The question of who owns the client — an advisor, or their firm — has long bedeviled the investment industry. Now, an Ontario court says that a trial is necessary to decide the question of whether a deceased advisor’s estate has a claim to ownership of his book.
The Ontario Superior Court of Justice has declined to dismiss a claim brought by the estate of a deceased advisor against his former firm over the value of his book.
In its decision, the court said the defendants in the case, Union Securities Ltd., didn’t meet the onus of showing there’s no genuine issue for trial, and that “complete discoveries and a trial are needed” to determine the issue of the ownership of the accounts and, if necessary, the value of those accounts. It dismissed the firm’s motion for summary judgment.
According to the decision, Allen Eisen was an investment advisor with Union Securities when he died on January 4, 2010. He had moved to Union from Research Capital Corp. in April 2009, and, at that point, entered an employment contract with the firm, which provided, among other things, that he owned his accounts and that he could sell them within the firm.
When he Eisen died, his accounts were transferred to another advisor, who has since left the firm. In addition the Union has been sold to Vancouver-based PI Financial Corp., leaving it “unclear what has become of the Eisen accounts.”
The court notes that the estate has asked whether the sale of the firm generated compensation for Eisen’s book, or put a specific value on those accounts. However, the court says, the firm has refused to disclose any information that would allow it to assess that value.
The firm argues that the estate must first prove that it has a legal claim on the accounts before the question of their value is relevant; and, it points to an internal policy document, which “states that upon death of an investment advisor, all accounts worked by that advisor belong to Union.” It maintains that Eisen had the right to sell his book to another advisor within the firm, but that his estate doesn’t have that right.
“Union says that although it was obliged to appoint an investment advisor to oversee the Eisen accounts, it was not obliged to purchase the accounts or to compensate the estate for the value of the accounts as they were already owned by Union,” the court decision says.
However, the decision notes that the lawyer for the estate maintains that an asset owned by an individual generally passes to their estate. “Counsel for the plaintiff submits that while a licensed advisor may be required to supervise trades in the accounts of a deceased advisor, ownership should, in the absence of any agreement to the contrary, pass directly to the estate,” the decision says.
Ultimately, the court concluded that it doesn’t have enough evidence to decide the account ownership question.
“As a matter of legal logic, neither side has an argument that trumps the other,” it says. “The defendant is right that an estate is not licensed and by regulation cannot deal with the investment accounts, and, consequently, it makes no sense for trading accounts to belong to the estate of a deceased advisor. On the other hand, the plaintiff is right that ownership can be considered separate from trading authority, and, consequently, it makes no sense for accounts that belonged to an investment advisor the minute before his death to cease being property of his estate once he has died.”
As a result, the court found that a trial is necessary to decide the issue.