The Investment Industry Association of Canada (IIAC) has published a new paper, entitled Addressing the needs of vulnerable investors: Autonomy and property rights, which warns regulators to continue to emphasize the importance of client autonomy and property rights when policy is created to protect vulnerable investors.
The report highlights the challenges that advisors face when providing financial services to elderly clients and those who demonstrate signs of vulnerability to exploitation or mental incapacity.
“Not all elderly clients are vulnerable and not all vulnerable clients are elderly. Similarly, not all clients who demonstrate signs of impairment or diminished capacity are incapable of making decisions concerning financial matters,” the IIAC states in an announcement about the publication’s release. “Regulators must avoid creating a second tier of investor by pursuing the goal of client protection at the expense of client autonomy in decision-making.”
Throughout the paper, the association advocates for regulators to give serious consideration to providing registrants with “safe harbour” or other statutory defenses to rely on when providing advice to vulnerable clients. “The aim of this article is to open a dialogue with regulators and legislators on these problems.” (Safe harbour refers to those legal or regulatory provisions which limit or eliminate liability.)
Demographic and dementia trends
The paper notes that registrants are not qualified to make capacity determinations. It looks at demographic and dementia trends (since 2000, the number of Canadians over age 65 more than doubled from 3.8-million to 7.8-million; there are also currently more than 900,000 Canadians over age 85, a number that is expected to reach 2.7-million by 2050), and also at the guidance notes, staff notices and national instruments in place which discuss and govern a representative’s actions when helping senior clients. It also notes that definitions of what financial exploitation is are broad and loose.
The association also says the risk associated with vulnerable clients making poor or unwise financial decisions is effectively mitigated by the suitability obligations imposed on registrants (know your client and know your product requirements among them).
“A client should not be denied autonomy simply because a registrant observes signs of what may be perceived as vulnerability or diminished capacity which falls short of an inability to make decisions regarding financial matters,” the report states. “As the Supreme Court of Canada has noted, it is an error to equate the presence of a mental disability with incapacity.”
The note concludes, imploring regulators to continue to emphasize the importance of client autonomy, or risk inadvertently creating a second class of investors with weakened property rights.
Statutory protections
“As it stands, registrants are in the difficult position of having to be aware of the various non-determinative and often subjective warning signs of possible client vulnerability, financial exploitation and incapacity which may not be apparent, while simultaneously respecting the fundamental concept of client autonomy in decision-making,” the report concludes. “To promote a balance between client autonomy and property rights, on one hand, and client protection on the other, regulators and policy makers should give serious consideration to providing registrants with a form of safe harbour defence or other statutory protections when serving vulnerable clients.”
