Whether one is dealing with a broker or financial planner, sometimes things go bad. What recourse does one have if the investment was bogus or the adviser did not act in your best interest?
Complaints against registered dealers and salespersons can be directed to several channels. First and foremost, provincial securities commissions police their securities law, including licensing and registration, failure to provide proper disclosure regarding investments and bogus investments. Listings for securities commissions can be found in the provincial government directory. In Saskatchewan, the securities division is part of the Financial Services Commission.
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There are other avenues of grievance. The Investment Dealers Association (www.ida.ca) investigates complaints against members and has the power to impose penalties on its members. Advocsis (the voluntary national financial planners association) also has a process for dealing with complaints against financial planners who are associated with it. It can be reached at 800-563-5822.
However, securities commissions and professional organizations can’t get your money back from a bad deal. For that, you have to go to court. In law there is the concept of fiduciary duty, which means when a person is acting on someone else’s behalf, they have a legal obligation to act in that person’s best interest.
Here are some examples involving investment advisers. In a 1994 Supreme Court of Canada case, H vs. S, an individual sought advice from his accountant about how he might reduce his tax obligations. The accountant recommended investing in a housing development known as a MURB, a tax shelter that has since been abolished. Due to changes in the market, this investment was soon worthless. Unknown to the client, the accountant was receiving a fee from the developer for recommending investments in his project. The court found this was a clear breach of duty on the part of the accountant.
In a similar case, B vs. T, a Saskatchewan couple sold their farm and turned to T for advice on what to do with the proceeds. T recommended that they invest in a business he owned, which eventually failed. The court found that T, in his role as adviser, had gained full knowledge of the financial situation of his clients and then provided them with a business plan for his business, which was “inaccurate and misleading.” Again the court ruled there was a breach of fiduciary duty and ordered that the money be returned.
S vs. B, a more recent Saskatchewan case, confirmed that a financial adviser has a fiduciary duty to look after the interest of his clients. In this case, a woman received a substantial settlement of matrimonial property, which she initially invested in GICs, bonds and money market funds. Concern about the amount of tax she was paying led her to look at alternatives. She was introduced to B by a family member and eventually gave him control of her assets. Her funds were then mingled with other funds and allegedly used for B’s own purposes.
The trial judge found that B “admits that he maintained no records of her affairs and that he purposely employed certain concepts or techniques that were specifically designed to make it difficult or impossible to trace Mrs. S’s money.” Most of this complex judgment and subsequent appeal dealt with the issues of what money S was entitled to, which assets of B’s she could claim and court costs.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
