Retiree seeks compensation for financial advisor’s alleged lack of service and poor advice

October 29, 2020

Key Lesson

Financial advisors are responsible for providing sound investment advice to match the financial needs and goals of their clients. They determine what is best for a client by meeting with them to discuss the “big” picture: a current look at their financial situation, risk tolerance and investment strategy. In exchange for a fee, advisors recommend investments for their clients, carry out trades for them and monitor their account performance.

Advisors are required to document their clients’ information according to “know-your-client” rules and should keep a consistent record of all client conversations. These requirements are in place to benefit the investor. However, no advisor can guarantee positive investment returns because all investments, even suitable investments, have a risk of loss. Different kinds of investments have different risks, but there is always a risk that the value of an investment today will be lower in the future.

Allegations of unsuitable or poor performing investments, misrepresentation and lack of service

Mr. O and his wife were retired and held several mutual funds in their investment accounts at ABC Firm between 2014 and 2019. During that time, their financial advisor was Ms. L. In June 2019, Mr. O expressed several concerns to ABC Firm about the investment advice and service he had received from Ms. L throughout his relationship with the firm. He alleged that:

the investments she recommended for purchase had either been unsuitable or underperformed, leading to financial losses of about $25,000 over five years;
the fund fact sheets provided to him were either misleading or not for the mutual funds he held;
Ms. L misled him about the performance of his portfolio by hiding the Gains/ Losses figures from the portfolio performance reports;
Ms. L did not comply with his requests or demonstrate a commitment to helping him achieve his financial goals and spent little time monitoring his accounts;
the level of service that Ms. L provided was inadequate in relation to the fees he paid to ABC Firm.

Mr. O asked ABC Firm to review his concerns and reimburse him for $25,000 – the full amount of his financial losses – to resolve the matter.

Firm finds no evidence of financial harm

ABC Firm did a thorough review of Mr. O’s accounts to address his concerns, including a close look at account documentation and account records over the five-year period he had been a client. They also reviewed Ms. L’s notes and comments regarding Mr. O’s accounts, and took into consideration her email correspondence with Mr. O.

The firm told Mr. O that their investigation found there was no evidence to suggest that Ms. L had made unsuitable investment recommendations, misrepresented the information in his portfolio performance reports, ignored his concern about management fees or provided poor service.

Unsatisfied with the results of ABC Firm’s investigation, Mr. O brought his complaint to OBSI.

Our findings

During our investigation, we reviewed ABC Firm’s documentation as it related to Mr. O’s concerns. We also interviewed Ms. L about her handling of Mr. O’s accounts. We found that:

Mr. O’s file documentation showed that he was comfortable with a conservative growth strategy and Ms. L had invested him in mutual funds that were suitable;
all transactions on Mr. O’s accounts were reviewed and explained to Mr. O in advance, including those meant to replace underperforming investments;
Ms. L provided advice based on Mr. O’s need for tax efficiency and a conservative investment strategy and that he benefited from a net gain of about $14,000;
it was not possible for Ms. L to omit information or otherwise alter reports about Mr. O’s portfolio performance because the reports were created using an internal system;
after Ms. L had provided Mr. O with the fund fact sheets for his mutual funds, the fund managers switched the fund to series E1 or E2 automatically for Mr. O’s benefit – a change that was outside of Ms. L’s control;
Ms. L specifically recommended that Mr. O switch the type of mutual funds he held to reduce the fees associated with his investments.

We concluded that there was no evidence of Ms. L misrepresenting investments to Mr. O nor did we find that there were occasions when Ms. L did not comply with Mr. O’s requests. Ms. L had communicated with Mr. O regularly and ensured that his financial plan was updated on an annual basis.

The outcome

We explained the findings of our investigation fully to Mr O, and did not recommend compensation.