Dealer refuses to compensate clients for risky investment

The Ombudsman for Banking Services and Investments (OBSI) has announced the refusal of W.H. Stuart & Associates to compensate its customers in the amount of $41,066 as recommended by OBSI.

W.H. Stuart is a family-owned independent mutual fund dealer and insurance agency based in Markham, Ontario. A retired elderly couple, Mr. and Mrs. I, brought their complaint to OBSI after unsuccessfully trying to resolve their complaint with W.H. Stuart directly.

Mr. and Mrs. I were low to medium-risk investors with limited investment knowledge, limited income and net worth, and no investment experience in individual stocks or private shares.

On the recommendation of their W.H. Stuart advisor the complainants purchased shares in an extremely small private company that later went bankrupt. The investment was portrayed as a guaranteed, risk-free investment that was in fact a high-risk, speculative investment unsuitable for them given their personal and financial circumstances.

W.H. Stuart is responsible for the advisor’s unsuitable recommendations that led to Mr. and Mrs. I’s unsuitable investment portfolio at the firm. If W.H. Stuart had assessed the suitability of the initial shares they purchased and warned them of the risks, the complainants could have sold the shares without a loss and avoided purchasing additional shares on which they also incurred losses.

W.H. Stuart has chosen not to fulfill its responsibilities to the complainants and provide the compensation they are owed based on the facts of the case.

OBSI’s recommended compensation amount of $41,066 is arrived at by first calculating the difference between the amount the investors’ accounts should have been worth had they been suitably invested and the actual value as of the date they removed their investments from W.H. Stuart. Interest was then added to compensate the investors for the loss of use of their money, calculated from the date they first complained to the firm.

At the direction of securities regulators, OBSI established a one-time method of independent review of certain cases that were headed towards refusals to compensate. Mr. and Mrs. I’s case was one of them. Firms were offered the opportunity to have credible and experienced former commissioners of the Ontario Securities Commission (OSC) provide an independent assessment of the files in question based on standards consistent with OBSI’s Terms of Reference.

If OBSI had unfairly considered the facts of the case or our investigation findings were objectively flawed, the reviewer would say so in their report on the matter. W. H. Stuart chose not to take up this offer.

Read OBSI’s investigation report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.