Dealing With Seniors And Other Vulnerable

Clients

ACCP ConferenceMay 6, 2013

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Topics

• What is a vulnerable client?

• Vulnerable Clients & Investment Decision-making

• SRO Approach

• Seniors as Clients

• Common Regulatory Issues (recent cases)

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What is a Vulnerable Client?• Not just confined to Seniors

• Can include those individuals who are easily influenced, limited in investment knowledge and/or experience, unable to make sound and independent decisions.

• Other examples include:- Disability- Language and Literacy- Financial Means

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Investment Decision-making:Areas of Vulnerability

• Cognitive limitations• Loss of “ability to doubt”• Isolated socially and desire company • May be more willing to entrust decisions to

others• Have strong values about politeness in dealing

with others• Often avoid reporting or complaining• Memory issues• Open to claims of quick profits to bolster their

retirement savings (senior specific)• Controlling/influential Family/friends directing

accounts

Seniors & Cognitive Impairment

• Seniors projected to be 25% of the population in 2036

• 1 in 11 Canadians over 65 currently has dementia

• The numbers of Canadians living with dementia may rise to 1.1 million by 2036, absent medical advances

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BC Securities Commission Report

March/12- Report on Canadians over 50

• 20% are vulnerable to high risk investment offers

• 40% don’t understand the relationship between risk and return

• Only 25% have realistic expectations of current rates of return

• 26% would look further at a clearly fraudulent investment offer or don’t know how they would respond

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BC Securities Commission Report (cont’d)

Greater vulnerability of seniors due to:

• Little savings for future

• Low interest rates

• Low market returns

• Lack of understanding

• Sheer number approaching retirement

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SRO ApproachIIROC

•Express Strategic Priority (since 2011) - issues relating to seniors/vulnerable investors

•Enforcement’s operational improvements

– Case Selection Criteria

MFDA

•MFDA Strategic Plan 2012 – 2014

•Enforcement – senior/vulnerable client case tracking, screening guidelines

•Compliance Examinations – criteria in sampling for high risk securities, exempt products and leveraging

•Member Education and Investor Education

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Seniors as Clients• Need to be aware of on-going KYC obligations

Critical to update documented KYC when circumstances change

proper Trading Authority where necessary

• Greater importance of certain factors as client ages: Time Horizon Risk Tolerance – Inability to recover from loss of

principal Investment Objectives

Income and Liquidity –to address financial needs (eg. health care)

potential estate planning considerations

Common Regulatory Issues

• Know your Client

• Suitability Obligations

egs. use of leverage, DSC, complex products

Re Gareau [2011] IIROC No. 53 -Saskatchewan

Harding [2011] IIROC 65 – Ontario

De Vuono, 2012 MFDA – British Columbia

• Personal Financial Dealings/Conflict of Interest

Daniel Edward Smith [April 2013] IIROC – BC. – Settlement

Levine, 2013 MFDA - Ontario

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Questions ?