The stock market has recovered a bit from the depths of last fall, but not enough to fix the damage done to some investor portfolios by bad financial advice. One option for investors who believe their advisers have cost them money is to take legal action. To learn more about suing an adviser, I spoke with Harold Geller and John Hollander, lawyers with the Ottawa firm Doucet McBride LLP, who spend much of their time representing investors.
Gentlemen, how's business right now?
Mr. Geller: A bit of a tsunami. There's clearly a high level of interest among people to find us and discuss their situation. But there's also an element of the ostrich here. People don't want to think about the degree of loss. What we're hearing is that advisers are saying, ‘Look, you haven't got a loss because you haven't sold.' To me, that's poppycock.
Are you getting lots of phone calls?
Mr. Hollander: Several a week.
How long does it take people to get out of the shock-and-dismay phase of suffering a big financial loss and start taking action?
Mr. Hollander: If it follows the pattern of the last bear market, then it may be anywhere from six months at the earliest to 24 months at the latest. But there's a reason why that's a problem. In the last bear market, you had six years from the time losses occurred in order to start a lawsuit. In 2004, a new limitations act went into effect in Ontario. So now you have two years from when you discover a loss. If you don't act fairly quickly now, you may find your complaint has been barred by statute.
What are you seeing in the portfolios of the investors coming to you for help?
Mr. Hollander: What you find are people who should not have had all their eggs in the equity basket. The issue is a misallocation of assets.
Can you tell us about a current client?
Mr. Hollander: A woman, nearing retirement, came into funds, has an income but intends to retire in a few years. She goes to see a discretionary portfolio manager (has discretion to make investing decisions without consulting the client). All the money is put into small-cap stocks. In the debacle we've just seen, if the banks are down 40 per cent, the small caps are down by 80 per cent. And in some cases, there is no bid (no one wants to buy them).
How often do you look at an investor's complaint and find it's not legitimate, that his or her losses were in line with the correct set of benchmarks and thus not out of line?
Mr. Hollander: I would say that two or three [prospective clients] in 10 think they have a claim, but don't.
Mr. Geller: This immediately begs a second question – is it a claim which, on a financial basis, makes sense to proceed with?
So, how do you decide on a dollar basis?
Mr. Geller: If somebody's talking to me about $30,000, $50,000, $70,000, then we have real concerns about the price efficiency.
So we're talking at least six figures?
Mr. Geller: Yes.
You're both paid on a contingency basis for the investor cases you handle – how does that work?
Mr. Geller: Essentially, it's payment upon result, although clients can be asked to pay out-of-pocket expenses. There's a [base] rate of 30 per cent [of the settlement].
Mr. Hollander: Most lawyers require a fixed fee to determine whether or not they like the case. We call it an investigatory retainer. The range would be $2,500 at the low and, so far, $10,000 at the high end.
What percentage of cases are settled before trial?
Mr. Hollander: In my own situation, there have been four trials and four abandoned cases on about 70 cases that I initiated. The rest were settled for financial compensation that some clients would have said was fine and some clients would have been left unhappy, but at least it was worth their while.”
With a settlement, how many cents on the dollar can the client expect on average?
Mr. Hollander: It's a huge range. I've had cases where the settlement has been 200 per cent of the loss and I've had cases where it was 10 per cent of the loss.
What are my chances of getting a settlement on my own, sans lawyer?
Mr. Hollander: Remote. Occasionally, we get calls from people who say, “This is what they're offering, should I take it?” That has happened.
Next week: Mr. Geller and Mr. Hollander on the usefulness of the financial industry's ombudsman offices, and their take on investment advisers.
