A British Columbia court upheld a lower court’s ruling in favour of an advisor and his firm, RBC Dominion Securities Inc., in a lawsuit brought by an aggrieved investor alleging that his portfolio was mismanaged.
In 2021, a B.C. court largely rejected a lawsuit brought by an investor, Raymond Miller, against RBC DS and his advisor, Bruce Crowle. The lawsuit claimed breach of contract and negligence for allegedly mismanaging his investments in various ways — including failing to adhere to the client’s investment objectives, recommending higher-risk securities and failing to follow the client’s instructions.
The trial judge dismissed the claims of breach of contract, although he did find that unilateral changes were made to the investor’s know your client (KYC) forms, representing a breach of the duty of care.
However, in a subsequent ruling, the judge also found that KYC changes didn’t lead to any losses, and so the court dismissed the negligence claim.
The appeal argued the judge made various errors in the initial trial and the subsequent ruling on negligence and damages.
Among other things, the appellant argued the trial judge erred by failing to find that instances where the advisor didn’t fully follow the client’s instructions — such as resisting the use of stop-loss orders, or not following vague instructions to “sell in May and go away” after the investor saw these strategies discussed on TV — resulted in liability.
According to the appeal court’s decision, the trial judge found these claims misunderstood the nature of an advisory account versus a discretionary account.
“While an advisor is required to follow the directions of a client, those directions must be consistent with the contract in place. An advisor cannot execute an instruction unauthorized by agreement between his firm and the client,” the trial judge said the initial 2021 decision.
The appeal court found that “there is no merit to any of the numerous issues raised” regarding the use of stop-loss orders, or the “sell in May and go away” strategy.
The appeal court also rejected claims that the trial judge erred by considering the whole portfolio, rather than individual securities, in determining whether the firm and the advisor had breached the terms of the contact, which called for a “moderate” risk portfolio.
The trial judge concluded that a portfolio could be “moderate” risk while including higher-risk securities. The appeal court found no reason to interfere with that conclusion.
The appeal court also dismissed appeals on issues such as offsetting gains against losses and opportunity cost.
Ultimately, the appeal court found that most of the grounds for appeal aim to revisit findings of fact made by the judge in the original trial — and said that those rulings are entitled to deference on appeal.
“In my view […] none of the issues raised have merit and I would therefore dismiss the appeal,” the court concluded.