Nancy Graham February 17, 2021 Personal Wealth Protecting Your Money Against Malfeasance First things first: While the worst scandals tend to receive the most attention, the vast majority of financial professionals are solid financial stewards. Honest and reputable – if unnewsworthy. That said, startling financial scandals do happen. From high-paid sports heroes to widows of modest means, nobody is immune from being bilked by the very people they turn to for solid financial advice. If anything, the risks are heightened by the COVID-19 pandemic turning everyone’s lives upside down. Not surprisingly, identity theft and financial fraud in general are as alive and well as ever. Clearly, it remains incumbent on us to join together, to ward off malfeasance. Watch dogs include the government, the custodians where your accounts are held, reputable financial advisors … and you! We first covered some of the financial protections available to investors in a 2017 two-part video series, here and here. Today, we offer a timely reminder of the key points. The Government and Your CIPF Safety Net The Canadian Investor Protection Fund, or CIPF, is among the most important of your safety nets. You don’t have to do anything to be covered by this national equivalent of an investor insurance policy. As long as your money is held at a dealer regulated by the Investment Industry Regulatory Organization of Canada (IIROC), your cash, securities and most other investments are automatically protected by CIPF. Most financial institutions are IIROC-regulated. Better yet, it doesn’t cost you anything directly. The coverage is funded by the IIROC member institutions where your money is being held. There are a couple caveats: Limited protection: The CIPF is only there to cover your losses if the institution holding your money becomes insolvent. It will NOT protect you if you’re a victim of fraud, you invest in a losing venture, or an advisor provides bad advice. You’d need to turn to our legal system to seek restitution for these sorts of concerns. Limited coverage: The CIPF also has limits on how much it will cover under what circumstances. You can learn more on their website. Your Financial Advisor and Regulatory Protections Beyond the CIPF, there’s quite a lot your financial advisor typically does to safeguard your nest eggs from any foxes skulking around the hen house. Financial regulators do quite a lot as well, to weed out unscrupulous advisors. Do you remember the reams of paperwork, and endless questions your advisor took you through when you started working with them … and that they repeat whenever they’re updating your accounts? We advisors aren’t running you through a bureaucratic gamut because we think it’s fun. Trust me, I’d much rather do my calisthenics at the gym! We do it to minimize mistakes and ward off malfeasance. Your advisor also must remain compliant with IIROC’s “Know-Your-Client” and “Suitability” rules. This is one reason we take the time to get to know our clients’ financial circumstances, and to write them all down, so we don’t forget it or get it wrong. Canada’s Personal Information Protection and Electronic Documents Act on data privacy – or PIPEDA –gets in on the action too. This obligates us to regularly revisit our processes and procedures, to verify that our firm and employees are continuing to take appropriate steps to protect our clients’ privacy. Your Own Due Diligence No external protection system is foolproof, which means you also play a vital role in safeguarding your financial well-being. Two simple steps can make a big difference. Make sure your advisor is registered with a federal or provincially regulated securities body. Again, IIROC is our industry’s main watchdog. There are others, such as the Ontario Securities Commission. I recommend against conducting business with anyone who is not registered with a Canadian regulator. You’re basically posting a big sign on your little hen house, saying: “Hey, foxes, come right on in. The door’s open!” Remain vigilant. One of the best ways to catch innocent or deliberate mistakes is to actually read your financial statements and reports. A reputable representative will welcome your questions about anything that seems confusing, inconsistent, or incorrect. If someone isn’t so welcoming, an evasive or incomplete response serves as a cautionary red flag. Overall, I’m not suggesting you lose faith in the financial world. Most advisors are helpful and honest, and serve their clients well. That said, it’s never a good idea to turn a blind eye to potential risks. By incorporating these insights into your financial best practices, odds are your investment accounts will remain safe and secure in a financial industry that has built up strong defenses against the rare “bad apples” in the cart. Share: Facebook Twitter LinkedIn Email CIRO Advisor Report