Financial consumer complaints continue to increase. In 2010, for the first time in its 15-year history, the Ombudsman for Banking Services and Investments (OBSI) reviewed over one thousand financial consumer complaints in a single year. Over the last few years complaint volumes have tripled. Approximately 45% of the complaints OBSI reviews are about banking services, while the other 55% are about investments.
In the majority of investment complaints, investors complain that they received poor advice, their investments or investment strategies were unsuitable and/or that their investments did not perform as they expected. In such cases, investors ask to be compensated for the investment losses they incurred. OBSI’s role is to determine whether it would be fair in the circumstances to recommend that the investment firm compensate the investor for any losses.
The fact that an investment has not performed well does not necessarily mean it is unsuitable. Investments and strategies are suitable when they are consistent with the investor’s objectives and risk tolerance.
In some of the cases we see, the investment advisors did not fulfill their “know your client” obligations and did not accurately determine or document the investor’s investment time horizon and investment objectives, risk tolerance and investment knowledge. In other cases, the advisors did not properly explain the risks and characteristics of the investments they were recommending. Clients investing through discount brokerage accounts are responsible for making their investment decisions and monitoring their account.
In addition to unsuitable investment cases, OBSI continues to receive complaints from investors about transactions that advisors are conducting without their dealer’s authorization (“off-book transactions”). Investment advisors are prohibited from engaging in such transactions. Investment firms are required to diligently monitor for such activity. However, investors also need to watch out for signs that the transactions their advisors are proposing do not involve and have not been authorized by the dealer. Some of the signs investors can watch out for include:
• The paperwork – or lack of paperwork – is different from previous transactions that have been made through the firm;
• The advisor is asking the investor to pay for the investment by writing a cheque to the advisor personally; or
• The transactions do not appear on the account statements the investor typically receives from the firm.
It is important to note that investors have a responsibility to take reasonable steps to minimize losses when they realize – or ought to have realized – there is a problem. By diligently monitoring your accounts and investments, you will be better able to spot problems when they first arise.
OBSI is the national independent dispute resolution service for consumers and small businesses with a complaint they can’t resolve with their banking services or investment firm. As a free alternative to the legal system, we work informally and confidentially to find fair outcomes to disputes about banking and investment products and services.
OBSI looks into complaints about most banking and investment matters including: debit and credit cards; mortgages; stocks, mutual funds, income trusts, bonds and GICs; loans and credit; fraud; investment advice; unauthorized trading; fees and rates; transaction errors; misrepresentation; and accounts sent to collections. Where a complaint has merit, OBSI may recommend compensation up to a maximum of $350,000.