After scams and slumps, wealth advisers try to rebuild trust

Mon Oct 1, 2012 3:20pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - While big financial institutions lost the trust of investors with LIBOR scandals and mortgage meltdowns, financial advisers have seen the trust drain away for more personal reasons with faces attached: Bernie Madoff, Earl Jones, Allen Stanford.

The hangover of mistrust caused by high-profile Ponzi schemes, together with volatile markets and distrustful investors, has created a perfect storm of sidelined cash and financial advisers worried about their future.

"I fear a little bit for our business right now," said Dean Owen, a personal financial planner with Cherry Financial Services in Saskatoon, Saskatchewan, and chair of Advocis, the Financial Advisors Association of Canada.

Owen feels the fallout every time another unscrupulous scam artist calling himself a financial planner takes investor money, promises a fat return and spends the proceeds himself.

Clients "ask how did it happen, and why does it happen? And it always comes down to the same reason. In a situation of falling markets, people will always want to look for higher returns," he said. It comes down to fear and greed -- "more greed than fear," he said.

"It starts right in a coffee shop. People will hear from their friends: 'I'm dealing with Mr. Madoff. He's gotten me 8 percent over the last three years and it's working great.' Word of mouth spreads."

Canada has had its share of scams, too. The highest profile case involved Earl Jones, a Montreal investment adviser who pleaded guilty in 2010 to running a Ponzi scheme that cost his victims -- mostly senior citizens -- an estimated C$40 million ($40.8 million) over 20 years.

Market volatility and low returns have created the breeding ground for desperate investors looking for the promise of profits. But while scams have an obvious cost to investors, financial advisers are also hurt.   Continued...