Back to SearchKey lessons
- All investors should understand that higher potential investment returns come with a higher risk of investment losses, but most people find it much easier to consider potential investment gains than to deal with investment losses. Before committing to any investment plan with medium-to-high expected returns, consider: If your investments were to lose half their value, how would you feel? How would your short- and long-term financial well-being be impacted? Could you stick to your plan? Discuss these issues with your advisor to help them understand your risk tolerance.
- Understand the role your investment time horizon plays in making investment decisions. If you will need the money you are investing in the near term or are uncertain about when you may need access to your money, do not commit to a longer-term investment plan.
- It is important to pay attention to your account statements and the fees you pay compared to what you have agreed to pay. Billing mistakes can happen, and if you think a mistake has been made in your account, raise it promptly with your firm.
Investor’s new strategy is derailed by market volatility resulting from pandemic
Mr. R was an experienced investor and had been a client at his investment firm for about fifteen years. In December 2019, he had a significant amount of money invested in Guaranteed Investment Certificates (GICs) earning very minimal interest and he decided that he wanted his investments to provide a higher rate of return – his goal was a 5% annual return after fees. He met with an advisor from his investment firm to discuss an investment strategy that would help him achieve this goal.
During this meeting, Mr. R and his advisor discussed his risk tolerance and the risks of an investment plan that had the potential to achieve the returns he wanted. They discussed a time horizon of over seven years and that the investments were to be held in a fee-based account with a 1% investment management fee on total assets excluding cash. Based on their discussion, the advisor recommended a portfolio that included equities that would meet Mr. R’s investment objectives.
In March 2020, during the onset of the COVID-19 pandemic, the value of Mr. R’s portfolio declined significantly and he was concerned. He contacted his advisor and, for personal reasons, wanted to sell some of his investments to get access to cash. His advisor recommended that Mr. R stay invested and ride out the volatility of the market. Instead, Mr. R directed the sale of half of the equities he held. In August 2020, Mr. R contacted his advisor again to discuss his portfolio. He also expressed disappointment with the performance of his investments and said the fees he was being charged were excessive.
His advisor responded to Mr. R in September 2020 and offered to review his portfolio. Mr. R felt dissatisfied with his advisor’s level of service. In October 2020, he sold his remaining equities and purchased GICs with the proceeds.
Firm refuses to reimburse investor for losses and all fees
Mr. R complained to the firm that his advisor had not accurately disclosed the risk of investing. He said if he had known he would lose so much money investing in equities, he would have kept his GICs. He also felt the service he received did not justify the fees charged to his account and that he was overcharged. As compensation, he asked the firm to reimburse all his fees, and pay for the losses he had realised.
When the firm investigated Mr. R’s complaint, it found that his investments followed the strategy that he and his advisor had agreed to. Additionally, it found that his advisor had disclosed the risks associated with investing. The firm further noted that Mr. R’s investments had been suitable and the decline in the value of the portfolio was the result of a global pandemic that no one could have predicted. The firm said that had Mr. R stayed invested, he would have achieved the goals of his investment plan.
While the firm refused to reimburse Mr. R for his fees and losses, it acknowledged that it had miscalculated Mr. R’s fees and overcharged him more than $1,900. The firm refunded him this amount.
Dissatisfied with the firm’s response, Mr. R brought his complaint to OBSI.
Our findings
During our investigation, we reviewed Mr. R’s complaints about investment suitability, service, and fees.
In relation to the suitability complaint, Mr. R confirmed that he had signed account forms to update his investment objectives and risk tolerances, and that the documented information was accurate.
We considered his documented investment objectives and risk tolerance and determined them to be reasonable based on his personal and financial circumstances, investment knowledge and experience.
We then examined his investments and found that they were consistent with the documented parameters he had agreed to with his advisor. Given the evidence, we determined his investments to be suitable.
In response to Mr. R’s service and fee complaint, we found that the firm had overcharged Mr. R between December 2019 and September 2020 by approximately $2,000. We also found that the firm did not appropriately adjust his fees when he switched back to GICs which resulted in a further overcharge of approximately $700 in extra fees.
Based on our findings, we recommended that the firm compensate Mr. R for the difference between the overpayments we calculated and the refund it had already issued in addition to a goodwill payment of $250 to address the inconvenience that Mr. R had experienced.
The firm agreed with our recommendation to compensate Mr. R and he accepted their offer.
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