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.
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.
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.
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.
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.
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:
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:
We represent a group of Matthew Ewing's and National Bank Financial's former clients. Mr. Ewing is no longer licensed for advising clients about investments.
We are informed that Mr. Ewing completed forms contrary to clients' instructions and that:
- He sold clients unsuitable, high risk and speculative stocks.
- these sales were made improperly, that is:
- without discussing the risk of these stocks
- without discussing the risk of these stocks as part of the client's portfolio
- without getting instructions, before every trade, from the client about
- the amount to buy or sell
- the quantity of the stocks to buy or sell
- the timing of the sale
If this is true, he breached rules.
If National Bank Financial knew of these breaches, then they are not only responsible for his clients' losses but also may have breached rules designed to protect his clients.
Are you a former client of Mr. Ewing? Then I am interested in learning about your experience. I may be able to help you recover your investment loss.
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.
The bottom line - why take the 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.
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.
I am experienced with these claims. If you commuted your pension and want our opinion, complete the form in the Contact Us fields, above.
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:
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.
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.
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.
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.
Harold is a frequent speaker to lawyers, financial advisors and planners. Here are a some of his recent speeches (2023 only)
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