Small advisers suffer trust crisis

As details of the Earl Jones scandal continue to emerge, many independent financial consultants are busy reassuring worried clients.

"Everyone I've spoken to has expressed concerns, of course," said Sara Gooderham, who has had her own financial planning firm for the past 15 years. "It's that kind of situation - the same thing happened after the Madoff case."

Independent firms are in a particularly tough situation after financial scams come to light because they aren't associated with big-name banks, which makes some investors uneasy.

"There's comfort in a well-known name, that's why banks have such ease getting business," said Albert Seliger, a mutual funds representative and financial security adviser. "Scams ... hit independent planners a lot harder than big institutions; people get scared and want to stick with banks. It's hard for people to imagine the RBC just running away with their money."

Gooderham said that trust becomes the main issue in situations like this, because people begin to question the industry and lose confidence in the entire system.

"It damages the bond of trust between investor and adviser," she said. "It would be crazy for people to just stop dealing with smaller firms though. You're not going to find more trustworthy financial planners in big firms as opposed to small ones. What investors really need to do is just make sure that the people they're dealing with are properly registered and are competent."

It's also important for investors not to disregard the advantages of investing with small firms, Gooderham added.

"Smaller firms can be more reliable and provide more personal attention," she said. "A financial planner who has his or her own business is going to be there for years to work with clients, not like someone at a bank who can get moved from branch to branch."

Seliger said it's understandable that clients get nervous after bad investment news breaks. He'll likely be doing a round a phone calls in the coming days to reassure his clients and answer any questions they may have.

"Mostly it's newer clients that get extremely nervous," he said. "They don't want to invest after scams like that because they're thinking, 'How do I even know if my money is where you say it is?' "

The problem, Seliger said, is that anyone can call themselves an adviser.

"That's why the bottom line has to be that the client demand to see the registration and licensing information of whoever they are dealing with," he said.

The Earl Jones case is troublesome, Gooderham said, because it appears he operated completely under the radar, so he went undetected by authorities.

"How do you protect the public from something like that?" she asked. "It's so disheartening. My clients are trying to understand how this could've happened."

Seliger suggests calling the Autorité des marchés financiers or simply visiting its website (lautorite.qc.ca) to verify if someone is a registered adviser.

mmartin@thegazette.canwest.com