Personal Finance

A gumshoe for the investor

JOHN SCHOFIELD April 13 1998
Personal Finance

A gumshoe for the investor

JOHN SCHOFIELD April 13 1998

A gumshoe for the investor

Personal Finance

JOHN SCHOFIELD

Robert Goldin admits to owning a trench coat. But that is as close as the tall, slender South African comes to a typical private eye. Instead of snooping on wayward spouses, the self-described financial investigator from suburban Toronto tracks renegade stockbrokers and financial planners— and attempts to recover the big losses they can inflict on unsuspecting investors. While the work is less risky than chasing conventional crooks, it has exposed Goldin to one occupational hazard: anger. Prospective clients “feel they’ve been personally taken advantage of,” says Goldin, 55. “They all start off the first five minutes swearing at their broker and calling them names.”

But most small investors suffer in silence, not knowing where to turn. Hurt by sloppy or unscrupulous financial advisers, some look for help from lawyers or accountants, most of whom lack the experience of seasoned investigators.

High rollers with deep pockets can afford to hire the big guns: forensic accountants from large firms such as KPMG or Toronto-based Lindquist Avey Macdonald Baskerville. Now, financial detectives like Goldin are targeting the growing army of small investors who may need an experienced investigator, but cannot afford the high fees that larger firms charge.

There seems to be no shortage of business. Goldin, a former lawyer who has worked for eight years as a financial investigator in South Africa and Canada, says he has been flooded with calls since he started advertising late last year. That should come as no surprise. Lured by the longest bull market in history and record-low interest rates on guaranteed investment certificates, investors hungry for higher returns are pouring their savings into stocks and mutual funds as never before. But many are new to the markets, and the potential for abuse is alarming.

The Investment Dealers Association, which polices stockbrokers in Canada, received 471 complaints about the conduct of brokers last year, up from a total of 354 in 1996. While the association investigates some complaints—and has the power to fine, suspend or permanently ban offending brokers—it does not reimburse investors for losses, says Fred Maefs, the IDA’s director of enforcement. For investors who rely on self-

styled “financial planners,” the risks are no less acute. Except in Quebec, where financial planners are required to take courses leading to the designation, there are no regulations that limit who can use the title or that establish minimum qualifications.

Despite the brokerage industry’s self-regulated status, Goldin says about three-quarters of his caseload involves stockbrokers. “It’s not that they’re always crooks,” he says. “They’re just snowed under with work and a lot of their obligations fall between the cracks.” Brokers most often run into trouble when they breach their so-called fiduciary duty—their responsibility to always act in the client’s best interests.

Investors typically spell out their investment history and objectives in a new-client application form. Brokers who disregard those objectives, and who fail to review clients’ goals annually, risk running afoul of IDA regulations. Unauthorized trades—including “churning,” or shuffling stocks in a portfolio simply to earn commissions—are also forbidden. Goldin cites the case of a client who returned from a six-month trip to Asia to discover he owed his brokerage $1.3 million. Contrary to the client’s objectives, the broker had been buying stock on margin—with money provided by the brokerage. “He had no idea what his broker was doing,”

says Goldin. “He trusted him.” That can be a costly mistake. Goldin says his clients’ losses generally range from $20,000 to half a million dollars. Charging a flat fee of $110 an hour, his investigations begin by collecting copies of transaction records and comparing them with the investment objectives stated on the client’s application form. Invariably, he says, brokerages co-operate in providing documents. He then turns to analysts’ reports, newspaper stories and other sources to verify whether the companies invested in were appropriate.

If the case holds water, Goldin initially attempts to negotiate a settlement with the brokerage. If that fails, he requests mediation by a trained, impartial third party. In Quebec and British Columbia, investors are automatically entitled to mediation at a cost of $1,200 to $2,000, and binding arbitration at a cost of $2,000 to $3,000. Goldin says small investors in other provinces are at a serious disadvantage because brokerages can simply stonewall them, hoping they will be scared off by the high cost of pursuing their case through the courts. “In many cases,” he says, “people just forget about it.”

Not Goldin. Displaying all the doggedness of a hard-nosed detective, he has earned the enmity of more than one brokerage house. “When someone keeps bugging and bugging you and then you get this cheesy letterhead on a dot-matrix printer, you get this feeling, WTy am I talking to you?’ ” says Richard Blakely, a lawyer for Toronto brokerage Goepel McDermid Inc., who says he initially questioned Goldin’s credentials. Blakely agrees that investors need a low-cost alternative to the courts for settling disputes, but says financial investigators are not the answer. “The solution needs to have teeth, and Robert doesn’t have any teeth,” he says. “He can’t force me to the table. He’s a paper tiger.” Still, Goldin claims he is successful in obtaining all or most of his clients’ losses in about 85 per cent of the cases he chooses to chase. That has done nothing to soften his opinion of brokers. “I would rather not put too much trust in them,” he says. Given Goldin’s activities, relations are unlikely to improve anytime soon.