Sabey Rule Blog

Report on Vulnerable Investors

By December 4, 2017 No Comments

The Canadian Foundation for Advancement of Investor Rights and the Canadian Centre for Elder Law have published their Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence and Diminished Mental Capacity.  The report is co-authored by Marian Passmore and Laura Tamblyn Watts.

As set out in the Executive Summary:

The report focuses on two main areas of specific challenge for vulnerable investors:

  1. Elder financial abuse and undue influence: A person or persons may be trying to financially exploit the investor through a variety of forms of elder abuse, which can include abuse of a power of attorney or other legal authority, fraud, theft, threats, misuse of funds, coercion, abuse of trust, physical threats or by other means. Additionally, a client may exhibit behaviour or provide instructions to a financial services representative that the representative believes to be unduly influenced by a person close to the client.

  2. Diminished capacity: A client may lose the capacity to provide instructions to a representative, due to dementia, a psycho-social or developmental disability or health reasons such as episodic delirium or medication use. The representative, staff member or compliance officer may be concerned that trades are radically different than previously, or that the client is exhibiting erratic behaviour or is forgetful. If the client does not have a functioning enduring power of attorney on file, this situation can become very complex and delicate.

A representative or staff member who observes signs of elder financial abuse or undue influence, or diminished mental capacity, may want to assist and/or take protective action, but be unsure about whom to contact, his or her authority to act, and the legal ramifications of notifying others or not following the client’s disbursement instructions.

Depending on the circumstances, these situations may warrant protective action. A representative may want to notify a person close to the client, report a suspected abuser to the authorities, or prevent the disbursement of funds from a client’s account. Currently, Canada’s securities regulatory regime does not equip representatives to protect vulnerable investors in these ways. There are many reasons for this, spanning from inadequate training on mental capacity and undue influence, to unclear reporting requirements and processes, to insufficient regulatory guidance and protection for representatives who want to take protective action. As a result, many representatives are unfamiliar with the warning signs of vulnerability, unsure of how to escalate issues when they do notice them, and unclear of their authority to act.

The report comprehensively sets out the problems, practices and in Canada, and other jurisdictions, and sets out several specific recommendations.