If it sounds too good to be true, it probably is.
The old adage certainly applies to the investment industry, where problems with investment advisers and unsuitable investments topped the list of complaints received by Canadian securities regulators for the second year in a row.
“The complaints we are receiving across the country stem from the actions of those registrants who deal directly with retail investors,” said Doug Hyndman, chair of the Canadian Securities Administrators (CSA), the umbrella organization representing the 13 provincial and territorial securities commissions.
The top five complaints and how to avoid them:
* Suitability: To avoid problems in dealing with your investment adviser, always ensure that your investment needs and objectives are discussed in depth at the time of opening a new account, and that your adviser accurately records this important information. Always be very clear about your expectations and intentions. Ask lots of questions about any investment that is recommended to you. Always ask about potential risk associated with any investment. Consider high-risk investments and leveraged investment strategies very carefully before agreeing to them.
* Unregistered sales: Check with your provincial securities regulator to ensure that the person you are dealing with is registered and can legally advise or trade in that type of security.
* Unregistered distributions or exempt market securities: Avoid buying into illegal distributions of securities by asking for, and carefully reading, a prospectus or offering memorandum before you purchase the securities of a private company. Be wary of any claims of quick profits, high return, future listings on a stock exchange or fantastic product sales or profits. Understand that the securities of a private company are not liquid, the risk of failure is high and you could lose your entire investment.
* Scams and frauds: To avoid becoming a fraud victim, watch for the following red flags: offshore investments, secret investments, high returns with guaranteed low risk and promises of quick profits. If you don’t understand an investment, don’t invest. Always do your due diligence by asking lots of questions and carefully reviewing all documentation. Remember, if it sounds too good to be true, it probably is.
* Customer Service. Investors should always check their account statements and confirmations and contact their adviser if there are discrepancies.
“While our enforcement divisions are clamping down on these activities, in many cases, there are simple steps investors can take to avoid these types of problems,” said Hyndman. They include:
1. Contact the adviser directly. Be sure to make detailed notes of any conversations.
2. Write to the branch manager with a copy to the firm’s compliance officer.
3. Contact the provincial or territorial securities regulator in writing.
4. Finally, note that securities regulators can’t get investors’ money back. Instead, investors should contact a lawyer.
Web watch:
www.csa-acvm.ca
