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'I trusted him with my money': Woman says broker 'churns' her account, rakes in over $250,000

http://www.cbc.ca/news/canada/british-columbia/financial-advisor-earns-quarter-million-in-commissions-1.4328616

The advisor was buying and selling stocks especially penny stocks, sometimes twice in one day. He drained her account.

The investment firm also states that it is not responsible for the alleged actions of its broker, and described Field as "a sophisticated investor with extensive investment experience and knowledge" who "actively participated in the ... decision-making relating to the accounts."

Isn't the firm that the broker was working for responsible for overseeing this activity? Can't they be liable?
 

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Isn't the firm that the broker was working for responsible for overseeing this activity? Can't they be liable?
Maybe.

I have not followed the link you provided, as I would not expect there to be presented a sufficient and balanced recitation of the facts to form an opinion on liability. However, there are cases (at least in B.C.) where vicarious liability of the employer has been found. Two examples (of many) follow:

Marlin Investments Inc. v. Moldovan


SECURITIES — Stockbrokers — Duties and liability — • NEGLIGENCE — Contributory negligence — Apportionment of liability — Elderly plaintiff, with limited assets and income, losing investment made through his company in high-risk “option trading program” developed by the 2 personal defendants employed by defendant brokerage firm — Trial judge finding defendants in breach of the “know your client” rule in failing to take reasonable care in assessing plaintiff’s suitability for the program, given his age and circumstances — Defendants' negligence causing loss to plaintiff — Court of Appeal upholding liability finding, while finding plaintiff contributorily negligent to extent of 20% — Court also finding judge correct in assessing damages by setting off plaintiff’s losses in the program against its gains.


http://www.courts.gov.bc.ca/jdb-txt/CA/14/03/2014BCCA0364.htm



Shetty v. Gill, et al, 2004 BCSC 451


SECURITIES — Stockbrokers — Duties and liability — • NEGLIGENCE — Negligent misrepresentation • Contributory negligence — Court finding defendant securities salesman liable to plaintiff, not based on breach of fiduciary duty, but by reason of negligence in advising plaintiff on investment he was not qualified to evaluate and in failing to warn plaintiff of risks — Court finding plaintiff making investment despite warning signs and after conducting his own due diligence — Liability equally apportioned. • EMPLOYMENT — Duties and liability of employer — Vicarious liability — Court finding defendant securities salesman liable to plaintiff for negligence in advising plaintiff on investment he was not qualified to evaluate and in failing to warn plaintiff of risks — Court finding defendant’s employer vicariously liable based on inadequate supervision.

http://www.courts.gov.bc.ca/Jdb-txt/SC/04/04/2004BCSC0451.htm
 

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The brokerage firm is saying the woman was an active investor, so if that is true I doubt they would replace the losses.
 

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Discussion Starter #4
It's sad because the woman wanted guidance and help for such a large portfolio (started at 1 million, now after buying a 500K condo and churning commissions, it's 45k). Glad I'm now DIY and left my broker. Of course, we're in a bull market so it looks great. Who knows how I'll fare when the the bear comes out.
 

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We dumped our broker when he kept suggesting sells and buys. And then a few mutuals with trailers. Moved to an internet based brokerage that had an offer to reimburse us for the $600 or so transfer fees on the accounts.

Trust but verify. Some of these people are snakes. Majority of course are not.
 

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What is sad are people who are financially illiterate and refuse to learn. I am not saying that is the case here, but I know someone who doesn't take the advice of using a US couch potato portfolio, but insists on sticking with a financial advisor because their sister-in-law recommended her. The thing is the advisor comes up with all these charts and graphs during the annual review to "calculate" an annual return on 7% or something ludicrously low during a US bull market. But being financially illiterate, she didn't look at the simple starting, ending balances and contributions. When all the flashy charts are taken away, she basically lost money during a bull market and had to pay for the privilege of doing so.

The US is also a special case because people have the tax tail wag the investment dog. Even when I suggested a couch potato portfolio, her sister-in-law said not to take my advice because I don't know US tax laws. True, but I would rather pay tax on 14% S&P index return than no tax on <0% return.
 

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What is sad are people who are financially illiterate and refuse to learn. I am not saying that is the case here, but I know someone who doesn't take the advice of using a US couch potato portfolio, but insists on sticking with a financial advisor because their sister-in-law recommended her. The thing is the advisor comes up with all these charts and graphs during the annual review to "calculate" an annual return on 7% or something ludicrously low during a US bull market. But being financially illiterate, she didn't look at the simple starting, ending balances and contributions. When all the flashy charts are taken away, she basically lost money during a bull market and had to pay for the privilege of doing so.

The US is also a special case because people have the tax tail wag the investment dog. Even when I suggested a couch potato portfolio, her sister-in-law said not to take my advice because I don't know US tax laws. True, but I would rather pay tax on 14% S&P index return than no tax on <0% return.
see this all the time, most are only with somebody because a family member recommended them, they get shown these charts and what not and get deer-eyed.
i also don't understand how this woman did not notice something was up? you get sent statements, it is your nest egg, how can you not be aware of what is going on? don't get me wrong it definitely seems like this money manager took a few liberties and may not have advised properly, but cmon man. 500k to 45k?? -50k represents a 10% loss which is pretty significant. The fact that there is no indication of her keeping touchpoints makes her just as bad.
 

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see this all the time, most are only with somebody because a family member recommended them, they get shown these charts and what not and get deer-eyed.
i also don't understand how this woman did not notice something was up? you get sent statements, it is your nest egg, how can you not be aware of what is going on? don't get me wrong it definitely seems like this money manager took a few liberties and may not have advised properly, but cmon man. 500k to 45k?? -50k represents a 10% loss which is pretty significant. The fact that there is no indication of her keeping touchpoints makes her just as bad.
It would depend on what the annual reports look like. As I mentioned in my example, the advisor was able to spin a loss into a percentage annual gain. If that is all she looked at, I am sure there would be ways to hide the depletion of her nest egg. For example, if the $250k of transaction fees aren't included into return calculation, she would not be aware of those fees eating her account if she didn't look pass the cover page.
 

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First question I'd ask the firm, is if Mrs Field was "a sophisticated investor with extensive investment experience and knowledge", then why was she led to use the hand-holding services of a full fledged broker?

CBC marketplace did a hidden camera investigation 3 years back. Nothing eye opening to the crowd here, but it was well done to highlight the issues within the industry. Buyer beware as always.
 

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If he'd hit a home run generating a ten bagger, I wonder if she'd be giving back the money earned over the promised say 10% annual returns...

"My broker earned more than promised, I'm suing so they'll take back the extra"

No, it's only when they lose money that people want compensation.

I know people who've been buying the wrong lottery tickets for decades, can they sue to get their money back? The commercials imply they should all be living on cloud 9...6 49 that is.
 

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The good old churn and burn. I thought that went out years ago. It is so much easier and safer to sell overpriced mutual funds that pay fees to the brokerage year after year. I guess one guy didn't get the memo.
 

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If he'd hit a home run generating a ten bagger, I wonder if she'd be giving back the money earned over the promised say 10% annual returns...

"My broker earned more than promised, I'm suing so they'll take back the extra"

No, it's only when they lose money that people want compensation.

I know people who've been buying the wrong lottery tickets for decades, can they sue to get their money back? The commercials imply they should all be living on cloud 9...6 49 that is.
???
That's kind of an odd perspective. Obviously no one's going to pass up gains but it seems her main objective was to preserve capital for retirement versus growth. It sounds like she filled out the "Know Your Client" form which should have outlined what kind of investments the advisor should have been put her in.
Granted we're only hearing one side of the story but the optics don't good based on the comments from the UBC prof.
 

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Glad I'm now DIY and left my broker. Of course, we're in a bull market so it looks great. Who knows how I'll fare when the the bear comes out.


i'm sure you will fare fine! keep in mind that in a serious bear market crash, everyone will suffer.

something i like about discount brokerages is that they are empowering. In a crashing market, a client has no one to blame but himself. He doesn't have the luxury of blaming others. This conserves time & energy. Almost by definition, it pushes clients who manage to survive into stronger, independent, more resilient strategies.


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Bottom line...the only person who cares about your money and your investments is YOU. The notion that someone else does (other than your heirs perhaps) is a fallacy. They care first about the commissions, the overrides, the trailers, etc. You are well down on the list.
 

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.

evidently an important part of the Field story is already history. Apparently the IIROC already investigated in 2014, determined the broker's guilt, permanently removed his license & fined him $80,000.

that was the point - early during this IIROC investigation - when it was likely that mrs Field was offered a settlement (which she isn't mentioning to the CBC reporter.) If so, apparently mrs Field turned such settlement down & chose instead to pursue her idea of justice.

why do i say she was likely offered a settlement? often the industry behaves like this. It's cheaper for a financial house to settle, plus it has the advantage of avoiding unfavourable publicity.

it's doubtful that mrs Field is going to be rewarded any better by choosing the lawsuit route. One of the details that's missing from the story as told to the CBC is a listing of all withdrawals that she made from the account, in addition to the $500k withdrawn to purchase the condo.

in particular, withdrawals during the market crash years & during the low recovery years of 2008-2010 would have hurt her account dramatically.

another important fact that's missing is whether mrs Field ever gave her broker trading power over her account, ie did she give him discretionary authority? the article leads one to believe that she did not. In addition, this particular broker at this particular brokerage did not have the profile that could have earned him the right to trade mrs Field's account - or anyone's account - on a discretionary basis.

this leads to the question of how much mrs Field participated in each & every trading transaction. On paper, the broker was required to obtain her informed consent for every transaction. Did he, in fact, follow this time-consuming process?

my guess is that the broker did follow, ie the broker did consult mrs Field about every transaction & did obtain her approval for every transaction. There are references in the article to these contacts.

now we get into a grey zone about how much the client really understood about the transactions that were being "discussed" with her. Obviously this is a very cloudy grey zone indeed. Obviously brokers will defend that clients were sophisticated investors who fully understood what was happening. Obviously disgruntled clients will respond that they were too ill, confused or intellectually impaired to have understood.

my takeaway: parties who refuse to monitor their advisors' statements, or parties who are truly incapable of monitoring these, would be better off with some kind of annuity portfolio. Probably several annuities from different financial institutions, in case one of them should go under.


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evidently an important part of the Field story is already history. Apparently the IIROC already investigated in 2014, determined the broker's guilt, permanently removed his license & fined him $80,000.

that was the point - early during this IIROC investigation - when it was likely that mrs Field was offered a settlement (which she isn't mentioning to the CBC reporter.) If so, apparently mrs Field turned such settlement down & chose instead to pursue her idea of justice.

why do i say she was likely offered a settlement? often the industry behaves like this. It's cheaper for a financial house to settle, plus it has the advantage of avoiding unfavourable publicity.

it's doubtful that mrs Field is going to be rewarded any better by choosing the lawsuit route. One of the details that's missing from the story as told to the CBC is a listing of all withdrawals that she made from the account, in addition to the $500k withdrawn to purchase the condo.

in particular, withdrawals during the market crash years & during the low recovery years of 2008-2010 would have hurt her account dramatically.

another important fact that's missing is whether mrs Field ever gave her broker trading power over her account, ie did she give him discretionary authority? the article leads one to believe that she did not. In addition, this particular broker at this particular brokerage did not have the profile that could have earned him the right to trade mrs Field's account - or anyone's account - on a discretionary basis.

this leads to the question of how much mrs Field participated in each & every trading transaction. On paper, the broker was required to obtain her informed consent for every transaction. Did he, in fact, follow this time-consuming process?

my guess is that the broker did follow, ie the broker did consult mrs Field about every transaction & did obtain her approval for every transaction. There are references in the article to these contacts.

now we get into a grey zone about how much the client really understood about the transactions that were being "discussed" with her. Obviously this is a very cloudy grey zone indeed. Obviously brokers will defend that clients were sophisticated investors who fully understood what was happening. Obviously disgruntled clients will respond that they were too ill, confused or intellectually impaired to have understood.

my takeaway: parties who refuse to monitor their advisors' statements, or parties who are truly incapable of monitoring these, would be better off with some kind of annuity portfolio. Probably several annuities from different financial institutions, in case one of them should go under.


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Good say. It goes directly hand in hand with what Ian said. If you cared about your investments you would be all over them. This person is just another one who wants to shift the blame and not take responsibility for her lack of action and interest in keeping an eye out. I'm sorry, you hand over 500k to a person and just not realize that the value is lower? Even if the annual return shows a % gain the dollar value of the account is posted on the summary page generally in comparison to the prior statement's value. I feel for her as it is a lot of money but she could've done her job and kept an eye out.
 

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This story reminds me of the opposition to raising the CPP contributions and benefits. One of the arguments was that people can do better investing on their own.

It also reminds me of the time people lobbied the government heavily to remove restrictions on pension withdrawals. They could do better on their own..........they said.

The government changed the law, the markets crashed and the people were never heard from again.

One conclusion I get from this story and so many others like it is that investing is too complicated for most people and any opportunity to increase a guaranteed income for life should be welcomed by the average person with open arms.
 

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This guy was not a broker, carrying out a client's instructions and taking a commission on trades. This guy called himself an advisor, and as such was presumably giving advice, and the client was acting on that advice. His duty of care is that of an advisor, not a broker. He placed his client's money in investments that were not suitable, and he churned those investments solely for the purpose of making money for himself. There is no question that he should be held responsible, and his employer should also be held responsible, he was their employee and they failed to supervise him.
 

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This guy was not a broker, carrying out a client's instructions and taking a commission on trades ...

There is no question that he should be held responsible, and his employer should also be held responsible, he was their employee and they failed to supervise him.

?? evidently he was a broker

"advisor" is a meaningless term, i believe one's pet dog could call itself an advisor in most canadian provinces

some might believe that "there is no question" but i believe that when the issue reaches the courts there wll be questions

oddly enough, the fact that the plaintiff here did not appear to have given discretionary power to the broker, but rather retained the right to be consulted for each individual trade, does help to tip the balance against her complaints

it is naiive to think that the field of finance is populated by altruists, ethicists & charitable donors

i have only ever seen one case of broker churning. The party had signed a discretionary mandate because she - an active businesswoman - was too busy to be involved with each & every trade decision, or so she thought. It only took 2 years for her accountant to catch what was going on & to alert her.

she understood immediately. She attended to present her complaints in person to the manager of the brokerage. They offered a smallish settlement - they undertook to restore her original capital for each & every trade throughout the preceding year. It meant that she would lose the first year of the relationship. She accepted the settlement.

mrs Field is foolish to embark on a trial by media imho. It's not going to help restore the lost dollars, in fact it makes any settlement with the brokerage pretty near impossible. She would have been better off settling quietly a long time ago.


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The fact IIROC found the broker guilty, stripped him of his license and fined him 80,000 makes it clear to me that he did something wrong. That is a pretty serious penalty in that world. ( or perhaps there were other complaints)
Obviously that will likely be front and center in the clients case.

Of course the client has an obligation to review her statements and should have stopped this long before it got this far.

I haven't read the case or reviewed the clients statements but from what little I see, the client did not seem to be a sophisticated investor although the bar is pretty low. She may also be very naive and trusting.
How much a judge will weigh that and the brokers guilt versus her lack of oversight is hard to say. Likely the company will tie her up in litigation and appeals until she cannot afford either financially or healthwise. At that point a small settlement to her or her estate will wrap this up.

FYI
In Canada a ' stock broker' is officially a registered representative, but usually call themselves an investment advisor. This title maybe upgraded with certain additional qualifications beyond the basics.
 
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