Tales from the Confidential Files of OBSI by Tyler Fleming

Tales from the Confidential

Files of OBSIInsider Advice for Today’s Topsy-Turvy Times

February 6, 2014

Tyler FlemingDirector, Stakeholder Relations and Communications

Presentation is incomplete without the

accompanying oral commentary

Money 50/50: Insider Advice for Today's Topsy-Turvy Times Feb 6, 2014

Presented live at the Ted Rogers School of Management 1 of 30 money5050.com

Tales from the Confidential Files of OBSI

Introduction to OBSI

Common themes and our observations

Top 10 Tips

Questions

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Agenda



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INTRODUCTION




OBSI is not a regulator nor a consumer advocate, although we do advocate for effective dispute resolution.

Our observations are drawn from the very small proportion of complaints that reach our office.

Recent FCAC research suggested there were over 300,000 financial consumer complaints. We saw only about 8,000 in 2013.

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Some Context




OBSI is Canada's independent dispute-resolution service for banking services and investment clients with a complaint they can’t resolve with their firm.

An alternative to the legal system.

Started in 1996 covering major chartered banks.

Became the Ombudsman for Banking Services and Investments in 2002 when our mandate expanded to all members of the:

Investment Dealers Association (IDA), now IIROC

Mutual Fund Dealers Association (MFDA)

Investment Fund Institute of Canada (IFIC)

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Who We Are




OBSI currently has approximately 600 participating firms, including:

Banks

Credit Unions

Federally-regulated trust companies

Investment dealers

Mutual fund dealers

Scholarship plan dealers

Portfolio managers

Exempt market dealers

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Who We Are (Cont'd)




Investigation services available in English and French, while customer inquiries can be handled in over 170 languages.

Service is free to complainants.

We can recommend restitution of up to $350,000.

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Who We Are




Banking is federal; trust companies can be federal or provincial.

Credit unions are provincial, but that system is currently evolving.

Non-bank consumer credit is provincial.

Securities regulation (investment leverage loans) is provincial (for now).

Consumer protection issues are predominantly provincial.

Criminal Code provision restricting interest rates to 60% is federal.

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Canada’s Unique Environment for a Financial Sector

Ombudsman




Conduct non-legalistic, confidential and independent reviews of complaints that haven’t been resolved to the satisfaction of consumers.

Look primarily at cases of direct financial loss resulting from error, misleading information or bad advice.

Take into account laws, regulations, industry standards and practices, and firm policies to decide what would be “fair under the circumstances”.

Seek to make the client “whole” where maladministration is found to have occurred.

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What We Do




Neither a court nor a regulator, we do not fine or discipline firms or

individuals.

We make recommendations to the firm, which are not binding on either

party.

Clients do not forfeit their legal rights; they may reject our findings and start

legal proceedings.

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What We Do (Cont'd)




The Olive Branch: OBSI gives participating firms an impartial service to

which they can refer their unresolved complaints.

The Stick: OBSI will make public any participating firm’s refusal of a

recommendation.

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What We Do (Cont'd)




Board majority of Community Directors (independent of industry).

Community Directors must not be associated with either industry or

government for two years prior to appointment.

Chair of the Board is a Community Director.

OBSI’s budget, and the hiring and evaluation of the Ombudsman, require

both a Board majority and a majority of Community Directors.

Board does not get involved in any investigations.

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Governance




We review the file to make sure it is within our mandate.

We then conduct an initial assessment of the file based on the final response letter the client received from their firm, as well as any other material provided by the client.

If we determine a full investigation is warranted, the client and firm sign a letter agreement with provisions for privacy release, confidentiality, and no subsequent use.

Following that, the firm sends us their complete internal investigation file.

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Our Investigative Process




We conduct our investigations based on interviews with the relevant players, as well as a document review.

Compensation recommendations take into account actual costs or losses, mitigation issues and accrued interest. Some non-financial losses are also considered (e.g., negative credit bureau reports).

We discuss our findings with both parties, and finish with a comprehensive report outlining the reasoning behind our conclusion.

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Our Investigative Process (Cont'd)



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COMMON COMPLAINT

THEMES & OBSERVATIONS




In 2012:

446 investment case files (up 10%)210 banking case files (down 47%, largely due to TD’s departure)

Case file volumes more than tripled with the financial and market meltdown of 2008-09.

The most frequent complaint issues were investment suitability, debit and credit card fraud, mortgage penalties.

Complainants receive compensation in about 30% of the case files we review.

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Statistics




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1000

1500

2000

2500

3000

3500

4000




Deposit scams

Debit and credit card fraud

Online security – phishing

Mortgages

Credit/collections

Credit bureau information

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Complaint Themes - Banking




Suitability of investment advice

Suitability of individual investments

Suitability of portfolios

Unauthorized transactions

Deferred service charge issues (disclosure, suitability)

Transaction errors

Use of leverage

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Complaint Themes - Investments




The risks associated with investments?

The difference between risk tolerance and loss tolerance?

That higher returns come at the expense of higher risk?

The disclosure given by firms?

The complexity of products available?

The fees associated with investing?

Their responsibility to read their statements and mitigate losses?

The need to document and retain everything?

The need to save for retirement early?

Do investors understand:

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Bank customer met a woman at a bar.

After several hours of drinking and conversation, he headed home with her.

Discovered his wallet was missing the next morning, checked at the bar, then notified his bank.

Thief had made point of sale purchases of $2,000 and $1,400 in cash advances on the Visa account overnight; ABM withdrawals from several accounts at different banks.

Case Study – Negligent PIN Selection?

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Client claimed he was not responsible for all the losses.

Crook tried various PINs; hit the right combination after 6 tries.

Should the customer have been reimbursed for the amounts taken? Show of hands please....

Does your answer change when you learn that...

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The woman was a prostitute.

The man had been drinking heavily.

The woman was also a professional thief with prior convictions; she was convicted but the money was gone.

The man had used the same PIN on all his cards and chose an easy one to remember...1-2-3-4.

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The man did not read or understand English or French.

The man was 71 years old.

The man had used the same easily remembered PIN for all his cards because his cognitive abilities were failing.

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TOP TEN TIPS




1. Read everything you sign: Few people bother to read in full every document they sign. They should. Understand what you are signing to avoid nasty surprises down the road.

2. Ask questions: Knowledge is power. If something isn’t clear to you, ask for more information or clarification. If you still don’t understand, bring along someone you trust so you both hear the explanation.

3. Keep records: The individual or institution you are dealing with will have a record of their interactions with you. So should you. Take notes of important conversations, confirm instructions in writing, and keep copies of everything.

Top 10 Tips

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4. Save your money: Set aside a portion of your income each month for your retirement and unforeseen events. Life is full of surprises; have a contingency fund in place for the unpleasant ones.

5. Review your account statements: Carefully review all account documents sent to you each month, whether by mail or electronically. Report any errors or suspicious activity immediately; if you wait too long, you might be held responsible.

6. Safeguard personal information: Keep your financial documents in a safe and secure place. Shred all personal financial information that you no longer need so the bad guys can’t use it.

Top 10 Tips

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7. Plan ahead: Have a financial plan so in the future you can live the life you want. Don’t be caught unprepared in later years.

8. Make a will: They say that the only things certain in life are death and taxes. No matter how old you are, make sure that you have a valid and updated will. If you don’t, you lose control over where your wealth goes. Don’t let lawyers or the government make the decision for you.

9. Create a Power of Attorney: Regardless of your age, have a valid power of attorney in place in case you become unable to manage your own affairs. By doing so you can prevent heartache for your loved ones should something happen to you.

Top 10 Tips

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10. Speak up: Most banking services and investment firms want to do the right thing for their customers. If you have a concern or complaint, don’t be afraid to let your financial services firm know. If they can’t make things right for you, know that there are other places where you can go for assistance, like the Ombudsman for Banking Services and Investments.

Top 10 Tips

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QUESTIONS?

Website: www.obsi.ca

Email: [email protected]

Toll-free Telephone: 1-888-451-4519

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Economy & Finance

Tales from the Confidential Files of OBSI by Tyler Fleming