No investment firms refused compensation orders from the Ombudsman for Banking Services and Investments (OBSI) in 2018 or 2019, a report from OBSI’s Joint Regulators Committee (JRC) says, but that streak ended this year.
The JRC report — published by the Canadian Securities Administrators, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada — stated that out of the 316 OBSI cases that ended with monetary compensation in its fiscal years of 2018 and 2019, 23 cases (about 7%) involving 15 firms were settled at an amount lower than OBSI’s recommendations. Four firms settled below the recommendations more than once.
The JRC said that about 70% of the cases that settled for less than OBSI recommended involved recommendations over $50,000, with an average settlement rate of 62%.
“This is an area of concern for the JRC,” the report said.
Overall, in 2018 and 2019, clients received $1.04 million less than what OBSI had recommended, according to the JRC.
“It is heartbreaking […] that $1 million of investor money was withheld by firms for no reason other than they can do it,” Ken Kivenko, president of investor advocate Kenmar Associates, wrote in an email to Investment Executive.
Investor advocates have long called for binding authority on OBSI decisions.
Ontario’s Capital Markets Modernization Taskforce recently recommended giving OBSI binding authority — a move that could “put a lot of pressure” on other provinces to follow suit, according to Ermanno Pascutto, the former executive director of FAIR Canada.
As it stands, firms are able to refuse the ombudsman’s recommendations.
On Thursday, OBSI reported that Cochrane, Alta.-based WealthTerra Capital Management is refusing to compensate a client for losses due to unsuitable investments in “high-risk” exempt market securities.
According to an OBSI release, the client was a recently divorced single mother with two young children and an annual income of approximately $20,000.
Before becoming a client of WealthTerra, the woman had approximately $46,000 in a locked-in retirement account (LIRA) from a previous job and $12,000 in emergency savings, bringing her net worth to approximately $58,000, according to OBSI.
After meeting with a WealthTerra representative, the client transferred her LIRA to WealthTerra in 2011, which invested the account in exempt market securities. In 2017, after suffering losses, the client complained that her investments were unsuitable.
An OBSI investigation into the matter found that the client had limited investment knowledge and a low to medium risk tolerance. OBSI recommended that WealthTerra pay the client $50,810 in compensation. WealthTerra refused.
OBSI said that WealthTerra recently applied for the voluntary surrender of its exempt market dealer registration and is no longer in business.