees). Leveraging magnifies the risk.
HOW DOES BORROWING TO INVEST WORK?
If an investor borrows $10,000 to invest, and the investment increases in value by 10%, then the investor has made $1,000 with no money down. On the other hand, if the investment drops in value by that same 10%, then the investor must repay the $1,000, but with less than $9,000 in investments to do the job. And the interest comes due every month, win or lose. Remember that there are fees – substantial fees – in the transactions. With mutual funds and segregated funds, there are management fees you pay and don't get back.
In many cases borrowing involves pledging assets, such as your house, farm, business or other investments.
INVESTORS PAY THE INTEREST
The investor must pay interest on the loan during the time in which the money has been borrowed. The interest payments and the substantial fees will eat into the profits so that the investments must grow at a rate faster than the interest rate. If the interest rate is 5.0%, and the costs of transactions are 2.0%, then break-even is 7.0%. Another risk is that early resale of mutual funds or stocks may incur sky-high fees that further add to the losses.
WHAT ARE THE RISKS?
Consider the risks that the investor faces. In all cases, the investor has to pay the interest on the loan and the costs of the transaction (or fees in the case of mutual funds). The investor faces the risk of suffering a loss in the portfolio, and having to pay off the loan. If the investment goes down, the loan still needs to be paid. There is no guarantee that your interest payments will be made from the portfolio. Also, the size of the potential loss is magnified by the amount of leverage, 2-for-1 loans for example. The interest payments and the fees add to the loss, and cut down the chances of profit and success.
Who always benefits from leverage loan investing? The advisor. The advisor gets to manage assets bought with the borrowed money, earning commissions at the risk of the client.
IF YOU OR YOUR CLIENT BORROWED MONEY TO INVEST
I am experienced with these claims. If you borrowed money to invest and want our opinion, complete the form in the Contact Us section, above.
Justin Turner, Yaron Orgil, Orgil & Associates, Richardson GMP
We are looking for investors who suffered harm and/or know about Justin Turner, a former advisor with Richardson GMP Limited.
n an Ontario lawsuit, it is alleged that Justin Turner, Yaron Orgil, and Richardson GMP Limited (or “Turner” for short) were supposed to follow certain rules and take care of their clients' investment accounts. The lawsuit claims that:
They didn't do their job properly and broke the rules.
- They were supposed to know important information about their clients, the products and strategies they sold, and the risks of investments.
- That they were supposed to get their clients’ specific instructions before each trade.
- They were to put their clients’ interests first.
- They gave unsuitable advice, didn't explain the risks properly, and made investments that were not suitable for the investors.
- They also made trades too often to earn more money for themselves.
- That Richardson GMP Limited failed to do its job to look out for its clients.
It is alleged that all of this resulted in financial losses to the investors. None of these allegations have been proven in court.
If you lost money because of recommendations by these advisors or this dealer, then you may be able to get your money back. If you have information about these advisors and this dealer, then you may be able to help alleged victims of their negligence by providing information on a confidential. To learn more contact Harold Geller: harold@gellerlaw.ca www.gellerlaw.ca or https://www.linkedin.com/in/harold-geller-25094033/
Harold Geller - speeches, submissions, and postings
Harold is a frequent speaker to lawyers, financial advisors, and planners. Here are some of his recent speeches (2023 only)
- The Role of Life Insurance in Family Law - 32nd Annual Institute of Family Law, April 2023
- Laws Protecting Senior Adults, June 2022
- CPD to Insurance Agents - Jeff Cait Study Group, April 2022
- Ontario Bar Association - POAs and Beneficiary, September 2022
- Institute of Applied Financial Planning Symposium - Financial Planning – The Standard for The Future Is Here Today – Warnings and Tips from A Lawyer Who Sues People Like Us, October 2022
- Ontario Bar Association Elder Law Day - Ageism in the Workplace, October 2022
- Financial Planning Association of Canada, December 2022
- A Growth Business for Lawyers: Life Insurance - death benefits and investment claims --Ontario Trail Lawyers Association, December 2022
Terms of Use
* H. Geller Professional Corporation 613 515 0533, 227A Glebe Avenue, Ottawa, ON, K1S 2C8 *Lawyers licensed by the Law Society of Ontario and authorized to practice law in the province of Ontario. The commentaries contained in this website are not intended as legal advice. Readers are warned about relying on communications and should consult a lawyer to be better informed of their rights.
This Terms of Use Agreement (“Agreement”) is a legal agreement between you, and H. Geller Professional Corporation (“HGPC”). HGPC may revise this Agreement at any time by updating this page.
Not Legal Advice - Information made available on the website is for informational purposes only. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a lawyer for advice regarding your individual situation.
No Lawyer-Client Relationship - Contacting us does not create a lawyer-client relationship. Please do not send any confidential information to us until such time as a lawyer-client relationship has been established.
Ownership of Content - All material displayed or accessible through this website (including, but not limited to, text, graphics, videos, photos, logos and other materials are protected by copyright and trademark, and are owned by HGPC. Any use of any of the material without consent of HGPC, is prohibited.
Links - This website contains links to third-party websites. These links are provided solely as a convenience to you and not as an endorsement by HGPC of the contents of such third-party websites. HGPC is not responsible for the content of any third-party website, nor does it make any representation or warranty about the contents of said websites.
Privacy policy - HGPC’s Privacy Policy is available upon request