Saturday, October 24, 2020

Protecting seniors/vulnerable investors: some basics for CSA consideration


In addition to wreaking havoc on the Canadian economy at large, COVID-19 has had sudden and significant repercussions for how individuals, especially seniors, conduct their financial planning—specifically, how they approach investments and saving goals.

Many households have experienced income shocks and have burned through their cash reserves, illustrating the critical role that liquid assets play in the health of any financial plan. Other workers have experienced health challenges at the same time they’ve experienced income reductions or outright unemployment, highlighting the importance of emergency funds and factoring healthcare outlays into a total financial plan.

The pandemic’s economic side effects also have significant implications for when and how older adults relate to their investments. Not only have older workers experienced high rates of job loss , but based on previous recessions, it could take older unemployed workers a much longer time to become re-employed than younger ones. For those in or near retirement, the time for investment accounts to recover is limited. With increased longevity, savings will have to last much longer than ever before.

As for regulators, we believe the following actions would be very effective in protecting seniors/ vulnerable clients:


·         Redefine “vulnerable client” per U.K. FCA standard

·         Establish a Code for the fair treatment of vulnerable investors

·         Make researching Firm and individual registration and disciplinary history more investor-friendly and fulsome

·         Do not permit Dealing Reps to act as POA’s , executors or a beneficiary of a non-family member clients

·         Increase Representative proficiency standards re de-accumulation accounts such as RRIF’s

·         Require a KYC update period of one year for vulnerable clients

·         Introduce rules related to trusted contact persons/ temporary holds as proposed by NASAA

·         Hold Dealers accountable in cases of Off-book transactions and personal financial dealings  

·         Introduce best-in-class  dealer complaint handling rules that empathize with elderly, vulnerable clients

·         Provide objective suitability criteria for utilization of fee-based accounts

·         Add a requirement to document recommendations whenever a DSC mutual fund is recommended to an older or vulnerable client

·         Update constraints on “ Free lunch seminars” targeted at seniors/ retirees

·         Increase level of sanction if a vulnerable investor has been financially assaulted

·         Adjust sanctions based on whether or not harmed clients were fully compensated for undue losses

·         Make investor compensation a priority consideration

·         Give OBSI a binding decision mandate to eliminate low-ball settlements

·         Consider establishing a Senior’s Helpline based on the FINRA Model ( see their report  )

·         Increase cooperation with insurance regulators to reduce regulatory arbitrage

NOTE: In April 2017, FINRA (equivalent to a Canadian SRO) announced that the National Adjudicatory Council (NAC) revised FINRA’s Sanction Guidelines to include a new principal consideration titled “Consideration for Vulnerable Customers.” The NAC is FINRA’s appellate tribunal for disciplinary cases and is a 15-member committee composed of industry and non-industry members. The new principal consideration reaffirms that financial exploitation of senior and other vulnerable customers should result in strong sanctions. While FINRA’s decisions have acknowledged that exercising undue influence is an aggravating circumstance on a case-by- case basis, the new principal consideration makes clear that the Sanction Guidelines contemplate coverage for vulnerable individuals or individuals with diminished capacity. We encourage the CSA and SRO’s to take similar stands

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