Investor Protection

What Do I Need to Know about Investor Protection in Canada?

The financial industry is self-regulated. High fees, sub-optimal advice and an unwieldy complaints system put all older investors at serious risk. There needs to be better oversight so that the bad apples can be spotted and removed.

An example of CARP’s work in this area relates to the financial industry’s complaints process. Older Canadians rely on their life savings. So, what happens when someone trusts a financial advisor or institution and experiences financial abuse? Surely once a complaint is filed, the issue is redressed?

Unfortunately, the investment industry, in whom consumers and investors place their trust, has significant gaps in protection. Of particular concern is the existing financial industry complaints process. This is of great concern to CARP given that older Canadians and particularly those who are vulnerable in terms of lacking financial knowledge and resources, are disproportionately at risk of financial abuse.

The Canadian financial industry complaints process compounds harm to those who have encountered financial abuse. Currently in Canada, when an investor has a valid complaint, it is legal for banks or investment dealers to demand that clients sign a non-disclosure agreement (NDA) as part of the resolution. In other words, in order to receive compensation for financial wrongdoing, the person who has faced financial harm is asked to sign an NDA. An NDA is a legally binding contract that stops you from sharing key information with anyone, even family or therapists. NDAs go by other names such as confidentiality agreements or as consumer advocates refer to them, gag orders.

CARP and consumer advocates see gag orders as a legally sanctioned way of preventing harmed (and often vulnerable) clients from telling others about their experiences, protecting the reputation of the investor or company at the expense of the person who unfairly lost money.

Many complainants do not have the ability to hire legal counsel, or they have not had time to get legal advice before being asked to sign an NDA.
They may not know their rights around appropriate compensation.
The financial and legal penalties for a breach of an NDA are not clear, adding to an already stressful experience.
Remaining silent about the situation – even to family – can compound the stress of losing savings, a potentially life-altering event. Numerous studies have shown that people hiding personal traumatic secrets display signs of poor mental health, such as hypertension and isolation.
Others who may run the risk of a similar situation do not hear of the experience and so are not warned.
Many do not know (and are not informed) that a signed NDA does not prevent you from informing regulators about your complaint. It may result in an enforcement action against the firm or advisor but will not impact your compensation.

Without a change in Canadian legislation banning NDAs, the only alternative for complainants is litigation. Civil litigation can be expensive, stressful, time consuming and exhausting making it a difficult (and unlikely) choice for the elderly.

The end result is that those who are financially harmed receive less than would otherwise be considered a fair settlement, and on top of that must sign a confidentiality agreement so the victim does not speak out, keeping the Canadian public unaware of the magnitude of this hidden problem.

How is CARP Advocating?

CARP is currently working with allied organizations such as FAIR, which champions the rights of individual investors in Canada through advocacy, education and regulatory advancements.

One way CARP is currently advocating for investor protection relates to NDAs or gag orders. In a landmark vote on February 9, 2023 lawyers from across Canada have vowed to help stop the use of NDAs, to silence victims and whistleblowers. Read more here.

Investor education alone will not resolve the issue of vulnerable investors losing significant savings due to industry wrongdoing. Regulations must be responsive to the wrong that is done, and ensure investor protection is achieved through a just process when preventative measures fail and financial loss occurs.

CARP urges regulators to impose a ban on the use of NDAs in the financial services sector in the name of financial consumer protection.