Regulators are taking a stand against the financial exploitation of vulnerable Canadians such as the elderly and those with diminished mental capacity with a new proposal that will help investment advisers flag transactions that may put clients at risk.
If approved, the proposal would require investment advisers to try to obtain the name and contact information of someone whom clients would label as a “trusted contact person," as well as the client’s written consent to contact that person under specific circumstances.
“Due to the nature of their client relationships, [advisers] are in a position to be among the first to recognize signs of diminished mental capacity or financial exploitation of older or vulnerable clients,” said Louis Morisset, chair of the Canadian Securities Administrators, an umbrella group for all provincial securities commissions.
The trusted contact person would not be someone with power of attorney over the client’s funds, nor would he or she make any decisions about the client’s finances, the CSA said. Rather, the trusted contact is someone advisers could reach out to if they believe something is amiss, or to double-check whether a client is experiencing financial abuse or diminished capacity.
The proposal will also allow investment firms or advisers to place a temporary hold on the purchase or sale of a security if they felt the vulnerable client is a risk. As well, advisers could place a temporary hold on the withdrawal or transfer of cash or security from a client’s account.
The CSA said the changes would “provide an appropriate balance between a client’s autonomy and investor protection.”
Cracking down on elder abuse has been an initiative of Canadian securities regulators after a 2017 study found that Canadians aged 65 or older are the likeliest group to report being victims of financial fraud or other abuse. This can include theft or misuse of funds intended for care, or abuses of a power of attorney over an older person’s decision-making.
Alan Fustey, vice-president and portfolio manager at Bellwether Investment Management Inc. in Winnipeg, has been using a vulnerable person policy that his firm set up in early 2018, although it does not include a trusted contact person.
“The idea of a trusted contact person, safe harbour and temporary freeze on transactions are good practices but they are not total fail-safes," he said in an interview. “The reality is a lot of these clients are particularly vulnerable to abuse because they don’t have a close family member or friend to turn to, in which case a trusted contact person would be difficult to establish.”
For Mr. Fustey, if there is a situation that deems “suspicious,” his company policy requires him to escalate the issue to the firm’s chief compliance officer.
Ellen Bessner, a partner at Babin Bessner Spry LLP in Toronto, was among the experts who consulted with multiple regulatory bodies and has long recommended that the industry adopt a trusted contact person policy, in addition to having a power of attorney.
”If they cannot locate their client or if the instructions from a power of attorney document cause them concern, there is someone else to turn to confirm the facts,” said Ms. Bessner, who works with investment advisers and victims of financial abuse. “It provides alternatives for advisers."
The CSA has been working on the guidelines since last June in partnership with two self-regulatory organizations that oversee investment firms, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.
The “trusted contact person” proposal is out for public comment until June 3.
Clare O’Hara