Now defunct, Alberta-based exempt market dealer, WealthTerra Capital Management has refused to compensate a divorced mother of two, after the Ombudsman for Banking Services and Investments (OBSI) found she was invested in high-risk, exempt market securities that were inappropriate given her investment knowledge and risk tolerance.

The client, identified only as Ms. X, was divorced in 2011, earning $20,000 a year as a housecleaner and pet sitter, while living full time with her two young children and her mother, as she could not afford to live on her own. Although Ms. X was not looking for an investment advisor, she decided to meet with a WealthTerra representative after another mother at her children’s school, an insurance agent, offered to introduce her. The WealthTerra representative recommended she transfer her $46,000 Locked-In Retirement Account (LIRA) and her $12,000 in emergency savings, to invest in exempt market securities.

Ms. X became aware of problems with one of her investments in 2017, leading her to ask another firm to review her investments. She subsequently complained to WealthTerra that her investments were not suitable. WealthTerra refused to compensate the client, saying the investments were suitable, and because she had not questioned their suitability sooner. WealthTerra has since applied to surrender its registration and is no longer in business.

In addition to investing her assets unsuitably in high-risk securities which exceeded her low-to-medium risk tolerance, OBSI also found that prior to 2017, her account statements did not reflect any investment losses or other red flags that would reasonably have led her to question the suitability of her investments.

According to OBSI’s analysis, the client’s account decreased by $39,564 during the period she was unsuitably invested. Had it been invested in 60 per cent medium and 40 per cent low-risk securities, it would have increased by $11,246. Had it been invested 100 per cent in medium-risk securities, it would have increased by $11,841. Overall, OBSI recommended WealthTerra compensate Ms. X $50,810.

According to an annual report released by OBSI’s Joint Regulators Committee (JRC) August 27 – the JRC is a committee of the Mutual Fund Dealers Association of Canada (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Securities Administrators (CSA) – the ombudsman had no compensation refusals like WealthTerra’s in 2018 or 2019.

In May 2014, amendments to National Instrument 31-103 came into force, requiring all registered dealers and advisors to make OBSI available to their clients as their dispute resolution service, except in Quebec where such services are handled by the Autorité des marchés financiers (AMF).

 The JRC annual report review of 2018 and 2019 fiscal years also shows that out of 316 OBSI cases that ended with monetary compensation, 23 were settled for amounts below what the ombudsman recommended. “About 70 per cent of these cases involved recommendations over $50,000 with an average settlement rate at about 62 per cent,” they write. Of the 15 firms involved, four settled below OBSI’s recommended amount more than once. Overall in 2018 and 2019 they say clients received approximately $1.04-million less than what the ombudsman recommended.