During the investing lifecycle, chances are you may have
a complaint against your dealer/advisor. The complaint process has always been
a painful experience. But in 2004, retail investors faced a new challenge to
their ability to recoup undue investment losses caused by bad advice .The new challenge was reduced statute of limitation time
periods.
In 2004, provincial governments started to standardize
statute of limitation time periods. As a result, most provinces ended up
reducing the limitation period. For example , effective Jan 1, 2004 the Ontario
Government ( several other provinces have similar statutes known as Limitation
Acts ) implemented legislation reducing limitation periods (the time within
which plaintiffs must take the initiative or lose their right to take civil
action) from six years to two years. The basic limitation period under the Act
is two years
from the date on which the claim is discovered,
or ought to have been discovered whichever is earlier, by the
person entitled to bring the claim. Nailing down these dates of course isn't
always easy. Some special limitation periods that remained are nevertheless
subject to some of the principles established by the Act concerning minors,
incapable persons, dispute resolution and the 15 year Ultimate limitation
period.
At least in Ontario, an agreement ( called a
“tolling agreement” ) to let an independent third party mediate or
arbitrate the dispute will suspend advancement of the limitation period for the
duration of the arbitration or mediation process, but if that process fails to
resolve the dispute, the limitation period countdown resumes where it left
off.
So, retail investors now have to act much more quickly if
they feel they've been a victim of dealer/advisor wrongdoing. For
unsophisticated investors, seniors, retirees, widows, recent immigrants and
others the shortened Limitation presents a real challenge.
Most victims of industry
wrongdoing, that results in significant loss of their life savings, can take a
year or more to come to grips with this life-altering event, and to determine
what action they must take. The stress of a life-altering event such as
the loss of a hard earned retirement nest egg can be so debilitating that it
can lead to depression and the inability to make a rational decision. In this
mode, it’s unlikely an investor will have the emotional strength to file a
claim or take civil action in a timely manner
Handling of complaints by
industry participants, the OSC, SRO’s, and internal Ombudsmen services commonly
cause delays 6 months or more. A complaint investigated by the Ombudsman for
Banking Services and Investments (OBSI ) stops the limitations clock but OBSI
will not consider restitution claims until they have progressed through lengthy
time- consuming industry and industry- sponsored processes. Even after OBSI
makes a recommendation for compensation, this recommendation is non-binding so
the next step involves a decision to institute civil action.
The move by some provinces
to reduce the limitation period for lawsuits from six to two years tips the
playing field even more against investors and in favour of the bank-owned brokerage
industry. In Canada, a complainant has two remedies: A lawsuit or a complaint
to the OBSI.
OBSI has a target of 180 days to resolve a complaint but some
can take more than a year. Before an investor can benefit from this free
"service" he or she must proceed through the bank-owned brokerage
firm's manager, compliance officer and then , on a voluntary basis, the
individual ombudsman of the bank involved. Unlike OBSI , a complaint to an
internal bank “ ombudsman” does NOT stop the limitation time clock. For reasons we
can only surmise, banks actively encourage the use of their own "
ombudsman" ahead of the real Ombudsman, OBSI.
Once all that's finished, then the investor may take the case to OBSI.
But OBSI won't accept a case if the investor has already sued. All of which
amounts to a Catch-22 because jumping through all those bureaucratic hoops
within two years is no mean feat .
Canadian investors will
find they have no legal remedy if they go to regulators such as the Investment
Industry regulatory Organization of Canada (IIROC) That’s because IIROC doesn’t
fully investigate each complaint and those investigations it undertakes can
take more than two years, by which time they will have lost the right to sue. (
the statute of limitations time clock does not stop with a complaint filed with
IIROC)
So, by the end of this turbulent cycle of events, two or three
years can pass leaving the investor with no recourse with the oppressive
Limitations Act in place. The ability to seek compensation through the courts
can be lost forever. This is why lawyers suggest their early involvement with a
case to ensure all aspects of the case are considered.
Usually,
the lawyer will require a period of time to investigate the material facts and
to determine whether the investor is on a solid footing in filing the complaint
and whether a cost/benefit analysis supports loss recovery actions. The time
required will depend on the complexity of the claim. The lawyer will assess the
investor’s right to sue and provide an opinion with respect to the practical
merits of starting a court action or an alternative dispute resolution process.
This takes time and the limitations clock keeps ticking.
To be sure, litigation is no panacea. The process is
lengthy, stressful and expensive with no certainty of success. Expect to face
some of the sharpest lawyers around. That's why investor advocates promote
increased professional qualifications for advisors and the assumption of a
fiduciary duty to clients. Prevention, rather than remediation, is a far better
solution that will lead to superior outcomes for investors.
Until such time as the Limitation Act is amended, investors are encouraged to (a) ensure their KYC is up to date, (b) establish an Investment Policy Statement with their advisor, (c) carefully examine their client statements / trade confirmations upon receipt, (d) look at bottom-line account trends and most importantly (e) ask questions and complain promptly whenever something doesn't feel right.
Until such time as the Limitation Act is amended, investors are encouraged to (a) ensure their KYC is up to date, (b) establish an Investment Policy Statement with their advisor, (c) carefully examine their client statements / trade confirmations upon receipt, (d) look at bottom-line account trends and most importantly (e) ask questions and complain promptly whenever something doesn't feel right.
If at any time you’re
not sure of your rights or what to do, consider consulting a lawyer. This is
certainly one area where professional advice can pay big dividends. Failure to
do so in a timely manner could mean you get ZIP even if your restitution claim
is rock solid.