Duties of Investment Advisors

Investment advisors owe professional duties to their clients. They must act responsibly, in conformance with provincial securities laws. They must be sure to abide by the “know your client rule”, and not recommend investments which are inconsistent with your investment knowledge, experience, risk-tolerance or personal circumstances. And they must be honest, and not abuse the trust placed in them.

The courts have defined the obligations of investment advisors, and awarded compensation to investors where those obligations have not been complied with. In Varcoe v. Sterling (1992) 7 O.R. (3d) 204 (Gen. Div.), Mr. Justice Keenan wrote:

“Brokers are required to comply with the regulations governing the conduct of their client's affairs. The cardinal rule of the brokerage business is the "know your client rule". A broker who opens an account for a client is required to obtain from the client an "account application form". It contains detailed information about the client including age, employment, income, net worth, trading experience and trading objectives, as well as personal and family responsibilities. The broker has an obligation to the client, to himself and to the industry to keep up to date on the client's circumstances and informed of any significant changes in those circumstances.”

And in Rhoads v. Prudential-Bache Securities Canada Ltd. (1992), 63 B.C.L.R. (2d) 256 (C.A.), the B.C. Court of Appeal wrote:

“Where … the firm and its employees seek to enhance their business by offering guidance to would be investors … they must expect that their advice may be relied on as that of skilled, independent professional advisors. Stockbrokers who carry on business in this way accept responsibilities beyond those involved in bringing together buyers and sellers. They undertake the duty of providing careful, competent, considered professional advice of a sort in which clients, especially those who have no experience of their own to guide them, may well place their complete reliance.”

For more information, and a free case evaluation, call Doug Lennox at 416.506.1944.