How the industry can protect vulnerable investors

Canada’s investment industry needs more training on how to prevent abuse of elderly and vulnerable clients, says a report from two advocacy organizations. It also needs more legal cover to report suspected incidents.

FAIR Canada and the Canadian Centre for Elder Law (CCEL) call on securities regulators and the investment industry to “play a critical role” in preventing the abuse of vulnerable investors.

“Investment firms are in a unique position to prevent or stop financial exploitation of vulnerable investors, or respond to help those who show signs of diminished mental capacity,” Marian Passmore, FAIR Canada’s COO and policy director, said in a statement.

But, right now, firms are in a difficult position.

“Financial service providers are worried that if they report their concerns they will face liability or regulatory sanctions for breach of privacy or for not following client instructions. If they do not report, they fear getting sued for that too,” said Laura Tamblyn Watts, the CCEL’s senior fellow who co-authored the report.

Read: How clients can be undone by undue influence

The report makes six recommendations to Canadian securities regulators:

Require investment firms to make reasonable efforts to obtain the name and contact information of a trusted contact person for each client. This person could be contacted in case of suspicion of abuse or diminished mental capacity, so long as they themselves are not suspected of financial abuse or exploitation of the client.
Allow authorized individuals within an investment firm to place a temporary hold on trades and disbursements of funds or securities when there is a reasonable suspicion of financial abuse, or where the client has lost the capacity to provide instructions.
Provide a legal safe harbour for investment firms and financial service providers who reach out to appropriately report suspicions of financial abuse or mental incapacity.
Create a conduct protocol that defines key terms and the steps firms and financial services representatives should take to identify and protect vulnerable clients. This protocol would require that investment firms mandatorily report suspected financial abuse of vulnerable investors to the appropriate securities regulator.
Mandate specific education and training for all investment firms in the areas of elder abuse, undue influence, mental capacity issues, enduring powers of attorney and ageism, and have the required proficiencies. Read: How clients can be undone by undue influence
Require that investment firms become familiar with outside resources and responders and learn how and when to appropriately refer a case of suspected elder financial abuse, undue influence or diminished mental capacity to local responders.

The report was prepared with funding from the Law Foundation of Ontario Access to Justice Fund. Read the full report here.

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