Privacy matters: High-net-worth clients desire control

(August 2008) Privacy is often confused with confidentiality, although the two are quite distinct concepts.

Privacy has its underpinnings in basic human rights law. Privacy laws apply to information about natural persons — individual clients, not institutions or businesses. Privacy also applies to personal information about employees in certain limited circumstances.

So why does privacy matter? Bonnie Freedman, a privacy law specialist at Borden Ladner Gervais LLP, comments that an individual’s sensitivity to privacy is a function of age and other factors, including his or her values regarding anonymity and also of having control of personal information. Freedman indicates that one working assumption is clear: high-net-worth individuals value their privacy.

We need only look to the front pages of the national newspapers to know that privacy matters. Statistics indicate that 73% of Canadians are concerned about becoming victims of identity theft, and indeed a November 2006 Ipsos-Reid survey indicated that 28% of Canadians say that they or someone they know has been a victim. Additional studies and reports support these fears.

In the last few years, there was the introduction of privacy legislation in Canada. The federal Personal Information Protection and Electronic Documents Act — PIPEDA — came into force in Canada in January of 2004. In addition, the provincial governments in British Columbia, Alberta and Quebec also have enacted privacy legislation. PIPEDA prohibits the collection, use or disclosure of personal information without the knowledgeable consent of the individual. PIPEDA also imposes certain administrative requirements including the obligations to appoint a privacy officer, establish and provide notice of a privacy policy and implement a complaints process and facility for personal information tracking.

Privacy compliance efforts require dealer and adviser firms to understand within their own organizations the purposes of the collection, use and disclosure of personal information, which typically would include: the creation and servicing of client accounts, identifying (KYC) and communicating with clients, understanding clients’ investment objectives, making recommendations and investment decisions, and fulfilling audit and reporting requirements.

Privacy issues also crop up as a critical aspect of succession plans as advisors prepare to retire and consider options for the sale of their books of business, since generally a significant portion of the assets to be sold include client information. If an advisor does not have client consent to disclose the personal information to a contemplated or actual purchaser, as the seller of the business, the onus is on the advisor to obtain the consent to disclose. If an advisor has a limited number of clients, obtaining consent may not be logistically difficult, but the advisor and its firm will be liable if the personal information is provided without consent.

Although the federal Office of the Privacy Commissioner of Canada has received few complaints about financial services firms, given the heightened media coverage of privacy breaches and in turn the potential negative effect on a firm’s reputation, not to mention its bottom line, going forward, firms would be wise to assess their privacy compliance regime. Consider re-tooling your existing policies/notices; consider, also, client information databases, including architecture designs, security, information retention periods and destruction.

This article first appeared in the July 2008 issue of Advisor’s Edge Report.

Rebecca Cowdery and Prema Thiele are securities lawyers focusing on legal matters associated with the securities, investment management and insurance industries. They are partners in the Toronto office of Borden Ladner Gervais LLP. Their column appears regularly and deals with compliance and regulatory issues. The views expressed in their columns are their own and are not necessarily the view of other lawyers at BLG, the firm or its clients. No person should act or refrain from acting in reliance on any information found in these columns without first obtaining appropriate professional advice. rcowdery@blgcanada.com, pthiele@blgcanada.com

(08/28/08)