Financial Advisory services serves a very important function for many Canadians who do not have the time, skill or interest to manage their investment portfolios. Unfortunately, this proves to be dangerous where financial intermediaries go (or arguably have always been) rogue. When you entrust your finances with an investment firm or advisor, you are also relying on their exclusive knowledge of markets and their good faith and judgment. When you advise your financial intermediary as to where you would like to invest your funds, the expectation is that your funds will in fact be placed in that investment. Where your funds go elsewhere than to the intended recipient, regardless of whether it is a different investment (perhaps even with a higher return) or to the intermediary itself if the entire operation is illegitimate, this constitutes fraud.

How do you prevent yourself from being a victim of fraud? There are certain indicators that ought to cause an investor to investigate further before investing their money with a financial intermediary.

  1. The promise of high returns and low risk. If the investment seems too good to be true, it probably is! Moreover, if your financial intermediary cannot explain how you are able to obtain such high returns, stating only that the investment strategy is complicated, this should also be considered a red flag.
  2. Your financial intermediary or advisors employed by the financial intermediary will not provide information regarding their industry credentials. Whether an individual has been accredited or certified to offer investment advice and sell securities can be determined through basic due diligence searches. Be wary of individuals who contact you out of the blue with an investment opportunity!
  3. Your financial intermediary will not provide you with documentation related to your investment, or the documentation from multiple investments are inconsistent or incomplete. If you do not receive all your expected documentation, follow up immediately. Difficulty obtaining documentation on your investments should raise a red flag.
  4. Your financial intermediary will not provide its financial statements or audit reports. While there are bona fide reasons for a business to not want to publicize this information except as required, if there is a refusal to disclose this information when required by regulation, or where reasonable requests to review certain information are refused, you should consider whether your financial intermediary has provided a sufficient reason for the refusal.