PAUL DELEAN
 

Saturday, July 17, 2004

Three brokers barred in past month. Reader complains adviser gave his daughter 'totally inappropriate' financial guidance

What on earth is going on at CIBC World Markets?

In case you missed it, the company had yet another ex-broker barred for life from the securities industry this week, one Robert Binnington of Hamilton, Ont., for misappropriating $1.2 million (U.S.) and $410,000 Canadian from three clients.

For those keeping score, that's three lifetime bans in a month in three different cities for CIBC, which must be some kind of record for a Canadian brokerage.

Joining Mr. Binnington in the CIBC hall of shame are Alex Gurion of the North York, Ont., branch, who cheated a 90-year-old customer out of $350,000 before moving to Moscow in 2001, and Montreal's Harry Migirdic, who had some of his clients guaranteeing the trading losses of complete strangers (among them, Migirdic's 73-year-old uncle in Turkey) before being terminated in 2001.

You really have to wonder what sort of internal supervision the CIBC has - or had - for employees to feel they could get away with this sort of deceit.

If I was a client, I'd sure like to hear that measures have been taken to tighten the auditing and ensure clients are better protected.

Unfortunately, the CIBC isn't talking. When invited to comment this week by The Gazette, it declined.

Transgressions that lead to lifetime suspensions from the securities industry clearly are an exception, but there's an awful lot of supposedly by-the-book transacting that is also ethically questionable.

For instance, following The Gazette's report on Migirdic's lifetime ban from the Investment Dealers Association of Canada, a semi-retired businessman called to relate his experience with his brokerage.

It differed from the cases in the headlines because there was no actual malfeasance, but it raises serious questions about whose interests really are top priority.

In this particular case, the man, now 86, had structured a portfolio of investments for a 58-year-old daughter living in another city. She'd never shown any interest in finance and was prone to impulse spending, he said.

Her nest egg, begun as a private pension plan, consisted entirely of long-term bonds with staggered maturities totalling almost $500,000.

Because of his advanced age, the father decided it was time to fold the plan and transfer the investments into her RRSP.

Shortly after, the broker who had been managing the account locally for years called the daughter directly and convinced her it would be a good idea to sell $100,000 worth of provincial bonds and buy mutual funds instead. The bonds had an annual yield of more than five per cent.

Wonder if he mentioned the $5,000 commission on the sale, or the ongoing trailer fees?

"Financial advisers eat what they kill. There was no ongoing service fee for the bonds," investor-rights advocate Joe Killoran observed when apprised of the case.

Killoran wasn't surprised by the details. He said a lot goes on in the financial-services industry that people never hear about; negotiated settlements often come with a gag order that keeps things confidential.

"They don't want everyone to hear about it," he said. "It's just part of the cost of doing business now. It's all dollars and cents today, not quality of business."

The father who called The Gazette found out about the investment switch only because the financial statements were mistakenly sent to his home.

Given his daughter's lack of investment knowledge and the risk attached to mutual funds, they were "totally inappropriate" for her, he said, and he'd said so to the broker before the purchase. "The idea was to ensure her income. Now, she is gambling."

When he called the broker to complain, he said he was told it was her account and that he no longer had power-of-attorney over it.

He's been worried sick about it since, and feels thoroughly betrayed by the broker, someone he'd dealt for years.

What company does this broker work for? Guess.