Thank you.
My name is Larry Elford. I worked in the financial industry for 20 years. I'm from Lethbridge, Alberta. While I was working, I earned the designations of chartered financial planner, certified investment manager, and fellow of the Canadian Securities Institute, as well as associate portfolio manager.
I'd like to thank this committee for bringing to light some of the underlying issues that allow financial abuses of Canadians. Financial abuse of Canadians by the investment industry has occurred over and over, often without the knowledge of those outside the industry. This most recent crisis is just the flavour of the month, and unless we address the underlying issues that allow these abuses, others will occur.
I believe I can speak to this committee about matters that appear to be criminal violations of Canada's laws. I refer to the manner in which these investments were marketed and sold to consumers. It worries me that the manufacturers and/or distributors of these investments were asking for immunity from criminal prosecution, as this serves to support allegations that criminal laws may have been violated.
Canadian clients like these investors tend to give trust, vulnerability, and a great deal of faith to investment providers who hold themselves out as professional advisers. These people were duped, in my opinion.
Based on my 20 years of experience inside the industry, I have come to the conclusion that consumers are granting this trust and vulnerability improperly, based on false and misleading information given to them by the industry. The industry not only does not have a proper definition of the duty of care owed to clients, it appears that it does not want such clarity, as this allows the industry to adjust these rules to suit its particular needs.
The advertising promises say, “Trust us.” The code of ethics says, “We must be trusted.” Yet when push comes to shove, I have seen far too many elderly and vulnerable clients beaten down by the same industry and by hordes of lawyers who tell these clients, “We owe you no duty of care. We were never acting in a fiduciary capacity with your account.” This, to me, sounds too much like, “You never should have trusted us.”
Dozens of committees, studies, reports, and papers that suggest clarity and transparency on the duty owed to the client are stopped by an industry that prefers to obscure.
Further to the point about misleading sales practices, here is the complete list of employees of one prominent firm that sold this particular product. There are several hundred names, 24 pages, in fine print. Ninety-nine percent of the people on this list are registered and licensed as salespersons with the provincial securities commissions; 100% of them represent themselves to clients as financial advisers. “Advisers” is a legal registration category with the securities commissions, and it is illegal to misrepresent that title.
Canadian consumers do not know this. I didn't know this when I was in the business for 20 years. Consumers are kept in the dark. They're duped by a misrepresentation that's illegal under Canada's Competition Act, a misrepresentation that meets the definition of fraud in Canada's Criminal Code. Every investment firm in Canada knows this, and they support the misrepresentation. All 13 securities commissions have laws against this misrepresentation, yet either they look the other way or, in some cases, they grant an exemption to the law and thus support the misrepresentation to consumers. The consumer is never informed, even when there are exemptions granted to the law that directly affect them.
The self-regulatory agencies, such as the IDA, the Investment Dealers Association, in this case, also have rules and regulations against misrepresenting industry titles and qualifications. Yet this self-regulatory body also appears to look the other way and supports the misrepresentation to consumers. Self-regulation in financial services is the greatest example of allowing foxes to guard the henhouse that I can think of.
The Competition Bureau is informed of this misrepresentative practice, and rather than investigate, it pays respect and homage to the three agents mentioned previously. And using this logic as a reason not to be involved, it also looks away from what appear to be clear violations, of a criminal nature, of the Competition Act. They not only refuse to get involved; they refuse to put anything in writing whatsoever about complaints made to the Competition Bureau.
I cannot even imagine what could make a Canadian government body so reluctant to investigate crimes against Canadians that may have contributed to the largest debt failure in our history.
The various police agencies in Canada are either not invited to investigate criminal frauds, forgeries, breaches of trust, or other violations of the public trust, or if they are invited, it's done with the help of the very self-regulatory agencies that I've referred to previously, and they are representing the industry. Thus, those who may represent the guilty parties are allowed to participate in the investigation. The obvious conflicts of interest cannot be overcome with this process.
These things I mention are side issues to the debt failure, and small issues at that, but when you add up the dozen or more small failures that our current self-policing system allows, it puts us on a very slippery slope. The interest of protecting one's job, one's loyalty to related agencies, or one's position at these agencies is apparently stronger than an interest in rocking the boat or in doing the job in handling difficult matters. That's why we're here today--these are difficult matters.
These clients and the public were helpless within the law and they were without hope of even having any access to the law in this country when it comes to matters of finance. They are here because each and every level of regulatory and self-regulatory power has failed them, has failed all Canadians. Whether or not an 11th hour solution has been worked out is irrelevant, in my opinion. I came here today to shed a small amount of light into how these failures are actually designed into our current system, so hopefully they can be designed out.
I now bring forth a list of over 100 agencies, departments, offices, associations, or ombudsmen, which when the full effort of their strength is applied--these are self-regulatory or professional trade bodies, etc.--have had zero benefit to these clients and have provided zero protection for Canadians. A 50-year industry veteran, Stephen Jarislowski, is quoted as saying of some of our regulators that they do the square root of nothing. I say it is worse than that. I say that not only do they fail to protect consumers, but they give Canadians a false sense of security, a false feeling that we are in good hands. Financially, we are sitting ducks.
Because of these and other systemic failures, financial laws in Canada have no protective effect. They are knowingly and constantly broken. They are easily broken, sidestepped, or avoided. If one finds a law being broken, there is simply no police agency in the country to call that does not have a built-in conflict of interest, a conflict that allows self-dealing to take precedence over consumer protection.
Further, if a law needs to be bent severely or clearly broken, financial firms in Canada can make application to have an exemption to the laws, which are designed to protect consumers. I bring to your attention the public record from the Ontario Securities Commission showing thousands of examples of rulings, orders, and decisions on the OSC website over the past half-dozen years. In this list--this is just the table of contents; this isn't all the material--are thousands of exemptions to the law. The list of financial firms that have benefited from the granting of legal exemption in Canada runs into the thousands. My documents here are again the table of contents.
Each and every person in this room is affected by breaking, bending, or exempting these laws. The reason you're not upset is that you're simply not aware of how this affects your life savings. You are unaware, uninformed, and you cannot be faulted. In no case that I am aware of in Canada was any public notice ever given to consumers when a financial firm wished to skirt our financial laws. You were simply not allowed to know, unless you went looking yourself.
If immunity from prosecution were granted to those who sought it in this restructuring, it would serve two or three purposes, in my eyes: one, it would allow us to place a softer, gentler name on what may turn out to be the largest manufacture and sale of knowingly tainted products in history; two, it would allow the guilty to avoid prosecution; and finally, it would push us down a very slippery slope, which may end up supporting the claim that financial crime does indeed pay in Canada.
We do not want that reputation, nor do we want our financial firms to prey upon Canadians without being held accountable. Here we sit with real human beings who have real human costs. I'm not one of those suffering; I am, however, sympathetic to their plight, and it is my experience that the entire financial police and regulatory system that is in place has no tangible ability to protect or serve them. Some of them might agree with that, if they were asked. The agencies that purport to do this job have been captured regulatorily—if that's even a word—by the industry, and converted into a support system to serve the industry's own financial interests.
I have already presented the list of some 100 financial departments and agencies, none of which have done anything to protect or help these citizens. These people were victims of crimes, for which there are no police to call in Canada.
Can anyone recall the cigarette and tobacco industry of the 1950s, many years ago, when lies, misinformation, and experts were bought and paid for by a billion-dollar industry to dupe consumers and legislators? I feel we are in a very similar position today with the financial services industry. We are being duped—every one of us, and not just the victims here today.
I would like to thank this committee for taking the time and giving the attention that this matter deserves. I will gladly answer any questions, if I am able to.