On June 1, the Ontario Securities Commission released a report it commissioned titled Financial Life Stages of Older Canadians. My definition of an Older Canadian is someone who was old enough to vote the last time the Toronto Maple Leafs won the Stanley Cup in 1967. The report uses broader definitions and looks at the main financials risks of people 50 and over, broken down into pre-retired, retired (under age 75) and 75+. Dr. Ed Weinstein, who wrote the report, is well known in the senior echelons of the financial services industry for the hundreds of reports he has been involved in over more than two decades.
In my opinion, the 69-page report should be compulsory reading for financial advisors, government and business policy makers, and of course older investors. One of its key findings is that six out of 10 older people had unexpected financial crises, which indicates that "dealing with the unexpected needs to be a bigger part of financial planning."
Another point is that "Fraud is a significant problem that merits attention, affecting approximately 60 out of every 1,000 older Canadians." That's something that the regulators have been addressing.
Among many other questions, the individuals surveyed were asked whether they had ever lost money in an investment scam, which the survey defined as "a situation where someone lies to you to get you to put money into an investment they are actively promoting. You subsequently lose your money due to fraud. Please note: a fraud is not a legitimate investment that goes badly, but rather somebody trying to take your money by lying to you. Furthermore, in an investment scam it becomes obvious that you and/or other investors will never get any of your money back from the firm that sold you the investment."
While 89% answered "No, definitely NOT," 6% answered "Yes, definitely" and 5% answered "I'm not sure." The survey also determined that 17% of the people interviewed knew someone who was a scam victim. One-third of the individuals interviewed recognized that they received emails with offers to buy into investments that were likely scams.
That's not surprising. The internet has replaced the old style boiler room and bucket shop telephone solicitations of naive and vulnerable investors. Several years ago in a column I referred to a Canadian Securities Administrators investment fraud awareness campaign pertaining to online fraudulent investment opportunities. The regulators' initiative involved publishing ads that lured potential investors to a website for a fictitious company. The prospective investors were redirected to an educational site, the objective being to keep them from being scammed.
Some two years later I wrote another column about an email solicitation for a real estate investment. The sender wasn't registered with the Ontario Securities Commission and the article included a laundry list of prohibited representations. I can't say with certainty whether the investment was a scam or a legitimate but risky investment. But based on the information I had at the time it would definitely be unsuitable for any older person whose investment objective was not speculation and who wasn't prepared to lose 100 cents on the dollar.
The Ontario Securities Commission has proposed a whistleblower program that could give an eligible whistleblower a financial award of up to 15% of sanctions awarded in hearings where total sanctions or settlements exceed $1 million. The maximum amount could be capped at $1.5 million.
In my view that's not going to get at the smaller fish who send out hundreds if not thousands of emails hoping to catch Canadian investors. My suggestion is to have a mechanism so that people can forward email scams to regulators in return for a much smaller reward like a $5 prepaid card from one or more of the coffee chains. Anyone who sends in an email would have their name thrown into a pot with a weekly or monthly draw for a reasonably larger prize.
The regulators would benefit from the publicity of the program and increase investor awareness of potential scams at relatively low cost, assuming the regulators would publicize warnings when applicable. The older person who forwarded me the above-mentioned email solicitation would be very happy to submit the email to the regulators, whether or not he gets a free coffee.
Regulation is an ongoing process, and the Mutual Fund Dealers Association (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) are well aware that the suitability requirements for accounts of older people may be different from those of younger people. I understand that they have been emphasizing this in their audits of member practices.
IIROC's 2013 annual report noted that, "Consistent with previous years, cases involving seniors and/or suitability represented well over one third of all disciplinary cases in 2013."
One year ago the MFDA launched a seniors' section on its website, stating that protecting seniors and other vulnerable groups was an area of focus for the organization. The MFDA added that its staff "prioritizes complaints from seniors in its enforcement activities, and provides specialized training and education on seniors' issues to its membership." It stated that about 30% of all its formal disciplinary actions involve seniors or other vulnerable groups.
Many higher-risk and speculative securities are offered by exempt market dealers, which are neither members of the MFDA nor IIROC. Some of these securities are touted to older people as suitable investments for RRIFs. While all dealers are required to know their client and collect relevant information to determine what is and is not suitable for a client, I doubt if the provincial and territorial securities regulators have enough staff to make sure that dealers who are not members of the MFDA and IIROC are meeting the standard of care set by these organizations.
