Case Studies - Investments

The clients, a retired couple in their early 70s, were approached by an advisor who had been referred to them by a friend. The advisor recommended that they take out a $90,000 home equity line of credit and use the money to invest in various equity mutual funds. The couple had $15,000 in retirement savings and had only fair investment knowledge. Their income came from government and company pensions. Since they did not have adequate income to cover monthly interest payments on the loan, the advisor set up a regular withdrawal to be taken from the investment account.

In early 2002 a client sold a rental property for $175,000. He asked his accountant if there was an investment product that would guarantee his capital and provide him with a regular income. His accountant suggested income trusts. Through an advisor referred to him by his financial institution, he invested in income trusts recommended by the advisor. However, the distribution from the trusts soon reduced to a trickle. Even though the capital was guaranteed, the client was not happy and looked for an alternative.

The client, a novice investor in her 60s, was looking to invest $75,000 of an inheritance she received. This money was a significant portion of her net worth. With the help of a long-time friend, she opened a margin account with the firm. Through her friend, the client completed the account opening documentation. She never met with the advisor. In fact, they only spoke twice by phone when the client wanted to withdraw money from her account.

When the client met the advisor, she was 67 years of age, retired and recently divorced. The client could no longer work because of her failing health. For most of her adult life, she did not work outside the home. Her income consisted of Old Age Security, Canada Pension and $250 a month from her ex-husband.

A couple had been investing with their advisor for several years. The husband instructed the advisor to make a small change in one of his accounts. About a week later, both the husband and the wife received trade confirmation slips in the mail indicating that a large number of units of mutual fund A had been switched to mutual fund B in their accounts.

The client was a low-risk investor looking for safe, income-producing investments. He wanted to avoid the volatility of the stock market, although he would tolerate a small share of his portfolio in equities as an inflation hedge.

The client's investment advisor recommended an investment in Air Canada debentures, suggesting they were “not very risky." He failed, however, to share the prospectus for the debenture which contained rating agency descriptions ranging from “lower quality" to “speculative and non-investment grade." More than $43,000 of the client's money was invested in the debentures.

When this couple went to a new advisor in 1995, they were earning a combined income of about $55,000, had no debt and had accumulated about $300,000 in liquid and fixed assets.

A few years after immigrating to Canada, a middle-aged couple opened an account with a full service investment firm and deposited $80,000 from the sale of their home in the UK and the husband's severance pay.

Nearly three-quarters of a 91-year-old client's account at a full-service brokerage firm was invested in a bond mutual fund. The investment advisor convinced the client's son, who held Power of Attorney for the client, to switch the investment in the no-load bond fund to the back-end load version of the same fund. The mutual fund company paid the advisor and the brokerage firm a $30,500 commission for the switch.

Unsuitable investment recommendations were made for a client, for which her investment firm offered to compensate her $30,000. The client turned down the firm’s offer and appealed to OBSI. On closer scrutiny, however, OBSI concluded that the client should be compensated only $20,000.