This article was written by Michael Bookman and Ellen Bessner. Michael Bookman is an associate at Babin Bessner Spry LLP.
None of us likes to think of what would happen if we stopped showing up for work due to unforeseen circumstances, had our investment licence suspended unexpectedly or were unable to carry on our business for whatever reason. Some of us also don’t like to think of planning for retirement. But if you don’t think and plan for these events, you are leaving matters to chance, which is never a good idea when you have worked so hard to build your advisory business.
The main reason for not leaving the future of your business to chance, even on an interim basis, is because even if you aren’t there anymore, you continue to be personally exposed to risks, both from a regulatory and litigation standpoint. You or your estate could be sued.
First, let us explain litigation risk. A lawsuit can be commenced against you within a certain period of time after your client becomes aware (or should have become aware) that he or she has a claim against the advisors. In many provinces that period is two years.
However, investment and insurance advisors may be exposed to litigation risk for many years after they leave the industry if an investment or insurance product was sold by them and the client only later suffered a loss or identified that the product was unsuitable. The client would likely sue the advisor who initially sold the product, as well as the advisor who assumed carriage of the client account. Further, in situations where the advisor has passed away, the client might not hesitate to sue your estate (see, for example, Hill v. Queensbury Strategies Inc., 2014 CanLII 45416 (ON SCSM)).
If that’s not bad enough, regulators and self-regulatory organizations (SROs) — the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) — have a longer period of oversight: six years in all common law provinces except Manitoba, where it is a whopping eight years. (See, for example, section 129.1 of Ontario’s Securities Act, RSO 1990, c. S.5) While IIROC and the MFDA used to have their own rules, those rules have since been repealed and the SROs now adhere to provincial legislation.
Advisors should be aware of these risks so they can plan for a rainy day, the day they retire or the day they are unable to participate in their advisory business anymore. Imagine your significant other or someone you trust, like your attorney for property, muddling through without errors and omissions insurance.
Indeed, advisors would be prudent to acknowledge the wisdom in Yogi Berra’s famous saying applied to their own business: their risks are not over until they’re over, which, in some cases, may be longer than you planned for.