Does an advisor’s obligation to a client end with the sale of his or her book? The sanction of a BC agent for inappropriately selling high-risk securities to a widow raises that question.
James William Duke, operator of Duke Wellington Financial Group, has been banned from practicing by the BC insurance regulator after inappropriately selling high-risk securities to a widowed pensioner. Duke, documents show, started advising the widow after buying the book of another, unnamed, agent.
According to the Insurance Council of BC ruling, Duke acquired the widow as a client around 2008, when he purchased a book of business from her former agent. Between November 2008 and July 2009, she stayed in Calgary and Edmonton as her husband was ill and hospitalized. He died on July 23, 2009
About two months after the death of her husband, Duke met with the client and presented an exempt market security for Falls Capital Corp, which is involved in real estate development. Duke said he also presented the option of a GIC as an alternate investment option, but that she rejected this as it did not provide enough income.
As well as Falls Capital, Duke sold her securities in Deercrest Construction Fund and UrbanStar Glendale Manor. All three stated in their offering documents that they were high-risk, illiquid investments, and should only be considered by people who could afford to lose their entire investment. Duke sold the securities over a period of a year and received commissions on each sale.
The council said Duke should have taken into consideration that his recently widowed client was in a vulnerable position. “As the client's trusted financial advisor in a time of personal hardship, the licensee should have recognized the enhanced reliance that the Client would likely have placed on his investment recommendations.”
Prior to engaging Duke, 100% of the widow’s investments were apportioned into segregated funds. By December 2010, 65% of her investments were in exempt market securities.
At the time Duke became her agent, the client's monthly income was: $800 from her disability pension, $120 from her husband's pension and $200.00 from her survivor pension. She was also drawing down around $650 per month from two insurance accounts.
The council said that Duke “knew or ought to have known that the level of risk posed by the illiquid, unregulated investments was far too great for the client… the licensee's conduct in failing to recognize or acknowledge the risk to the client reflected on his competency.”
Duke will be permitted to practice in one year, but only after obtaining either a Chartered Life Underwriter (CLU) or Certified Financial Planner (CFP) designation. He was also to pay investigative costs of $1,925.
