Is your investment advisor legitimate?
Sources for checking on an advisor’s registration and disciplinary history
I am a big fan of the combination of Do-It-Yourself (DIY) investing with Advice-Only, Fee-for-Service financial planning. I think it can be a cost-effective combination for many. On the other hand, there are many people who do not want to be responsible for their own investments. Reasons vary. Some feel they may not have the time. Others have complex financial circumstances. Still others are investment professionals themselves but believe that adage about lawyers applies in the investment profession as well: “The lawyer who represents himself has a fool for a client.”
Having said that, not every investment professional is worthy of the name. There are regular reports of advisors who have breached the rules of their regulator, resulting in official reprimands, fines, temporary suspensions, or in being permanently banned from the investment industry. If you discover that someone has been permanently banned, you shouldn’t be talking with them about your investments at all. However, if they are still practising, depending on the nature of the regulatory breach, they may still be worthy of your consideration.
How do you find out if a potential advisor is among those barred, or who has a history of regulatory violations? There are two main regulatory bodies in Canada, the Mutual Fund Dealers Association (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC). Both maintain records of hearings involving disciplined individuals and firms. I will also mention a third body which serves as a central point for the various securities regulators across Canada, the Canadian Securities Administrators (CSA).
Mutual Fund Dealers Association (MFDA)
Advisors who are licensed to sell mutual funds for an organization that is a mutual fund dealer will be registered under the MFDA. You can find enforcement records for the MFDA here. Using the menu on the left, under ENFORCEMENT, you can click on CURRENT HEARINGS or COMPLETED HEARINGS. Sadly, there is quite a long list so at the top of each page, click on the letter of the alphabet that corresponds to your potential mutual fund advisor’s surname to narrow your search.
Investment Industry Regulatory Organization of Canada (IIROC)
Advisors who are licensed under IIROC are licensed to deal in a broader range of securities. They may sell mutual funds, but they can also sell individual stocks, bonds or Exchange-Traded Funds, to name three such investments. You can search IIROC disciplinary cases or background checks here. On this page, you have three different choices. A highlighted link near the top takes you to a search tool that allows you to “look up disciplinary cases.” At the bottom of the same page, under the section labelled “Run a background check,” you can run an “IIROC Advisor Report.” You can also search outside IIROC, if you wish, too.
Canadian Securities Administrators (CSA)
The CSA is a body that all of the provincial and territorial securities administrators work with to harmonize their regulations. There are two search tools you can use here. The first is the National Registration Search, where you can verify the registration of an individual or a firm. You begin here. A second search is for individuals or companies that have been disciplined by one or more of the regulatory authorities. Searching the Disciplined List can be done here.
Integrating Investment Advice with Financial Planning
Your investment advisor may or may not be a financial planner. Often, they are only qualified for product sales. In that case, you may still want to engage an advice-only financial planner to address the broader scope of your finances, which will include the integration of your investment goals with an overall financial plan. Your financial planner may also be able to recommend a qualified advisor for your investments. If you do not use a planner, however, when you begin your search make sure that the person to whom you are going to entrust your hard-earned assets is a qualified investment professional. The tools provided here will help you do just that.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.