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Barry Critchley
Wednesday, June 27, 2007
Clients of Berkshire Investment
Group Inc., a unit of Michael
Lee-Chin-controlled AIC Ltd., take
note: There is a new kid in town, a
kid that has a decidedly different
view on the way things should work.
The new kid is Dominic D'Alessandro,
the no-nonsense chief executive of
the country's second-largest
company, Manulife Financial Corp.,
and widely regarded as being one of
the best, if not the best,
financial-services executives in the
land.
D'Alessandro is in this position
thanks to Manulife's decision to
purchase Berkshire-TWC Financial
Group Inc. While the financial terms
of the deal were not disclosed --
the talk is that the cost was in the
$50-million-to-$60-million range --
Manulife is buying Berkshire's
mutual fund and securities
dealerships. (Specifically it is
buying Berkshire Securities Inc.,
Berkshire Investment Group Inc. and
Berkshire Insurance Services Inc.)
Berkshire is home to more than 700
advisors in 237 branches. The
advisors administer about
$13-billion of client assets.
And as everyone knows, the Berkshire
name and the way in which its
management has dealt with some
issues -- specifically a $30-million
fraud case involving Ian Thow, a
former senior vice-president in
Berkshire's Victoria office -- are
less than sterling these days. The
B.C. Securities Commission is
holding a hearing into Thow's
activities. Thow, who is now living
in the United States, has declared
bankruptcy. And the trustee, Michael
Cheevers, has traced more than
$26-million moving from accounts of
Thow's clients to Thow.
Meanwhile, Berkshire has adopted the
approach that it was in the dark
about what Thow -- who constantly
told clients he had a close
relationship with Lee-Chin -- was
doing and, hence, is not
responsible. However, it has made
settlements with some of Thow's
clients, including some who invested
with Thow on the understanding that
the money would be used to buy
shares in National Commercial bank
of Jamaica, an entity controlled by
AIC.
Meanwhile, Berkshire's conduct is
under investigation by the Mutual
Fund Dealers Association of Canada.
And Berkshire has refused to
co-operate with the Ombudsman for
Banking Services and Investments, a
body that can insist on
compensation.
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Manulife has adopted a radically
different approach to AIC/Berkshire's.
In March, 2005, it made good on a
promise to clients of its advisors
who lost money on an investment in
failed Portus Alternative Asset
Management. Manulife's clients were
given three options for the
guarantee of 100% of their principal
invested.
"We hope that these options provide
our clients with peace-of-mind,
despite the fact that the
investigation into Portus and
resulting legal actions are far from
complete," D'Alessandro said at the
time. "Please again accept my
apologies for the distress this
situation has caused. The integrity
of our dealings with clients and
representatives is paramount to us,
and I hope our actions to secure the
full principal amount of your
investment underscore the importance
we place on protecting you and your
assets," he said in a letter to
clients.
Later, Manulife made some personnel
changes in the division.
Meanwhile, it was business as usual
at Berkshire despite the fact that
its clients were one of the largest
investors in financial products
offered by Portus. It didn't offer
to make its clients whole. (It is
understood that one other financial
planning firm, IQON, now part of
Assante, also made its Portus
clients whole.)
"This is very good news for clients
affected by Thow and Portus people.
This is the best-case outcome. There
is no way that they [Manulife] can't
make good on that," said one market
participant. "It will be good for
Manulife's reputation to once again
step up."
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Berkshire has been around for more
than 20 years. It started life as
AIC Investment Planning Ltd. but
changed its name to Berkshire more
than a decade ago. Thanks to Warren
Buffett, there is a huge cachet
associated with the Berkshire name;
at the time, AIC was a star of the
mutual fund world, was gathering
assets at a great rate, and didn't
want clients to associate the fund
arm with the financial-planning arm,
given that the latter was
experiencing some negative press
involving Dino P. DeLellis, one of
its advisors. DeLellis, who pocketed
almost $300,000 in secret
commissions, was fired by AIC. He
was later banned for life by the
Ontario Securities Commission. More
than a dozen years after clients
brought an action, AIC settled.
The sale to Manulife caps a process
that started more than a year back.
bcritchley@nationalpost.com
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