THE SCORPION AND THE FROG - Investor · PDF filemidstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but

THE SCORPION AND THE FROG:A consumer view of

Canadian financial servicesand ways to transform them

A report prepared forthe Consumers Council of Canada

for presentation tothe Office of Consumer Affairs

Industry Canada

byDavid Yudelman

CSB Communications Toronto, 2001

An Aesop fable

The Scorpion and the Frog

A scorpion and a frog meet on the bank of astream and the scorpion asks the frog to carry himacross on its back. The frog asks, “How do I knowyou won’t sting me?” The scorpion says, “Because if Ido, I will die too.”

The frog is satisfied, and they set out, but inmidstream, the scorpion stings the frog. The frogfeels the onset of paralysis and starts to sink,knowing they both will drown, but has just enoughtime to gasp “Why?”

Replies the scorpion: “Its my nature...”

THE SCORPION AND THE FROG:A consumer view of

Canadian financial servicesand ways to transform them

A report prepared forthe Consumers Council of Canada

for presentation tothe Office of Consumer Affairs

Industry Canada

byDavid Yudelman

CSB Communications Toronto, March 2001

About the Managing Consultant

Chris Ballard is a founding Director of the Consumers Council of Canada and aformer Executive Director of the Ontario division of the Consumers’ Associationof Canada. He is currently in his second term as President of the Public AffairsAssociation of Canada. Chris works nationally with private and public sectorclients on a diverse range of topics including consumer affairs, aboriginal affairs,economic development, finance, information technology, consumer education,and learning communities. His main focus is on helping business and governmentbecome consumer-focused through improved two-way communication. Chris hasbeen President of CSB Communications for 13 years, and can be reached at (905)713-2740 or at [email protected].

About the Author

David Yudelman has a Doctorate from Yale University and a Masters degreefrom the London School of Economics, and is Past President of the Public AffairsAssociation of Canada. He was a journalist on the London Times and worked full-time in the Public Affairs department at the Bank of Montreal, writing speeches –among other things – for two of the Bank’s Presidents and Chairmen. He haspublished books, articles and papers on a wide variety of topics, including bothfinancial services in Canada and the consumer perspective. He is the author ofthe study Bridging the gap between the insurance industry and its consumers: areport by panels of consumer and industry experts. Dr Yudelman founded hisown company, Executive Writing Projects, in Toronto in 1993. He can becontacted at (416) 463-5023, or at [email protected].

CSB Communicationswww.csbcommunications.comcontact@csbcommunications.com

David [email protected]

Consumers Council of Canadawww.consumerscouncil.com

This report was funded by Industry Canada, Office of Consumer Affairs. The views expressed arethe personal views of the author and Industry Canada accepts no responsibility for them. ©2001

A consumer view of Canadian financial services and ways to transform them

Table of Contents

TABLE OF CONTENTS

Page

Glossary i

Executive Summary ii

Preface vi

Consumer’s wish list viii

Introduction 1

The industry and the consumer: wary symbiosis 4

The explosion of investment services and products 7

The bewildering world of financial services regulation 10

Models 14

Remnants of the four pillars 16

Enforcement, accountability and compliance 18

The RT Capital Management case 19

Divided loyalties, accountability problems 21

Consumer information, advice and education 23

Information from the industry (to the consumer) 24

Information from government and regulators (to the consumer) 26

Advice and education must follow information 28

Independent, whole life information 28

Funding of consumer education and organizations 30

Teachable moments 31

Redress and ombudsmen 32

The Canadian Banking Ombudsman 32

The Canadian Financial Services Ombudsman 34

Other redress mechanisms 35

The consumer provisions of Bill C-8 36

Privacy 39

The VISA and MasterCard agreements 39

Disclosure 43

Conclusions 45


Table of Contents

Appendices Table of Contents 48

Appendix I

Survey: A Consumer Perspective on Financial Services

Appendix II

Survey of individuals working within the Canadian financial servicessector

Appendix III

Survey of individuals working within government or as regulators

Appendix IV

Research interviews

Appendix V

The Consumers Council of Canada: Nine consumer rights

Appendix VI

Selective bibliography (annotated)

Appendix VII

Published sources for consumers


Glossary i

GLOSSARY

ACCCAustralian Competition and Consumer Commission

APRA Australian Prudential Regulatory Authority

ASC Alberta Securities Commission

ASIC Australian Securities and Investment Commission

CAPSA Canadian Association of Pension Supervisory Authorities

CBA Canadian Bankers Association

CBO Canadian Banking Ombudsman

CCIR Canadian Council of Insurance Regulators

CFSO Canadian Financial Services Ombudsman

CDIC Canada Deposit Insurance Corporation

CSA Canadian Securities Administrators

FCAC Financial Consumer Agency of Canada

FSA Financial Services Authority (of the United Kingdom)

FSC Financial Services Commission

FSCP Financial Services Consumer Panel

IDA Investment Dealers Association

IFIC Investment Funds Institute of Canada

MFDAMutual Fund Dealers Association

OSC Ontario Securities Commission

OSFI Office of the Superintendent of Financial Institutions

SEC Securities and Exchange Commission (of the United States)

TSE Toronto Stock Exchange


ii Executive Summary

EXECUTIVE SUMMARYConsumers are being offered more choices than ever before in the financialservices industry, but these choices are complex, confusing and can be dangerousfor the uninitiated or uninformed.

Bill C-8 and the unacceptable gap

Everyday money management services, while still important to consumers, havediminished in importance relative to the far more complex area of investmentservices. As Canada moves from being a nation of savers to a nation of investors,the Federal government has explicitly recognized that there is a dangerous and“unacceptable” gap opening up between knowledgeable sellers of these servicesand relatively ignorant consumers. Bill C-8 and the establishment of the FinancialConsumer Agency of Canada (FCAC) is intended to be a major step inestablishing a framework in place to protect consumers, but it is clear that theFCAC’s mandate is extremely limited and that its possible impact on the problemas a whole will be small. This Report therefore does not confine itself to theFCAC’s narrow mandate.

The basic nature of the financial services industry

The prime purpose of the Industry is – quite justifiably – to optimize returns to itsmajor stakeholders, rather than to equip consumers to frustrate this goal. Since itwould be unreasonable to expect the Industry to transcend its basic nature,consumers would be advised to accept whatever help Industry offers with thanksbut to look elsewhere in the last resort – to governments, to regulators, toconsumer associations and to themselves – for fundamental protection andeducation.

Although the stakes are higher than ever before, and the need for consumerprotection – as well as guidance in evaluating and selecting financial services –correspondingly greater, the help that is available to consumers is fragmentaryand, at times, more damaging than beneficial. Much of the information and advicethey are receiving from various quarters is distinguished more by its quantity thanits quality and – when examined more closely – turns out to be both self-servingand vendor-driven.


Executive Summary iii

Canada needs to catch up

Canada got off to a quick start in dismantling the four pillars of its financialservices industry and restructuring its regulatory system to meet the requirementsof the rapidly changing Industry; but it has since fallen behind Australia, theUnited Kingdom (UK) and even, in some respects, the United States (US). Theregulation of financial services in Canada remains a consumer’s nightmare, atangled, confused structure divided by type of government, type of financialservice, by government regulation vs. self-regulation, and by prudential andmarket conduct regulation. There is therefore a great deal that needs to be done toimprove Canada’s regulation of financial services, including providing theconsumer with one-stop access to regulatory and redress services. Bill C-8,whatever its virtues, will not significantly improve this situation, and – by pavingthe way for bank mergers – could potentially open the door to more monopolisticpractices in the domestic market for financial services, which would be extremelynegative for Canadian consumers.

Enforcement and lack of accountability is the weak link

In some cases, the regulatory apparatus needed to protect consumers is already inplace but is inadequately enforced. It is widely accepted that Canadian regulatorsrelaxed enforcement during the bull markets of the 1990s, when consumers wereby and large making money and not complaining about abuses, and thatcompliance departments in both Industry and government were frequently under-resourced. This was not, however, a merely cyclical phenomenon. There was andis also a built-in bias towards giving the financial institutions the benefit of thedoubt because regulators are only too aware of the financial clout the institutionscan mobilize to defend themselves against any charge, and because the regulators’accountability to the consumer is murky and undefined. The recent RT CapitalManagement case is seen by many consumers (though not by regulators) as anexample of an inadequate response to a blatant manipulation of the markets, and alost opportunity to lay criminal charges and publish evidence (including audiotapes) which would have had an extremely salutary educational and deterrenteffect.

Consumers need an authorized voice

Given the systemic ambivalence of regulators, consumers need to be able toeffectively oversee their actions. They need an independent, well-resourced bodysimilar to the UK Financial Services Consumer Panel, which has statutoryauthority and is accountable to the interests of consumers, with independentresources and research program, and a public voice.


iv Executive Summary

Consumer information, education and advice

Consumers also need to arm themselves to deal with the financial servicesindustry directly on an everyday basis. Given the exponential increase in thecomplexity of what is offered, consumer education in this area is more urgent andimportant than ever. Two of the major sources of information are the Industryitself and governments, including regulatory agencies. Industry sources havemultiplied and provide an enormous amount of useful information, but theycannot reasonably be expected to ever represent the interests of the consumerbefore those of the industry. Governments and regulators are also increasinglygetting involved in consumer education, which is important because they are amore impartial source compared to people who make their living selling financialservices.

Whole life advice, teachable moments, point-of-purchase information

Consumers need more than just information, they also need advice to help themprocess the information and use it to make the right decision. They need advicewhich is “whole life”, which spans different types of financial services, whethermutual funds, or insurance or property investment. They need qualified advisorswho earn their living exclusively from giving advice, and do not have a vestedinterest in the products and services being purchased or sold. They need to betaught, not only formally in schools or adult education courses, but also during“teachable moments” focused around the time of important financial servicestransactions, such as buying a first car or first house or first RRSP.

Consumer associations

Consumers need to be able to rely on consumer associations which areknowledgeable, independent and dedicated, and such associations are not likely toemerge without the support of government to help them attain the critical massnecessary for them to have a real impact on consumer education and protection.

Consumer redress

Bill C-8 will not only establish the FCAC, it will also create a new CanadianFinancial Services Ombudsman (CFSO) to handle complaints of consumers andsmall business which have not been resolved by the Industry’s own disputeresolution procedures. The Federal government would like the CFSO to cover allfinancial institutions, allowing consumers to go to a single resolution disputecentre. It will not be a government agency and will probably be structured verysimilarly to the Industry’s Canadian Banking Ombudsman. The Federalgovernment is also working with the Joint Forum of Financial Regulators fromthe provinces to try to find ways of doing this.


Executive Summary v

One-stop redress in financial services for consumers will only be achievedthrough a great deal of federal-provincial-Industry-consumer cooperation, but it isconsiderably closer to reality than one-stop regulation.

Privacy and its underminers

Privacy is an important and emerging issue for consumers. This is particularlytrue in the area of financial services, where data mining and trading in theconsumer’s personal information has reached levels of intensity probably foundnowhere else. Financial institutions are flouting the spirit of regulations layingdown that consumers have a right to prevent their information from being used incertain ways. The example of the Visa and MasterCard application forms andagreements is provided to illustrate how easy it is for financial institutions to keepto the letter of regulations while circumventing their spirit. In such casesregulators should not shy away from draconian and “red-tape” solutions.

Disclosure is a start, but is it enough?

Disclosure is another vital area for consumers that has received much publicityrecently. There are increased pressures for industry professionals to disclose theirinterest in transactions they are promoting (whether selling mutual funds orpromoting a new stock). It is being demanded that conflicts of interest, inparticular, should be disclosed. From the consumer point of view, this is progress;but the real question is whether blatant conflicts of interest (such as owning sharesone is promoting as an underwriter) should be forbidden, rather than merelydisclosed.


vi Preface

PREFACE

This Report is written from the point of view of the consumer. It therefore focuseson articulating some of the consumer’s major concerns in a way that will speak toall consumers as well as to governments, regulators and even the suppliers offinancial services. It is not addressed to specialist policy makers only, though it ishoped that it will provide ample material for policy makers to take into account inthe urgent task of reforming the protection and education of consumers. Researchindicates that consumers frequently want something quite different from whatfinancial services executives think they want (e.g. see Deloitte Research, Myth vs.Reality in Financial Services: What your customers really want, page 5, passim).

The study is prepared by CSB Communications on behalf of the ConsumersCouncil of Canada for presentation to the Office of Consumer Affairs, IndustryCanada and for wider circulation to the consumer community in Canada andelsewhere. It is written by David Yudelman, Executive Writing Projects.

SCOPE AND METHODOLOGY

This Report does not attempt to be exhaustive or comprehensive, though it ishoped it will help the reader to a greater understanding of the issues by suggestingfurther questions and issues which need serious and detailed attention. Moredetailed work and follow-up studies are urgently needed. The Report, then, is anintroduction to some selected consumer issues as Canadian financial services gothrough a similar turn-of-century process of restructuring to that occurring inmany other parts of the world. It attempts to understand and elucidate theconsumer point of view – rather than “take the consumer point of view”. Wherepossible, it tries to talk in the language of an educated consumer.

The Report is based on interviews (a selected list of interviewees is included inthe appendices), research (see the bibliography for a selective list of sources) andsurveys conducted specially for this Report (full details of which are included atthe end of this report in tabular and commentary form, see Appendices I, II, andIII). The Consumer Survey asks a selected group of consumers what they know,do and want in the area of financial services. It samples the Canadian ConsumerNetwork of the Consumers Council of Canada, a group of generally above-average aware and educated consumers. It is not a random sample and the 100respondents are not necessarily typical of all Canadian consumers (for a fullerexplanation see below, Appendix I).


Preface vii

The other two Surveys ask similar questions of a small number of industry,government and regulatory professionals. They were conducted online and hadfewer respondents (44 to the Business Survey of the financial services industry,and 36 to the Government/Regulatory Survey.) Extracts from the surveys areinterspersed within the Report, where relevant, in italics.

The Report looks at some international models dealing with financial services,and asks what they might mean to the Canadian consumer. It providesbibliographies and links as a resource to help readers who wish to begin to followup specific issues in more depth. It draws up a fairly lengthy, but still far from all-encompassing, shopping list of many of the more pressing things consumers wantand need. Some of these could be easily and quickly implemented, others will nodoubt be dismissed out of hand by sceptics as politically unrealistic. The answerto this negativism is that few if any of the suggested changes are radicallydifferent from changes which have been made recently in other countries. Theywill never, it is true, occur in Canada without much greater vision and leadershipthan has been displayed in this area to date, but if necessity is the mother ofinvention, the suggested changes are becoming demonstrably more necessaryeach day, and ways can be found.

The Wish List advanced by this Report should be seen in the context of currentchanges in the Canadian and global financial services industry and moreparticularly, in the context of Bill C-8, An Act to establish the FinancialConsumer Agency of Canada (FCAC) and to amend certain Acts in relation tofinancial institutions. The Report does not confine itself to issues within therestricted mandate of the FCAC, but a great deal of it provides a consumerperspective and operating principles which will be directly relevant to thefledgling FCAC. The Report Conclusion, below, focuses specifically on possibleimplications for the FCAC.

In the last resort, however, this Report recognizes that financial services inCanada are just at the beginning of a long process of transformation, that we areonly just starting to explore ways to adequately protect and educate the consumerthrough these fundamental changes, and that we need to start thinking ofinnovative ways to deal with both age-old and new problems.

Chris BallardCSB Communications

Dr. David YudelmanExecutive Writing Projects

March 2001


viii A Consumer’s Wish List

A CONSUMER’S WISH LIST

REGULATION AND ENFORCEMENT

1. Create a single national contact for all consumer problems concerning allfinancial services in Canada, and give it the resources to effectively handleand resolve all these problems

Consumers are Canadians, not provincial consumers or federal consumers.They recognize there is the need for both prudential regulation (to ensure thestability and viability of financial institutions in general) and market conductregulation (to ensure financial institutions operate ethically and according totheir own codes as well of those imposed by governments on behalf ofconsumers). But how this happens is less the concern of most consumers,than that it does happen.

2. Create an independent, well-funded Consumer Advisory Council onFinancial Affairs with statutory authority to represent the consumer pointof view to the regulator, to the government and to the general public

The Council might possibly be located within the FCAC, though this wouldseverely restrict its credibility as long as the FCAC reports to the Minister ofFinance (as opposed to a Consumer Affairs Ministry with its own Cabinetminister). The Consumer Advisory Council on Financial Services could bemodeled on the Financial Services Consumer Panel (FSCP) of the UK’sFinancial Services Authority (FSA). The FSCP is part of the FSA but isindependent, with its own budget and with authority enshrined by legislation.

3. Provide the Consumer Advisory Council on Financial Affairs (CACFA)with resources to do its own independent research; and the right to publishand publicize its findings and opinions

Ensure the Council is led by respected and knowledgeable consumeradvocates from across the country who represent consumers as a wholerather than narrow factions and who, while cognisant of the concerns of bothindustry and government, will not be directed by these concerns to actcontrary to the best interests of consumers.


A Consumer’s Wish List ix

4. Make it a requirement that the CACFA be consulted by Government on anongoing basis to ensure there is significant consumer input in the makingand enforcement of laws and regulations regarding financial services andproducts

See the UK example, the FSCP, below in The bewildering world of financialservices regulation, Models. The FSCP also publishes its input so theconsumer input enters the permanent record.

5. Ensure the regulator has adequate resources and incentive to fully performits job

Define the mandate and procedures of the regulator to ensure it is both ableand willing to enforce full compliance with all legislation and regulations.

Our Consumer Survey, question 14, indicates thatconsumers have most faith in government regulators toenforce minimum standards of conduct on the sellers offinancial products and services. Industry andGovernment/Regulator respondents to their respectivesurveys agreed.

6. Ensure that consumers know who the regulators and ombudsmen are, andwhat they can do for the consumer

Do this by requiring for example that all financial institutions regularly mailflyers, with wording approved by a government or consumer body, with theirregular or monthly statements to customers, explaining customer rights andhow the regulators and ombudsmen guarantee them. Similar notices shouldbe posted at all sites where financial services business is transacted, whetherin person or online. This job should be greatly simplified once a singlenational contact for consumers is created (see above, #1).

7. Provide leadership to establish a national market conduct regulator for thebanks, perhaps by using the expertise and resources already availablethroughout Canada in the provincial and territorial securities commissions

Do not expect the FCAC by itself to provide the basis for a new marketconduct regulator for the banks. Understand that the FCAC has beenestablished by the Federal government to give the appearance of consumer-orientated regulation of the banks, rather than its substance. Its mandate isrestricted, as are its resources.


x A Consumer’s Wish List

8. Work to establish a single national contact point for consumers, which willregulate and provide redress for all financial services, whether banking,insurance, trust and loan companies, or real estate

Consumers of financial services are not interested in the constitutional issuesof divided jurisdictions. They want to be able to go not only to one singleregulator, they also want to have access to a single Ombudsman or one singlesource of redress whether about a banking issue, an investment issue, or aninsurance issue. Consumers do not care if the leadership comes from theFederal government or elsewhere, or a combination; but the possibility of theFederal government providing more leadership in brokering an agreement toensure this happens (as the Australian Commonwealth Government didrecently in getting mutual agreement for their state governments to devolvejurisdiction to create a single national financial services regulator) should beexplored. See, for example, the suggestion by the Canadian BankersAssociation commented on below, The bewildering world of financialservices regulation.

9. Create a more aggressive and accountable climate for the enforcement ofmarket conduct rules and regulations

Recognize that non-enforcement of good rules and regulations is even moreinfuriating to consumers than a lack of such rules and regulations.

10. Ensure that financial institutions follow the spirit of regulations as well astheir letter, and require their communications with consumers to beconsumer-tested in ways approved by responsible third parties

Financial institutions which complain about red tape and excessive regulationwould be well advised to look at their own practices (see below, Privacy, TheVISA Card and MasterCard Agreements).

11. Extend the suitability and disclosure regulations already governingsecurities and mutual funds to other areas, such as the marketing and saleof mortgages and retirement plans

Measures to regulate mortgage information are already at an advanced stagein the UK at the instigation of the FSA’s Financial Services Consumer Panel;and the Wall Street Journal carried a convincing article in April 2001 arguingthat the suitability rules – which compel advisors in the securities industry totailor their recommendations to the particular needs of individual clients – beextended to other financial services.


A Consumer’s Wish List xi

12. Tighten up rules about disclosure of conflict of interest, and enforcementof these rules

The Crawford Committee, which published its Report on April 11, 2001,pointed out that the “financial effects of biased (analyst and broker)recommendations are not academic. Real investors lose real money”.

13. Move from merely insisting on disclosure of conflict of interest toforbidding certain conflicts of interest as well

The Crawford Report does not go far enough because it is only asking fordisclosure of conflicts of interest, not the elimination of such conflicts (whichwould for example forbid the practice of analysts writing about companies inwhich they have a material interest).

14. All contracts and agreements for financial services and products, and allpoint-of-purchase information, should be written in plain language andconsumer tested for intelligibility

The plain language version should be the legally applicable version andshould also be in a print size legible to an average consumer of over 50 yearsold.

15. Encourage increased competition within each sector of financial services,and between each sector

For example, allow banks to provide insurance, life annuities and auto leasefinancing to consumers, but only if banks agree to certain conditions, below.Exploring this, and the following two points, in detail is beyond the scope ofthis Report, but the three points are necessary building blocks for theremainder of this Consumer’s Wish List.

16. Ensure that increased competition is enduring and is not merely the firststep towards monopolies and monopoly pricing practices

Avoid the destruction of competition and restrictions on consumer choice andprivacy by large merged financial institutions through stringent and vigilantlyenforced competition regulation, and a variety of other safeguards, such asstrengthening restrictions on cross marketing unless specifically requested bythe consumer, and misuse of private consumer data and of data mining itself.


xii A Consumer’s Wish List

17. Do not allow banks or large financial institutions to merge unless theymake detailed, legally binding and enforceable promises that the mergerwill not result in the suppression of competition

Less competition will lead inevitably to declining accessibility of service,inferior service and unreasonable price increases to domestic customers.Critics say mergers necessarily diminish competition; the industry claimsthey make better, more competitive services viable. To maximize thepossibility of an outcome which will not hurt consumers, make all mergerssubject to a detailed and common set of competition requirements, andensure they are updated regularly, monitored specifically for compliance andenforced promptly and completely.

18. Be prepared to enforce agreements, legislation, regulations and voluntarycodes of conduct

Governments cannot rely exclusively on voluntary Industry undertakings, ortheir own ostensibly (on paper) stringent regulations. They need also togreatly strengthen their powers and resources to fight anti-competitive andmonopolistic practices. And they should commit themselves to use thesetools more actively and effectively than in the past, with an explicit focus onprotecting consumers.

19. Strengthen legislation ensuring the privacy of personal information, andmake it consistent in all areas of the financial services sector

This will require harmonization as some financial institutions fall underfederal jurisdiction, some under provincial. Endorse the highest standard,whether it is provincial, federal or from some voluntary source.

20. Government, regulators and consumer organizations should begin pre-emptive measures to prepare consumers for the possibly that an extendedbear market could have disastrous effects on their retirement plans andincomes

Note the way the FSA in the UK is dealing with a similar issue there. Beginto think of ways to help less educated consumers understand the possiblycatastrophic effects in certain circumstances of the popular switch fromdefined benefit pension plans (where the employer bears the risk of adverseeconomic circumstances) to defined contribution schemes and self directedretirement schemes (where the consumer bears the risk and could easilysuffer disastrous reversals if stock markets turn against them).


A Consumer’s Wish List xiii

CONSUMER EDUCATION

21. Gear investor education to the actual needs and behaviour of consumers

Research should be funded and carried out to determine the most effectiveways to educate consumers. All initiatives should be evaluated and the resultsused in the design of further initiatives. Consider, but do not be ruled by,pedagogical ideas of completeness or wish-lists of what the educator wouldlike the consumer to know.

Our Consumer Survey, question 10b, indicates thatconsumers see effective education as crucial to their long-term financial future. So do a vast majority of Industryrespondents.

22. Design basic education to build on a foundation of fundamental conceptssuch as compound growth, supply and demand, inflation and deflation,risk and reward

Recognize that “basic education” is a slow and cumulative process ofimmense long-term importance, which will have to be nurtured by theindustry, by government, and by consumer organizations, and cannot addressurgent short-term needs. Multi-year initiatives should be preferred to one-shot initiatives.

Our Consumer Survey, question 12, indicates thatgovernments, schools and universities are all seen as doinga very poor job of educating consumers, especiallycompared to the sellers of products and services. Industryrespondents once again agree. Government/Regulatorrespondents, by contrast, feel they are doing a much betterjob than the sellers of financial services and industryassociations.

23. Translate basic education courses into plain language guides which theaverage consumer can understand, and explore better delivery

Explore multi-faceted avenues of delivery for those who will not get thebenefit of courses at a senior level in high school, be disciplined in targetingeducational efforts, and avoid dumping information on consumers at randomto give the appearance of activity.


xiv A Consumer’s Wish List

24. Use the help and resources of industry-financed bodies such as theInvestor Learning Centre to design school curricula, but maintain stronggovernment control over the curricula, and ensure detailed consumer input

To illustrate the dangers of “Trojan Horse gifts from the Greeks”, considerthe following example. The Investor Learning Centre made a number ofinformed and useful Ontario curriculum recommendations to Ontario’sMinister of Education in February 2000, but recommendation #3 was headed“Why investing pays off more (than saving)”. This bias, from a securities-financed body, is perfectly understandable, but has no place in an educationalsystem, particularly at a time when the conventional wisdom of the past twodecades about investment is threatened by the possibility that saving mightnow begin to pay off more than investment.

25. Ensure that every consumer understands the difference between savingsand investment, between a “guaranteed” investment and a risk-minimizing“safe” investment

Many less sophisticated consumers are unaware of the major differencesbetween, for example, a “guaranteed” term deposit insured by the CDIC, anda “safe” conservative mutual fund. They should be informed of thedistinction, and of the pros and cons of each, in plain language at the point ofpurchase.

26. Distinguish at the outset between “basic education” and “specific/point-of-purchase” information and education. Focus at least as much on point-of-purchase education as basic education

Develop techniques – such as plain language checklists – which arespecifically designed for point-of-purchase education.

27. Point-of-purchase education and information should be specifically gearedto capitalize and focus on “teachable moments”

“Point-of-purchase” applies to contacts in person, by mail or via electronicconnections. “Teachable moments” are those phases in the financial serviceslife cycle when individuals will be particularly amenable to learning aboutthe rationale for a particular financial service and its importance to theindividual. For example, 18-year-olds contemplating the purchase of a firstcar tend to be excellent learners on the subject of savings accounts, loans andleasing, and car insurance.


A Consumer’s Wish List xv

Our Consumer Survey, question 11, suggests consumerpreference for point-of-purchase, real world education.Respondents ranked self-education and education from thesellers of financial products and services higher than thatfrom government, universities and industry associations.

28. Point-of-purchase education and information should be reinforced at allfollow-up teachable moments, such as renewals

Given that there is a natural bias within financial institutions to “close thesale” or at least not “reopen the sale”, this form of consumer educationshould be compulsory, regulated and monitored for compliance.

29. Provide relevant educational information at point of purchase about allinvestment, savings, loans and insurance products, as well as the assurancethat consumers have at least three working days in which to change theirminds

See Disclosure and Privacy, below.

30. Insist on a “whole life” approach to educating consumers about financialservices, in particular in the area of investments

Consumers need to be taught much more than how to determine which is thebest mutual fund. They also need to be educated whether a mutual fund isappropriate for them at all, or whether they should instead be buying savingsbonds, or a house. For this reason, industry associations, which arenecessarily only focused on what their particular members have to offer, areusually poorly equipped to provide “whole life” education or even “wholelife” information.

31. Make consumers aware of advisors’ conflicts of interests, make advisorsdisclose them, and where possible ban the actual conflict of interest

Consumers need to be educated in detail about the fact that there is very oftenat least a partial conflict of interest between the consumers’ best interest andthat of their advisors.

32. Avoid utilizing scarce resources on ineffective Disney-style or Epcott-styleconsumer education, especially for children

Both governments and financial institutions should be discouraged fromfunding and implementing flashy education, which delivers on style but notcontent, and therefore fails ultimately to teach consumers anythingsignificant about financial services.


xvi A Consumer’s Wish List

33. Consumer education should be seen only as a supplement to otherconsumer protection methods

Do not use expenditures on consumer education as an excuse to avoidgrasping the nettle of strong and consistent enforcement of consumerprotection regulations and legislation, including competition-reinforcingmeasures. Education and enforcement are mutually dependent, and equallyimportant.

34. Implement the Stromberg list of measures to improve investor knowledgeand awareness but not necessarily as a purely provincial initiative, and notnecessarily only in the area of securities

These are listed in Stromberg, 1995, 15.04, and below, section on ConsumerEducation See also Stromberg 1998, Section 14, and Appendix B.

35. Educate consumers to maximize the relative advantages offered them bydealing through the Internet. They should demand that financialinstitutions offer a full range of products and services via the Internet anddo not, as advised by some consultants, confine themselves there to offeringmainly high profitmargin product lines and services

The Internet effectively transfers power from the financial service provider tothe consumer by allowing the latter to obtain information and buy directlywithout going through more costly traditional channels. This advantage couldbe lost if financial institutions take the advice of consultants to negate thebenefit to consumers by focusing rather on “high growth and high profitmargin products and services online…For example, low margin residentialmortgages offered purely online will not generate a significant return oncapital” (Dominion Bond Rating Service, Banking on E-Commerce, April2000). Consumers should be aware of this, and shop around aggressively,and regulators and the federal Competition Bureau should be encouraged tomonitor any such anti-competitive behaviour.

36. Consumers should be more specific and self-aware about theirrequirements in different areas of financial services, and the Industryshould increasingly cater to these needs in a more targeted way

For example, consumers of everyday money management and insuranceservices tend to put the greatest value on responsive customer service, whileconsumers of investment services are more focused on low fees and soundfinancial advice (see Deloitte Research, Myth vs. Reality in FinancialServices: What your customer really wants, p 26, passim).


A Consumer’s Wish List xvii

REDRESS

37. Educate consumers about how to initiate queries and complaints beforeseeking redress from third parties

To encourage consumers to begin the redress process with the financialinstitution before moving to ombudsmen and other third party resolutionmechanisms, ensure that financial institutions are committed to quickresolutions and transparency.

Our Consumer Survey, question 16a, indicates that the vastmajority of respondents believe that consumer redress is asimportant to their long-term financial future as consumereducation.

38. Create a single, strong Ombudsman dealing with all financial services

Federal and provincial governments should intensify co-operative effortssuch as the Joint Forum (see Redress and ombudsmen, below). Note the UKmodel and the emerging Australian model, and extract the best elements ofeach.

Our Consumer Survey, question 13, shows that 86% think itis important or extremely important for consumers to beable to appeal for redress to a third party.

39. Make the Ombudsman independent or subject to close government reviewand supervision

Note the ASIC model in Australia, where the regulator sets the criteria for theombudsman process and monitors compliance by the Industry, which runsthe process. The Ombudsman mandate should encompass all areas ofconcern to consumers, whether chequing account, credit card, insurancepolicy, pension, home purchase or investments.

40. Put the onus on financial institutions to ensure consumers know how tofind redress from governments or Ombudsmen

Consumers should be informed at the outset of a dispute, and not after theyhave exhausted their options with the institution itself, that there will be afurther independent redress option available to them. Financial institutionsshould be required to regularly mail a flyer to this effect with their regular ormonthly statements to customers, and to post the information conspicuouslyin their retail sites and on the home pages of their Web sites.


xviii A Consumer’s Wish List

Our Consumer Survey, question 15, indicates that verylarge numbers of consumers simply do not know how gooda job is being done by various providers of consumerredress; question 16 indicates that more consumers areignorant of their rights than are aware of them.


Introduction 1

INTRODUCTIONThere are few areas that will have as major an immediate and future impact on thelong-term welfare of consumers as their ability to manage their money. Aschoices proliferate it becomes increasingly difficult for consumers to evaluate andselect the best financial services for their particular needs. Ironically, it is fareasier for consumers to get good advice about one-time purchases, directing themto the best washing machine, or laptop computer, or car to buy, than to get goodand unbiased advice on the best mortgage, the best bank account, the bestinsurance policy or the best investment. Consumers respond to this by spendingmore time researching the purchase of a new refrigerator than the taking out of anew mortgage even though the mortgage will have an infinitely greater impact ontheir lives. With the possible exception of buying a family home (which can beseen at least partly as an investment decision itself), there are few purchasedecisions remotely as important to the long-term well being of consumers asinvestment and financial services decisions.

There is, of course, no lack of sellers lining up to offer financial services toconsumers. The competition is in fact intense. Rather the problem is that what isavailable is narrowly focused and inappropriate, sometimes because of archaicregulations still governing sellers, more frequently because they reflect the needsof the sellers more than those of the consumers. The complexity of the financialservices marketplace makes it unusually difficult for consumers to understand theself-serving nature of much of the information and advice they receive, and thefact that it is vendor-driven.

Thus, though consumers desperately need guidance in how to evaluate and selectfinancial services, the help that is available to them is fragmentary, difficult toaccess and, at times, more damaging than beneficial. The deregulation of financialservices is creating a multitude of new options for the consumer; but at the sametime the choices are confusing and can be dangerous for the uninitiated oruninformed. Even where good advice is available to help make choices in thefinancial services arena, it usually focuses narrowly on a particular service, anddoes not take a “whole life” approach in which mortgages, insurance packages,investments and bank accounts are seen as part of an integrated whole, eachaffecting the other.

See Consumer Survey, questions three and six. Althoughover 75% of the respondents go to banks for the majority oftheir everyday money management services, numeroussuppliers dominate for different investment products suchas mortgages, mutual funds, stocks and bonds, propertyand tax services. Even financial planners, who might beexpected to cross all boundaries and serve all needs, areonly relied on for a few specific services.


2 Introduction

REPORT FOCUS

This Report deals with two distinct but related issues:

1. The need for structural change to protect consumers of financial services, tobetter regulate the industry, and to provide consumer redress whenappropriate. The need to educate consumers to enable them to deal with arapidly changing and increasingly complex industry, one that directlyinfluences the quality of their everyday life and their future financial security.

2. The need to establish some consumer perceptions of their specific needsthrough formal surveys – not only of consumers, but also of those ingovernment, regulatory agencies and the financial services industry whosework focuses on the consumers of financial services – through interviews andresearch.

The catalyst for this study is the Canadian federal government’s Bill C-8, An Actto establish a Financial Consumer Agency of Canada (FCAC) and to amendcertain Acts in relation to financial institutions. This title is a misnomer becausethe creation of the FCAC is just a tiny part of the 937-page Bill, and by no meansthe most important part. C-8 aims to reform the policy framework for Canada’sfinancial services sector by amending a number of acts relating to financialinstitutions, including the Bank Act. It will have a major impact, particularly onthe federally chartered private Canadian banks, which account for about 60 percent of total assets held by the Canadian financial sector and have largelyabsorbed the major Canadian securities dealers over the past decade.

The banks have moved increasingly into the wealth management business,placing correspondingly less emphasis on banking and lending services. Criticsaccuse them of losing sight of their prime identity as lenders and actingincreasingly as owners focused overwhelmingly on maximizing fee revenues.What is clear, whether one approves of the changes or not, is that the full scope ofthe activity of the banks and other financial institutions is not remotelyencompassed by Bill C-8, or even by federal legislation as a whole. Thus thisReport does not confine itself to issues raised by Bill C-8.

Our Consumer Survey, question 1, indicates nearly 20% ofrespondents thought investment services – most of whichcome under provincial jurisdiction – are more important totheir financial welfare than everyday money managementservices, while 54% thought that investment services areequally important. Respondents to the Industry and


Introduction 3

Government/Regulatory survey thought investment serviceswere even more important: 32% and 24% respectivelythought them more important; while 68% and 74% thoughtthem equally important.

Bill C-8, as its extended name indicates, does deal partly with the consumer offinancial services. The Minister of Finance, Paul Martin, has acknowledged invery clear terms that there is an unacceptable imbalance in the relationshipbetween consumers and their financial institutions. He explained the cominglegislation and establishment of what was then called the Financial ConsumerAgency (FCA) on June 25, 1999 by saying: “We need to help guard against thisimbalance by clearly identifying areas of responsibility for consumer protectionand by putting a framework in place to ensure it.”

From the point of view of the consumer, these are laudable goals; but it is clear,even from Martin’s own words, that the Financial Consumer Agency of Canada(FCAC) as constituted in the legislation will at most be only a small part of anysolution. For this reason, this Report focuses on the relationship of the consumerand financial services in Canada as a whole, and does not confine itself to lookingat the FCAC’s role (but see the Conclusion, below, for a focused look at whichitems in the Wish List are specifically relevant to the FCAC). Consumers do notsee themselves as “consumers of federally regulated banking services” or of“provincially regulated securities services”. They see themselves simply asconsumers of financial services, and this Report follows their common sense lead.


4 The Industry and the Consumer: Wary Symbiosis

THE INDUSTRY AND THE CONSUMER:WARY SYMBIOSIS

Let us be clear at the outset that the Canadian financial services industry providesconsumers with some of the best and most reasonably priced products andservices to be found anywhere in the world. Among the people who organize andrun the Industry, you will find some of the most hardworking and honest peopleyou could wish to meet. Professional standards are high by world standards, andthe integrity and stability of most Canadian financial institutions is almost withoutpeer.

Our Consumer Survey of consumers shows a large degreeof satisfaction across the board with the recentperformance of the financial services industry in Canada.For example only 16% were dissatisfied or very dissatisfiedwith everyday financial services.

This is not, of course, to argue that it couldn’t be a lot better. It is merely toemphasize that it would be both wrong and counterproductive not to recognizejust how good much of the Canadian financial services industry is by worldstandards, and how important it is to ensure that it stays as good as it is.

Having made that clear, let it also be said that the Canadian financial servicesindustry represents the interests of the Canadian financial services industry, itsshareholders, its employees and its executives. It does not, never could, and nevershould be expected to, represent the interests of the consumer.

Question 2c of our Consumer Survey asked if “financialinstitutions give me advice that primarily meets my need,not theirs.” Thirty-nine per cent disagreed or stronglydisagreed, while 34% neither agreed nor disagreed. Even36% of the Industry respondents thought that advice givento consumer primarily reflected the needs of the financialinstitutions, while a whopping 60% ofGovernment/Regulator respondents thought the same thing.

The Industry, of course, needs to satisfy the consumer, its customers, and ittherefore makes sense (and is prudent) in most cases for the Industry to keep theconsumer satisfied enough to at least come back for more. Any intelligentmerchant recognizes that a so-called “satisfied customer” is the best customer.


The Industry and Consumer: Wary Symbiosis 5

The financial services industry represents a cross-section of society as a whole,just as consumers do. There are excellent performers and organizations marked bytheir professionalism and integrity, and there are organizations which aredistinguished by neither. Within organizations the same variation in standardsoccurs as well. This is hardly surprising. After all, there are good consumers andbad consumers, knowledgeable and ignorant consumers, honest and dishonestconsumers. Why should financial institutions be any different in theircomposition?

It is useful to analyze good and not so good financial services, and this Reportwill do some of that. But what is more interesting and more significant is toanalyze the inherent nature of – and institutional biases that are built into the veryfabric of – financial services and the way they relate to consumers. It is only bybeing fully aware of these that one can begin to discuss the most productive rolesfor governments, regulators, the industry and consumer organizations inprotecting the best interests of consumers.

The well-known fable of the frog and the scorpion is instructive in some ways inhelping understand the uneasy symbiosis between the consumer and the financialservices industry. At the scorpion’s request, the frog carries the scorpion acrossthe river on its back. The scorpion, a non-swimmer, is extremely grateful andpleased to be getting a free ride across the water, but two thirds of the way across,it stings the frog and they both begin to sink. The frog asks the drowning scorpionwhy he did such a self-destructive thing, and the scorpion replies: “I’m ascorpion. It’s my nature.”

This is not, of course, to suggest that the Canadian financial services industry ispredatory and self-destructive. By and large, it is not. But it is meant to point outthat the industry must always in the last resort be true to its nature, which is tomaximize returns to shareholders and to be well rewarded as employees andexecutives for doing so. The industry will seek to “satisfy its customers” as one ofthe better ways of achieving this, whatever that vague and ambiguous phrasemeans. But it would not be in the nature of the financial services industry to“satisfy its customers” by acting on their behalf against the perceived interests ofshareholders and managers.

The philosopher, Adam Smith, once made the point that “People of the same tradeseldom meet together, even for merriment and diversion, but the conversationends in a conspiracy against the public, or in some contrivance to raise prices.”Smith was a great supporter of business and its role in improving the lives of all.But he was also clear-eyed enough to know that businesses and businesspeoplehave to be true to their nature. For this reason, consumers, governments andregulators must keep constantly aware of the fact that, while the Canadian


6 The Industry and the Consumer: Wary Symbiosis

financial services industry can be recruited to help educate and protect itscustomers under the guidance of an external authority, and can even be asked tohelp regulate itself in many areas; it cannot – and should never be expected to –represent the best interests of consumers in any case where consumer interestsclashes with its own best interests.

The scorpion should be allowed, even encouraged, to sting. It’s what he does best.And the rest of us should be allowed, even encouraged, to find ways of living inharmony with the scorpion. We should find ways of protecting ourselves byimposing rules of co-existence on the scorpion and by being educated not to givehim a ride on our backs without equipping ourselves to handle the possibleconsequences.

Many consumers, consumer organizations and members of the media are activelyantagonistic to Canadian banks and financial services, sometimes to the point ofparanoia. This response is a misdirection of energy and not ultimately in the bestinterests of the consumer. As film stars depicting Mafiosi are wont to say, “It’snot personal. It’s just business.” What is needed is an understanding of thechanging nature of the industry, and arriving at ways consumers can adapt to it.This is easy to say, but very complex to achieve.

There are some good signs. Financial institutions are increasingly beginning tounderstand that their relationship with consumers is symbiotic, one of mutualdependence. They have therefore developed a greater interest in consumereducation and protection, fuelled partly by an understanding of the fact that thisshould ultimately be in their own self-interest. Nevertheless, consumers need tostay alert to the fact that the Industry – while it is changing radically in manyways before our eyes, and in many ways treating consumers better than everbefore – will not change its basic nature. Consumers will always need to bevigilant to protect their own interests, and they will need the active help ofgovernments and regulators. Governments and regulators which are half-heartedabout this issue will come to regret it, particularly if future bear markets andrecessions result in serious setbacks for the retirement packages of Canada’sgrowing aged population.


The Explosion of Investment Services and Products 7

THE EXPLOSION OF INVESTMENTSERVICES AND PRODUCTS

This study distinguishes throughout between “everyday money managementservices”, which includes banking transactions as well as the saving component offinancial services, and “investment services”, which focuses on the increasingtrend among Canadian consumers to take charge of their own investments, and toinvest rather than merely save. Everyday management services remain anextremely important part of financial services overall (23% of the respondents toour Consumer Survey – see below, Appendix I, for the full tabulated results –regard everyday money management activities as the most important aspect oftheir financial welfare). Many consumers are not able to save money, let aloneinvest it. To them, access to a bank branch and to a bank account is extremelyimportant.

But the real change in the financial services industry, the real opportunities andthe real dangers, are largely concentrated in the area of investment services.

Seventy-three per cent of our Consumer Surveyrespondents see investment services as either mostimportant or equally important to money managementservices.

The four pillars (banking, insurance, trusts, securities) have crumbled. In just overa decade, for example, Canadian banks have taken advantage of deregulation toacquire almost all of the nation’s large integrated securities dealers; and this isjust one of a series of fundamental changes. But the changes have not beenmatched by changes in the legislative and regulatory frameworks which governfinancial services. Nor will Bill C-8, from the consumers’ point of view,significantly alter this situation. It might be a useful stopgap measure, like a fingerin a hole in a dyke, but far more radical legislative and regulatory change willhave to occur, and soon, for Canadian consumers to be protected as well as thosein the UK, US, Australia and other countries.

Glorianne Stromberg, the author of several ground-breaking reports on theCanadian investment funds, has noted that Canada is changing from a nation ofsavers to a nation of investors. The trend towards exponential increases ininvestment is undeniable. David Brown, chair of the Ontario SecuritiesCommission (OSC) points to statistics which show, for example, how theholdings in mutual funds have increased in just over 10 years from $30 billion in1990 to over $400 billion in 2001, and says that this is just the tip of the iceberg interms of the scale of current investments in companies listed on stock markets.


8 The Explosion of Investment Services and Products

The change, which has occurred and been noted elsewhere, is connected both toreforms in financial services making such investments easier, and to theprolonged bull markets experienced over the last decade by many of the moreadvanced economies. It provides great opportunities to consumers and to thefinancial services industry selling to them. It also poses serious dangers to both;dangers which could become evident in a very short time if the prolonged bullmarkets of the 1990s are followed by prolonged and severe, bear markets. In theUnited Kingdom regulators are already struggling with the issue of consumerswho have switched from fixed return pension plans (defined benefit plans wherecertain risks are placed on the shoulders of the employer) to investor-controlledpension plans.

Canada has not even begun to address this type of concern and the failure to do sowell before a crisis occurs could have extremely grave consequences. In Canadaconsumers are placing staggering amounts into investment funds – which includemutual funds exchange traded funds, pooled funds and segregated funds – oftenas an alternative to traditional defined benefit pension funds. The unprecedentedimportance of investor funds in the Canadian marketplace can be largelyexplained by the increasing awareness that government and other plans are notlikely to be sufficient to meet the retirement needs of an aging population.Although the move from defined benefit plans was precipitated by a desire toimprove retirement benefits and will generally succeed if the investor buys wiselyand holds during a period of rising stock markets, the switch could have seriousconsequences if market conditions change. Governments and regulators thereforehave a responsibility to ensure investors fully understand there are also seriousrisks to the quality of their retirement years attendant on moving away fromdefined benefit pensions, where a large proportion of the risks are borne by theemployer and not the consumer.

At an even more basic level, Canadians are becoming confused about thedifferences between guaranteed savings accounts, and “safe” investments. LaurieJones, Director of Communications and Public Affairs at the Canadian DepositInsurance Corporation (CIDC), reports numerous conversations with elderlyinvestors who are totally convinced of the safety of their investments becausetheir adviser has told them he has put their assets into a “safe” portfolio ofbalanced, diversified and conservative investments. To many of these investors,their money is as secure as in a CDIC-insured savings account.

Further indications of confusion have emerged through detailed CDIC polling andsurveying. To quote from a recent CDIC report: “There is a very cleardisassociation between what Canadians say on the one hand (deposit insurance isvery important) and how they select the types of financial products andinstitutions in which to place their savings. This is linked to a lack of awarenessabout deposit insurance, so it does not appear as a top of mind priority when


The Explosion of Investment Services and Products 9

choosing the type of financial service.” (Results of the 2000 Baseline AwarenessSurvey, p 34). It is also linked in a deeper way to the transformation of Canadianbanks from their previously primary role as lender and borrower to becomingactive marketers of “value-added” (read “fee-generating”) financial services.Consumers cannot look to financial institutions to tell them in any sustained waythat there is also a downside of investment compared to savings. They will haveto look elsewhere for enlightenment.


10 The Bewildering World of Financial Services Regulation

THE BEWILDERING WORLD OFFINANCIAL SERVICES REGULATION

Canadian regulation of financial services is a consumer’s nightmare, and anightmare for various parts of the financial services industry itself. Bill C-8 doeslittle to resolve this nightmare. As if anticipating this criticism, the Governmenthas emphasized that Canada’s regulatory framework is flexible because it isautomatically reviewed every five years, that the legislation itself could bereviewed before that “if it proves necessary”, and that the Bill allows much to bedone by means of regulation, increasing the government’s ability to adjust thepolicy framework between legislative changes. This rationalization isdisappointing, considering the massive amount of time and work that wereexpended to bring Bill C-8 to Parliament.

Canada faces the same major issue being faced by regulators everywhere, i.e.cross-sectional involvement in products that traditionally were segregated in thefour pillars. As the OSC’s Statement of priorities 2001-2002 puts it: “Relaxationof the restrictions on the types of financial products offered by financial serviceproviders, increased competition among the different providers, increasedconsumer demand for new products and services, and the rapid pace of(development of) new information-based technologies has resulted in regulatorygaps and overlap. Harmonization of similar products and services across sectorsand jurisdictions is required. As a result there is a need to redefine the mandatesand activities of financial regulators.” The OSC’s Brown says that the USresponse “is to go to a functional regulation. So in their recent financial serviceslegislation, their Securities and Exchange Commission was givenauthority/responsibility to regulate securities activities no matter where they arefound, whether in securities firms, banks, insurance companies… wherever. Theyhave been confirmed as the securities regulator for the entire system in the US…That’s not what Australia has done and that’s not what we would try to do.”

In Canada, jurisdiction is divided in several bewildering ways. It is divided byfederal government and province and by type of financial service; by government-and self-regulation; and by type of regulation. In the UK and to a lesser extentAustralia, a consumer with a problem can go to one single body with jurisdictionto deal with that problem. In Canada there are dozens of such bodies. See below,Appendices: Selective bibliography, Australian section, for more information onthe Financial Services Reform legislation there which is tackling similar problemsto Canada’s.


The Bewildering World of Financial Services Regulation 11

It is not only the consumer who has a problem with the tangled and confusedstructure of Canadian financial services regulation. Many in the industry also findthe system archaic and a threat to the global competitiveness of Canadianfinancial services. The regulatory system remains largely based on the four pillarswhich used to divide financial services in Canada, but have largely disappeared.

Bill C-8 – in striking contrast to the recent reforms in the UK, Australia andvarious European countries, which have moved quickly to adapt to a rapidlychanging industry – does almost nothing to address these divided jurisdictions,whether for the industry itself or for the consumer. It establishes the FinancialConsumer Agency of Canada (FCAC) (see also the Consumer provisions of C-8,FCAC below) which gives its name to the Bill, but which has a very restrictedmandate and is really more a sop to consumer interests than a concerted attempt toaddress consumer needs and concerns. If the federal government were trulyprepared to exercise leadership on behalf of consumers, the FCAC would fallunder a new Minister of Consumer Affairs instead of the Minister of Finance.And the Office of Consumer Affairs would also be in a Consumer Affairsministry, not under the Minister of Industry.

By contrast, the provinces in Canada are taking a far more active role in trying toharmonize regulation than the federal government appears to be, the opposite ofthe Commonwealth (federal) leadership that occurred in Australia. For example,the Financial Services Commission of Ontario was created in July 1998 as anarm’s-length agency of the province’s Ministry of Finance to integrate theoperations of the former Ontario Insurance Commission, Pension Commission ofOntario, and Deposits Institutions Division of the Ministry of Finance.

Let us turn now to outlining the tangled web of financial services regulation inCanada.

1. Jurisdiction divided by type of government and type of product

The division between federal and provincial jurisdiction may make sense inhistorical terms, but makes no sense at all to consumers in terms of logic. Thefederal government, through its Office of the Superintendent of FinancialInstitutions (OSFI) regulates the banks, while the provincial governments regulatesecurities, through 13 provincial and territorial securities commissions. Inaddition, there are divisions by type of financial service. OSFI regulates allfederally incorporated or registered insurance trust, loan companies, co-operativecredit associations, fraternal benefit societies and pension plans; by contrast, avariety of non-federally incorporated financial services, including insurance andpensions, are regulated by provincial and territorial governments.



In the case of Bill C-8, the CBA has suggested that the federal government is tosome extent using its ostensible lack of authority as an excuse not to grasp thenettle and finally dismantle the remnants of the Four Pillars. The banks would liketo sell insurance, trust services and automobile leasing, and they resent beingrestricted by federal legislation and regulations in areas such as coercive tiedselling, basic banking services, and compulsory membership in the CFSO whenother financial institutions are not so restricted. The CBA suggests that theFederal government in fact has already inserted market conduct provisions inlegislation concerning insurance, trust and loan companies, and should thereforebe able to add other such provisions for these sectors., This CBA opinion shouldnot be dismissed lightly, especially in view of the success of the Commonwealth(federal) Government in Australia overcoming similar jurisdictional splits byexerting strong leadership. The Australian states (provinces) compromisedbecause they could see it was in the interests of all Australians to do so, given theglobal nature of competition they all faced in common.

2. Self-regulatory bodies and governance

There are a number of self-regulating bodies, which have their own rules andregulations over and above their respective government regulators, but are subjectin sometimes ill-defined ways to the oversight of the latter. These include thefederally incorporated Investment Dealers Association (IDA) and Mutual FundDealers Association (MFDA); and the provincially incorporated TSE RegulationServices and the CSA. The CSA is an umbrella body that could mobilizeprevailing good will between provincial securities commissions to promote moreeffective harmonization.

Self-regulation has major advantages in allowing financial institutions to policethemselves. They are given the opportunity to develop and enforce their ownprofessional standards and protect their customers, the consumer. The alternativeto self-regulation is the indignity of being told how to conduct every little detail oftheir working environment. John Mountain, the Vice President of Regulation ofthe Investment Funds Institute of Canada (IFIC), is emphatic about the benefits ofself-regulation, but also openly admits that self-regulation works best whenthere’s a strong regulator standing behind it and monitoring its effectiveness.



3. Jurisdiction divided by prudential and market conduct regulators

A fundamental division in all regulation is between prudential and market conductregulation. Prudential regulators include OSFI, which supervises the banks inCanada. OSFI concerns itself primarily with the financial health of the institutionsunder its jurisdiction, but also has some limited market conduct and oversightroles. Market conduct regulators (such as OSC and the other provincial securitiescommissions) concern themselves with ensuring that the institutions under theirjurisdiction follow government regulations and their own self-imposed industryregulations, and deal with issues of compliance, consumer protection and redress.

In Canada, then, the securities industry has provincial market conduct regulators,but no official prudential regulator (the federal government performs this functiontacitly in some cases). The banks, for their part, have a federal prudentialregulator, but no effective government market conduct regulator (OSFI’s limitedmarket conduct oversight responsibilities will be transferred to FCAC). Bill C-8has created a limited consumer protection agency (the Financial ConsumerAgency of Canada) and a limited redress mechanism (the Canadian FinancialServices Ombudsman); but it has done nothing to create a viable market conductregulator for banking services and everyday money management. From the pointof view of the consumer, allowing such a major sector of the financial servicesindustry to continue to be self-regulating (especially at a time when it is enteringall the other sectors in force) is a massive omission and does not bode well for theprospects of future federal leadership in this area. (See also above, on theharmonization initiatives being undertaken by the provinces; and on theleadership role of the Australian Commonwealth (i.e. federal) government. Andfor provincial leadership in the area of redress, see Redress section below).

The FCAC is being established by Bill C-8 as a limited market conduct oversightregulator of the banks and other federally chartered financial institutions. Itsmandate will be restricted to the specific consumer provisions specified in the Act(see Section below on Bill C-8, for more detail on what the FCAC mandateincludes and does not include; and see Conclusion, below, on what it shouldinclude).



MODELS

(See Web links in Bibliography below for more information on the US, UK, andAustralian models)

Both federal and provincial governments in Canada are accustomed to arguingthat divided jurisdictions and chaotic financial services regulation and redress areinevitable in Canada because of its constitutional division of responsibilitiesbetween the provinces and the central government. But a similar issue existed inAustralia, which was resolved by the common sense desire of all Australians tohave a financial services sector which reflect international realities and whichcould help make Australians globally competitive. Moreover, the CanadianBankers Association (CBA) has argued that the federal government already hasthe ability to regulate far more broadly than it is doing at present if it only choseto exercise its powers.

As a model, the United States can teach Canada a good deal in insisting on moreaccountability for regulators in ensuring compliance, but its regulatory system is,if anything, even more unwieldy than Canada’s. The Australian and UK models,which have attempted to seriously address the changes needed to keep pace with arapidly developing financial services industry, are better models for Canada.

The UK system has moved very rapidly and almost radically from manyjurisdictions to a single overarching agency, the Financial Services Authority(FSA). Of particular interest to consumers is the establishment within the FSA ofthe Financial Services Consumer Panel (FSCP), which could provide a model fora possible Consumer Advisory Council on Financial Affairs (CACFA) in Canada:see Wish List above. The FSCP is an independent voice for consumers of financialservices, established by the FSA in December 1998 to provide advice on theinterests and concerns of consumers and to assess the FSA’s effectiveness inmeeting its objectives to protect consumers' interests and promote publicunderstanding of the financial system. It is independent of the FSA, is consultedon the FSA’s policy proposals, raises its own concerns and initiates its ownresearch. It has felt free to challenge the FSA on many issues, and even opposedsignificant parts of the Financial Services Bill itself. It asked Parliament to writemuch more protection for consumers into the bill. The FSCP has been particularlycritical of the principle “that consumers should take responsibility for their owndecisions”. This caveat emptor principle has been removed from other consumerprotection legislation and it is seen as particularly inappropriate in the context offinancial services, the complexity of which means that consumers need extra, notless, protection.



In many ways, UK protection of consumers is far ahead of that available inCanada. For example, the shift in Canada from defined benefit pension plans toself-directed retirement plans could have a major effect on the living standards ofCanadians in retirement, and presents major risks if stock markets trenddownwards; but there has been little public debate about this, and little effectivepublic communication. By contrast the FSCP, and the FSA itself, have devotedmajor resources to the issue. The FSCP welcomed the improved informationbeing provided to employees, but warned that information itself does notguarantee that an informed decision is made and pointed out that employers werefrequently encouraging the switch from “occupational credit schemes” (definedbenefit pensions to which employers also contribute) to “stakeholder pensions” totry to reduce their costs even though the switch was frequently not to the benefitof the employee. The FSCP insisted that the UK government should stoppromoting stakeholder schemes above other pensions, called for rigorousconsumer research, and provoked a major public debate about the issue. The netresult was to ensure consumers were both better informed and better protected. Itis extremely doubtful that this would have occurred had there not been a well-informed, well-funded body representing the interests of consumers.

The Australian system has two national regulators, the prudential regulator, theAustralian Prudential Regulatory Authority, and a national market conductregulator, the Australian Securities and Investment Commission (ASIC). It alsohas a national and very assertive Australian Competition and ConsumerCommission (ACCC), which plays a very active role protecting consumersthrough anti-monopoly and price regulation authority vested in it.

Competition policy in Canada is also occasionally used to protect consumers (forexample, Air Canada was recently warned about predatory pricing tactics, when itcut its rates to the bone only on routes where there was competition, presumablywith the objective of closing down the competition and later restoring the muchhigher Air Canada rates prevailing elsewhere in Canada). But competition policydoes not appear to have been actively used in the area of financial services inCanada, even though mergers make it an obvious and effective instrument toensure that the promises of merging companies of better, lower-cost services arekept over the longer term.



The Competition Bureau in Canada, unfortunately, receives tepid support at bestfrom politicians and is not particularly assertive in putting forward the consumerpoint of view. For example, see the VanDuzer Report, commissioned by theBureau, reviewing the anti-competitive pricing provisions in the Competition Actand the Competition Bureau’s enforcement procedures, tabled in Parliament in1999. The Report emphasizes the difficulties and the complexity of enforcementrather than the opportunities. Contrast this with the eager response of itsAustralian equivalent (the ACCC) to the possibility of an expanded mandatesuggested in that country’s response to the Wallis Report in 1998).

REMNANTS OF THE FOUR PILLARS

Regulatory changes in Canada over the last decade have had the generallywelcome effect for consumers of creating far more choice of products andservices, and introducing more competition between, for example, banks, trustcompanies, insurance companies and investment dealers. The danger of this trendis that, given the dominance of the large banks, particularly its almost totaltakeover of the securities industry in just a few short years, Canada could see lesscompetition domestically in the next few years rather than more. This will not begood news for consumers, or for the economy of Canada as a whole.

The banks make a strong case for more deregulation which will give them a freerhand in selling insurance and there is undoubtedly merit in it from the point ofview of the consumer – at least in the short-term. The banks also point out howtheir entry into the securities industry cut commission rates in half. What isimportant is the sustaining of competition in the long term. If, for example, thebanks succeeded in the future in reducing self-standing insurance companies tospecialized niche players only, there is the long-term danger that insurance couldrevert to being no more competitive than it is at present.

In countries like Australia there appears to be a far deeper governmentcommitment to foster competition and oppose monopolistic trends than inCanada, and this is a major reason why consumers here feel ambivalent to say theleast at the promises of greater competition arising as a result of more financialmergers. Mergers may make Canadian financial institutions more competitive inglobal markets, though even that is an article of faith. But there is a very realdanger that mergers will make domestic financial services far less competitive inthe longer term. Consumers are very aware of what happened to domestic airlinerates after Air Canada absorbed Canadian Air, and the fact that the pricingpolicies of Air Canada have allegedly been predatory in seeking to destroycompetition before reverting to much higher levels once the competition isdestroyed. Rightly or wrongly, consumers are concerned about the effect that



further concentration of financial services may have on domestic competition and,as a consequence, on the cost of those services.

Several foreign financial institutions supplying both money management andinvestment services, largely electronically, actually withdrew from Canada in thelate 1990s. And there is no line-up of foreign firms waiting to come to Canada tocreate a branch banking system. This does not bode well for future competition in,for example, everyday money management services in the Canadian domesticmarket.


18 Enforcement, Accountability and Compliance

ENFORCEMENT, ACCOUNTABILITYAND COMPLIANCE

In a bull market, such as the recent one, consumers tend to be less concernedabout abuses in the system because they are making money anyway, according tothe OSC’s David Brown. Regulators also tend to let up and this, he admits,happened in Canada in the 1990s. This is troubling to consumers. Does strict andeffective regulation come and go in cycles, as do boom and bust markets? Theissues on which regulation has been lax and damaging to the consumer are notnew issues. Inadequate disclosure, insider trading and conflict of interest have allbeen around for decades, there are codes and rules covering most of them and theremedies are well known. What this failure indicates then is more a lack ofenforcement than a lack in the machinery of regulation. This is depressing,because it is very difficult to lay down rules which make people do their jobproperly.

There is no substitute for active and alert enforcement, but it is also extremelydifficult to institutionally ensure that it will take place. Poor enforcement is partlythe unfortunate result of the decay of accountability, of a more generalphenomenon which Margaret Wente, of the Globe & Mail, recently called“cultural rot”. Cultural rot is a laziness or a cowardice, which favours powerfulperpetrators above weak victims. Individual consumers without a strongindependent voice representing them will always be numbered amongst the weakvictims.

Consumers want something more than promises of “we will do better next time.”They want the tools to do the job themselves. Regulators have a responsibility toboth financial institutions and to consumers, and it would not of course be idealfor regulators and financial institutions to have a purely adversarial relationship.On the other hand, many consumers feel the relationship is far too cozy for theregulators to be doing a good job in protecting consumers. That is why it isessential for consumers to be given a strong oversight function in monitoring theactions of regulators and publicizing their report cards, as is happening in the UK.The British system tries to ensure enforcement by giving the consumer a powerfuland well-informed voice by establishing the independent Financial ServicesConsumer Panel as an integral part of the Financial Services Authority, with itsown resources, and the right to review FSA measures and debate them from theconsumer perspective.

Regulations will only work (says Canadian activist Duff Conacher of DemocracyWatch) if they are fully defined; if there are adequate resources to implementthem without fail; and if they have specific penalties for non-compliance. If thereare any weak links, the entire system fails to work. Canadian regulation of


Enforcement, Accountability and Compliance 19

financial services has many potential weak links, and the frequent lack ofeffective enforcement could be the worst of all.

Even some of the more far-sighted people in the Industry itself are concerned. Forexample, IFIC’s John Mountain argues that effective enforcement by the regulatoris crucial. Though Mountain is on the whole impressed with the work of the OSC,he is also openly critical of some of its past decisions. It has been decidedly softin some cases, in his opinion, in representing the consumer interest. He cites, forexample, the settlement in January 1999 between officers of Fortune FinancialCorporation and the OSC, which he says surprised him with its leniency (heappears not to be alone – others have made similar observations). He seesimprovement recently and approves of the RT Capital settlement (for a differentview, see below).

OSC Chair Brown admits the OSC lost direction and resources in the early 1990s,but claims it has now been given improved resources and has an entirely newattitude to compliance. Both the Fortune Financial and RT Capital settlements,however, fall into the period after improved resources were available. Consumers,moreover, do not want to be hostage to the vicissitudes of individuals and year-by-year budget fluctuations. It does not take long for inadequate enforcement tocost them their life savings. They need a strong body with independent resourcesand clear accountability to oversee what regulators (and their political masters)are doing, and to ensure regulators do not forget they represent consumers as wellas financial institutions.

Let us examine a recent major case when the regulations were enforced, thoughthere is disagreement about how effectively this was done: the RT CapitalManagement case.

THE RT CAPITAL MANAGEMENT CASE

(for the OSC Settlement Agreement, seehttp://www/osc.gov.on.ca/en/enforcement.html)

This case was a conspiracy to mislead fund managers on performance ofinvestments in pension funds by manipulating the Toronto Stock Exchange (TSE)to overstate the closing prices of certain shares, which RT Capital (the pensionmanagement arm of Royal Bank) had in its portfolios. The effect was to misleadconsumers and investors about the returns being earned for them by thoseentrusted with their money and, as such, was not a victimless crime. Bear in mindthat this occurred during a bull market of unprecedented proportions, a time whenthe motivation to mislead investors should normally be at its lowest ebb, and it



occurred in a division of the Royal Bank Financial Group, the largest financialservices group in Canada, with one of the best reputations.

Market leaders are rarely known for fly-by-night practices, and the Royal BankFinancial Group is no exception. The consumer naturally asks, “if this occurred inthe Royal Bank group, how prevalent is it elsewhere?” Coincidentally, RBCDominion Securities, Canada’s biggest investment dealer and also an arm ofRoyal Bank, called in major stock market regulators a year later on its owninitiative to investigate allegations of insider trading, resulting in the suspensionwithout pay of a very senior executive (Globe & Mail, April 24, 2001).

The $3 million fine levied on RT Capital is being used by the OSC to fund aneducational foundation to teach Ontarians how to avoid investment scams. This isall very well, consumer education is important; but can it ever be a substitute forregulation? One should begin by asking how satisfactory the resolution of RTCapital scandal was.

The OSC’s chair, David Brown, emphasizes that the regulators don’t have finingpower, though they can impose “administrative penalties” such as the $3 millionimposed on RT Capital. And he concedes that there are no limits on the amountsof such penalties. He dismisses criticisms that the $3 million OSC “penalty” –imposed on an organization making $1.7 billion in profits for 1999 (the year inwhich most of the transgressions took place), and controlling $38 billion in assets– was a slap on the wrist (see for example, “RT Capital Settlement is an abjectfailure” by Matthew Ingram, Globe & Mail, July 21, 2000).

He says the deterrent factor was important, and that he has heard RT Capital lost$1.8 billion of the $38 billion in the assets it controlled.

Brown points also to the resignations, including that of RT Capital’s Presidentand Chief Executive Officer, Timothy K. Griffin. Griffin emphasized in hisdeparture letter that “none of us knew anything about this activity before the TSEand OSC brought it to our attention.” But the settlement agreement he signed withthe OCS makes clear that he and other members of the RT ManagementCommittee attempted to stop the taping of telephone calls between portfoliomanagers and the stock traders who executed their orders more than a month afterthe TSE asked RT Capital about its trading activity.

Matthew Ingram argues that this is the kind of case that should have gone tocriminal trial, and from the consumer perspective it is very difficult to understandwhy it did not. Consumers would definitely have benefited if the tapes between


Enforcement, Accountability and Compliance 21

fund managers and traders colluding to push up stock prices had been entered intoevidence and could have been published. Decisions such as these cast seriousdoubt on how serious the regulators are about tackling really powerfultransgressors.

DIVIDED LOYALTIES, ACCOUNTABILITY PROBLEMS

The OSC has a duty to the financial institutions as well as to consumers and, assuch, will always have divided loyalties. This applies even more strongly to theTSE, which polices its members, but whose prime duty is to its members, thetraders. As an offshoot of the OSC case against RT Capital, the TSE disciplinedsome of its members who performed the deceptive trades for RT Capital, and wasalso criticized for the lenience of the penalties.

The OSC’s settlement with RT Capital inevitably reflects these divided loyalties,and suggests that it is simply unfair to expect such bodies to adequately representthe interests of consumers in such cases. There were no criminal penalties or jailsentences for any of the participants. In fact, there were not even any criminalcharges, though the evidence of deliberate fraud is overwhelming. There is a folksong which says “Some will rob you with a six-gun, some with a fountain pen”.One of the lessons of the RT Capital scandal is that those using a fountain penhave some built-in institutional advantages over bank robbers that society is onlyjust beginning to deal with. The police and prosecuting authorities are far betterset up to deal with six-gun crime than fountain-pen crime, and they sorely needthe encouragement, expertise and resources of the regulators to help them mountsuccessful prosecutions.

But regulators and government departments in Canada sometimes appear, perhapsunwittingly or even unwillingly, to act as a buffer between certain kinds offountain-pen transgressors and the prosecuting authorities, rather than activelyencouraging the authorities.

It’s not easy to document, but there is a growing consensus that Canada suffersmore than most from a crisis of accountability, a tendency to be more concernedover the rights of transgressors and criminals than those of victims. It is a naturaltendency to be extremely cautious when faced with possible opposition from avery well funded financial association or organization, particularly if one’sloyalties are divided in the first place by the very nature of one’s constitution.

In this connection, many would suggest, for example, that United States andAustralian regulators take their consumer protection functions more seriously than



their Canadian counterparts and are more willing to take cases to the courts andsubmit offenders to the criminal justice system. Which is not to suggest that theyare always successful or that the grass is always greener elsewhere for consumers.Financial institutions everywhere have enormous resources to protect their owninterests. When the outgoing chairman of the SEC, Arthur Levitt, gave his lastscheduled speech in January 2001, he criticized the securities industry andexpressed his frustration with the SEC’s inability to eliminate a raft of deceptivepractices. He had, according to the Wall Street Journal, been one of the mostactivist-minded chairs in the SEC’s history, bringing in new regulations designedto make the markets fairer for all investors, including the controversial “fairdisclosure” regulations (making corporate information more readily available toindividual investors and restricting the practice of giving important companyinformation to analysts and other insiders before sharing it with the generalpublic); tougher auditor independence rules; and mutual fund prospectuses writtenin plain language. He also expanded the SEC’s office of investor education to astaff of about 30. He stepped down to be replaced by a Republican chair, who isexpected to be guided by the Bush Administration’s identification of businessderegulation as one of its top priorities.

There is no lack of innovation and creativity among Canadian regulators. TheOSC, for example, recently set up a fake Internet scam to demonstrate to investorsthe kind of schemes and advice they should avoid when using the Web (NationalPost, March 30, 2001). This operation demonstrates that the OSC recognizes thatmore active measures are needed in a world where transgressors are veryknowledgeable and fleet of foot. But, however welcome the initiative was, it wasnot a sting operation. It did not attempt to trap transgressors, which would havehad a deterrent affect on would-be criminals as well as an educational effect onconsumers.

Perhaps a true sting operation is properly the function of RCMP law enforcementofficials, but it is difficult to believe that such jurisdictional issues would stop theSEC from finding a way to work with the FBI on such cases in the US. Theexpertise to do this kind of thing, after all, is far more likely to be found in theOSC than the RCMP.


Consumer Information, Advice and Education 23

CONSUMER INFORMATION,ADVICE AND EDUCATION

The hardest thing in the world to understand is income tax.

- Albert Einstein

Many consumers of everyday money management services today need the samethings they have always needed: access to a bank account at reasonable cost;access to locations where services are offered; access to a limited amount ofcredit. Under pressure from the federal government, banks are offering more andmore very basic services at reasonable rates, or even free, for those who could nototherwise afford them. A significant part of the mandate of the FCAC is to ensurethat needy consumers have access to basic banking services. In some ways thismeans the banks are being treated almost as a public utility and have to pay forthe many benefits government confers on them by supplying subsidized or evenfree services to certain consumers. Part of the deal made by the banks is tocommunicate the availability of these low cost services. They have to provideinformation and education to consumers to let them know what is available tothem and how to use it.

But this communication and educational requirement is insignificant compared tothe rapidly escalating information and education needs of consumers who investas well as using everyday money management services. Ownership of shares byconsumers, directly, or in self-administered pensions and RRSPs, or in mutualfunds, has increased dramatically in the last decade. Considering only mutualfunds, for example, money invested in Canada has grown from $30 billion in1990 to over $400 billion in 2001. Consumers are becoming increasingly aware ofthe direct connection between their own ability to manage their financial affairsand the impact this will have on their future standard of living, especially duringretirement. Our Consumer Survey indicates (question 2b and 9a), that just over50% of consumers are confident they know enough to optimize their futurefinancial health and to understand the services being offered. This means that alarge number of Canadians feel quite strongly that they need more informationand advice, a finding confirmed by other studies, such as that by the CBA andCanadian Foundation for Economic Education, Survey of Canadians’ Economicand Financial Understanding, p 6, passim.

Many consumers have responded by going out and getting their own information,and educating themselves. They use the Internet to obtain a wide range ofinformation, and they use TV, newspapers, journals and books to independentlyseek out information and advice they need. (see Appendices VI and VII for aselection of such sources, some of them annotated).


24 Consumer Information, Advice and Education

These online sources fall outside the framework of regulation and requiredsecurities filings. They are growing in importance and present new challenges toinform, educate and protector investors, and require new ways of thinking andnew methods. It is important, therefore, to praise the initiative, for example, of theOSC in setting up a fake Internet scam, run from a bogus website (also mentionedabove in the context of the issue of enforcement and accountability), todemonstrate to investors the kind of advice they should avoid when using theWeb, and show consumers just how easy it is to be defrauded on the Internet(Globe & Mail, March 29 and 30, 2001; National Post March 30, 2001). From theconsumer point of view this is an excellent start, but it is at most a beginning. Itwould have been even more educational if the OSC could have coached therelevant policing authority to investigate and lay charges against a real fraudscheme. Deterrence has an educational effect as well as a compliance effect.

INFORMATION FROM THE INDUSTRY (TO THE CONSUMER)Possibly the major source of information comes from industry associations, inparticular the CBA. We need to distinguish at the outset between “information”,“advice” and “education”. The financial services industry as a whole provides anenormous amount of useful information. It has long taken the self-interested, butnevertheless enlightened, view that the more educated consumers are, the morelikely they are to be active investors, which in turn creates greater liquidity and isto the benefit of stock exchanges and other securities dealers (see, for example,detailed research confirming this in Canadian Securities Institute, InvestorProfiles and Attitudes Survey: Summary Report , September 1994, p 3, passim).

For this and other reasons, including a genuine concern that the consumer is beingleft behind by the lightning development of new financial products, mechanismsand services, there has been a massive effort recently to get large amounts of plainlanguage information to consumers. Spearheaded by the CBA, which helped setup an impressive and comprehensive financial services portal(www.yourmoney.cba.ca) with other organizations and associations, the objectivehas been to get information to consumers about the increasingly complex web ofchoices available to them.

To get an idea of the scale of the effort, take the example of just two CBAinformation projects. First, the “There’s something about money seminarprogram” offered to Grade 11-12 students in Canada. Twenty-six thousandstudents have been through the seminar so far, with over 800 sessions of in-classpresentations (leaving behind folders of materials) by 640 people trained by theCBA. Second, the CBA has a program of producing information booklets forconsumers on general topics such as the economy, small business, and how to use



your bank account. Over 3.5 million of these booklets have been ordered so far,60-70% going to individual Canadians, and many to schools.

From the consumer point of view, this is invaluable, providing a base ofinformation which is an excellent starting point. The material and the way it isproduced is generally of a very high quality. The CBA and other industryassociations such as IFIC and IDA are to be congratulated for providing a greatdeal of useful information to consumers. The industry associations are also carefulto avoid marketing on behalf of particular institutions, or particular products andservices. That is seen as the function of the individual institutions, and it is thenature of an association that all members should at least on the surface be treatedequally. In that limited sense, industry association information might be seen asimpartial.

But, from the consumer point of view, the Industry-supplied information is notimpartial. Even on an obvious superficial level, the vast bulk of the informationon products and services emphasizes the “pros” and fails to mention the “cons”.There is no reason why this cannot be corrected. It would be a simple matter toidentify both advantages and disadvantages, and make consumers aware of howsome products would be suitable for them and some would not. The FCAC shouldconsider monitoring this on an ongoing basis and encouraging the Industry to bemore balanced, but in the meantime the Industry should be taking steps to do thisvoluntarily. A small proportion of the Industry material already does that, and thebalance would be vastly more credible if it did so as well.

But there is a deeper reason why informational and educational material, put outby the Industry to the consumer, will always be limited in a fundamental way. Inthe last resort, the information put out by the industry represents, and mustrepresent, the best interests of the industry and not necessarily the best interests ofthe consumer. This is true even where there are strict regulations, as in thesecurities industry, which forbid financial advisers from actively suggesting anyinvestment to consumers which is manifestly unsuitable to them.

Financial advisers can only totally avoid conflicts of interest if their only sourceof income is the fee paid to them by the consumer, if there is no commission paidto them on a product or service, and no retainer from the institution producing theproduct or service. Only a tiny fraction of people in Canada who call themselvesfinancial advisers qualify, and that is something disclosure regulations shouldchange. But the point is even truer for industry associations putting outinformation and educational material. However professional they may be,however honest and motivated by good will, what they do must necessarilyrepresent the interests of their members before those of the consumer. It is in theirvery nature to do that. (For more detail on the need to enhance the knowledge,



awareness and proficiency of intermediaries, see Stromberg, 1998, Section 15 andAppendix C).

The CBA, IFIC, IDA and other associations are funded by their industries, not theconsumer. Associations are significantly more impartial in giving advice toconsumers than any of their individual members could ever be, but in the lastresort they have a legal obligation to represent the interests of their members.Their essential contribution is in the area of product and service information, andit needs to be harnessed and carefully overseen by organizations who primarilyrepresent the interests of consumers. The increasing amount of consumerinformation and education materials being generated by regulatory bodies such asthe OSC and the Alberta Securities Commission is a promising portent of thingsto come, but is still a drop in the bucket relative to the size of the need.

Thus there remains a need for truly objective, third party impartial information,and for vigilant monitoring by government and consumer organizations of theinformation that is supplied. It should be clearly understood that this is not meantto be a criticism in any way of the role played to date by the industry associations.Their role is not a problem; it is an essential part of the solution. They have theresources, both financial and intellectual, to provide a wealth of necessaryinformation about financial services. What is important to emphasize however, isthat they are only a part of the solution. They cannot offer impartial advice oreducation, and they should never be expected to do so voluntarily. They alsocannot offer “whole life” information, as we shall see below.

INFORMATION FROM GOVERNMENT ANDREGULATORS (TO THE CONSUMER)An important and growing source of consumer information about financialservices is government and its regulators.

Industry Canada’s flagship website, Strategis (www.strategis.gc.ca), “Canada’sbusiness and consumer site”, provides a wealth of information, and links tocountless other sites. It is so big and comprehensive as to almost qualify as aportal rather than a mere web site. The Strategis site has nine sub-sites, one ofwhich is the consumer information site. The following link takes you directly toconsumer issues:http://www.strategis.ic.gc.ca/sc_consu/engdoc/homepage.html?categories=e_con.

Much of this information, but not all, will probably be transferred to the FCAC.



The Strategis site displays many of the strengths and weaknesses of Canadianresources for consumers of financial services. On the one hand it contains a trulyimmense amount of immaculately researched and presented information ofrelevance to small businesses and consumers. On the other, it too often requiresconsumers to be already educated if they want to actually act on the informationsupplied. In other words, it provides ample information, but not enough educationor advice. If this is because the OCA feels its mandate limits what it can offer, theconsumers’ reaction is: “That’s not my concern. If you want to truly help me, getyour mandate changed.”

The fact that the Office of Consumer Affairs is part – and a very small part – ofIndustry Canada rather than a part of an actual Ministry of Consumer Affairs isnot only ironic, but speaks volumes about the relative priority accorded by thefederal government to consumer affairs and to business.

Provincial government agencies and regulators are becoming an increasinglyimportant source of financial services information and advice, with the focusbeing mainly on securities and similar investments. This is a worldwide trend, andthe SEC in the US has also become a significant producer of consumer educationmaterials. The following are some Canadian examples:

• The Alberta Capital Market Foundation was set up in 1998 with $1.4 million(some of it from fines imposed from the former Alberta Stock Exchange, nowthe Canadian Venture Exchange) from the Alberta Securities Commission, togive Albertans the tools to protect themselves from investment fraud in themarketplace, as well to help entrepreneurs learn about raising new capital;

• The CSA runs an annual Investor Education Week;

• The new Foundation for Investor Education (FIE), to be launched by the OSCsometime later in 2001, will be an educational foundation to help teachOntarians how to avoid investor scams, and will provide money to groups thatraise awareness about financial matters (such as debt, retirement planning andgeneral investor protection advice). Ironically FIE will be funded initially bythe $3 million “penalty” levied by the OSC on RT Capital for manipulatingstock prices;

• The OSC produces free investor education kits, hands-on brochures, andchecklists. Its A step-by-step guide to making a complaint, published in April2001, received a warm reception from the media. Its checklist, When yourbroker calls, take notes!, is an excellent example of simple, point-of-purchase



consumer education and practical help – very similar in concept to a checklistfor investor funds compiled by Joseph Killoran several years ago and stillavailable on www.investorism.com, and also similar to a SEC publication,Form for taking notes.

ADVICE AND EDUCATION MUST FOLLOW INFORMATION

Information should not be confined to helping consumers discover their needs andwhat to buy; it should also deal with the process; the alternatives and the pros andcons. Consumers need advice as well, and this advice needs to be totallyimpartial. Consumers need to know more than how a mutual fund works, andwhat it can offer them. They need to know what the true costs and risks ofinvesting in a mutual fund are, and how it compares to investing or saving theirmoney in completely different ways. For some suggestions about how to increaseinvestor knowledge and awareness in the context of investment (i.e. mutual)funds, see Glorianne Stromberg, Regulatory Strategies for the mid-‘90s:Recommendations for regulating investment funds in Canada, (CanadianSecurities Administrators, January 1995, section 15.04). Note that Strombergrecommends that this be done through a code of standards and ethics and qualitycontrol programs. This could equally be applied to banking and other sectors.

Consumers must be given the tools to interpret information in a way that enablesthem to make intelligent decisions, which are actionable in their own lives. Itwould be a mistake to rely on people who make their living selling financialservices to educate consumers about them. Conflict of interest and potentialconflict is pervasive in the financial services industry precisely because the sellersare so frequently the advisers as well (see Erlichman Report on mutual fundgovernance, referred to in the bibliography below).

INDEPENDENT, ‘WHOLE LIFE’ INFORMATION

Different industry associations frequently provide reliable information aboutspecific types of products and services. One association might publish suchinformation about mutual funds, another about insurance policies, and a thirdabout savings accounts. But consumers need more than this. They also need toknow which of these, if any, is appropriate for them in the first place, or whetherthey should rather be investing their money in a family home or GICs. No oneassociation can give them this advice and even a portal such aswww.yourmoney.cba.ca, which contains links to various associations, cannotresolve the consumers’ dilemma: which choices are most appropriate?



There is therefore need for adequate independent resources to provide “wholelife” information to consumers. Rich consumers can buy the services of trainedfinancial planners and advisors who are paid a fee for their services and who arenot tied to specific products or services in any way, whether by being paidcommissions, retainers or any other benefits. The average investor, however,cannot afford to buy such help, and it is clear that government will have to play agrowing role, either directly or by funding regulators, online resources andconsumer organizations to do so.

The same thing applies to formal consumer education in the area of financialservices. If the resources are not made available by public money – or by vigilantpublic supervision of private money – teachers, and the educational system itself,will be overwhelmed by the professionally produced, glossy “free” material frompowerful and rich associations. Overloaded teachers are not necessarily moresophisticated in the area of financial services than the average intelligentconsumer, and they need to be fully and constantly aware that the industryassociations, no matter how professional or well meaning they might be, havetheir prime loyalty to the prosperity of their own members.

Our survey of even comparatively well educated consumers reveals a profoundlack of self-confidence and inability to understand all the ramifications of thefinancial system and a “whole life” approach. Why should relatively untrainedteachers be any better off?

Stromberg provides a useful and comprehensive list of measures to improveinvestor knowledge and awareness (see Stromberg, 1995, 15.04). Sherecommends that improving knowledge and education should be a core strategyfor the umbrella body for provincial regulators, the CSA; that a code of standardsand ethics, as well as quality control programs, be developed; and that thereshould be:

1. Input into the curriculum for primary and secondary schools;

2. Participation by the CSA into courses and materials for schools, communitycolleges and universities;

3. Preparation of investor education materials;

4. Investor awareness programs;

5. Publications covering what investors should expect at point of sale;

6. Provisions for widely distributing consumer education materials, throughconventional means and via Internet and audio-visual materials; and

7. Simplification of primary and continuous disclosure materials and makingthem available in a variety of ways.



FUNDING OF CONSUMER EDUCATIONAND ORGANIZATIONS

One of the keys to successful consumer education (and indeed to consumerorganizations in general) is reliable and ongoing funding.

A large part of consumer information and education is at present funded throughinterested parties and associations, sometimes operating under governmentpressure, sometimes out of self-interest. Some industry associations have ahealthy, though vested, interest in making some consumers more aware of theirinvestment options, increasing their chances of being active and engagedconsumers of the myriad of new products and services being offered by theexpanding financial services industry.

The following are some examples:

• The CBA and TSE have major programs;

• IFIC’s consumer initiatives;

• CSA’s annual Investor Education Week;

• The Alberta Capital Market Foundation, set up in 1998 (see above, page 27).

• The Investor Learning Centre set up by the CSI (which itself providesinvestment education to industry professionals) has received money from thisAlbertan source; and

• The new Foundation for Investor Education (see above, page 27).

The OSC says that teachers are now using a lot of the material prepared by theOSC, especially for youth and seniors. Seniors, who grew up with no investmenteducation, are seen as the sector which is most vulnerable to fraud and scams.

Canada’s consumer organizations are small, underfunded and extremely limited inscope compared to their counterparts in, for example, the US and the UK. Eventhe latter are limited in relation to the size of the task of educating and protectingconsumers in a world marked by ever-increasing complexity. One funding modelthat was tried briefly in the US, appeared promising, but was ultimately a failurewas the Citizen Utility Boards (CUBs) model, initiated by Ralph Nader, whichestablished membership and funding for consumer organizations by compellingcertain utilities in certain states in the US to include flyers for the consumerorganizations with their monthly bill mailings.



Some argue that the CUBs model could be successful if resurrected in Canada(e.g. Democracy Watch’s founder, Duff Conacher). The Australian model hasalso resulted in impressive consumer organizations and, as such, is worthexamining. It is beyond the scope of this Report to argue for these, or for anyother specific models in any detail. What experience with CUBs and otherconsumer organizations does make clear, however, is that consumer organizationsneed the support of government if they are to attain the critical mass necessary forthem to have a real impact on consumer education and protection. Howeverdesirable it may sound, there are few if any effective consumer movementsanywhere which are wholly self-financing. All citizens are consumers, so forgovernment to give specific support to a representative consumers’ movementwould be legitimate and not a case of accommodating a particular interest group.

TEACHABLE MOMENTS

Between 15 and 20 percent of the population are "information seekers" who willrespond eagerly to financial services information and education. The rest willhave to be reached in more innovative ways. Major purchases in the area offinancial services are infrequent. Most purchasers seldom think about suchpurchases again until the time comes for renewal or closure. Frequently such“purchases”, such as a mortgage or RRSP, are reluctant (i.e. the consumer doesn’treally want the item but has no choice but to spend the money to get it), with littleor no pride of ownership. For these reasons it is not easy to educate people aboutfinancial services.

Financial services, especially investment, tend to be life cycle related and there isa tendency to buy particular services at particular stages of life for particularreasons. Therefore it is suggested that consumer education capitalize and focus on“teachable moments”. Teachable moments are those phases in the financialservices life cycle when individuals will be particularly amenable to learningabout the rationale for particular products and services. For example, 18-year-oldsanticipating getting their drivers’ licences and facing the need to obtaincompulsory insurance tend to be excellent learners on the subject of savings

options, loans and leases, and car insurance. Most people learn best when close tothe need. Financial services educators need to use these teachable moments byputting themselves in the shoes of the consumer.


32 Redress and Ombudsmen

REDRESS AND OMBUDSMENAll consumers have the right to take differences with financial institutions to thecourts for redress if they so wish, just as the institutions can take them to court.Few consumers are in the position to do this, however, and this section thereforedeals with arbitration systems attempting to resolve disputes, and withombudsmen.

In general, the prospects for harmonizing redress and ombudsmen systems to giveconsumers a simpler single window access to redress are far brighter than theprospects for harmonization of financial services regulation.

A good example of this is the Joint Forum of Financial Market Regulators –representing insurance, securities and pension regulators from across Canada –created in January 1999 to eliminate inconsistencies in regulation of the threesectors. In July 2000 the Joint Forum established a sub-committee to “examine,consider and make recommendations concerning the development of alternativemodels for complaint management and dispute resolution for financial servicesconsumers”. In other words, to create a single access point to handle all consumercomplaints for all Canadian financial services. On the recommendation of the sub-committee, a Task Force on Consumer Dispute Resolution was formed, includingrepresentatives from pension, insurance and securities regulators, the FederalDepartment of Finance, and industry associations from the insurance, banking,securities, mutual fund and pension sectors. The Task Force, therefore, has thepotential to create a national redress body covering all financial services, whetherprovincially or federally regulated. The federal government is also taking a verytentative harmonization initiative in this area (see below, “The CFSO”), thoughthe Joint Forum appears to be by far the more ambitious of the two.

THE CANADIAN BANKING OMBUDSMAN

The most contentious area for the Joint Forum’s Task Force is likely to be thebanking sector, which falls under federal jurisdiction at present. The Banks areserved by a two-tier system: individual ombudsmen in each bank, and a CanadianBanking Ombudsman (CBO) (www.bankingombudsman.com) as an Ombudsmanof last resort.

The CBO was established in 1996 to investigate complaints that individual andsmall business customers might have about member banks’ financial services, aswell as their stockbroker and insurance subsidiaries. It is financed by the banks tothe tune of $1.5 million annually, has a staff of eight and is set up as a corporation


Redress and Ombudsmen 33

with a board comprising six independent directors (one of whom is the Chair),five directors from member banks, and an Ombudsman and CEO (currentlyMichael Lauber, who was previously a partner of KPMG). All six independentdirectors now act as the Nominating Committee, which searches for andnominates independent directors.

The CBO supports the establishment of a comprehensive national ombudsmansystem, independent of both industry and government and designed to provide aquick and cost-effective alternative to the courts. It believes that the systemproposed by Bill C-8 will be very similar in many important ways to the CBO aspresently constituted.

The CBO makes up a two-tier Ombudsman structure with the ombudsman fromeach member bank. The CBO only takes complaints that have already beenthrough the banks’ own dispute resolution processes and their own ombudsmanwithout resolution. In cases when this has been attempted and failed, issues arereferred on to the CBO, which investigates and makes a recommendation withregard to redress at the end of each case, which the bank is left to enforce. If thebank refuses to do so, the CBO would publicize this fact. The CBO claims thatthis has never happened to date. In 2000, 175 complaints were investigated, androughly 25% were ruled in favour of the customer. Two thirds of these cases areresolved within 90 days. The satisfaction rate for this process, which the CBOwarns is subjective, is a little higher than 30% in cases where the ruling is infavour of the complainant.

Of more importance than these statistics, however, is the difficult question ofconsumers’ problems, which might never be articulated, or at least fail to emergeas a formal complaint to either the redress mechanisms of the individual banks orthe CBO itself. Personal and anecdotal evidence suggests that few bankingemployees in the front lines volunteer to consumers that there is a formal processof arbitration and redress available to them. On the other hand, the mere existenceof a “court of appeal”, whether an individual bank ombudsman or an industrybank ombudsman, encourages the lower levels to work harder to achieveresolutions of disputes. Are consumers routinely informed by bank managers, andBank ombudsmen, that they can go to the Canadian Banking Ombudsman? Someconsumer organizations are sceptical that they are and even suggest that ifGovernment is serious about ensuring consumers know their redress rights itshould require the banks and other financial institutions to send a regularinformatory flier with all their monthly statements or other regularcorrespondence describing consumer redress rights and providing details on howto access them.


34 Redress and Ombudsmen

To ask this question is not necessarily to cast doubt on the sincerity of theinstitutions providing redress and arbitration options for consumers. Rather it is toask whether these systems are actually being effectively implemented. The banksthemselves know from exhaustive research that they are not at all popular withCanadian consumers. Yet their own redress systems suggest there are very fewcomplaints in relation to the number of transactions, and that these are fairly dealtwith. Something is missing from the equation, and it would be in the banks’ bestinterests as well as the consumers’ to establish what.

THE CANADIAN FINANCIAL SERVICES OMBUDSMAN

Bill C-8 will not only establish the FCAC, it will also establish a new CanadianFinancial Services Ombudsman (CFSO) to handle the complaints of consumersand small businesses. The CFSO will not be a government or industry body, butall banks will be compelled by Bill C-8 to join, and the Minister of Finance willinitially appoint all the independent directors.

In introducing Bill C-8 to the House of Commons for Second Reading, Secretaryof State Jim Peterson said: “…we are trying to expand the role of the Canadianbanking ombudsman so that it covers all financial institutions. In an era ofconglomeration where different types of financial institutions, such as banks,insurers and trust companies, are coming under the same ownership and the sameroof, we think customers would be better served if they could go to one disputeresolution centre regarding all their disputes regarding financial services, asopposed to having to find different ones depending on what type of financialservice they are having difficulties with. We also believe that the financialinstitutions sector will be better served by having this type of single resolutiondispute centre.”

Peterson went on to argue that the federal government cannot compel theinstitutions not owned by banks join this single resolution centre, and that thefederal government would therefore be working closely “with the Joint Forum offinancial regulators from the provinces to find a way to bring together thedisparate dispute resolution mechanisms aimed at helping consumers today.”


Redress and Ombudsmen 35

OTHER REDRESS MECHANISMS

There are numerous other redress mechanisms set up by a variety of financialservice regulators, self-regulating organizations and industry associations. Fromthe consumer point of view it is very important to distinguish between themechanism set up to help consumers resolve issues, and the actual use of thesemechanisms.

For example, the IDA has a detailed process for market conduct regulation as wellas a formal arbitration process for redress (see www.ida.ca). One million copiesof the brochure describing the arbitration process were distributed in 1999, andthe system went fully national in January 2000. The members of IDA pay forthese booklets, which in the last resort means the consumer pays for them. Butthere is almost no information on whether consumers are actually using the IDAsystem, and on whether it has been successful in resolving issues when it is used.There have been “less than 100 cases so far nationwide”, according to ConnieCraddock, IDA’s Director of Public Affairs. Perhaps the reason is that thearbitration process, while cheaper than going to court, is still prohibitivelyexpensive for most consumers, at $3,000-$4,000 a day. The average cost in legalfees for taking an issue to arbitration would probably be $10,000 to $15,000 for amaximum settlement amount of $100,000 (unless the financial institution agreesto increase the amount, which it rarely does). The arithmetic of the arbitrationoption is therefore not very attractive and makes one wonder whether the systemis really there to be used by consumers.

At the best of times, the success of redress mechanisms is extremely difficult tomeasure, because it is unknown how many consumers had problems which neverwent as far as arbitration. The initiative of the IDA and others in setting up suchsystems is to be praised, but from the consumers’ point of view one must ask ifthese systems are more effective on paper than in real life. The number of casesthe IDA deals with, for example, compared to the resources put into the system,suggests the possibility that the use of the resources is not optimal, either from theIDA’s point of view or the consumer’s.


36 Consumer Provisions of Bill C-8

CONSUMER PROVISIONS OF BILL C-8Bill C-8 establishes both the Financial Consumer Agency of Canada (FCAC) andthe Canadian Financial Services Ombudsman (CFSO). The FCAC will monitorand enforce industry-wide rules and conduct, but will not resolve disputes or havethe power to provide redress. By contrast, the CFSO will resolve individualdisputes and may recommend compensation for damages suffered.

1. The Financial Consumer Agency of Canada

FCAC will be staffed by about 30 people, half in compliance, half in education.The size of these resources alone suggests a limited role for the agency, whichmight well choose to limit itself largely to overseeing what is already being doneby other bodies and associations.

Bill C-8 gives the FCAC a limited role as a regulator, to enforce consumer lawsand regulations for federally chartered financial institutions and to monitor theself-regulation of these institutions. In the case of fundamental changes to thefinancial services industry, however, such as the merger of large banks, no marketconduct regulator is established by the legislation even though such a mergercould have a larger impact on consumers than all the specific consumer provisionsof the legislation combined (for example, by creating less competition in thedomestic market for everyday money management services, which a mergerwould undoubtedly do). To put the FCAC’s staff of 30 in perspective, the OSChas a staff of around 340, and all the provincial commissions have their ownstaffs.

The Chair of the OSC, David Brown, makes the case for provincial control ofbank market conduct regulation as follows: “The FCAC has a very narrowmandate at this point at least, and a narrow scope for influencing eitherinstitutional or consumer behaviour. The provinces are already robustly intoperforming market conduct regulation, so there’s no real need to expand theFCAC’s mandate in that respect. It would only increase the cost burden. Wepresume the FCAC will ultimately be paid for by consumers, so it’s important notto duplicate services. Consumers would probably benefit from achieving a singlemarket conduct regulator, but it doesn’t have to be run by the federalgovernment.” Nor, of course, does it have to be run by the provinces. In Australia,for example, many of the resources in the states (provinces) were transferred tothe Commonwealth (federal) regulatory bodies.

The CBA has gone further. It has called for a “national form of financial servicesregulation in Canada” and cited the example of Australia which has created onesingle national prudential regulator, and one single market conduct and consumer


Consumer Provisions of Bill C-8 37

protection regulator. The FCAC’s mandate would have to be radically expandedfor it to be in any position to play a significant role in such a process, let alonelead it.

FCAC staff has asked for input from various consumer organizations to help draftits initial regulations to ensure access for all Canadians to basic financial services,including a bank account and cashing of federal government cheques. Other areasit will oversee will be low cost accounts (the government has signed aMemorandum of Understanding with eight major banks on low-cost accounts);account opening; branch closures; public accountability statements for financialinstitutions with equity of over $1 billion; better disclosure of risks connected toindex-linked deposits and “hold” periods on deposits. The law is not to come intoforce until the regulations are in place. The FCAC’s mandate comprises two mainareas, which are expected to take up roughly equal amounts of the Agency’sresources:

a. Compliance

The FCAC will act as a regulator on behalf of consumers in a number of areas. Itwill:

• Supervise financial institutions to determine if they are in compliance withconsumer provisions applicable to them;

• Promote adoption of policies and procedures by financial institutions toimplement consumer provisions applicable to them;

• Monitor implementation of voluntary codes of conduct adopted byfinancial institutions and publicly available;

• Promote consumer awareness about the consumer provisions andobligations of financial institutions to fulfill them; and

• Foster an understanding of financial services in co-operation with federaland provincial governments and their agencies.

b. Consumer education

The FCAC mandate in consumer education is not yet well defined and it might, toquote its own words, focus on providing “a reference point to existing materialsand to fill identified gaps as appropriate.” Given its limited resources andnarrowly defined mandate, it seems unlikely to become a major player inconsumer education.

In insurance, the FCAC will only deal with deposit-accepting organizations, andwill only have jurisdiction over public disclosure provisions. The provinces havemost jurisdiction over the insurance industry.


38 Consumer Provisions of Bill C-8

OSFI is a prudential regulator, and does not fund consumer education. FCAC,though a partial market conduct oversight regulator, will also not fund consumereducation, nor give funding to consumer groups to do educational projects. Itsstaff says it will at most get bids from outside the Agency for research andproduction of information the FCAC itself might need.

2. The Canadian Financial Services Ombudsman

A new Canadian Financial Services Ombudsman (CFSO) will be established tohandle the complaints of consumers and small businesses. It will operateindependently of financial service providers and of government, with the majorityof its Board of Directors being non-financial institution representatives. Bankswill be required to join the CFSO, and participate in its funding. Other federallyincorporated financial institutions will be required to be a member of a third-partydispute resolution system, and eligible to join the CFSO if they wish.

The CFSO will not be a Government agency. It will have by-laws and letterspatent, rather than an agency structure. The legislation, however, provides for theMinister of Finance to appoint a majority of the directors and therefore gives theGovernment leverage it might use as a last resort in certain situations. The CFSOwill probably be structured very similarly to the CBO, with similar by-laws andoperational procedures.

In other words it will continue to be a voluntary body, outside government. This isa very different model from the UK’s Financial Services Authority, which is aCrown agency whose Ombudsman has jurisdiction over all financial institutionsand sectors, and lays down binding decisions.


Privacy 39

PRIVACYPrivacy is an important and emerging issue for consumers. There are two piecesof federal legislation, the Privacy Act (which took effect in July 1983) and thePersonal Information Protection and Electronic Documents Act (which started totake effect in January 2001, and will apply progressively more broadly untilJanuary 2004). Both are the product of intense consultation and strenuous effortsto ensure they would be as comprehensive as, or more comprehensive than, anycomparable privacy legislation anywhere on earth.

As the four pillars of financial services are torn down, financial conglomerates areincreasingly mining data on individual consumers in each of the sections of theirbusiness. Effective data mining offers the prospect of immense rewards if it canachieve the goal of effective cross-selling e.g. selling securities products to moneymanagement customers; RESPs to the parents of those opening children’saccounts; and RRSPs to those about to retire their mortgages.

To protect consumer privacy and choice in the face of this data mining there areregulations forbidding financial institutions from gathering information aboutcustomers and disseminating it without the explicit permission of the customer.Financial institutions, particularly the larger, more visible among them, willalmost always try to keep within the letter of the law, but there are many ways toskirt the spirit of the law, and there is no reluctance among many about doing this.The following is an example, small in itself, which suggests just how pervasive,institutionalized and deliberate this practice is, even in the case of very highprofile companies. Although it is a single experience of the author, it is notimpressionistic because it is based on documentation of procedures within theIndustry that apply to all consumers. It illustrates not only the privacy issue infinancial services, but also the issues of enforcement and compliance.

THE VISA CARD AND MASTERCARD AGREEMENTS

The author of this study was recently sent a VISA card in the mail after filling in a“pre-approved” application form. The card came with a two-page agreementwhich was extremely difficult to read both because of the language it used and thetiny size of the print.

(As an aside, the banks and other financial institutions have developed to a fineart the using of tiny print to hide items. Their communication departments arefully aware of the high proportion of middle-aged and elderly people targeted bycertain kinds of literature, and they are well aware that everyone’s vision declinesas they get older. As the lens of the eye begins to stiffen, it becomes more andmore difficult to focus on close-up objects such as books, magazines, menus, fine-


40 Privacy

work, contracts and credit card agreements. This condition is called “presbyopia”.It usually begins around the age of 40, which means that the massive BabyBoomer generation is already, or will shortly be, among the 85 million Canadiansand US citizens sharing this problem. Studies show that almost 50% of “young”Baby Boomers already report having trouble focusing on smaller print whenreading or doing close-up work. Between the ages of 46 and 54, this jumps to70%. Increasing awareness of presbyopia does not seem to have stopped financialinstitutions from presenting crucial items in extremely fine print. So, for example,if consumers want to take advantage of expensive Industry offers to insure theircredit cards against loss and theft, insurance which is largely redundant becauseof existing totally free protection consumers all have already, they will have tonegotiate a great deal of fine print to find out there is a cost and what it is. But thatis another story, for another report.)

To return to the VISA card agreement. Sensitized by his experience in researchingthis study, the author read the agreement and found on page two, section 19(“Collection and use of information”, section C), that he had already unwittinglygiven the Royal Bank Financial Group permission to use his personal financialinformation in a multitude of ways. The author did not remember seeing thisprovision on his original “pre-approved” application, though it may well havebeen there.

(He subsequently looked at the standard Royal Bank application for VISA cards(as opposed to the “pre-authorized” form) and found the same clause waiving hisprivacy rights on the 20th panel of a 24-panel application brochure, again in tinyprint. He has also found exactly the same technique used by MasterCard andMBNA Canada in their literature. In all cases the form was laid out to give thepermission followed by a clause specifying that if the reader wanted to stop ordiscontinue (as opposed to prevent) this happening, he had to take the initiative.The Royal Bank gave a toll-free number for this to be done, while MBNA Canadaprovided only an address and warned that it would take eight weeks for therequest to take effect.)

The author proceeded to call the toll-free Royal Bank number supplied for thispurpose, explained that he had just activated his new VISA card, supplied itsnumber, and asked for his personal information to be kept private, explicitly citingthe agreement and the specific clause. He spoke to someone who did not evenunderstand what he wanted to do even after extended discussion, but transferredhis call to someone else who suggested he call the Canadian MarketingAssociation (sic) to ask them to note his withdrawal of permission.

Armed by the rationalization that he could look at the experience as research forthis Report, he persisted. It eventually took several more calls to several different


Privacy 41

people, a great deal of patient repetition of the same story, and an entire morning,to get to someone who told him she would do as he asked. She warned him,however, that he had been “on the list” long before the day of activation of thecard, from the time the application was approved, that it could take up to sixmonths before the Royal Bank Financial Group was able to update its records, andthat he could receive solicitations during that time from any of the many affiliatesof the Group. She agreed that forcing customers to ask for their names to beremoved was the equivalent of the negative option marketing which was such adisaster for Rogers Cable a few years ago, and also that “very few” customerswould ever be masochistic enough to read as far as page two of the forbiddingagreement. She apologized profusely and promised to make the case to hersuperiors who would get back to the author. This occurred on March 6, 2001 andthey have not yet done so.

No harm was done to the author by these events. There was no monetary loss. Thebank staff, though totally untrained and unprepared to deal with the issue, wasunfailingly polite and friendly. They all cheerfully supplied their names andnumbers, which the author has kept in case Visa or the Royal Bank FinancialGroup would like to check his story.

What is extremely significant, however, is the fact that VISA and the bank (andMasterCard and MBNA Canada, for that matter) have clearly designed theiragreement form and their procedures to skirt the spirit of the regulations, and toensure the maximum number of customers would grant them permission bydefault to mine their personal data, and even fail to know they had ever “granted”permission. This was not a case where one can trot out the old chestnut ofemployee overzealousness and blame individuals in the frontline staff. It is aninstitutionalized and calculated decision, taken by two of the largest financialinstitutions in Canada.

What are the lessons one can draw from this? First, that disclosure regulationsforce financial institutions to “tell” consumers what they are doing with theirprivate information, which is a very good thing. Second, that they do not compelthe financial institutions to do this in a way that would actually communicateeffectively with the vast majority of consumers. Third, they make no effort tocompel financial institutions to tell consumers the downside of allowing thesharing of such information.

Financial institutions which complain about red tape and excessive regulationwould be well advised to look at their own practices. If keeping to the letter ofregulations allows a financial institutions to flout their spirit, and the Industrychooses to take advantage of this, regulators have no choice but to regulate suchannoying details as the size of print, and prominent placement of information; and


42 Privacy

to ban negative-option style marketing. Which is exactly what should behappening in this case and countless other cases.


Disclosure 43

DISCLOSUREAs has just been demonstrated in the Privacy section above and elsewhere in theReport, it is usually not logical to rely on the good will of banks, securities dealersand other financial services industry bodies to protect consumers. Where it is inthe material interest of a financial institution to not communicate with aconsumer, it is prudent to assume that it will not unless it is compelled to do so,and to act accordingly. Anything less is an abrogation of the regulators’responsibility to consumers.

Disclosure, according to Stromberg (1995, 15.04), should be “relevant,meaningful, easily identifiable and readily accessible”. She was referring tomutual fund disclosure specifically, but the same principle applies to disclosuregenerally. In many areas of the securities industry, however, consumers havefound to their cost that such disclosure is the exception rather than the rule. Therehave recently been several publicized incidents of disclosure of pertinentinvestment information to insider traders before the average investor-consumerhas access to it, resulting in insider trading which has benefited the few at theexpense of the many. This issue is as old as stock markets themselves, an issuewhich would have been resolved years or decades ago if consumers had had anadequate voice, and adequate clout, with the regulators overseeing markets.

Another pervasive issue is the failure of people advising consumers to buyproducts or shares to disclose to them any material interest they might have inthese products or shares, which could compromise the honesty of their advice.The norm has been non-disclosure except where required by regulation, often inobscure and inaccessible findings and other technical documents.

In 1999 the Crawford Committee was formed jointly by the TSE, CanadianVenture Exchange and the Investment Dealers Association of Canada to answerconcerns about such obvious conflicts of interest, particularly the conflict ofinterest involved when a brokerage firm or employee promotes a share to itsclients when it has an underwriting or other material interest in that share. TheCrawford Report was released on April 11, 2001 recommending that investorshave a right to know a brokerage firm’s interests when it promotes a stock forsale. In 1997 similar recommendations made by the Hagg Committee were notadopted partly because some firms said they didn’t have the tracking technology.Over the following three years some brokerages became increasingly brazen, evenpromoting the shares of emergent companies they helped form. For example,Yorkton Securities executives had extensive personal interests in stocks theircompany was promoting without disclosing them until later, after a series ofnewspaper articles.


44 Disclosure

The Globe & Mail comment on the Crawford Report (April 12, 2001) was: “It’sfrankly incredible that investment firms have been allowed to keep these interestshidden, or disclosed only in obscure regulatory filings, for so long. The time isoverdue for investors to know the whole story before they accept a broker’srecommendation to buy shares.”

But the Crawford Report itself was a compromise: instead of forbiddingexecutives from taking stakes in start-up companies being promoted by their firm(which some firms already do voluntarily), Crawford would allow it, as long as itsdisclosed.

Insurance agents in both the United Kingdom and Australia must disclose theirsales commissions and charges to the consumer at the point of sale. There seemsno reason why sellers of securities, insurance and other financial services shouldnot be compelled to do the same thing in Canada. Mutual funds already have todisclose this information in their prospectuses, but it would be a giant stepforward if they were required to do so at the “teachable moment” just before aconsumer is actually contemplating buying, and if the disclosure were to be inplain language making clear, for example, that a 2.5% expense ratio over 20 yearsamounts to a 50% payment on the capital invested.

Plain language documents and disclosure build trust among consumers and helpthem to feel empowered. For this reason, all contracts and agreements forfinancial services and products, and all point-of-purchase information, should bewritten in plain language and consumer tested for intelligibility, and the plainlanguage version should be the legally applicable version. They should also be ina print size legible to an average consumer of over 50 years old.


Conclusions 45

CONCLUSIONSThe consumer’s Wish List found at the beginning of this report contains manyitems that require structural regulatory change in the Canadian financial servicesindustry. This cannot happen overnight. It will require a great deal of dedicatedeffort and co-operation, and a great deal of inspired leadership. The Industry,government, regulators and consumers will have to come together and work outwhat they have in common, and how a better regime, which will benefit allparties, can be fashioned.

The difficulty of doing this should not be underestimated. That is why – thoughsome of the Wish List items could be implemented almost immediately – it is stillframed as a “wish list”, and not as a set of recommendations for immediateimplementation.

On the other hand, while recognizing the need to be realistic, we should alsorecognize the dangers of not trying, and of delaying. The financial servicesindustry is undergoing truly radical change. Without parallel fundamental changesin the way its consumers are protected and educated, there could be graveconsequences. This Report therefore does not confine itself to the small changeswhich can be implemented quickly and the effect of which will be at most tomitigate serious problems rather than to begin to resolve them.

Though the Wish List is wide-ranging, the Report attempts to avoid a blunderbussapproach. The Wish List is selective and makes no attempt to be comprehensive,but it is neither capricious nor unrealistic. The objective has not been to shoot ateverything that moves, but to pick examples that illustrate principles, and to makesuggestions that have proved to be effective in concrete situations, either inCanada or elsewhere.

The FCAC is the result of an extensive consultative process on the consumerperspective on the future of the Canadian financial services sector, which began in1996. For the consumer at least, it has to be seen as a disappointment. This is alsotrue for Bill C-8, as a whole. The UK has been through a similar process over asimilar period, and the result has been a new regime which, whatever its flaws,attempts to grapple with the realities of the 21st century. By contrast, Bill C-8 isseen – even by Industry analysts who support it as a whole – as “too little, toolate”, and as backward looking.

Canada’s financial services industry and its governance are in many ways unique,and it would be obtuse to expect them to uncritically adopt the solutions of others.But there are many practices and solutions being tried elsewhere which could be


46 Conclusions

helpful. Though the FCAC has an infinitely more limited mandate than the UK’sFSA, for example, and cannot be directly compared with it, many of the contrastsare instructive. They show how much needs to be done, and how little in the wayof resources has been set aside to do it.

Nevertheless the FCAC is a beginning, and could well find its mandate expandedsignificantly in the future, in certain circumstances. About half of the Wish Listabove are in various degrees immediately relevant, including numbers 6, 8, 9, 10,11, 12, 14, 18, 19, 20, 26, 27, 28, 32, 33, 34, 35, 37, 38 and 39. The remainder areprobably beyond the capacity of the FCAC to deliver or influence in its presentincarnation, though it is hoped the principles behind the entire Wish List will beuseful in helping the FCAC do the job assigned to it. Among these principles are:

• the radical transformation already occurring in the financial servicesindustry calls for an equally radical transformation of consumer protectionand education

• failure to accommodate the changing needs of consumers will result inserious problems not only for consumers, but for governments, regulatorsand the Industry as well

• self-regulation by the financial services industry, however necessary, willnever be a substitute for government regulation of the industry, includingvigilant regulation of the Industry’s self-regulation. This applies equally toconsumer redress and consumer education

• structures and institutions and mandates – and even constitutionsthemselves (including “provincial jurisdiction” and “federal jurisdiction”)– are a means to an end and can be changed if the end is clear andconvincing enough, and if there is quality leadership

• government-sponsored consumer leaders should not come only from theexisting Federal government bureaucracy

• full enforcement of regulations is at least as important as the regulationsthemselves

• flouting of the spirit of regulations should be penalized, even if the onlyway to do this is through the red tape of even more detailed regulations


Conclusions 47

and the deterrent effect of penalties commensurate with the scale of theoffence and, finally

• exercising leadership on behalf of consumers should be seen as theFCAC’s raison d’etre, rather than merely tinkering with the existinginadequate machinery.


48 Appendices Table of Contents

APPENDICES TABLE OF CONTENTS

Appendix ISurvey: A Consumer Perspective on Financial Services

Appendix IISurvey of individuals working within the Canadian financial servicessector

Appendix IIISurvey of individuals working within the government or as regulators

Appendix IVResearch interviews

Appendix VThe Consumers Council of Canada: Nine Consumer Rights

Appendix VI

Selective Bibliography (annotated)

Australia

Canada

United Kingdom

United States

Appendix VIIPublished sources for consumer

Appendix I

Appendix I Consumer Survey

A Consumer Perspective

on

Financial Services

A survey for

The Consumers Council of Canada

February, 2001

Note: this survey and its two companion surveys in Appendix II and IIIare an integral part of the wider study A consumer view of Canadian

financial services at the turn of the century.

CSB CommunicationsAurora, Ontario L4G 6H8

Appendix I

2 Consumer Survey Appendix I

BACKGROUND AND PURPOSE

The Consumers Council of Canada (CCC) is interested in helping

consumers manage their money better. In a world that offers ever-

increasing options, choices for consumers have become ever more

complex and difficult. Given the financial services legislation facing

parliament, the CCC felt it important to survey members of its

Canadian Consumer Network as part of a wider study undertaken on

its behalf by CSB Communications. The opinions of the respondents

became an integral part of an independent study being prepared for

the Industry Canada’s Office of Consumer Affairs for presentation to

the Department of Finance. It is hoped that the study will help the

Department make choices to most effectively educate and protect

consumers.

The specific focus of the survey was on gaining some insight in the

areas of consumer confidence, knowledge, education, and resources.

Appendix I

Appendix I Consumer Survey 3

METHOD AND SAMPLE

The six-page, 28-question questionnaire was developed and pre-

tested before being approved by the CCC and mailed. Respondents

answered questions about their ability to make wise financial

choices, about their confidence and knowledge and about resources

available to help them make wise choices. Basic demographic data

was also collected.

The respondent group, all members of the Canadian Consumer

Network, administered by the CCC, consists of generally articulate

and aware consumers, all of whom have responded to CCC surveys

before. The survey consisted of self-reported measurers of service,

beliefs, attitudes and buying behaviour. As such, this survey was

not part of a marketing research effort, but rather a consumer

research initiative.

A descriptive narrative was used to present the data. The sample

was not randomly selected and the results should be interpreted as

representing Canadian Consumers Network (CCN) members, and

not consumers in general.

The survey is of 325 members of the CCN which is administered

by the CCC. Most members reside in Ontario. Turn-around time

was two weeks and 100 surveys were returned for a response rate of

31%.

Appendix I


MAIN FINDINGS

Part One: Financial Services

For the purposes of this survey, we define financial services as

comprising two distinct areas:

1. Everyday money management activities. These include payment

transactions, chequing and short-term savings accounts, bill

payments and credit cards.

2. Investment services. These include longer term savings and loan

accounts, mortgages, stocks, bonds, mutual funds, financial and tax

planning.

More than half the respondents (54%) believe that everyday money

management activities and investment services are equally important

to their financial welfare. Nearly a quarter (23%) said everyday

money management activities were the most important while 19% of

respondents felt investment services were most important.

Table 1Q. 1 Which of the following do you regard as most important to

your financial welfare?Answer %

a) everyday money management activities 23

b) investment services 19

c) equally important 54

d) neither is important 0

n=96

Appendix I


Respondents overwhelmingly agreed that the financial services they

need to optimize their financial health and security are easily available

to them in Canada (82% agree/strongly agree). Thirteen (13%) per

cent were unsure.

Respondents were less sure about whether they know enough to

optimize their financial health and security from the financial services

available to them in Canada, with 52% agreeing or strongly agreeing

and 29% unsure. Eighteen per cent (18%) either disagreed or strongly

disagreed that they know enough to optimize their financial health and

security.

Do financial institutions give respondents advice that primarily

meets consumers’ needs (and not those of the institution)? Thirty-nine

per cent (39%) thought not while 26% agreed the institutions did. A

large number (34%) of respondents appear unsure whether financial

institutions give advice that primarily meets their needs.

Table 2Q. 2 How strongly do you disagree or agree with each statement?

Percentage % strongly stronglydisagree agree

a) The financial services I need tooptimize my financial health and securityare easily available to me in Canada. (n=100) 1 4 13 42 40

b) I am confident that I know enough to optimizemy financial health and security from thefinancial services that are available to me inCanada. (n=99) 3 15 29 30 22

c) I am confident that financial institutions giveme advice that primarily meets my need,not theirs. (“Advice” should be understoodas providing wise counsel on what to do,rather than supplying you with information.) (n=100) 12 27 34 15 11

Appendix I


Part Two: Everyday money management services

In Part Two, respondents were asked a series of questions pertaining

to everyday money management.

The majority of respondents (76%) use banks for the majority of

their everyday money management. Trust companies were the second

most utilized (14%) followed by credit unions/caisse populaires (9%).

Table 3Q3. Where do you go for the majority of your everyday (cash,

chequing, bill payments, currency etc.) money managementservices?

Question %a) banks 76b) credit unions, caisse populaires 9c) trust companies 14d) other (please specify) 1

n=100

Respondents were asked a series of questions to determine their

satisfaction with a variety of aspects of everyday money management

services at financial institutions. Overall, except for the price of such

service, there was a large degree of satisfaction.

Twenty-two per cent (22%) were extremely dissatisfied and 27%

were dissatisfied with the cost of everyday services, while 14% where

satisfied and 12% were very satisfied with the price. Twenty-three per

cent (23%) were neither satisfied nor dissatisfied with the service.

Regarding the speed, accuracy and reliability of services, 15%

were very satisfied and 33% were satisfied, compared to the 5% of

Appendix I


respondents who reported they were extremely dissatisfied or

dissatisfied (15%). Twenty-nine per cent (29%) were neither satisfied

nor dissatisfied with the efficiency of services.

Respondents reported they were satisfied with the availability of

services (40% satisfied, 24% very satisfied) at Canadian financial

services institutions. Just 11% were extremely dissatisfied (7%) or

dissatisfied (4%).

Sixty-three per cent (63%) of respondents reported that they were

extremely satisfied (23%) or satisfied (44%) with the safety and long-

term security of their assets. One per cent (1%) said they were

extremely dissatisfied while 6% reported they were dissatisfied.

Twenty-three per cent (23%) reported they were neither satisfied nor

dissatisfied with the long-term security of their assets.

Table 4Q4. Indicate how dissatisfied or satisfied you are with thedifferent aspects of everyday money management services.

Percentage % strongly stronglydisagree agree

a) the cost of everyday services (n=98) 22 27 23 14 12b) the efficiency (speed, accuracy,

reliability) of services (n=97) 5 15 29 33 15

c) the availability of services(at branches, Internet, telephone etc.)(n=98)

7 4 23 40 24

d) the safety and long-term security ofyour assets (n=97) 1 6 23 44 23

e) other (specify) (n=14) 8 1 1 1 3

Respondents appear satisfied overall with everyday services at their

financial services institutions. In fact 11% said they are very satisfied

Appendix I


and 38% said they were satisfied. Four per cent (4%) reported being

extremely dissatisfied and 12% said they were dissatisfied. Thirty-five

per cent (35%) reported being neither satisfied nor dissatisfied with

everyday services.

Table 5Q5. How satisfied are you with everyday services?

Percentage % extremely verydissatisfied satisfied

How satisfied are you with everydayservices (n=100)

4 12 35 38 11

Part Three: Investment Services

Within Investment Services are longer term savings and loans,

mortgages, stocks, bonds financial and tax planning.

Respondents were first asked where they primarily go for advice

(that is, for “recommendations” rather than “information”) about a

variety of investment/loan services and products.

For those respondents who seek advice on GICs and long term

savings accounts, the majority (38%) look to their bank while 17%

look to their trust company. For advice on Canada Savings Bonds or

similar 30% of respondents report they don’t seek advice while 26%

reported they use a bank. For large loans or mortgages, 43% of

respondents said they look to their bank with 16% saying they don’t

look to an institution for advice and 11% reporting they look to their

trust company for advice.

When it comes to advice about mutual funds, 35% of respondents

reported they ask a financial planner while 19% said they ask a

Appendix I


stockbroker. For stocks or bonds, 34% of respondents reported they

look to a stock broker for advice, while 21% said they ask advice of a

financial planner. When respondents purchase property and hard

assets, 24% said they don’t consult with anyone while 20% reported

consulting a realtor.

For tax planning advice, 39% seek advice from an accountant

while 26% don’t seek advice. Fifteen per cent (15%) reported they

talk to their financial planner. When considering their overall

financial plan, 33% per cent said they don’t consult anyone and 27%

of respondents said they seek advice from a financial planner.

Appendix I


Table 6Q.6 Where do you primarily go for advice?

Percentage (%)

bank

trus

tco

mpa

ny

cred

itun

ion/

cais

sepo

pula

ires

acco

unta

nt

finan

cial

Rea

ltor

stoc

kbr

oker

law

yer

no-o

ne

othe

r

a) GICs, long termsavings accounts(n=95)

38 11 6 1 17 0 6 0 10 6

b) Canada SavingsBonds or similar(n=89)

26 9 5 0 4 0 5 0 30 10

c) Large loans,mortgages (n=86)

43 11 9 0 3 0 1 1 16 2

d) Mutual funds (n=95) 11 5 3 3 35 0 19 1 10 8

e) Stocks and bonds(n=87)

3 2 1 1 21 0 34 1 18 6

f) Property and hardasset purchases(n=75)

7 0 1 2 4 20 1 9 24 7

g) Tax planning (n=93) 1 1 3 39 15 0 1 0 26 7

h) Your overall financialplan (n=92)

5 2 2 7 27 1 8 0 33 7

i) Other (n=9) 0 0 0 0 1 0 0 1 5 2

j) Never ask for advice(n=10)

3 3 0 0 1 1 0 0 2 0

Appendix I


Respondents were asked about the quality of the overall advice the

institution advice individual professionals give them. The following

results are based on no answer and not applicable answer factored

out. While banks elicited the highest number of responses (83),

responses to other institutions were significantly lower and the reader

should be cautioned that results should be viewed with that in mind.

Low results could be the result of respondents simply not having any

experience with the institution (i.e. Trust Company or Financial

Planner) and choosing not to answer rather than choosing not

applicable.

Regarding banks, of those who responded, the majority (35%)

reported they are satisfied with the overall advice offered by banks,

while 8% said they were very satisfied. Thirty-one per cent (31%) said

they are neither dissatisfied nor satisfied. Sixteen per cent (16%)

reported being dissatisfied and 9% said they were extremely

dissatisfied with overall advice given at banks.

Of those who answered for the Trust Companies, 14% said they

were very satisfied, with 36% reporting they are satisfied. Thirty-two

per cent (32%) said they were neither satisfied nor dissatisfied and 8%

said they were very dissatisfied. Of respondents who use credit

unions, 38% report they are very satisfied and 33% said they are

satisfied, while 19% were neither satisfied nor dissatisfied. Five per

cent (5%) reported being extremely and 5% said they are with the

advice they receive.

Thirty-three per cent (33%) of respondents who have used

accountants report they are very satisfied and 52% report they are

satisfied with the advice they receive. Fourteen per cent (14%) were

Appendix I


neither satisfied nor dissatisfied and no-one reported being dissatisfied

or extremely dissatisfied. Financial planners were also rated highly

by respondents who have experience with them, with 38% reporting

they are very satisfied and 29% satisfied with the advice they receive.

Twenty-seven per cent (27%) reported being neither dissatisfied nor

satisfied, and 6% reported said they were dissatisfied. No respondents

reported being extremely dissatisfied.

Twenty-two per cent (22%) of respondents reported they are very

satisfied with realtors, and 27% are very satisfied. However, 41%

were neither dissatisfied nor satisfied and 9% were dissatisfied. No

respondents reported being extremely dissatisfied with the advice of

realtors. The overall advice of stockbrokers was rated by 18% of

respondents as making them very satisfied. Thirty-one per cent (31%)

reported they are satisfied, while 38% reported they were neither

dissatisfied nor satisfied. Eight per cent (8%) said they were

extremely dissatisfied and 5% reported being dissatisfied with the

advice given them by a stockbroker. Twenty-five per cent (25%) per

cent of respondents who answered about lawyers said they were very

satisfied with the advice while 45% said they were satisfied.. Thirty

per cent (30%) were neither dissatisfied nor satisfied and no

respondents reported being dissatisfied.

Appendix I


Table 7Q.7 How satisfied are you with the overall advice the institutions

and professionals list below provide.Percentage (%) Extremely

dissatisfiedVery

satisfieda) Bank (n=83) 9 16 31 35 8

b) Trust Company (n=60) 8 0 32 36 14

c) Credit Union/Caisse Pop. (n=61) 5 5 19 33 38

d) Accountant (n=76) 0 0 14 52 33

e) Financial planner (n=76) 0 6 27 29 38

f) Realtor (n=62) 0 9 41 27 22

g) Stockbroker (n=74) 8 5 38 31 18

h) Lawyer (n=60) 0 0 30 45 25

i) Other (n=33) 8 0 8 54 31

Note: Percentages based on those who responded to each question, i.e. not applicableand no answer factored out.

Appendix I


In question 8, respondents were asked about where they primarily go

to purchase investment and loan products and services. The results of

this question are compared to where respondents said they go to seek

advice.

Table 8Q.8 vs. Q. 6Where do you primarily go to purchase the followinginvestment/loan products and services vs. where do you primarilygo for advice.

Percentage (%)(purchase vs. advice)

bank

trus

tco

mpa

ny

cred

itun

ion/

cais

sepo

pula

ires

acco

unta

nt

finan

cial

plan

ner

real

tor

stoc

k

law

yer

no-o

ne

othe

r

a) GICs, long termsavings accounts(n=95)

55/38 15/11 7/6 0/0 8/17 0/0 4/6 0/0

4/10 2/6

b) Canada SavingsBonds or similar(n=87)

38/26 11/9 4/5 0/0 3/4 0/0 7/5 0/0 16/30 8/10

c) Large loans,mortgages (n=83)

43/43 9/11 8/9 0/0 5/3 0/0 1/1 0/1 16/16 1/2

d) Mutual funds (n=89) 15/11 7/5 2/3 1/3 31/35 2/0 20/19 0/1 6/10 5/8

e) Stocks and bonds(n=80)

5/3 3/2 0/1 0/0 17/21 1/0 38/34 0/1 10/18 6/6

f) Property and hardasset purchases(n=76)

9/7 1/0 0/1 0/2 4/4 32/20 1/1 4/9 21/24 4/7

g) Tax planning (n=84) 1/1 1/1 1/3 39/39 13/15 1/0 1/1 0/0 23/26 4/7

h) Your overall financialplan (81)

3/5 2/2 1/2 6/7 27/27 1/1 7/8 0/0 30/33 4/7

i) Other (n=8) 0/0 0/0 0/0 0/0 1/1 1/0 0/0 0/1 4/5 2/2

Appendix I


Survey members were asked their opinion about investment and loan

services. Forty-four per cent (44%) reported they were satisfied with

their ability to understand the services, with 33% reporting they were

neither dissatisfied nor satisfied. While 7% said they were very

satisfied, no respondents said they were extremely dissatisfied with

their ability to understand the services.

As for the cost of the services, 41% reported they were neither

dissatisfied nor satisfied with the cost. However 31% were either

extremely dissatisfied (10%) or dissatisfied at the cost of the service.

Twenty-two per cent (22%) reported they were satisfied (16%) or

extremely satisfied (6%) at the cost.

How efficient are the services? Forty-one per cent (41%) said they

were satisfied, while 34% said they were neither satisfied nor

dissatisfied. Eleven per cent (11%) reported they were dissatisfied and

1% per cent said they were extremely dissatisfied, compared to 7%

who reported being very satisfied.

Respondents were satisfied (48%) with the availability of the

services, with 16% reporting they were very satisfied. Twenty-one per

cent (21%) said they were neither dissatisfied nor satisfied and 8%

were dissatisfied or extremely dissatisfied.

The majority (41%) of respondents were satisfied with the safety

and long-term security of their assets, although 34% said they were

neither satisfied nor dissatisfied. Sixteen per cent (16%) said they very

satisfied with the security of their assets.

Appendix I


Table 9Q.9 How dissatisfied or satisfied are you with the following

investment/loan services?”

Percentage % Extremely Verydissatisfied satisfied

a) Your ability to understand theservices (n=94)

0 10 33 44 7

b) The cost of the services (n=94) 10 21 41 16 6c) The efficiency of the services (n=94) 1 11 34 41 7d) The availability (through branches,

Internet, telephone) of the services(n=93)

3 5 21 48 16

e) The safety and long-term security ofyour assets (n=94)

0 3 34 41 16

f) Other (please specify) (n=3) 0 1 0 1 1

Appendix I


Part Four: Consumer education

Survey members were asked a series of questions about consumer

education – about how effective the advice they receive is in helping

them to make wise choices and decisions about their financial affairs.

The focus was on respondents’ shopping skills, rather than the amount

of product information they have accessed.

The majority (41%) of respondents said they could neither agree

nor disagree that they had the confidence to make wise financial

choices. Thirty-nine per cent (39%) agreed they felt confident and

10% said they strongly agreed that they had the confidence to make

wise financial choices. Six per cent (6%) of respondents disagreed

with the statement, while 1% strongly disagreed that they had the

confidence to make wise financial choices.

Being an educated consumer is crucial to long-term financial

success, 50% of respondents strongly agreed with, while a further

35% agreed with the statement. Twelve per cent (12%) neither agreed

nor disagreed with the statement and no respondents (0%) disagreed

or strongly disagreed.

How confident are consumers that they can easily find credible

consumer information in a format they can understand? Thirty-three

per cent (33%) responded that they could not agree with the statement,

while 9% strongly disagreed with the statement that they could easily

find credible consumer information in a format they could understand.

Forty-one per cent (41%) neither agreed nor disagreed that they could

easily find information, while 7% reported that they disagreed or

strongly disagreed with the statement.

Appendix I


Table 10

Q.10 Please rank how strongly you disagree or agree with eachstatement.

Percentage (%) Stronglydisagree

Stronglyagree

a) I am confident that I can make wise financialchoices. (n=97)

1 6 41 39 10

b) Being an educated consumer regarding personalfinancial issues is crucial to my long-term financialfuture. (n=97)

0 0 12 35 50

c) I am confident I can easily find credible consumerinformation in a format I can understand. (n=98)

4 12 40 33 9

Respondents were asked to rank a number of choices regarding who

should be responsible for consumer education – that is, teaching

shopping skills as opposed to providing information, regarding

financial services. Choices included: self-education by the consumer;

parents relatives and friends; schools; colleges and universities;

industry associations; the sellers of financial products; or government.

Self-education was the clear choice of respondents who ranked it

first. Sellers of financial products and services ranked second while

government was third. Colleges and universities were ranked fourth

by respondents and respondents ranked industry associations fifth.

Appendix I


Table 11Q. 11 Please rank your top five choices.

Category Ranking

Self-education by the consumer, books, magazines, Web sites 1

The sellers of financial products and services such as individualbanks, credit unions, stock brokers.

2

Government 3

Colleges and universities 4

Industry associations (such as the Toronto Stock Exchange,Canadian Securities Institute, Real Estate InvestmentAssociation)

5

Survey participants were asked about how good a job people and

institutions are doing in educating consumers about managing their

financial affairs and making wise financial choices. A majority of

respondents were either satisfied (36%) or very satisfied (14%) with

their self-education. While 39% of respondents felt they were neither

satisfied nor dissatisfied with the work of parents, relatives and

friends, 25% said they were either dissatisfied or extremely

dissatisfied.

How good are schools at educating our youth about managing

financial affairs? While 32% said they didn’t know, 32% were

dissatisfied and 10% were extremely dissatisfied. Eleven per cent

(11%) reported being neither dissatisfied nor satisfied, with 6% either

satisfied (4%) or very satisfied (2%). Likewise, colleges and

universities did not rate highly with respondents and 26% reported

they were dissatisfied (22%) or extremely dissatisfied (4%) with how

well schools teach personal financial management. While 40% of

respondents said they did not know how well a job colleges and

Appendix I


universities are doing, 8% said they were satisfied or very satisfied

with the work being done.

Respondents’ view of industry associations was split, with 25%

saying they did not know how well a job the associations were doing.

Thirty-two per cent (32%) reported being neither dissatisfied nor

satisfied with what associations are doing. While 15% of respondents

reported being satisfied and 3% very satisfied with association

consumer education, 14% were dissatisfied and 4% were extremely

dissatisfied.

The sellers of financial products and services were ranked lower

than industry associations, with 21% of respondents reporting they

were dissatisfied (19%) or extremely dissatisfied (2%). Thirty-one per

cent (31%) said they were satisfied and 5% said they were very

satisfied. Thirty per cent (30%) of respondents reported they were

neither dissatisfied nor satisfied with the work done to educate

consumers.

The government, however, was generally ranked the lowest by

respondents when it came to how good a job it is doing to educate

consumers on financial management issues. Thirty-six per cent of

respondents reported they are dissatisfied (24%) or extremely

dissatisfied (12%) with government efforts. Nine per cent (9%) said

they were satisfied and 2% said they were very satisfied. Twenty per

cent (20%) were neither satisfied nor dissatisfied.

Appendix I


Table 12Q.12 how good a job are the options listed below doing to educate

consumers?Percentage (% extremely

dissatisfiedvery

satisfieddon’tknow

a) Self-education, books, magazines,Web sites (n=96)

2 5 32 36 14 7

b) Parents, relatives and friends (n=91) 10 15 39 10 3 14c) Schools (n=91) 10 32 11 4 2 32d) Colleges and universities (n=82) 4 22 14 5 3 40e) Industry associations (such as the

Toronto Stock Exchange, Real EstateInvestment Assoc.) (n=93)

4 14 32 15 3 25

f) The sellers of financial products andservices (n=92)

2 19 30 31 5 5

g) Government (n=88) 12 24 20 9 2 21h) Other: (n=11) 0 0 3 0 0 8

Appendix I


Part Five: Consumer redress and arbitration

In this section, survey members were asked a series of questions about

redress and arbitration.

Overwhelmingly (62%), respondents reported it is extremely

important to provide consumers with an opportunity to appeal to a

third party regarding the conduct of sellers of financial products and

services. A further 24% reported it was important to do so. Nine per

cent (9%) did not feel it was important or unimportant, while 2%

thought it was not at all important.

Table 13Q.13 How important do you think it is to provide consumers with

an opportunity to appeal to a third party regarding theconduct of sellers of financial products and services?

Percentage (%) not at allimportant

Extremelyimportant

How important do you think it is toprovide consumers with anopportunity to appeal to a third partyregarding the conduct of sellers offinancial products and services?(n=97)

2 0 9 24 62

Appendix I


Survey members were asked to rank a number of potential institutions

for enforcing minimum standards of conduct on the sellers of financial

products and services.

Table 14Q.14 Who, if anyone, should be responsible for enforcing

minimum standards of conduct on the sellers of financialproducts and services?

Category Ranking

Industry regulators (such as the Ontario Securities Commission) 1

Government departments 2

Industry associations (such as the Investment Funds Institute,Real Estate Investment Association)

3

A government or government-appointed Ombudsman 4

A business Ombudsman (such as the Canadian BankingOmbudsman)

5

How good a job are various organizations doing at providing

consumer redress? A large number of respondents in all categories

reported they simply did not know. Sixteen per cent (16%) of

respondents reported they are extremely dissatisfied with self-

enforcement by sellers, while an additional 10% said they were

dissatisfied. Fourteen per cent (14%) said they were neither

dissatisfied nor satisfied while 47% said they didn’t know.

Respondents also didn’t know (52%) about redress provided by

industry associations. Eight per cent (8%) said they were satisfied

while 2% said they were very satisfied. Fourteen per cent (14%)

reported they were dissatisfied with redress provided by industry

associations.

Appendix I


A large number of respondents (49%) also said they didn’t know

about redress offered by consumer associations (if any). Sixteen per

cent (16%) reported being neither dissatisfied nor satisfied, while 13%

were satisfied and 4% were very satisfied. Ten per cent (10%) were

either dissatisfied (7%) or extremely dissatisfied (3%).

Knowledge of redress provided by government departments was

unknown by 43% of respondents. Eighteen per cent (18%) reported

being neither dissatisfied nor satisfied, while 10% said they were

satisfied and 3% said they were very satisfied. In contrast, 14%

reported being dissatisfied and 2% said they were extremely

dissatisfied.

Industry regulators, such as the Ontario Securities Commission,

received the highest rating for satisfaction. Twenty-one per cent

(21%) of respondents were satisfied with the regulators, and 3% were

very satisfied. While 22% were neither dissatisfied nor satisfied, just

5% were dissatisfied and no-one reported being extremely

dissatisfied. Forty-one per cent (41%) of respondent did not know

how what sort of job the industry regulators were doing.

Appendix I


Table 15Q.15 How good a job are the financial service providers and

options listed below doing to provide consumer redress?Percentage (%) extremely

dissatisfiedvery

satisfieddon’tknow

a) Self-enforcement by sellers (n=91) 16 10 14 2 2 47b) Industry associations (such as the

Canadian Bankers Association, Real EstateInvestment Association) (n=94)

0 14 18 8 2 52

c) Consumer associations (n=92) 3 7 16 13 4 49d) Government departments (n=90) 2 14 18 10 3 43e) Industry regulators (such as the Ontario

Securities Commission) (n=92)0 5 22 21 3 41

f) A government Ombudsman (n=90) 1 9 13 4 4 59g) A business Ombudsman (n=92) 1 7 17 4 3 60h) Other: (please specify) (n=28) 0 0 2 0 0 26

Appendix I


Survey participants strongly agreed (35%) or agreed (34%) that

consumer redress is as important to their long-term financial future, as

is consumer education. Twenty-one per cent (21%) neither disagreed

nor agreed. Six per cent (6%) disagreed and 1% strong disagreed that

redress is as important as consumer education.

Respondents were divided about whether they know what their

rights are regarding purchasing financial services or products. Forty

per cent (40%) neither disagreed nor agreed that they know their

rights. Twenty per cent (20%) reported they agreed with the statement

that they knew their rights, while 23% said they disagreed with the

statement. Seven per cent (7%) of the respondents said they strongly

agreed with the statement, while 7% said they strongly disagreed with

the statement that they know their rights regarding purchasing

financial services or products.

Table 16Q. 16 Please indicate how strongly you disagree or agree with

each statement.

Percentage (%) stronglydisagree

stronglyagree

a) Consumer redress is as importantto one’s long-term financial futureas consumer education. (n=97)

1 6 21 34 35

b) I know my rights regardingpurchasing financial services orproducts. (n=97)

7 23 40 20 7

Appendix I


Part Six: Getting to know you

Because this survey was about financial issues, respondents were

asked to provide their background and personal situation beyond the

regular demographic material.

Generally, respondents viewed themselves as neither uninformed

nor informed (45%) as consumers of financial services. Thirty-five

per cent (35%) said they were informed, while 8% reported they are

extremely well informed. Eleven per cent (11%) said they are

uninformed and 1% reported being extremely uninformed.

Table 17Q 17. How well informed do you regard yourself as a consumer?

Percentage (%) extremelyuninformed

extremelywell informed

In general, how well informed doyou regard yourself as aconsumer of financial services?(n=92)

1 11 45 35 8

Appendix I


Twenty-one per cent (21%) of respondents said they have special

training in economics, while 22% said they have special training in

finance and 16% of respondents reported having special training in

mathematics affecting investment ability.

Table 18Q. 18 Do you have any special training in the following?

Special training %a) Economics 21b) finance 22c) mathematics affecting

investment ability16

Eighty-seven per cent (87%) of respondents own their own homes

while 12% reported that they rent.

Table 19Q. 19 Are you a home owner or renter?

Owner/renter %a) Home owner 87b) Renter 12

(n=99)

Survey members were asked what their five largest asset are (in

monetary value) as well as their five largest liabilities (in monetary

value). House and other real estate ranks first, followed in order by

pensions and RRSPs, mutual funds, cash and liquid savings, and

finally vehicles. Other choices included stock portfolio, and hard

assets.

Appendix I


Table 20Q. 20 Please indicate your five largest assets.

Category Ranking

House/other real estate 1

Pensions and RRSPs 2

Mutual funds 3

Cash and liquid savings 4

Vehicles 5

Mortgages appear to be the largest liability respondents have,

followed by credit card balances, and other loans. There were

insufficient responses regarding other debts and car loans to

accurately differentiate between the two for fourth and fifth place and

both have been ranked as fourth.

Table 21Q. 21 Please indicate your largest liabilities.

Category Ranking

Mortgage(s) 1

Credit card (outstanding) 2

Other loans 3

Other debts 4

Car loans 4

Appendix I


Part Seven: Demographic Information

To assist in grouping responses, basic demographic questions were

asked. The majority of respondents were women (64%), with an even

distribution in age between 30 to 66 or older. Household income

averaged $51k to $80k, although a significant number (27%) reported

household income of $101k and above. Most respondents lived in

cities over 500k and had 2 to 4 people living at home. Respondents

generally had completed university and were professionals, retired or

managers.

Appendix I


Table 22

Question %

SexMale 35Female 64

AgeUnder 30 430 - 45 2146 - 55 3056 - 65 2066 or older 24

Household incomeunder $35k 4$36k - $50k 18$51k - $80k 28$81k - $100k 20$101k+ 27

Respondents resideIn a rural area 115k or less 55k - 25k 426k - 100k 15101k - 500k 19501k+ 44How many live in yourhousehold?1 142 473-4 315+ 7

Education levelCompleted grade 8 1Completed secondary school 10Completed college/ technicalinstitute

18

Completed university 57Other 13

OccupationTrades person 1Manager 17Homemaker 6Clerical/Administrative 10Professional 33Student 0Other/Retired 33

Total may not equal 100 due to rounding and ‘no answer’ being omitted

Appendix I


Cross tab ReportsQ. 2b vs. 22, 23, 24 and 27

Male and female respondents were equal in their lack of confidence

about their ability to optimize their financial health and security from

the financial services available to them in Canada. More women were

neither sure nor unsure of their ability, while more male respondents

(60%) reported being confident of their ability than female

respondents (47%).

Table 23Q. 22 vs. 2bSex vs. I am confident that I know enough to optimize myfinancial health and security from the financial services that areavailable to me in Canada.

Percentage (%) male andfemale respondents

Male Female

a. Strongly agree 3 3

b. Agree 14 16

c. Neither agree nor disagree 23 33

d. Disagree 37 25

e. Strongly disagree 23 22

f. Don’t know 0 2

(Note: Totals may not equal 100 due to rounding and exclusion of n/a)

Younger respondents reported a significant more amount of

confidence in their knowing enough to optimize their financial health

and security from the financial services available to them in Canada.

While 25% of those under 30 strongly agreed with the statement, 33%

reported they strongly disagreed or disagreed (46%)that they were

confident they knew enough. Is this an example of a lack of

Appendix I


experience on the part of the younger respondents or better education?

Respondents appear to demonstrate that an increase in formal

education marginally increases their confidence. For example, 5% of

those with a university education strongly agreed that they know

enough to optimize their financial health and security, while 0% of

both college and secondary school graduates reported the same.

Fifty per cent (50%) of those with a secondary school education

strongly disagreed that they knew enough, compared to 22% of

college graduates and 14% of university graduates strongly disagreed.

Table 24Q. 23 vs. 2bAge vs. I am confident that I know enough to optimize myfinancial health and security from the financial services that areavailable to me in Canada.

Age vs. Confidence Under 30 30-45 46-55 56-65 66+a. Strongly agree 25 10 0 0 0

b. Agree 0 24 17 10 8

c. Neither agree nor

disagree

50 29 37 13 0

d. Disagree 25 29 30 15 46

e. Strongly disagree 0 10 17 35 33

f. Don’t know 0 0 0 0 0


Appendix I


Table 25Q. 27 vs. 2bEducation level vs. I am confident that I know enough to optimizemy financial health and security from the financial services thatare available to me in Canada.

Education vs. Confidence(education completed)

Grade 8 Secondaryschool

College/technicalInstitute

University

a. Strongly agree 0 0 0 5

b. Agree 0 20 17 12

c. Neither agree nordisagree

0 0 28 33

d. Disagree 100 20 33 35

e. Strongly disagree 0 50 22 14

0 Don’t know 0 0 0 0


Does household income play a role in increasing the comfort level of

investors? Discounting those respondents making under $35k because

of the small number (4%), it appears there is a difference between

wealthier respondents regarding how confident they are in knowing

enough to optimize their financial health and security from financial

services available to them in Canada. Those making $36k to $50k

were more than twice as likely to disagree (50%) that they felt

confident as those making more than $100k (30%). And respondents

making $36 to $50k were nearly three times (22%) as likely to report

they were very uncomfortable compared to the eight per cent of those

making over $100k who reported they were very uncomfortably.

Appendix I


Table 26Q. 24 vs. 2bIncome level vs. I am confident that I know enough to optimizemy financial health and security from the financial services thatare available to me in Canada.

Household income vs.Confidence

Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +

a. Strongly agree 0 6 0 10 0

b. Agree 50 11 18 5 19

c. Neither agree nor

disagree

25 11 29 30 42

d. Disagree 0 50 29 25 31

e. Strongly disagree 25 22 25 30 8

f. Don’t know 0 0 0 0 0


Q9a vs. 22, 23, 24 and 27

Male respondents appear more satisfied with their ability to

understand investment/loan services (54%) compared to women

(38%), while nearly twice the number of female respondents (13%)

report being extremely dissatisfied with their ability to understand

investment/loan services compared to male respondents (6%).

Table 27Q. 22 vs. 9aSex vs. My ability to understand investment/loan services


Male Female

a. Extremely dissatisfied 0 0

b. Dissatisfied 6 13

c. Neither dissatisfied norsatisfied

26 38

d. Satisfied 54 38

e. Very satisfied 6 8


Appendix I


Younger respondents appear to be least satisfied with their ability to

understand investment/loan services, with 25% of those under 30

reporting being dissatisfied compared to 0% in the 66+ age category..

This may be related to the amount of experience they have as

consumers in the financial services marketplace.

Table 28Q. 23 vs. 9aAge vs. My ability to understand investment/loan services

Age vs. Confidence Under 30 30-45 46-55 56-65 66+a. Extremely dissatisfied 0 0 0 0 0

b. Dissatisfied 25 24 7 5 0


50 38 37 35 21

d. Satisfied 25 33 40 50 58

e. Very satisfied 0 5 7 5 13


Appendix I


Does household income impact on respondents’ ability to understand

the services? Except for those in the $51 to $80k range, all

respondents generally appeared satisfied with services, or, at worst,

neither dissatisfied nor satisfied.

Table 29

Q. 24 vs. 9a

Household income vs. My ability to understand investment/loanservices


Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +

a. Extremely dissatisfied 0 0 0 0 0

b. Dissatisfied 0 17 7 15 7


50 22 39 25 37

d. Satisfied 50 50 32 40 56

e. Very satisfied 0 6 14 5 0


Appendix I


Discounting those with grade 8 education due to a small number of

responses, education does not appear to play a significant role in

respondents’ ability to understand services.

Table 30Q. 27 vs. 9aEducation vs. My ability to understand investment/loan services




University

a. Extremely dissatisfied 0 0 0 0

b. Dissatisfied 0 10 11 11


0 20 28 39

d. Satisfied 100 50 33 46

e. Very satisfied 0 10 17 0


Q10a vs. 22, 23, 24 and 27

When it comes to confidence in making wise financial choices, more

male respondents reported agreed or strongly agreed (54%) that they

are confident they can make wise financial choices than women

(45%), although more women strongly agreed (14%) than men (3%).

Table 31Q. 22 vs. 10aSex vs. I am confident that I can make wise financial choices.


Male Female

a. Strongly disagree 0 2

b. Disagree 3 8

c. Neither disagree nor agree 40 42

d. Agree 51 31

e. Strongly agree 3 14


Appendix I


Perhaps the lack of experience in younger respondents is responsible

for a lower confidence in their ability to make wise financial choices.

Twenty-five per cent (25%) of respondents under 30 disagreed with

the statement that they can make wise financial choices. This is five

times or more the number of those 30 years of age or over who also

disagreed. However, 50% of those under 30 also said they agreed

with the statement that they can make wise financial choices, which is

nearly double the number of those 30 to 45 years of age, and almost

on par with those 46 to 55.

Table 32Q. 23 vs. 10aAge vs. I am confident that I can make wise financial choices.

Age vs. Confidence Under 30 30-45 46-55 56-65 66+a. Strongly disagree 0 5 0 0 0

b. Disagree 25 5 3 5 4

c. Neither disagree noragree

25 52 37 35 46

d. Agree 50 29 43 50 33

e. Strongly agree 0 10 10 10 13


Appendix I


When their income was $100k or more, slightly more respondents

reported that they agree or strongly agree (60%) with the statement

about being confident to make wise financial choices. This contrasts

with 50% of those making under $35k, and slightly lower numbers for

those making $35k to $100k.

Table 33Q. 24 vs. 10aHousehold income vs. I am confident that I can make wisefinancial choices.


Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +

a. Strongly disagree 0 0 0 5 0

b. Disagree 0 11 4 10 4


50 39 57 30 37

d. Agree 25 33 32 30 56



Appendix I


Education appears to impact on whether respondents feel confident or

not to make wise financial choices. Starting with secondary school

graduates, 30% say they agree or strongly agree with the statement

that they are confident in making wise financial choices. This

increases to 50% for college graduates and 52% for university

graduates.

Table 34Q. 27 vs. 10aEducation vs. I am confident that I can make wise financialchoices.




University

a. Strongly disagree 0 0 0 2

b. Disagree 0 20 0 5


100 30 50 39

d. Agree 0 20 33 46

e. Strongly agree 0 10 17 7


Appendix I


Q10c vs. 22, 23, 24 and 27

When it concerns easily finding credible consumer information,

neither sex appears to report feeling more confident. The majority of

both men (43%) and women (39%) report they neither disagree nor

agree that they can easily find credible consumer information. Thirty-

four per cent (34%) of male respondents report they agree with the

statement while 31% of female respondents agree and 11% strongly

agree they can easily find credible consumer information.

Table 35Q. 22 vs. 10cSex vs. I am confident I can easily find credible consumerinformation in a format I can understand.


Male Female


b. Disagree 11 13


d. Agree 34 31



Appendix I


More younger respondents (under 30) disagree that they can easily

find credible information (25%), while a large number of respondents

neither disagree nor agree that they can easily find credible consumer

information in a format they can understand.

While they are the largest category to disagree, the under 30

respondents are also the largest to agree (50%) that they can easily

find consumer information. Those respondents aged 30 to 45 years

were least in agreement (33%) that they can easily find credible

consumer information in a format they can understand.

Table 36Q. 23 vs. 10cAge vs. I am confident I can easily find credible consumerinformation in a format I can understand.


b. Disagree 25 5 13 15 13


25 52 30 50 33

d. Agree 50 33 37 25 33



Appendix I


Those respondents with household incomes of under $35k were the

most likely to report (50%) that they were not confident that they can

find credible consumer information. The largest number of

respondents in the other income categories reported that they neither

disagreed nor agreed that they felt confident in their ability to easily

find credible consumer information in a format they can understand.

Table 37Q. 24 vs. 10cHousehold income vs. I am confident I can easily find credibleconsumer information in a format I can understand.


Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +


b. Disagree 50 11 4 15 15


25 39 36 45 44

d. Agree 0 33 54 10 33



Appendix I


Education appears to impact on respondents’ confidence in their

ability to find credible consumer information in a format they can

understand. Those with secondary school education disagreed or

strongly disagreed (30%) that they were confident in their ability to

easily find credible consumer information in a format they can

understand. Those with college or university degrees generally were

neutral to positive in this area.

Table 38Q. 27 vs. 10cEducation vs. I am confident I can easily find credible consumerinformation in a format I can understand.




University




0 40 39 39

d. Agree 100 0 50 33



Q16b vs. 22, 23, 24 and 27

There does not appear to be a significant difference between male and

female respondents regarding whether they know their rights when

they purchase financial services or products. Both appear to hold

similar thoughts in all the categories.

A large number of both (34% male, 44% female) neither agree nor

disagree with the statement that they know their rights, while 35% of

Appendix I


male respondents agree or strongly agree that they know their rights

compared to 22% of female respondents.

Table 39Q. 22 vs. 16bSex vs. I know my rights regarding purchasing financial servicesor products.


Male Female


b. Disagree 26 22


d. Agree 26 16



Table 40Q. 23 vs. 16bAge vs. I know my rights regarding purchasing financial servicesor products.


b. Disagree 25 0 10 10 0


0 33 20 25 8

d. Agree 50 33 37 25 38



Appendix I


Household income does not appear to be a significant indicator of

how well consumers know their rights. A significant number of

respondents right across the income scale report that they neither

disagree nor agree that they know their rights regarding purchasing

financial services or products.

Table 41Q. 24 vs. 16bHousehold income vs. I know my rights regarding purchasingfinancial services or products.


Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +


b. Disagree 0 17 11 35 33


50 39 54 25 41

d. Agree 0 17 21 20 15



Respondents with a higher level of education appear to be more

confident about knowing their rights and responsibilities. (Grade 8

respondents have been eliminated due to insufficient numbers.)

Thirty-one per cent (31%) of respondents with university education

reported they agreed or strongly agreed with the statement that they

knew their rights. This is in comparison to the 10% of secondary

school and 11% of college graduates who reported they agreed or

strongly agreed with the statement.

Appendix I


Table 42Q. 27 vs. 16bEducation vs. I know my rights regarding purchasing financialservices or products.




University




0 20 39 40

d. Agree 100 0 11 26



Q17 vs. 22, 23, 24 and 27

Both male and female respondents are similar in their response to the

question of whether they believe themselves to be well informed as a

consumer of financial services. Forty-nine per cent (49%) of male

respondents and 40% of female respondents reported they were either

informed or extremely well informed as a consumer of financial

services.

Table 43Q. 22 vs. 17Sex vs. How well informed do you regard yourself as a consumerof financial services?


Male Female

a. Extremely uninformed 0 2

b. Uninformed 9 13

c. Neither uninformed norinformed

43 47

d. Informed 43 30

e. Extremely well informed 6 10


Appendix I


Age did not appear to play a big role in whether respondents viewed

themselves as informed consumers. While more respondents under 30

(50%) reported they were uninformed than other age categories, the

same number reported being informed.

Table 44Q. 23 vs. 17Age vs. How well informed do you regard yourself as a consumerof financial services?

Age vs. Confidence Under 30 30-45 46-55 56-65 66+a. Extremely uninformed 0 5 0 0 0

b. Uninformed 50 19 7 5 4


0 43 47 50 50

d. Informed 50 24 37 40 38

e. Extremely well informed 0 10 10 5 8


Appendix I


Interestingly, the group with the lowest income reported the highest

level (25%) of ability as consumers of financial services. The other

income categories were, generally, equally represented across all

categories.

Table 45Q. 24 vs. 17Household income vs. How well informed do you regard yourselfas a consumer of financial services?


Under$35k

$36k -$50k

$51k -$80k

$81k -$100k

$100k +

a. Extremely uninformed 0 0 0 5 0

b. Uninformed 25 22 7 15 4


50 44 46 40 52

d. Informed 0 28 39 25 41

e. Extremely well informed 25 6 7 15 4


Appendix I


Respondents’ level of education appears to have a direct relationship

to how informed they are as consumers of financial services. While

10% of those with a secondary education reported they were informed

or extremely well informed, 34% of college and 54% of university

graduates reported they were informed or extremely well informed

consumers of financial services.

Table 46Q. 27 vs. 17Education vs. . How well informed do you regard yourself as aconsumer of financial services?




University

a. Extremely uninformed 0 0 0 2

b. Uninformed 0 30 11 11


100 60 56 33

d. Informed 0 0 28 47

e. Extremely well informed 0 10 6 7


Appendix II

Business Survey Appendix II

Financial Services Survey

of individuals working within the

Canadian Financial Services Sector

March, 2001

Note: this survey and its two companion surveys in Appendix I and IIIare an integral part of the wider study A consumer view of Canadian



Appendix II

2 Business Survey Appendix II

Consumers Council of Canada

Tabulated results to a survey of individuals working within theCanadian Financial Services Sector

This survey was posted on a secure web site. Visitors to the site were invited tofill out the survey. There were 44 responses.

Part One: Your contact with consumers1. Generally, I interact with consumers or consumer issues

%a) Daily 73

b) Weekly 23

c) Monthly 5

d) Yearly 0

e) I never interacted withconsumers or with consumerissues

0

2. I would categorize my position in my company as:

%a) front line (customer or client

services representative)18

b) middle management(manager)

27

c) senior management (i.e. vice-president, president)

55

3. Please indicate your sector of the financial services industry.

%a) Bank 20b) Trust Company 10c) Credit union/Caisse Pop. 5d) Insurance 15e) Stock Brokerage 15f) Other: 35

Appendix II

Appendix II Business Survey 3

4. If you are a professional dealing directly with consumers of financial services,please indicate your field of specialization.

%a) Accountant 60b) Financial planner 20c) Realtor 5d) Stockbroker 10e) Lawyer 5f) Other:

5. How many years have you worked in the financial services sector?

%a) less than 1 0b) 1 to 2 5c) 3 to 5 5d) 6 to 10 21e) 11 or more 69

6. Do you have any special knowledge of the following? (Check all that apply.)

%a) concerns of consumers 34b) the level of consumer

understanding30

c) communicating withconsumers

34

d) other areas affectingconsumers (please specify)

2

e) none of the above 11

Appendix II


Part Two: Financial servicesFor the purposes of this survey, we define financial services as comprised of twodistinct areas:1. Everyday money management activities include payment transactions,

chequing and short-term savings accounts, bill payments, and credit cards.2. Investment services include longer-term savings and loan accounts, mortgages,

stocks, bonds, mutual funds, financial and tax planning.

7. Which of the following do you regard as most important to financial welfareof consumers (please check only one of the four options.

%a) everyday money

management activities0

b) investment services 32c) they are equally important 68d) neither is important 0

8. Below are three statements. Using a 1 to 5 scale, please indicate how stronglyyou disagree (1) or agree (5) with each statement.

% strongly stronglydisagree agree

don’tknow

a) The financial services which consumersrequire to optimize their financial healthand security are easily available inCanada.

0 5 9 50 36 0

b) Consumers know enough to optimize theirfinancial health and security from thefinancial services that are available to themin Canada.

18 36 27 18 0 0

c) Financial institutions give consumersadvice that primarily meets needs ofconsumers, not those of the institutions.(“Advice” should be understood asproviding counsel on what to do, ratherthan supplying consumers withinformation.)

9 27 23 27 14 0

Appendix II


Part Three: Everyday money management services9. Indicate how dissatisfied (1) or satisfied (5) you think consumers are with the

different aspects of everyday money management services listed below.

% extremely verydissatisfied satisfied

a) the cost of everyday services 18 50 27 5 0b) the efficiency (speed, accuracy, reliability)of

services5 5 50 32 9

c) the availability of services (through branches,Internet, telephone etc)

0 5 27 64 5

d) the safety and long-term security of consumers’assets

0 9 14 59 18

10. In overall terms, how satisfied do you think consumers are with everydaymoney management services?


a) In overall terms, how satisfied do you thinkconsumers are with everyday money managementservices?

0 18 45 36 0

11. In general, how satisfied are you -- from your own specific or generalknowledge -- with everyday money management services supplied toconsumers?


a) In general, how satisfied are you -- from your ownspecific or general knowledge -- with everydaymoney management services supplied toconsumers?

0 18 23 55 5

Appendix II


Part Four: Investment Services (e.g. longer term savings and loans, mortgages,stocks, bonds, financial and tax planning)

12. From your own knowledge of the following institutions and professionals,indicate how satisfied you are with the overall advice (as opposed toinformation) they are giving consumers regarding investment services.

extremelydissatisfied

verysatisfied

notapplicable

a) Bank 9 36 36 18 0 0

b) Trust Company 9 23 45 18 0 5

c). Credit Union/Caisse Pop. 10 20 35 10 0 25

d) Accountant 5 0 43 48 0 5

e) Financial Planner 9 0 36 36 0 18

f) Realtor 19 43 19 5 0 14

g) Stock broker 5 19 48 19 10 0

h) Lawyer 5 20 15 35 5 20

i) Other: 0 33 33 33 0 0

13. With regard only to your firm or practice, please indicate how satisfied youare with the quality of overall advice (as opposed to information) you are ableto give consumers regarding investment services. (You might be dissatisfied,for example, if you were constrained by legislation or regulation from offeringsuch advice, or if consumers were insufficiently educated to be able to benefitfrom your advice, or simply if you felt yourself insufficiently prepared.)


verysatisfied

notapplicable

a) Quality of overall advice 0 23 14 23 27 14

If you chose “dissatisfied” or “extremely dissatisfied” for question 13, pleaseanswer the following question. If you did not chose “dissatisfied” or “extremelydissatisfied,” please go to question 15.

Appendix II


14. Why did you choose “dissatisfied” or “extremely dissatisfied” in question 13?Please choose the answer that best matches your view.

%a) I am constrained by legislation or regulation from

offering such advice.50

b) Consumers are inadequately educated to takeadvantage of the advice.

17

c) I am not sufficiently prepared to offer such advice. 0d) Other: 33

Part Five: Consumer educationThe next series of questions ask for your thoughts about consumer education --how effective the advice consumers receive is in helping them make wise choicesand decisions about their financial affairs. We are concerned with consumers’“shopping skills,” not the amount of product information they can access.

15. Below are three statements. Please indicate the degree of your agreement witheach statement.


a) Consumers can make wise financial choices. 5 32 23 41b) Being an educated consumer regarding personal

financial issues is crucial to the individual’s long-term financial future.

0 0 23 36 41

c) Consumers can easily find credible information ina format they can understand.

9 18 36 32 5

16. Who should be responsible for consumer education (teaching shopping skills)about financial services? Using a 1 to 5 scale, please rank your top fivechoices, from 1 (lowest preference) to 5 (highest preference). Please use eachranking (1-5) only once.

RankingSelf-education by the consumer: books, magazines, web sites 1Parents, relatives and friends 1Government 2Schools 3Colleges and universities 3Industry associations (such as the Toronto Stock Exchange,Canadian Securities Institute, Real Estate InvestmentAssociation)

3

No one (the market protects the consumer sufficiently) 4Sellers of financial products and services (such as individualbanks, credit unions, stock brokers)

5

Appendix II


17. Currently, how good a job are each of those listed below doing to educateconsumers? Using a 1 to 5 scale, please indicate the degree of yoursatisfaction.


verysatisfied

notapplicable

a) Self-education, books,magazines, web sites

0 0 48 38 14 0

b) Parents, relatives andfriends

5 45 36 5 5 0

c). Schools 27 36 27 9 0 0

d) Colleges and universities 15 35 20 15 5 0

e) Industry associations(such as the Toronto StockExchange, Real EstateInvestment Assoc.)

5 19 57 14 5 0

f) The sellers of financialproducts and services

5 30 25 30 10 0

g) Government 28 33 17 11 6 0

Part Six: Consumer redress and arbitrationWe would like to know your thoughts about whether and how consumers shouldhave access to redress or arbitration. Using a 1 to 5 scale, please indicate howunimportant (1) or important (5) the following issue is for you.

not at allimportant

extremelyimportant

18. Consumers should be provided with anopportunity to appeal to a third partyregarding the conduct of sellers of financialproducts and services?

0 5 9 9 77

Appendix II


19. Who, if anyone, should be responsible for enforcing minimum standards ofconduct upon sellers of financial products and services? Using a 1 to 5 scale,please rank your top five choices, from 1 (most responsible) to 5 (leastresponsible). Please use each ranking (1-5) only once.

RankingIndustry regulators (such as the Ontario SecuritiesCommission) (Note: significant votes.)

1

Self-enforcement by sellers 2Industry associations (such as the Investment FundsInstitute, Real Estate Investment Association)

3

No one (the market should rule) 4Government departments 4A business Ombudsman (such as the CanadianBanking Ombudsman)

4

Consumer associations 5A government or government-appointed Ombudsman 5

20. Currently, from your own specific and general knowledge, how good a jobare the financial service providers and others listed below doing to provideconsumer redress (solve consumer problems, handle consumer complaints,etc.)? Using a 1 to 5 scale, please indicate your assessment of each.


verysatisfied

a) Self-enforcement by sellers 14 9 41 32 5

b) Industry associations (such asthe Investment Funds Institute,Real Estate InvestmentAssociation)

9 23 27 36 5

c). Consumer associations 10 38 33 14 5

d) Government departments 11 42 37 11 0

e) Industry regulators (such as theOntario Securities Commission)

0 9 41 45 5

f) A government Ombudsman 11 44 33 11 0

g) A business Ombudsman (suchas the Canadian BankingOmbudsman)

11 39 22 22 6

Appendix II


21. Below are two statements concerning consumer redress. Using a 1 to 5 scale,please indicate how strongly you disagree (1) or agree (5) with eachstatement.


a) Consumer redress is as important to people’slong-term financial future as consumer education.

14 14 27 32 14

b) Consumers know their rights regardingpurchasing financial services or products.

14 45 14 9 18

Appendix III

1 Government and Regulator Survey Appendix III

Financial Services Survey

of individuals working within

Government or Regulators

March, 2001

Note: this survey and its two companion surveys in Appendix I and IIare an integral part of the wider study A consumer view of Canadian



Appendix III


Consumers Council of Canada

Tabulated results to a survey of individuals working within theCanadian Financial Services Government Regulators or

Government Ministries/Departments

This survey was posted on a secure web site. Visitors to the site were invited to fillout the survey. There were 38 responses.

Part One: About your contact with consumers

1. Generally, I interact with consumers or consumer issues:

%a) Daily 14

b) Weekly 22

c) Monthly 31

d) Yearly 30

e) I never interacted withconsumers or with consumerissues

3

2. I would categorize my position in my department/organization as:

%a) front line 15b) middle management 25c) senior management 60

3. What area does your department or regulatory body primarily haveresponsibility for?

%a) Banking 10b) Securities 40c) Insurance 44d) Other 6

Appendix III

Appendix III Government and Regulator Survey 3

4. How many years have you worked on issues related to financial services?

%a) less than 1 5

b) 1 to 2 35c) 3 to 5 38d) 28 21e) 11 or more 1

5. Do you have any special knowledge of (check all that apply):

%a) concerns of consumers 72b) the level of consumer

understanding68

c) communicating withconsumers

65

d) other areas affectingconsumers (please specify)

77

e) none of the above 2

Part Two: Financial servicesFor the purposes of this survey, we define financial services as comprised of twodistinct areas:1. Everyday money management activities include payment transactions, chequingand short-term savings

accounts, bill payments, and credit cards.2. Investment services include longer term savings and loan accounts, mortgages,stocks, bonds, mutual funds, financial and tax planning.

6. Which of the following do you regard as more important to financial welfare ofconsumers? (please check only one of the four options):

%a) everyday money

management activities2

b) investment services 24c) they are equally important 74d) neither is important 0

Appendix III


7. Below are three statements. Using a 1 to 5 scale, please indicate how stronglyyou disagree (1) or agree (5) with each statement.


don’tknow

a) The financial services which consumersrequire to optimize their financial healthand security are easily available in Canada.

0 3 10 45 42 0

b) Consumers know enough to optimize theirfinancial health and security from thefinancial services that are available to themin Canada.

28 45 19 8 0 0

c) Financial institutions give consumersadvice that primarily meets needs ofconsumers, not those of the institutions.(“Advice” should be understood asproviding counsel on what to do, ratherthan supplying consumers withinformation.)

25 35 26 12 2 0

8. Below are three statements. Please indicate the degree of your agreement witheach statement.


a) Consumers are equipped to make wise financialchoices.

18 37 24 15 6

b) Being an educated consumer regarding personalfinancial issues is crucial to the individual’s long-term financial future.

0 12 25 36 27

c) Consumers can easily find credible information ina format they can understand.

14 24 36 18 8

Part Three: Everyday money management services9. Indicate how dissatisfied (1) or satisfied (5) you think consumers are with the

different aspects of everyday money management services


a) the cost of everyday services 20 51 26 3 0b) the efficiency (speed, accuracy, reliability)of

services7 8 60 20 5

c) the availability of services (through branches,Internet, telephone etc)

5 10 38 44 3

d) the safety and long-term security of consumers’assets

Appendix III


10. In general, how satisfied are you – from your own specific or generalknowledge – with everyday money management services supplied toconsumers?


a) In general, how satisfied are you – from your ownspecific or general knowledge – with everydaymoney management services supplied toconsumers?

5 20 40 32 3

Part Four: Investment Services

11. From your own knowledge of the following institutions and professions, pleaseindicate how satisfied you are with the overall advice (as opposed toinformation) they are giving consumers regarding investment services.

% extremelydissatisfied

verysatisfied

notapplicable

a) Bank 12 40 40 8 0

b) Trust Company 7 36 40 12 5

c). Credit Union/Caisse Pop. 5 18 38 20 9 10

d) Accountant 7 7 48 44 8 8

e) Financial Planner 8 20 18 25 15 14

f) Realtor 17 42 22 6 6 7

g) Stock broker 11 22 52 9 5 1

h) Lawyer 10 29 24 30 5 2

Appendix III


Part Five: Consumer EducationThe next series of questions ask for your thoughts on consumer education -- abouthow effective the advice consumers receive is in helping them make wise choicesand decisions about their financial affairs. We are concerned with consumers’“shopping skills,” not the amount of product information they can access. For thepurposes of the survey, we define consumer education as a process to equipconsumers with the knowledge and abilities to make wise financial choices.

12. Does your department or regulatory organization offer consumer education (asopposed to consumer information)?

%a) Yes 94

b) No 4

c) Not sure 2

If you answered “no” or “not sure,” please go to question 15.

13. With regard only to your department or regulatory organization, please indicatehow satisfied you are with the quantity and quality of consumer education yourdepartment or organization is able to deliver to consumers regarding investmentservices. (You might be dissatisfied, for example, if you were constrained bylegislation, regulation, mandate or lack of budget from offering consumereducation, or simply if you felt your department or organization is insufficientlyprepared.)


verysatisfied

notapplicable

12 23 20 35 9 1

If you chose “dissatisfied” or “extremely dissatisfied” for any section of question13, please answer the following question. If you did not chose “dissatisfied” or“extremely dissatisfied”, please go to question 15.

14. Why did you choose “dissatisfied” (2) or “extremely dissatisfied” (1) inquestion 13? Please choose the answer that best matches your view.

%a) My department or organization is constrained by legislation,

regulation, or mandate from offering consumer education.8

b) We lack sufficient budget to deliver consumer education 68c) My department or organization is not sufficiently prepared to offer

such a service.22

d) Other: 2

Appendix III


15. Who should be responsible for consumer education (teaching shopping skills)about financial services? Using a 1 to 5 scale, please rank your top five choices,from 1 (lowest preference) to 5 (highest preference). Please use each ranking (1-5) only once.

RankingSelf-education by the consumer: books, magazines, web sites 1Parents, relatives and friends 1Schools 2Colleges and universities 2Government 3Industry associations (such as the Toronto Stock Exchange,Canadian Securities Institute, Real Estate InvestmentAssociation)

4

Sellers of financial products and services (such as individualbanks, credit unions, stock brokers)

5

16. Currently, how good a job are the following sources doing to educateconsumers? Using a 1 to 5 scale, please indicate the degree of your satisfaction.


verysatisfied

notapplicable

a) Self-education, books,magazines, web sites

10 15 55 18 1 1

b) Parents, relatives andfriends

8 18 48 20 6 0

c). Schools 20 32 30 10 7 1

d) Colleges and universities 15 37 10 20 12 6

e) Industry associations(such as the TorontoStock Exchange, RealEstate Investment Assoc.)

10 23 62 4 1 0

f) The sellers of financialproducts and services

20 38 32 8 2 0

g) Government 10 42 18 20 8 2

Appendix III


Part Six: Consumer protection through regulation and redressWe would like to know your thoughts about the importance to consumers ofregulation and redress.

Using a 1 to 5 scale, please indicate how unimportant (1) or important (5) thefollowing issue is for you.

% not at allimportant

extremelyimportant

17. How important is regulation in the financialservices sector to protect consumers?

5 8 10 53 24

18. How important are redress systemsenforced by governments to protectconsumers of financial services?

6 7 9 55 23

19. In the interest of regulating protection ofconsumers, how important would it be tocreate one, national regulatory body forthe entire financial services sector?

6 7 24 52 11

20. Thinking about your department or regulatory organization, how well equippedare you to enforce the consumer protection regulations your organization isresponsible for?

% stronglydisagree

stronglyagree

a) The regulations we enforce are sufficiently comprehensiveto protect consumers (i.e. they have “teeth”)

10 22 20 40 8

b) We have the financial and personnel resources toadequately enforce the regulations

23 32 28 12 5

c) We are fully committed to protecting consumer interests 2 3 12 67 16

21. Does your department or regulatory organization offer consumer redress?

%a) yes 88b) no 10c) not sure 2

If you answered “no” or “not sure” in question 21, please go to question 24.

Appendix III


22. Thinking only about your department or regulatory organization, please indicatehow satisfied you are with the quantity and quality of consumer redress yourdepartment or regulatory organization is able to deliver to consumers regardinginvestment services or products. (You might be dissatisfied, for example, if youwere constrained by legislation, regulation, mandate or lack of budget, or simplyif you felt your department or is organization insufficiently prepared.)


verysatisfied

notapplicable

5 9 28 40 9 9

If you chose “dissatisfied” or “extremely dissatisfied” for any section of question22, please answer the following question. If you did not chose “dissatisfied” or“extremely dissatisfied,” please go to question 24.

23. Why did you choose “dissatisfied” (2) or “extremely dissatisfied” (1) inquestion 22? Please choose the one answer that best matches your view.

%a) My department or organization is constrained by

legislation, regulation, or mandate from offeringconsumer redress.

52

b) We lack sufficient budget to adequately deliverconsumer redress

27

c) My department or organization is not sufficientlyprepared to offer such a service.

19

d) Other: 2

24. Who, if anyone, should be responsible for enforcing minimum standards ofconduct upon the sellers of financial products and services? Using a 1 to 5scale, please rank your top five choices, from 1 (most responsible) to 5 (leastresponsible). Please use each ranking (1-5) only once.

RankingIndustry regulators (such as the Ontario SecuritiesCommission) (Note: significant votes.)

1

A government or government-appointed Ombudsman 1Government departments 2A business Ombudsman (such as the CanadianBanking Ombudsman)

3

Industry associations (such as the Investment FundsInstitute, Real Estate Investment Association)

4

Consumer associations 4Self-enforcement by sellers 5No one (the market should rule) 5

Appendix III


25. From your own knowledge, how good a job are the financial service providers,governments, regulators and others listed below doing to provide consumerredress (solve consumer problems, handle consumer complaints, etc.)? Using a1 to 5 scale, please indicate your assessment of each.


verysatisfied

a) Self-enforcement by sellers 18 27 52 2 1

b) Industry associations (such asthe Investment Funds Institute,Real Estate InvestmentAssociation)

12 22 57 7 2

c). Consumer associations 9 12 75 4 0

d) Government departments 11 18 41 21 9

e) Industry regulators (such as theOntario Securities Commission)

9 15 39 21 16

f) A government Ombudsman 9 17 35 27 12

g) A business Ombudsman (suchas the Canadian BankingOmbudsman)

12 18 49 15 6

26. Below are two statements concerning consumer redress. Using a 1 to 5 scale,please indicate how strongly you disagree (1) or agree (5) with each statement.


a) Consumer redress is as important to people’slong-term financial future as consumer education.

7 8 26 36 23

b) Consumers know their rights regardingpurchasing financial services or products.

37 42 12 7 2

Appendix IV

Appendix IV Research Interviews 1

Research interviews∗

Brown, David: Chair, OSCwww.osc.gov.on.ca

Conacher, Duff: Democracy Watchwww.dwatch.ca

Cordeiro, Mary J.: Resource Centre Manager, Investor Learning Centrewww.investorlearning.ca

Jones, Laurie: Director Communications and Public Affairs, CDICwww.cdic.ca

Lauber, R. Michael: Canadian Banking Ombudsmanwww.bankingombudsman.com

Mountain, John: VP Regulation, IFICwww.ific.ca

Pearcy, Margaret: Director Communications and Public Affairs, OSFIwww.osfi-bsif.gf.ca

Stromberg, Glorianne: A former Commissioner of the OSC, author and [email protected]

Webb, Mark: Group Product Manager, Canadian Securities Institutewww.csi.ca

Wettlaufer, Anne: Director, Public Affairs Programs, CBAwww.cba.ca

Appendix IV

2 Research Interviews Appendix IV

Willson, John: Chief Financial Officer, Objectoolswww.objectools.com

Wilton, Roberta: President, Canadian Securities Institutewww.csi.ca

∗ Selected interviews conducted by David Yudelman for this Report in the secondhalf of 2000 and the first half of 2001.

Appendix V

Appendix V Consumer Rights 1

The Consumers Council of CanadaNine Consumer Rights

The Consumers Council of Canada’s core philosophy is based on the following,nine internationally recognized, Consumer Rights.

1. Basic needs

The right to basic goods and services which guarantee survival: adequatefood, clothing, shelter, health care, education and sanitation.

2. Safety

To be protected against hazardous products and processes.

3. Information

The right to have the facts needed to make an informed choice.

4. Choice

The right to choose between a variety of products and services.

5. Representation

The right to be heard in the making and execution of government policy.

6. Redress

The right to a fair settlement of just claims.

7. Consumer Education

The right to acquire skills and knowledge to be an informed and responsibleconsumer.

8. Healthy Environment

The right to live in a healthy and sustainable environment.

9. Privacy

The right to the protection of our personal information.

Appendix VI

Appendix VI Selective Bibliography

Selective Bibliography(by country, annotated)

(Note: This is a selective bibliography and no attempt has been made to make it acomprehensive document. There are, therefore, many major and obviousomissions.)

Table of Contents

PageAustralia

Competition and pricing practices 1Consumer advisory services 1Consumer education 2Consumer organizations 2Consumer redress 3Government regulation 4Regulations 4Self-regulation 4Other websites and links 5

CanadaCompetition and pricing policies 6Consumer education 6Consumer organizations 7Consumer redress 7Consumer surveys 8Government regulation 9Government sources 10Industry associations 11Media and small publishers focused on financial affairs 11Miscellaneous publications 12

Appendix VI

Selective Bibliography Appendix VI

United KingdomConsumer education 13Consumer organizations 13Consumer protection 14Consumer redress 14Consumer survey 14Government regulation 15Government sources 15Industry self-regulation 15Other websites and links 15

United StatesConsumer education 16Consumer organizations 16Consumer survey 17Government regulation 17Government sources 18Miscellaneous publications 18Other websites and links 18

Appendix VI

Appendix VI Selective Bibliography 1

Selective Bibliography

Australia

Competition and pricing practices

The Australian Competition and Consumer Commission was formed onNovember 6, 1995 by the merger of the Trade Practices Commission and thePrices Surveillance Authority. The Commission administers the Trade PracticesAct 1974 and the Prices Surveillance Act 1983. The Act covers anti-competitiveand unfair market practices, mergers or acquisitions of companies, productsafety/liability, and third party access to facilities of national significance. TheCommission is the only national agency dealing generally with competitionmatters and the only agency with responsibility for enforcement of the TradePractices Act and the associated State/Territory application legislation.

http://www.accc.gov.au/

Consumer advisory services

Financial counsellors operate in each State and Territory, offering free advice toconsumers. Two of them are:

The Financial and Consumer Rights Council in Victoria

http://www.home.vicnet.au/~fcrc/

The Financial Counsellors’ Association of NSWhttp://www.acwa.asn.au/fcan/

Appendix VI

2 Selective Bibliography Appendix VI

Consumer education

The Australian Securities and Investment Commission (ASIC) has recentlyreleased a discussion paper on financial services consumer education and it hopesto release a consumer education strategy in the coming months.

http://www.fido.asic.gov.au/index.cfm-id=0120C8BE-4D86-11D4-A4EF009027DE39A4&Method=Full&story=yes.htm

ASIC has also developed an online directory of financial services consumereducation resources.

http://www.fido.asic.gov.au/asic_cd/index.htm

The Securities Institute is the Australian equivalent of the CSI (the CanadianSecurities Institute), and has provided educational courses to professionals in thesecurities and financial services industries since 1966.

http://securities.edu.au/

Consumer organizations

The Australian Consumers Association also provides general information andadvice for consumers.

http://wwwchoice.com.au

For information more specifically focused on financial services, go to theFinancial Services Consumer Policy Centre.

http://www.fscpc.org.au

Appendix VI


Consumer redress

A number of industry-based independent dispute resolution schemes have beendeveloped in the financial services sector – including the Australian BankingIndustry Ombudsman and the Financial Industry Complaints Service. A full list ofthese schemes and their contact details, including websites, is included in theDirectory of Consumer Dispute Resolution Schemes and Complaint HandlingOrganizations produced by the Consumer Affairs Division of Treasury andavailable from:

http://www.consumersonline.gov.au

The Australian Securities and Investment Commission (ASIC) has the power toapprove dispute resolution schemes, and to date, has approved two (the FinancialIndustry Complaint Scheme and Insurance Enquiries and Complaints). However,ASIC is currently assessing applications for approval from a number of otherschemes. ASIC has also released a policy on how it will use this approval power.

(Policy Statement 139, available from the Policy area).http://www.asic.gov.au

The proposed Financial Services Reform (FSR) legislation is due to be introducedinto Parliament in the near future. Information about the Financial ServicesReform Bill is on the Government Treasury website. Follow the linksPublications: Bills, Acts and Legislation: Corporate Law Reform Program.

http://www.treasury.gov.au

The FSR legislation will implement an integrated regulatory framework forfinancial products. This will provide consistent regulation of functionally similarmarkets and products. There has been no indication by the Government or theTreasury that there is an intention to create a new agency. Instead, it is anticipatedthat ASIC will have responsibility for administering much of the new legislation.

The proposed FSR legislation should provide important benefits for consumers –particularly by ensuring consistent standards for functionally similar products andservices, and by making internal and external dispute resolution schemesmandatory. Of course, there will still be a need for consumer education andinformation, so that consumers can take advantage of choice, and ASIC iscurrently looking at these issues in the context of developing its consumereducation strategy.

Appendix VI


Government regulation

The Australian Securities and Investment Commission is the market conductregulator. ASIC is one of three Commonwealth Government agencies thatregulate financial services. ASIC’s role is to administer and enforce consumerprotection legislation in the financial services sector.

http://www.asic.gov.au

The Australian Prudential Regulation Authority is the prudential regulator.

http://www.apra.gov.au

The Reserve Bank of Australia is responsible for monetary policy and the stabilityof the financial system.

Regulations

Consumer protection regulation of financial institutions includes:• The ASIC Act 1989. General prohibitions against misleading anddeceptive conduct, and other unfair practices.•The Corporations Law and regulations. ‘Good advice’ obligations foradvisers.•Insurance Contracts Act 1984•Insurance Act 1973•Insurance (Agents and Brokers) Act 1984•Superannuation Industry Supervision Act

Self-regulation

As well as dispute resolution schemes, a number of industry associations in thefinancial services sector have developed self-regulatory codes of practice.Information about the codes, and links to the text of the codes, can be found onthe ASIC consumer website.

http://www.fido.asic.gov.au

Appendix VI


The Code of Banking Practice and the Credit Union Code of Practice arecurrently under review. Copies of the submissions are available on the ASIC siteand more information about the reviews, and submissions from otherorganizations, can be found at:

http://www.reviewbankcode.com/index.htmhttp://www.cu.net.au/codereview/

Other websites and links

The New Consumer Credit Code.

http://www.creditcode.gov.au/

Appendix VI


Canada

Competition and pricing policies

The Competition Bureau is responsible for administration and enforcement of theCompetition Act and three Standards-based Acts. It is charged with the task ofpromoting and maintaining fair competition so that Canadians can benefit fromlower prices, product choice and quality services.

http://www.strategis.ic.gc.ca/SSG/ct01250e.html

Consumer education

The Canadian Foundation for Economic Education (CFEE) was established in1974 in the belief that it is important for Canadians, and especially youngCanadians, to develop the “functional economic capability” to undertakedecisions and actions in their economic lives with confidence and competence.

http://www.cfee.org

Consumer Power is an on-line source of news, information, and bulletins toenable consumers to be wise and ethical. New content is added daily.

http://goods.perfectvision.ca/ConsumerForum.cfm

The Canadian Securities Institute (CSI) is a national educational organization forCanada’s securities industry.

http:// www.csi.ca

The Investor Learning Centre of Canada (ILC) is an affiliate of the CSI and is anindependent non-profit organization dedicated to helping Canadians take chargeof their financial future by producing impartial educational materials.

http:// www.investorlearning.ca

Appendix VI


Toronto Stock Exchange (TSE): Taking Stock in your future: a guide, Toronto;2000 is a thorough and detailed professional development program to helpteachers of senior high school courses in business, economics, and mathematics,to implement the portion of the new curricula that deal with money managementand capital markets. A project team at the Ontario Institute developed the programfor Studies in Education at the University of Toronto in co-operation with theTSE. Something similar, and much simpler, needs to be developed for the vastmajority of consumers who will never have access to such courses.


The Consumers Council of Canada (CCC) is a federally incorporated, not-for-profit organization. The CCC advocates for consumers while working as partnerswith organizations across the country. The challenge is to balance the wide rangeof issues in the marketplace with the human and financial resources available.

http://www.consumerscouncil.com

Democracy Watch is a small Canadian citizen advocacy organization, run by DuffConacher. Its aim is to help reform Canadian government and businessinstitutions.

http://dwatch.ca/

The Consumers' Association of Canada (CAC), founded in 1947, is anindependent, not-for-profit, volunteer-based, charitable organization. The CACinforms and educates consumers on marketplace issues, advocates for consumerswith government and industry, and works with government and industry to solvemarketplace problems.

http://www.consumer.ca

Consumer redress

The Canadian Banking Ombudsman is an independent organization, whichinvestigates complaints from individuals and small businesses about bankingservices.

www.bankingombudsman.com

Appendix VI


Consumer surveys

Canadian Bankers Association and Canadian Foundation for EconomicEducation, Survey of Canadians’ Economic and Financial Understanding,Toronto; December 1997.

Canadian Bankers Association, The Economy, Business and Technology: A surveyof Canadian attitudes, Toronto; 2000.

Canadian Deposit Insurance Corporation, Results of the 2000 Baseline AwarenessSurvey: Final Report, Ottawa; March 2000.

Canadian Securities Institute, Investor Profiles and Attitudes Survey: SummaryReport, Toronto; 1994.

CSB Communications, A Consumer Perspective on Financial Services, Toronto;2001.

CSB Communications, Financial Services Survey of individuals working withinthe Canadian Financial Services Sector, Toronto; 2001.

CSB Communications, Financial Survey of individuals working within theCanadian Financial Services Sector Government Regulators or GovernmentMinistries/Departments, Toronto; 2001.

Deloitte Research, Myth vs. Reality in Financial Services, New York; 2000.

Dominion Bond Rating Service, Banking on E-Commerce: The CanadianBanking Study, Toronto; April 2000.

Investment Funds Institute of Canada, Fund Summary: Research ReportNovember 1998, Toronto; 1998.

Appendix VI



Federal

Office of the Superintendent of Financial Institutions (OSFI) is theprimary regulator of federally chartered financial institutions and federallyadministered pension plans. It is a prudential not a market conductregulator and regulates all banks and all federally incorporated orregistered trust and loan companies, insurance companies, cooperativecredit associations, fraternal benefit societies and pension plans.

http:// www.osfi-bsif.gc.ca

Provincial

The Financial Services Commission of Ontario (FSCO) regulatesinsurance, pensions, credit unions, caisses populaires, cooperatives,mortgage brokers and loan and trust companies.

http://www.fsco.gov.on.ca/

The Joint Forum of Financial Market Regulators was established in 1999by the CSA, CCIR and CAPSA as a mechanism for coordinating andstreamlining the regulation of financial products and services.

http://www.osc.gov.on.ca/[email protected]

Two of the larger provincial securities commissions are the ASC and theOSC. The OSC is regulator of Canada’s largest capital market, andadministers and enforces securities legislation in the Province of Ontariowith a staff of 340 (its US counterpart, the SEC, has a staff of 2,900). Itsmandate is to protect investors from unfair improper and fraudulentpractices; foster fair and efficient capital markets; and maintain public andinvestor confidence in the integrity of those markets. The ASC has muchthe same mandate for Alberta.

Appendix VI


Government sources

Federal

Bill C-8An Act to establish the Financial Consumer Agency of Canada and toamend certain Acts in relation to financial institutions. The Minister ofFinance, 2001.

http://www.parl.gc.ca/common/bills.asp?Language=E&Parl=37&Ses=1

Task Force on the Future of the Canadian Financial Services SectorEmpowering Consumers Background Paper #3; September 1998.

http://finservtaskforce.fin.gc.ca/

PrivacyThe Privacy Commissioner of Canada

http://www.privcom.gc.ca

Strategis: website of Industry Canada, Office of Consumer Affairs. Thefollowing link takes you directly to consumer issues:

http://strategis.ic.gc.ca/sc_consu/consaffairs/engdoc/oca.html

The Strategis site displays many of the strengths and weaknesses ofCanadian resources for consumers of financial services (see above,Consumer information, advice and education: Information fromgovernment and regulators to the consumer for further discussion). Ingeneral, government websites in Canada, particularly federal websites, aresuperb sources of raw information for researchers, if not for consumers.

Appendix VI


Industry associations

The Canadian Bankers Association (CBA) is a professional industry associationthat represents the chartered banks of Canada. The CBA provides information,research, advocacy and operational support services. Established in 1891, theCBA is the main representative body for banks in Canada.

http://www.cba.ca

The Investment Dealers Association of Canada (IDA) is a national self-regulatoryorganization and trade association for the Canadian securities industry.

http://www.ida.ca

The Investment Funds Institute of Canada (IFIC), founded in 1961, is the industryassociation for the Canadian investment funds industry. The IFIC providesservices, which support and enhance the investment fund industry and provideinvestment vehicles for Canadians.

http://www.ific.ca

Media and small publishers focused on financial affairs

Bylo Selhi Smart Mutual Fund Investing for Independent Canadian Investors. Asite for do-it-yourself investors needing information on making informed financialplanning and mutual fund investment decisions.

http://www.bylo.org/

Buell, Stan: Small Investor Protection Association

Carrick, Rob: The Globe and [email protected]

Chevreau, Jonathan: The National Post, Publisher of The Wealthy [email protected]

Handler, Steven: Canadian Alliance of Individual Investors

Killoran, Joseph A.: [email protected]

Appendix VI


Miscellaneous publications

Stephen I. Erlichman, “Mutual Fund Governance in Canada: Is ReformNeeded?” discusses the recommendations contained in his longer July 2000 CSAreport, March 2001.

Stephen Erlichman, entitled Making it Mutual: Aligning the Interests of Investorsand Managers – Recommendations for a Mutual Fund Governance Regime forCanada”, in a report prepared for the Canadian Securities Administrators, July2000.

CIBC Insurance and TEAMmakers inc.: Bridging the gap between the insuranceindustry and its consumers: a report by panels of consumer and industry experts,David Yudelman, Toronto, July 1996. Provides a detailed perspective on theconsumer and insurance services in Canada. Many of the findings are equallyapplicable to the gap between consumers and the financial services industry ingeneral.

Glorianne Stromberg, Regulatory Strategies for the mid-‘90s: Recommendationsfor regulating investment funds in Canada, Canadian Securities Administrators;January 1995.

Glorianne Stromberg, Investment Funds in Canada and consumer protection:Strategies for the millennium, Office of Consumer Affairs, Industry Canada;October 1998.

Appendix VI


United Kingdom

Consumer education

School curricula vary between England, Scotland, Wales and Northern Ireland.

http://www.fsa.gov.uk/consumer-education/

(follow links to “schools and colleges”, then to teachers’ section).

Financial Services Authority, Directory of Consumer Information and EnquiryServices in Personal Finance, London, 1999. This is a comprehensive128-page directory indexed by financial area and organization, and providesinsight into the enormous number and scope of organizations to helpconsumers in the area of financial affairs. The problem is frequently thescattered nature of such organizations (a problem found in Canada as well)and this Directory is a start in attempting to tackle the issue.


Consumer Association (of the UK, also known as “Which?”) was set up in 1957to improve the standards of goods and services available to consumers in the UK.It was registered as a charity in 1987. It publishes research and campaigns onbehalf of consumers.

http://www.which.net

For specifically financial material, go to:

http://www.which.net.money

Appendix VI


Consumer protection

The Financial Services Authority (FSA) is available to consumers when needinginformation on how to make a complaint with a financial product or service. It isstill awaiting its full powers under the Financial Services and Markets Act 2000,but has already distributed over a million copies of FSA consumer booklets, andis receiving 15,000 calls a month on its Consumer Helpline.

http://www.fsa.gov.uk

The Financial Services Consumer Panel (FSCP) is a statutory but independentvoice for consumers of financial services. Established in December 1998 by theFinancial Services Authority (FSA) the FSCP provides advice on the interests andconcerns of consumers and to assess the FSA’s effectiveness in meeting itsobjectives to protect consumers’ interests and promote public understanding ofthe financial system. The FSCP also promotes the interests of consumers toGovernment when financial issues are under consideration.

http://www.fs-cp.org.uk/

The National Consumer Council (NCC) is a non-departmental public body, set upby the UK government in 1975 to ensure that those who take public decisionshave a balanced and authoritative view of the needs of consumers before them. Alarge part of its funding comes from a grant-in-aid from the UK Department ofTrade and Industry.

http://www.ncc.org.uk

Consumer redress

The Financial Ombudsman Service, bringing together various existingarrangements, is being set up as a single national Ombudsman scheme.

http://www.financial-ombudsman.org.uk

Consumer survey

Financial Services Consumer Panel, Consumers in the Financial Market, carriedout November 1999.

http://www.fs-cp.org.uk/public/mn_pr962872196.html

Appendix VI



In May 1997 the regulation of banking supervision and investment services in theUK was merged into the Securities and Investment Board. In October 1997 theSIB became the Financial Services Authority (FSA), set up to act as a singlenational regulator, mainly focusing on prudential regulation, for all financialservices in the UK. In June 1998 banking supervision was transferred to the FSAfrom the Bank of England. In 2001, the FSA took over responsibility for theBuilding Society Commission, the Investment Management Relations Authority,the Personal Investment Authority, the Register of Friendly Societies, and theSecurities and Futures Authority. It was also given authority to regulate mortgagelending. It regulates both wholesale and retail markets, right across the range, It isstill awaiting its full powers under the Financial Services and Markets Act 2000,and the old self-regulatory bodies continue to exist, even if in name only. It is an“authority”, set up by statute, operating like the Central Bank, not beholden to orthe creation of a government ministry, and supposedly therefore immune topartisan political influence.

http://www.fsa.gov.uk/

Government sources

To access the Financial Services and Markets act, as well as other UK legislation:

http://www.clicktso.com

Industry self-regulation

For the voluntary Banking Code, setting standards of good banking practice andsubscribed to by the majority of banks, go to the Banking Code Standards Boardwebsite:

http://www.bankingcode.org.uk


The Consumer Gatewayhttp://www.consumer.gov.uk/consumer_web/index_v4.htm

Appendix VI


United States

Consumer education

The Consumer Information Center provides a full text of hundreds of federalconsumer publications on topics such as car, children, food and nutrition, health,housing, finances, and travel, among others.

http://www.pueblo.gsa.gov

The U.S. Consumer Gateway is a one-stop link to a broad range of federalinformation resources available online. Search for information on food, health,product safety, finances, and transportation.

http://www.consumer.gov

Consumers Report is a source for unbiased advice about products and services,personal finance, health and nutrition and other consumer-related topics.

http://www.consumerreports.org

Consumersearch offers online ranking and descriptions of consumer products andservices reviewed. Category areas include personal finance, electronics, house andhome, computers, office, automotive and many more.

http://goods.perfectvision.ca/ConsumerForum.cfm


Consumers Union, the non-profit publisher of Consumer Reports magazine,provides information on a variety of consumer issues, including health care,financial services, food safety, product safety and more.

http://www.consumersunion.org

Appendix VI


The Consumer Federation of America (CFA), founded in 1968, is an advocacyorganization, working to advance pro-consumer policy on a variety of issuesbefore Congress, the White House, federal and state regulatory agencies, and thecourts.

http://www.consumerfed.org/

Consumer survey

Securities Industry Association, 1999 Annual SIA Investor Survey: Investors’Attitudes Towards the Securities Industry, Boca Raton, Florida; November 1999.


The following are just three of a multitude of US regulators of financial services.The US system is even more complex and divided than the Canadian system.

The U.S. Securities and Exchange Commission (SEC) regulates all investmentsconsidered securities under the securities laws. Its primary mission is to protectinvestors and maintain the integrity of the securities markets, though notnecessarily in that order. It places a great emphasis on disclosure to all investors,whether large institutions or private investors, of certain basic facts aboutinvestments before they are put out for sale. The SEC also oversees other keyparticipants in the securities world, including stock-exchanges, broker-dealers,investment advisers, mutual funds, and public utility holding companies. It brings400 civil enforcement actions to the courts every year against individual andcompanies allegedly breaking securities laws. It has a staff of approximately2,900.

http:// www.sec.gov/

The Board of Governors of the Federal Reserve System oversees state-charteredbanks and trust companies belonging to the Federal Reserve System.

http://www.federal reserve.gov/

The Federal Deposit Insurance Corporation (FDIC) regulates state-charteredbanks that do not belong to the Federal Reserve System.

http:// www.fdic.gov

Appendix VI


Government sources

United States House of Representatives House Committee on Financial Services.

http://www.house.gov/financialservices/

Miscellaneous publications

A Consumer Blueprint For Financial Services Reform in the 106th Congress.Washington, DC.

www.consunion.orghttp://www.consunion.org/finance/1116bluedc1198.htm

The Heuerman Fund for the Study of Investment Law and Regulation through theUniversity of Toledo, College of Law. A financial regulators gateway designed toprovide online access to financial regulatory agencies around the world torelevant statutes and rules from all jurisdictions.

http://law.utoledo.edu/financialregulators/pages/finanreg.htm


Credit Counseling Centers of America (non-profit).

http://www.cccamerica.org/indexa.htm

Federal Deposit Insurance Corporation-consumer rights.

http://www.fdic.gov/consumers/consumer/rights/index.html

The Heuerman Fund for the Study of Investment Law and Regulation through theUniversity of Toledo, College of Law. A financial regulators gateway designed toprovide online access to financial regulatory agencies around the world torelevant statutes and rules from all jurisdictions.

http://law.utoledo.edu/financialregulators/pages/finanreg.htm

Appendix VI


The Nader Page

http://www.nader.org/

In the Public Interest is a weekly column by Ralph Nader that runs in newspapersaround the United States.

http://www.ralphnader.com/public_interest.html

The American Association of Family and Consumer Sciences (AAFCS); TheOffice of Public Policy.

http://www.aafcs.org/public/index.html

United States Securities and Exchange Commission; consumer complaint centerhttp://www.sec.gov/enforce/comctr.html

Appendix VII

Appendix VII Published Sources for Consumers 1

Published sources for consumers

The following is a selective annotated list of financially oriented publicationsavailable to Canadian consumers*

Advisor's Edge (Monthly)Canadian. Aimed at the financial professional, this magazine includes material onnew products and services for the Canadian retail investor. Includes tips for theadviser on such topics as growing the business and keeping clients satisfied.

Alberta Securities Commission annual report (Annual)

All-Canadian Mutual Fund Guide (Quarterly)Canadian. Review of mutual funds. Indicates level of risk. Includes articles aswell as rankings.

Bank of Canada Banking and Financial Statistic (Monthly)Canadian. Statistics on the economy and the financial services industry in Canada.Most statistics are available on the Statistics Canada web site.

Bank of Canada Review (Quarterly)Canadian. Contains articles, speeches, press releases and major financial andeconomic indicators. Also available on the Bank of Canada website.

Barron's (Weekly)American. The weekly newspaper of Wall Street. Useful for the more advancedinvestor. Articles include interviews with portfolio managers, analysts etc.Provides a very thorough evaluation of (mostly U.S) financial web sites on aregular basis.

Bell Charts Plus software (Monthly)Canadian. Now issued as Morningstar Canada. Software, which allowscomparison of mutual fund performance. Morningstar also rates funds.

Benefits Canada (Monthly)Canadian. Not often of great interest to the investing public. Publishes annuallistings of money managers, benefits consultants and which is useful referencematerial.

Better Investing (Monthly)American. A publication of the National Association of Investors Corporation(NAIC) the umbrella organization for investment clubs in the U.S. Offerspractical information on how to run an investment club, which though US biased,has applications elsewhere. Offers a format by which stocks can be evaluated.

Appendix VII

2 Published Sources for Consumers Appendix VII

Business (Monthly)Canadian. Published with the National Post. Useful business background.Includes a regular feature, which offers expert opinions on a real financialsituation. A special issue, usually in June, ranks Canada’s largest companies.

Canadian Banker (Quarterly)Canadian. Of very limited use to the Canadian retail investor.

Canadian Business (Bi-Monthly)Canadian. Business background. Includes an investing section.

Canadian Business Economics (Quarterly)Canadian. Of very limited use to the Canadian retail investor.

Canadian Economic Observer (Monthly)Canadian. Reviews current economic conditions. Each issue also includes afeature article. Historical supplement published annually.

Canadian Insurance (Monthly)Canadian. Of limited use to the Canadian retail investor.

Canadian MoneySaver (Monthly)Canadian. Offers articles on a variety of topics including regular coverage ofdividend reinvestment plans and stock purchase plans. Promotes the formation of‘Shareclubs” where investors meet to share investment information, but which,unlike investment clubs, do not pool funds to invest.

Canadian Shareowner (Bi-Monthly)Canadian. Published by the Canadian Shareowner’s Association. Uses the sameformat as NAIC (Better Investing) to analyze stocks. Useful articles.

Canadian Treasurer (Six/year)Canadian. Of very limited use to the Canadian retail investor.

CDNX Monthly Review (Monthly)Canadian. Review of the Canadian Venture Exchange. Includes information onnew listings as well as statistics such as the monthly and yearly high and low foreach stock and average daily volume for the CDNX.

The Economist (Weekly)British. Offers a global perspective. Useful articles and statistics.

Family Money (from Better Homes & Gardens) (Quarterly)American. Articles were of very limited use to Canadians. Subject area is bettercovered by Money Sense, (Canadian) which began in 1998.

Appendix VII


Financial Times (Daily)British. Offers excellent coverage of international financial news. Good surveysof global business sectors.

Forbes (Bi-Weekly)American. Useful for business/industry topics. Little coverage of Canadian retailinvesting. Annual ranking of the wealthiest people in the world.

Fortune (Bi-Weekly)American. Useful coverage of business/industry topics. Annual ranking of the top500 companies in the USA.

Globe and Mail (Daily)Canadian.

Great Stocks & Grief Stocks on CD (Monthly)Canadian. From Canadian Shareholders Association. Company data presented toillustrate use of the CSA’s the Stock Study Guide.

Money (Monthly)Canadian. Articles on the full range of investment topics. Features include aninvestment makeover and a Question and Answer page.

Individual Investor (Monthly)American. Some useful articles for the Canadian investor.

Investment Executive (Monthly)Canadian. Reports and provides opinion on regulatory changes. More focused onthe mutual fund industry than its competitor, ‘Advisor’s Edge’.

Investment Reporter (Weekly)Canadian. Analysis and conservative investment selection.

Investor’s Business Daily (Daily)American.

Investor’s Digest of Canada (Bi-Weekly)Canadian. Offers sector analysis and conservative investment selections.

Monetary Policy Report (Semi-Annual)Canadian. From the Bank of Canada. In addition, Updates (Monetary PolicyReport Update) are published in February and August.

Appendix VII


Money Digest (Monthly)Canadian. Articles cover all aspects of personal finance and investing. Each yearthe July issue is a directory, which lists financial services firms and associations.

Moneysense (Eight/year)Canadian. Covers more than mainstream investing and personal finance, e.g.online casinos, garage sale shopping.

Morningstar Canada (Monthly)Canadian. Software, which allows comparison of mutual fund performance.Morningstar also rates funds.

National Post (includes Financial Post) (Daily)Canadian.

The Northern Miner (Weekly)Canadian. The newspaper for the mining industry.

Offshore Finance Canada (Six/year)Canadian. Deals strictly with offshore investing.

Ontario Securities Commission, Annual Report (Annual)Canadian.

OSC (Ontario Securities Commission) Bulletin (Weekly)Canadian. The Bulletin is the primary source for information on the regulation ofthe securities industry in Ontario. Chapter 7 reports insider-trading activity.

Personal Finance (Monthly)Canadian. Covers all aspects of personal finance including taxation. Providesbrief analysis on stocks.

Perspectives (Quarterly)Canadian. From the Ontario Securities Commission. Contains profiles of policy,summaries of recent enforcement proceedings, summaries of recent nationalinitiatives from the CSA, (Canadian Securities Administrators).

Registered Representative (Monthly)American. Useful for profiles of industry professionals and reviews of tool of thetrade.

Report on Business Magazine (Monthly)Canadian. Business analysis. Each July issue contains a ranking of Canada’s top1000 companies.

Appendix VII


Silicon Valley North (Monthly)Canadian. News, commentary, company results and features on the high techindustry.

Smart Money (Monthly)American. Of limited use to the Canadian retail investor.

Stock Guide (Monthly)Canadian. Provided ratios for Canadian stocks pre-internet. Internet sites providemore timely information.

Technical Analysis of Stocks & Commodities (Monthly)American. For the trader and the more sophisticated investor. Useful list of websites for traders, though most are American. Features include an interview withactive traders as well as a column for novice traders.

Toronto Star (Daily)Canadian. The business section, e-biz, includes useful articles.

The TSE Review (Monthly)Canadian. Includes information on changes to the stock list as well as a list of thecomposition of the various TSE indices (green pages) and statistics on optionstrading (yellow pages).

Value Line Investment Survey (Weekly)American. Analysis and opinion on 95% of the trading volume of all stocks in theU.S. Provides economic and stock market commentary. Over a three-monthperiod reports on all 1700 stocks are published.

Wall Street and Technology (Monthly)American. News on information technology for the securities and investmentindustry.

Wall Street Journal (Daily)American.

Wealthy Boomer (Six/year)Canadian. Aimed at the boomer generation, those born between 1947 and 1966,the magazine covers not only personal finance, taxation and wealth, but alsoarticles on enjoying life.

Worth (Monthly)American. Of limited interest to the Canadian retail investor.

Appendix VII


Young Money Matters (Irregular)American. From NAIC, National Association of Investors Corporation. Aimed atyoung investors. Encourages involvement in an investment club.

* Compiled by the Investor Learning Centre, Toronto, www.investorlearning.ca.All of these publications are available for reference by the public at no chargeduring office hours at the Toronto Resource Centre of the ILC, 121 KingStreet West, Toronto, telephone (416) 681-2193. Last updated – November2000