Canadian securities dealers are all subject to an Ombudsman for Banking Services and Investments (OBSI) review if clients issue a complaint. We all know what happens to dealers when OBSI finds in clients’ favour, but most don’t know what happens to clients when OBSI finds in dealers’ or advisors’ favour. The difference is quite striking.
If clients are dissatisfied with the dealer’s response to their complaint, they can send the complaint to OBSI. If, after investigating, OBSI finds in favour of the client, the dealer/advisor is offered an ultimatum: pay the client or OBSI will “name and shame” the dealer/advisor because OBSI does not have the power to impose a penalty, like the self-regulatory organizations, or force the dealer to pay the client, like a judge can in a court of law.
So, what’s involved in a “name and shame”? OBSI publishes a report using the language it sees fit to describe how it interprets the situation, much of which depends on an OBSI staff member’s determination of credibility between the testimony that each party interviewed provided, usually by telephone. There are almost no in-person meetings and no opportunities to challenge each side’s version of events through cross-examination. So, if OBSI believes clients are telling the truth when they say they didn’t understand the risks of an investment, so be it.
However, what happens when OBSI doesn’t find in favour of clients? Does it issue a report explaining why it doesn’t think clients should get a cheque from the dealer? Does it publish something about the clients’ lack of credibility? Do the clients’ family members and friends get to see that OBSI is calling them a liar? The answer to all those questions is a resounding no.
Rather, OBSI quietly picks up the telephone and calls the clients to tell them it did not find in their favour and offers the clients a choice, rather than an ultimatum: OBSI can write a report with reasons explaining why it won’t find in favour of the clients; or the clients can “withdraw” their complaint and OBSI doesn’t issue a report at all.
Of course, as I have seen, clients choose to withdraw. That saves OBSI the need to write a report and it also saves clients the embarrassment and risk that the dealer sees the report. But don’t worry, the dealer also gets a telephone call from OBSI staff to advise that “the client has withdrawn its complaint.” Upon being pressed (by me) in a call back to OBSI, I learn of the choice the client was given and the choice the client made. And it’s all completely transparent, right? Wrong!
Why can’t the process be more balanced? In circumstances in which the dealer is favoured, it should be the dealer’s choice to have OBSI issue its report publicly in favour of the dealer or keep the report confidential. However, I suggest, the client should not be receiving a quiet call suggesting a withdrawal. There should be a report. There should be transparency. There should be some balance in the system.
Let’s say an advisor is called before his or her regulator due to a client complaint. If the regulator finds in the advisor’s favour after parties provide testimony and are cross-examined, then there are reasons issued that exonerate the advisor. If a client chooses to sue a dealer and/or advisor in court proceedings and there’s a judgment against the client after each party gives testimony and is cross-examined, as required by a fair process, the judge issues written reasons explaining how he or she arrived at the decision.
However, OBSI is neither a regulator nor a court of law and does not operate as either. It would be contrary to law and our judicial system to make OBSI a judiciary with authority to bind unless OBSI processes change dramatically, which would result in a much more lengthy and expensive process and lose the efficiencies it offers. OBSI’s current role is that it attempts to resolve disputes by negotiated settlements. That’s not a bad thing.
There is a role for OBSI as both clients and dealers might be better off attempting to resolve disputes for sums of less than $350,000 rather than expending greater sums than that on lawyers’ fees — not to mention the years it takes to get to a trial. I can’t tell you how many calls I get from advisors serving new clients suggesting the clients seek my legal advice to sue their previous dealers and advisors in court.
I then send those clients straight to OBSI as it’s less expensive and efficient for these claims. However, I suggest that if OBSI is more balanced — by applying the two-year limitation period required by law in Ontario and several other provinces instead of the six years it permits and sends reports to dealers when OBSI finds in favour of the dealer or advisor — it would make the process more transparent and fair.