Retired investor borrowed to buy high risk investments

When the client met the advisor, she was 67 years of age, retired and recently divorced. The client could no longer work because of her failing health. For most of her adult life, she did not work outside the home. Her income consisted of Old Age Security, Canada Pension and $250 a month from her ex-husband.

The client's savings consisted of a small RRSP and her home. She would have liked to travel and buy a new car but after the bills were paid, there was nothing left. The advisor told her that she could do the things she wanted if she borrowed money to invest. The idea was that the investments would make the loan payments and she could periodically use her profits to buy the things she had always wanted.

Knowing nothing about investing, the client borrowed $50,000 to invest. A small portion of the mutual funds were sold each month to pay the loan. She thought this was wonderful.

The value of the client's investments declined. Eventually, the loan company stopped her from selling any of her funds to make the payments. After struggling to make the payments herself, she asked the advisor for help. He was unsympathetic and told her to get a job.

By the time the client's complaint reached OBSI, her investments were worth half of what she had paid.

OBSI's investigation concluded that the risks of borrowing to invest were not understood by the client and the advisor exploited her naiveté. She could not afford to lose any money nor make the loan payments on her own. OBSI recommended the client be reimbursed for all her loan interest as well as her investment losses.

(2006)