Seniors, those over age 65, are disproportionately the victims of fraud and financial abuse due to social isolation, potential capacity issues, and more. Particularly since the start of the pandemic, older Canadians may be spending more time alone and online, which has increased their vulnerability to financial and investment fraud, according to the North American Securities Administrators Association.

In response, recent changes have been made to empower financial advisors in Canada to take meaningful action if they suspect a client is suffering from diminished capacity or is being influenced by someone with nefarious intentions. In addition to providing new tools, the changes also impose a responsibility on advisors to take reasonable steps with all clients to put new protocols in place that will allow the advisor to take action if they become concerned in the future.

Canadian Securities Administrators Issue New Guidelines to Investment Advisors

On July 15, the Canadian Securities Administrators, the umbrella organization which oversees Canada’s various provincial securities regulators, released new guidelines for financial advisors working with clients who are seniors or have other vulnerabilities. Amendments to National Instrument 31-103, an instrument adopted as subordinate legislation to relevant securities legislation in each province and territory, impose new duties on advisors beginning in 2022. The aim of the amendments is to “enhance protection of older and vulnerable clients by providing registrants with tools and guidance to address issues of financial exploitation and diminished mental capacity”.

Financial Abuse of People with Capacity Vulnerabilities

Those who may have impaired capacity for a variety of reasons, such as dementia, are at greater risk of being taken advantage of financially by people with nefarious intentions. According to an article by RBC Wealth Management, financial abuse can take many forms and may start small, eventually building to something more serious or impactful. Financial abuse can also be difficult to detect until a person has already suffered a significant loss of assets. However, there are some patterns that should be considered “red flags” and prompt someone to look into the situation. These red flags include:

• Social isolation: Many seniors live alone (47%, according to the Financial Post) and may not see their loved ones very often, especially over the past year and a half, due to health mandates imposed in response to the pandemic. This isolation provides greater opportunity for bad actors to take advantage of a person who is vulnerable.
• New social connections: Having a social circle and connections to one’s community are good things, but if there is suddenly a new presence in a senior person’s life, particularly one who accompanies that person to meetings relating to finances or estate planning, professionals should take note and ask questions.
• Unusual purchases: If a person begins shopping online or making big purchases that seem out of character, it’s possible someone may be influencing them, or using their credit cards without their knowledge.

Key Changes Guiding Financial Advisor-Client Relationships

The amendments created on July 15, which will come into effect in 2022, include two key components, both tools intended for use by advisors who are concerned about older or vulnerable clients.

Trusted Contact Person (TCP)

As part of the “Know Your Client” process, advisors will be required to attempt to have each client identify a Trusted Contact Person and provide their advisor with this person’s name and contact information. The intended purpose is that the TCP would act as a resource to the advisor if they ever became concerned about their client’s capacity, or financial decisions. The TCP would not have any decision-making authority with respect to the client’s finances, and instead would be there to provide assistance or guidance to the advisor to prevent financial exploitation or address capacity concerns.

Clients will not be required to appoint a TCP, but advisors will be required to take reasonable steps to obtain and update TCP information.

Temporary Holds

The changes also include a framework for advisors to place a temporary hold on a client’s transactions, withdrawals, and transfers if they suspect the client may be the victim of financial exploitation or diminished mental capacity. The advisor would then have an obligation to review the relevant facts as soon as possible to make a determination if the hold is appropriate. Ultimately, the advisor would be required to remove the hold and make an assertation as to whether or not to proceed with the client’s request.

As stated in the press release from the CSA announcing the changes:

Registrants can be in a unique position to notice red flags because of the interactions and the knowledge they acquire through the client relationship. We expect the amendments will provide more robust investor protection, while also respecting client autonomy and responding to the needs and priorities of older and vulnerable investors.

Strategies to Protect Loved Ones from Financial Abuse

In addition to financial advisors, family members and other loved ones may be in a position to notice red flags or concerning behaviour that may indicate a diminished capacity to manage finances, or financial exploitation. If you are concerned about a loved one, the CSA recommends taking the following steps:

• Speak with the person about their financial matters. Many people are uncomfortable discussing money, but this discomfort often contributes to issues going undetected until it’s too late.
• Become familiar with common financial scams and keep any vulnerable loved ones apprised as well.
• Investigate, or encourage your loved one to investigate, any new investment opportunities, as well as the person or organization promoting them.
• Report investment fraud to your provincial securities regulator. In Ontario, this would be the Ontario Securities Commission.

For Exceptional Legal Representation in Financial Advisor Negligence Claims Contact Milosevic & Associates 

If you are an investment advisor, or other financial professional facing a complaint, an investigation, or a disciplinary hearing, contact the highly knowledgeable Toronto professional liability lawyers at Milosevic & Associates. Our goal is to protect you, your reputation, and your ability to work in your field.

In addition, if you or a loved one have been the victim of fraud, our lawyers are experienced representing clients in cases involving investment, securities, and financial advisor fraud. Call us at 416-916-1387 or contact us online.