A friend who lives in Central America sent me a link to a story in the local Barrie paper this morning: Money Adviser facing big suit:
“A multimillion-dollar lawsuit against a local financial adviser has evolved into a class action lawsuit…
John Hollander, of Ottawa law firm Doucet McBride LLP, said about 45 families are part of the [$50 million] suit or are in the process of being involved. He anticipates that number to increase…
[David Karas] ran Money Concepts in Barrie and appeared regularly in the media as a financial expert.
The Money Concepts franchise in Barrie was that company's top Canadian branch for sales performance between 1988 and 2009, and top international branch from 1993 to 2009, according to the claim.
The local franchise no longer exists.
The suit alleges that Karas encouraged people to borrow money to invest in mutual funds, “without discussing the risk to clients … and the conflict of interest.
“We're saying that involves very high risk,” Hollander said. “In each case, he promised this would be a panacea to their financial problems.”
The more clients borrowed for investment, the more compensation Karas was paid, according to the statement.
For the clients, the rewards didn't match. Problems then occurred when the bottom dropped out of the stock market and the value of the investments plummeted. For many, that resulted in more debt than assets…”
The article also says that Karas and company are denying any wrong-doing.
My take: Similar sales techniques are rampant throughout the financial advisory world. Hidden commissions are everywhere and hapless consumers are sold all manner of insurance and financial products that make the sales force richer at the expense of the client. The industry needs to be reformed completely with the product sales side separated entirely from the advisory side. That said, with the industry self-regulating and controlling many government seats, the chances of the needed reforms are about nil.