Advisor wants to minimize client’s losses but proceeds without consent

A Canadian couple living in the UK had RRSPs with a Canadian investment firm. While visiting Canada, they met their advisor to discuss their accounts. They were upset because the advisor had kept their money in cash for almost a year and were also upset because for two months the money had only earned 0.25% interest. The advisor explained that he was waiting for the right time to invest and that the money had not been invested in a higher interest account because of an administrative error. He discussed some potential stock picks.

The couple was still dissatisfied and decided to transfer to another investment firm, but did not tell their advisor. That same day, their advisor purchased several stocks in the couple's RRSPs. The accounts were transferred to their new firm about two weeks later.

When the couple returned to the U.K. and checked their mail they saw the stock purchases. They immediately contacted the firm to complain that t hey did not consent to the stock purchases and about the low interest rate on their savings. The firm acknowledged the delay in investing into a higher interest account and offered $1,500 in compensation.

However, it said that their advisor had discussed the stocks and assumed that the couple wished to start building their investment portfolios. The firm also said the trades could not be reversed as the accounts had been already transferred out. The clients brought their complaint to OBSI.

OBSI agreed that there was an unreasonable delay in investing into a high interest account and calculated lost interest of $1,275. We also concluded that the trades were not authorized because the advisor had not discussed the specific date, timing and price of the stock purchases before buying them. The clients acted appropriately in immediately informing the firm of the unauthorized transactions, but there was no way for the firm to reverse the purchases. We then turned to the subject of whether the clients had experienced losses because of the stock purchases.

Our general view is that clients must act promptly to limit losses when they realize that there is a problem. In this case, we thought it was reasonable to give the couple a month to determine what to do with the s tocks, and any loss or gain after that date was their responsibility. In fact, when the couple received their final response from the firm they could have sold the stocks for a $17,000 profit. However, when OBSI received the complaint the stocks were worth less than the purchase price. Had they sold within a month their total loss, including commissions, would have been $200. When $200 is added to the lost interest we calculated they were owed, the result is close to the firm's original offer of $1,500.

The couple did not feel that it was fair to receive only $200 in compensation for the stocks purchases when the advisor earned $1,600 in commissions on the unauthorized trades. We explained that OBSI's role is to recommend compensation for losses, but we do not assess punitive damages. We discussed the situation with the firm and it agreed to pay the clients $2,000 to resolve the matter.