|Clients deserve a know-your-broker
Tuesday, February 20, 2007
By IE Staff
The discovery this month of an accidental leak of complaint data against
brokers on the Web site of the Investment Dealers Association of Canada
is embarrassing for the IDA. But itís the provincial regulators who
should be ashamed, as the episode highlights the dreadful disclosure
When the IDA implemented its complaints and settlement reporting system,
it was hailed as a great leap forward in the self-regulatorís ability to
police its members ó enabling it to adopt a more risk-based approach to
regulation and focus its resources on weeding out the truly bad apples.
However, for the most part, investors have been left in the dark.
Provincial regulators advise investors to check the registration of
anyone attempting to sell them investments. That might protect them from
the most brazen hucksters, but it does little to guide them in choosing
a quality financial advisor. Checking registration isnít anywhere near
as easy, or as informative, as it should be.
Despite the IDA building the national registration database at
considerable expense, ordinary investors donít have access to it. For
them, checking registration is a province-by-province chore, and the
ease of access and quality of disclosure varies widely.
Even then, investors donít get any information as to whether a broker
they might hire has left a string of angry clients in his wake. Other
than the inadvertent glimpse uncovered by investor advocate Rob Kyle on
the IDAís Web site, investors canít typically examine much of the
employment history of a broker.
Yet, in the U.S., NASD Inc. provides prospective investors with a vast
array of information on brokers, from criminal convictions and
regulatory actions to pending civil proceedings, complaints,
investigations and arbitrations. This info is not limited to reporting
the fire of proven wrongdoing; investors can see the smoke, too.
In any transaction, retail investors are at a tremendous disadvantage ó
the imbalance of information is heavily in favour of the broker and the
firm. Regulators should be on the side of investors by ensuring they
have as much information as possible. Moreover, the regulatory
enforcement process, and the courts, are so incredibly slow that waiting
to disclose judgments also effectively leaves investors perilously
uninformed. Itís time clients are truly given the opportunity to know