Investor complaints rising

Thanks to an economy that is still in doldrums and equity markets showing few signs of solid recovery, a growing number of investors faced with the prospect of shrinking investment portfolios are lodging complaints with provincial and federal bodies that oversee the investment community.

The federal Ombudsman for Banking Services and Investments (OBSI) and the Quebec Chambre de la sécurité financière are reporting dramatic increases in investor complaints since the beginning of the year while Quebec’s financial watchdog, the Autorité des marchés financiers (AMF), has received a surging number of calls requesting information over investment products.

Indeed, the Ombudsman has received so many calls over the past ten weeks that it has already opened up more files than it did in all of 2006 when it received 328 complaints, 197 of which led to investigations. The OBSI is the national dispute resolution service for customers of more than 600 financial institutions, including domestic and foreign banks, investment dealers, trust companies, mutual fund dealers, credit unions and scholarship trust plan dealers. Established in 1996, OBSI reviews unresolved disputes between consumers and firms, and may recommend compensation up to $350,000. An alternative to the court system, OBSI is free to consumers.

“We certainly anticipated a busy year, given what is going on in the economy, but it is showing no signs of abating,” said David Agnew, who stepped down as Ombudsman last May to become the president of Seneca College. “In fact, quite the opposite. It’s picking up.

“I think people are reacting quicker, and that’s a good thing because it’s always easier to address a file that you see sooner than later. Memories are sharper. Records are intact. People are still in the jobs they’re in.”

It appears more than likely that OSBI, which has a staff of 35 full and part-time people, will receive even more complaints than last year. In fiscal 2008, the OSBI opened 670 cases, a 43 per cent increase over the 468 files opened in 2007. Out of the 670 cases it opened in 2008, 346 came from the investment sector and 324 were banking files. A total of 167 files went into full investigation. In that same year, the OSBI facilitated settlements involving compensation for clients in 91 cases, and made 64 recommendations for compensation after conducting a full investigation. All OSBI recommendations were accepted by firms in 2008. In another 103 investigation files, the OBSI upheld the firm’s position.

According to Agnew, ill-matched suitability was the biggest source of complaints made against the investment sector. That is, consumers complained about a mismatch between their investment objectives and needs, and the securities recommended or purchased for them by their advisor. Agnew said the prevalence of suitability complaints arises from the increasing number of defined contribution pension plans, the growing complexity of financial products, and the low level of financial literacy among Canadians.

In the banking services files, loans and transaction accounts were the leading products in the complaint files investigated by the OSBI.

The Chambre de de la sécurité financière, while unable to provide figures, has experienced a growing number of complaints since this past February, a period of the year when people sift through their investment portfolios to prepare for income taxes and purchase registered retirement savings plans, said Luc Labelle, the organization’s vice-president.

“Complaints have been steadily rising from year to year but there was a noticeable boost beginning this past February, and it hasn’t stopped,” explained Labelle. “That is directly linked to the economic and financial crisis. When people began noticing the value of their investment portfolios began to plunge, the complaints surged.”

The Chambre de la sécurité financière has been empowered by the Quebec government to protect consumers by maintaining discipline and overseeing the training and ethics of its 31,000 members who work in six sectors: group savings brokerage, scholarship plan brokerage, investment contract brokerage, insurance of persons and group insurance of persons, and financial planning.

According to the organization’s latest annual report, the syndic or investigating officer opened 523 files in 2007, 89 of which were handed to the Chamber’s disciplinary committee. Less than half of the syndic’s files, 46 per cent, emanated from complaints against the investment sector while 54 per cent from insurance of persons.

Surprisingly, Quebec’s financial watchdog has not recorded a spike in investor complaints over the past couple of months but rather an increase in calls requesting information about investment vehicles, according to AMF spokesperson Sylvain Théberge.

“It does not appear that we have received a growing number of complaints that for the moment being can be linked to the economic situation,” said Théberge. “However, we can state without hesitation that over the past four months we have had more requests for information about investment products. People are obviously far more careful, and are taking the time to inform themselves over products suggested by their brokers.”

Preliminary figures reveal that the AMF received 1,350 complaints from investors as of April 2008, a 21 per cent increase over  complaints lodged between April 1, 2007 and March 31, 2008.

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