Results of IIROC National Survey Calls for More Protection for Vulnerable Investors

Results of IIROC National Survey Calls for More Protection for Vulnerable Investors

July 22, 2019

BY Valerie Le Blanc

On June 21, 2019, the Investment Industry Regulatory Organization of Canada (IIROC) published the results of its national survey, Awareness and Attitudes Related to Provisions to Protect Vulnerable Investors and Investment Firms/Advisors: Presentation of Key Findings. Survey data gathered between March 7^th and 14^th, 2019 from 1,000 Canadian investors covered a range of topics including awareness of regulatory tools and resources on available protection measures, uptake on the use of a trusted contact person, and the correlation between tools for protection and investor confidence. According to its news release, “Survey respondents were pulled from IIROC’s Investor Panel – an online pool of 10,000 investors created by IIROC to allow Canadians to provide their input directly into the regulatory process and associated public interest issues.”

The purpose of the survey was twofold—1) to gauge investor awareness and familiarity with available protection measures; and 2) to “explore overall understanding of, support for, and concerns with, the concepts of a ‘trusted contact’ person, ‘safe harbour’ and ‘temporary hold’ policies and specific elements within.”

Key findings from the survey are:

• Awareness of tools to protect vulnerable investors is low. Only 18 percent of respondents reported an unaided awareness of regulatory rules to help investment firms and advisors protect vulnerable investors. And only 22 percent report having aided awareness of tools and resources on the use of a “trusted contact person” (TCP);
• Uptake of the TCP is low. When asked if they have identified a TCP for their account, only 22% of investors confirm having named someone. This is despite 71 percent saying they would provide a name of a TCP if their advisor requested it. (NOTE: The 22 percent may be underreported because 39 percent of survey respondents say they have a Power of Attorney who is also named as their TCP);
• More than 8-in-10 investors agree that they would benefit from more information about specific aspects of the TCP role. An overwhelming 93 percent of survey respondents support the use of a TCP on their account. However, more information is needed on the circumstances under which an advisor can contact a TCP, how to update TCP information, and how an investor can choose someone to act as a TCP; 
• Support for tools that protect vulnerable investors is high. 92 percent of survey respondents support investment firms and advisors having regulatory tools in place, such as a TCP and temporary hold measures to enable them to protect investors they know or suspect are vulnerable;
• The level of support that investors have for the tested concepts is dependent on the value that is placed on the protection of vulnerable investors;
• Investor confidence is directly correlated to awareness of the regulatory tools that support protection of vulnerable investors. Awareness of the regulatory tools and measures available is reported to have a significant impact on investor confidence that they are effectively protected, their assets are safe, investment firms and advisors are acting in their best interest, and Canadian markets are effectively regulated;
• Investors support tools that empower firms and advisors to protect vulnerable investors. The majority of survey respondents agree that “investment firms and advisors should have the ability to speak with a ‘trusted contact’ person if they suspect their client is vulnerable or being exploited, [they] should be able to temporarily pause activity in a client’s account if they suspect the client is vulnerable or being exploited” and a safe harbour regime should be in place to protect them if action is needed to be taken on a client’s file;
• The majority believe that investment advisors would use these tools in the investor’s best interest. 72 percent agree (32 percent strongly agree) that their advisor is looking out for their interests by recommending that they designate a TCP and are confident that they would implement them appropriately based on sound judgement;
• Values of investor privacy and control over their financial affairs must guide the development, execution and communication of these tools.
  • Investment firms’ and investment advisors’ primary concern should be to protect their client’s privacy, even if they believe the client may be vulnerable;
  • Advisor should not be able to discuss their financial affairs with anyone but them regardless of their perceived physical/mental health and capacity; and
  • The physical and mental health status of clients is private and should not be shared with investment dealers or investment advisors.
• Investment management behaviour—and the attitudinal profile that underlies that behaviour—has a greater impact on perceptions of the tested concepts and tools than do demographics.

According to IIROC’s President and CEO, Andrew J. Kriegler, “It is encouraging to see resounding support from Canadians for measures to safeguard vulnerable investors – particularly seniors – and protect them from financial exploitation. This input from investors complements the comments we have heard from the investment industry on the need for tools like a regulatory safe-harbour to address the issues associated with Canada’s aging population and vulnerable investors.”

The IIROC National Survey and FAIR Canada and CCEL’s 2017 Report on Vulnerable Investors

In November 2017, the Canadian Centre for Elder Law (CCEL), along with the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada), published the Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence, and Diminished Mental Capacity. One of the key findings of the Report on Vulnerable Investors was that “[Canadian] investment firms and their representatives lack guidance on how to recognize, respond, and/or report elder abuse and neglect, undue influence, or diminished mental capacity issues.”

The report made six recommendations for how the securities regulatory regime in Canada could better equip financial services representatives to protect vulnerable investors. Three of the six recommendations called for use of a TCP on a client’s file, temporary delays or holds on trades and disbursements to address situations where elder abuse, undue influence, or diminished mental capacity is suspected, and implementation of a legal safe harbour for investment firms and advisors from regulatory and civil liability if representatives act in good faith and exercise reasonable care in deciding to disclose information to a designated TCP, or when placing a temporary hold on trades and disbursements.

The results of the IIROC National Survey highlight strong support among Canadian investors for implementation and enhanced use of these tools to foster adequate protection for vulnerable investor populations.

IIROC states it is committed to “continue our collaboration with the Canadian Securities Administrators (CSA) on proposals to provide the tools needed to protect vulnerable investors.” According to its news release, IIROC will “work with its regulatory, industry, government, stakeholder and community partners to develop information resources to support conversations between investors, advisors and others on the decisions and actions they can take together to address potential vulnerability and financial exploitation.”

CCEL’s Current Project on Vulnerable Investors

The CCEL continues its work on the issue of vulnerable investors with its current project, Respecting the Rights of Vulnerable Investors through Supported Decision Making. Building on the findings from the 2017 Vulnerable Investor Report, the Inclusive Investing project examines how individuals living with Alzheimer’s or other forms of dementia, and persons identified as living with intellectual or developmental disabilities, are using, or attempting to use, supported decision making in the investment context.

The research for this project includes consultation interviews with key informants and stakeholders that are people with lived experience, investment professionals, lawyers, academics and community agencies in British Columbia, Ontario, the United States and internationally. The goal of the consultation research is to help identify how Canadian investment advisors, adults with cognitive and decision-making challenges, and supporters can incorporate supported decision making into the investment decision-making process while guarding against undue influence and financial abuse. The data from IIROC’s 2019 National Survey will help to inform the ongoing research and findings for the CCEL’s project.

For more information on the Inclusive Investing: Respecting the Rights of Vulnerable Investors through Supported Decision-Making Project, please consult our project page.