The lapses involved insufficient information and use of inappropriate processes for elderly clients
While the Ontario Securities Commission has started a stronger policy focus on senior protection in the investment industry, a new report suggests that the industry still has a long way to go.
In its recently published Annual Summary Report for Dealers, Advisers and Investment Fund Managers, the OSC said that 57% of the firms it reviewed “did not collect and document sufficient KYC information” for some of their senior clients. These included shortfalls in information relating to risk tolerance, time horizons, and investment knowledge.
“While most of the firms and their representatives were able to demonstrate that these were documentation issues … we remind firms to maintain adequate and up-to-date KYC information to support their compliance with the KYC and suitability obligations,” the regulator said.
The OSC also found that senior clients were generally put through the same KYC processes as clients in other age groups. The report highlighted that in general, the frequency of KYC updates and type of KYC information gathered were the same regardless of clients’ age.
Reassuringly, some firms were proactive in discussing matters like the potential use or existence of a power of attorney and obtaining the names and contact information of trusted relatives or third parties. Certain firms were also found to increase their frequency of contact with senior clients once they saw signs of diminished capacity or financial abuse, documenting the outcome of discussions after each meeting.
The OSC added that some 23% of the firms it reviewed had inadequate documentation to support their suitability recommendations for seniors, although most firms in such cases were able to provide additional information to support their assessments later on.
“In one review, we noted some of the firms’ senior clients invested more than 10% of their net financial assets in a related issuer product,” the OSC said, noting that there was no documentation to explain why the firm had seen the trades as suitable. “It was also unclear whether the firm had explained to their senior clients the risk of holding such a concentrated position in their portfolios.”
The report included some key reminders for portfolio managers, exempt market dealers, and scholarship plan dealers. Among these were reminders that such professionals should not:
- Ignore red flags of diminished capacity or financial abuse and continue to service clients in the same manner;
- Avoid broaching topics such as diminished capacity or financial abuse with senior clients for fear of offending them; and
- Get senior clients invested in high-risk and/or illiquid products if the clients rely on the investment principal or income derived from it to cover retirement expenses.
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