Earl Jones Affair

I had been meaning to send you a note about the Earl Jones affair when it seems the Montreal Gazette pre-empted me! Attached is a piece that appeared in the Friday, July 17 edition featuring some of my comments.

Needless to say, there is always more to learn from this kind of story than what is commonly reported in the media. (Just for the record, I would never refer to myself as a “small advisor” !) But first, the facts as we know them.

Earl Jones had an office in Point Claire where he operated under the aegis of a business he called Consultant and Administration Corporation. He led people to believe he was a wise and caring financial advisor who had affiliations with the Royal Bank. He carried on business for some 25 odd years, managing to get many a vulnerable widow and retiree to entrust him with their life savings. Then one Friday afternoon, he simply vanished along with all his unsuspecting clients’ money. Then and only then did it come to light that Earl Jones was never duly registered as any kind of financial advisor. He had no license to practice, no credentials. He was nothing other than an imposter.

It seems unfathomable that anyone could have kept up such a scam for so many years without sounding any alarms or raising the least suspicion. But if you ever saw the movie “Catch me if you can” about the real life story of Frank Abagnale, you will know that it is not that hard to pretend to be someone you are not.

The real lesson to be learned from the Earl Jones affair is that when engaging the services of any professional, financial or otherwise, it pays to know who one is dealing with. The Earl Joneses of the world typically rely on the trust people place in their friends and family because if someone we know and respect is doing business with the guy then he must be ok, right? Evidently, that is not always the case. So you need to check out anyone you may be considering doing business with.

For investors, that minimal due diligence is easy enough. All financial advisors have to be registered with one of the regulating bodies. Access to the register is readily available by internet or by phone. There are safeguards in the system as well as indemnity funds available to victims of fraud or bankruptcy. But your advisor has to be properly registered for you to benefit from this protection. PEAK has prepared a very helpful piece on this which you can access by clicking on this link.

Interestingly enough, even the journalist who interviewed me for the Gazette article did not bother to check out my credentials. As most of you know, I hold two professional licenses (Investment Advisor with PEAK Securities Inc. and Financial Security Advisor that allows me to broker insurance products) as well as the designation of Financial Planner. All that important information is strangely absent from the article!

Another essential step investors can take to protect themselves is to be alert to the typical red flags of a fraud in the making. Had Earl Jones’s clients been aware of some of these, they may not have been so easily duped.

I have already talked about the importance of checking out who you are dealing with. One should also beware of offers of high returns for little or no risk which sound too good to be true and most definitely are! Scam artists often use this kind of pitch with retirees living on a fixed income or those nearing retirement who are afraid of not having enough. Other sales pitches that could point to a scam are:

1) Tax free off shore investments

2) Insider tips - get in now!

3) Profit like the experts!

Lastly, I’d like to say a few words about trust. We have seen more than our fair share of scandals in the financial industry (the likes of Earl Jones aside) and I know that these incidents do little to strengthen trust in either the regulatory system or individual advisors -big and small! While much can be done to improve on the safeguards in place now, it is important that we not lose our ability to trust.

There are approximately 40,000 financial advisors registered in Quebec with the AMF (Autorité des marchés financiers). Less than one percent of these men and women have ever been found guilty of fraud or any kind of wrong doing. That leaves 99.6% of advisors who are just working hard from day to day, quietly looking out for the best interests of their clients.

Let’s be wise. Let’s be vigilant. But most of all, let’s not ever feel compelled to focus all our energy on the small number of frauds at the expense of the vast majority of competent, honest professionals and their clients. It is ultimately the bond of trust between these two that makes for a healthy, prosperous world of business. For my part, I remain continuously grateful for the trust you all share with me. No amount of regulation can ever replace that.

Don’t hesitate to call or write if you have any questions on this or other matters. I will be back in touch soon with more on Green initiatives and Green shoots. So stay tuned!

Sara Gooderham
July 2009