What protections are in place for at-risk senior investors?

Regulations, codes of conduct, and backup communications are used to protect elderly clients

What protections are in place for at-risk senior investors?
The call for increased investor protection is gaining strength all over the country. And while all investors deserve protection, senior clients arguably need the most safeguards.

“The current regulation in Canada imposes a duty on registered advisors and dealers to deal fairly, honestly and in good faith with their clients, including senior clients,” Debra Foubert, director of compliance and registrant regulation at the Ontario Securities Commission (OSC), told the Globe and Mail.

According to Foubert, advisors who act on a discretionary basis must adhere to a fiduciary duty. Generally, dealers and advisors must ensure that any security transaction they recommend for a client is suitable, taking reasonable steps to explain the features and risks.

“We are also looking at targeted reforms and a best-interest standard to further strengthen investor protection,” she added, stressing that Canada’s aging population makes protecting seniors a priority for the OSC.

Aside from securities regulators, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) also impose rules stressing investor protection on their members.

“MFDA rules specifically state that no advisor can make a discretionary trade,” Ian Strulovitch, the MFDA’s director of public affairs, told the Globe and Mail. MFDA members must obtain client authorization, which they can get through a trade form for specific trades. Alternatively, they can get verbal authorization, but only from clients who are enrolled in a nominee account or have signed a limited trading authorization (LTA).

Currently, know-your-client rules help ensure that advisors make suitable recommendations. Certain dealers also have their own rules against excessively high-risk transactions or leverage investing. While one can’t be sure that an advisor will follow rules strictly, members of a professional association tend to be more trustworthy.

“If the advisor is a member of a professional association like Advocis, which has a code of professional conduct, that should give some comfort to clients,” said Paul Bourbonniere, principal of Ontario-based Polson Bourbonniere Financial, which is a member of Advocis. “The code doesn’t have legal force, but if the prospective client is looking at their advisor’s credentials, they at least know there are standards that individual has subscribed to.”

Working with seniors on estate plans can be challenging, Bourbonniere said, because such clients have limited capacity to hear or recall details. For that reason, he stresses the importance of using confirming emails or other firms of confirming hard copy.

In case the worst happens and unauthorized trades appear to have taken place, senior investors are advised to contact their firm or advisor right away. The federal government’s Ombudsman for Banking Services and Investments (OBSI) can mediate in disputes between participating firms and clients. The service is free and independent, and recommendations for up to $350,000 can be made.

Regulatory agencies can also serve punishments. The MFDA bylaws allow penalties that include suspensions, permanent prohibitions, and monetary fines ranging that can reach millions of dollars, depending on the type of misconduct.

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