Two firms refused to follow recommendations from the Ombudsman for Banking Services and Investments (OBSI) to compensate clients last year, according to the 2020 annual report from OBSI’s Joint Regulators Committee (JRC).
The two exempt-market dealer firms — Cochrane, Alta.-based WealthTerra Capital Management and Richmond Hill, Ont.-based Becksley Capital Inc. — are no longer registered.
Wealthterra refused to compensate a client $50,810 for losses due to unsuitable investments in “high-risk” exempt market securities. According to an OBSI release last year, the client was a recently divorced single mother with two young children and an annual income of approximately $20,000.
Meanwhile, Becksley refused to compensate a client $33,055 for losses due to unsuitable investments. The client was advised to borrow $60,000 on a line of credit to invest in an exempt market product, OBSI said last year, noting the Becksley agent was a financial planner and family friend of the client’s, and not licensed to sell the exempt market product.
From 2018 to 2020, 31 of the 456 cases that ended with monetary compensation were settled below the amount that OBSI recommended, the JRC report said. The 31 cases involved 18 firms, nine of which settled below the recommended amount more than once.
Clients have received roughly $1.3 million less than what OBSI recommended over the last three fiscal years, the new report said.
OBSI has no power to enforce its compensation recommendations, something that has frustrated investor advocates for years.
Earlier this year, Ontario’s Capital Markets Modernization Taskforce recommended designating a dispute resolution body with binding decision-making power. The Canadian Securities Administrators have also pledged to strengthen OBSI’s authority.
The JRC said it recognizes the impact of firms refusing to compensate harmed investors.
“When a firm refuses to settle or makes a lower settlement offer, complainants may feel they are unable to pursue the matter further due to the time and cost involved, including to obtain legal representation and initiate a civil action against the firm,” the report said. “Settlement refusals and low settlements erode confidence in the fairness and effectiveness of the dispute resolution process for investors.”
The report noted the additional impact compensation refusals may have had during the Covid-19 pandemic, when many investors were out of work. Complaints increased significantly early in the pandemic, the report said, and rose again early in 2021.
The committee said it continues to monitor for complaint patterns, such as firms repeatedly settling below the recommended amount or refusing compensation altogether, as the information can indicate larger problems with a firm’s complaint handling procedures.
The Ontario Securities Commission (OSC) suspended the registration of Becksley Capital Inc. in December, alleging it had a capital shortfall following a series of other compliance issues.
In February, an ASC hearing panel banned a former WealthTerra rep for misrepresenting the risk of exempt-market investments to clients. He was ordered to pay a fine of $100,000, almost $100,000 in disgorgement and $55,000 in costs.