OBSI names and shames Sentinel for not compensating a client

The refusal marks the first case so far this year in which OBSI has “named and shamed” a firm for refusing a compensation recommendation, down from four in 2015 and six in 2014.

According to the investigation report that OBSI released on Tuesday, an unnamed advisor at the firm recommended that a client invest in high-risk products that were not suitable for him given his investment knowledge, experience and risk tolerance. The report indicates that although the client qualified to purchase exempt securities, “this does not mean they were suitable investments for him.”

Indeed, OBSI found that the specific securities the investor bought were not suitable because they were high risk and the investor had a low-to-medium risk tolerance.

“While [the client’s] investment objective was growth, his risk tolerance was low-to-medium. Therefore… high risk exempt securities, were unsuitable for him,” OBSI’s report says.

Sentinel disagreed, noting that it reviewed the securities and concluded they were suitable based on the client’s know-your-client information, signed subscription agreements and the fact he signed risk acknowledgement forms for the securities, OBSI’s report says. As a result, the firm ruled that the securities were suitable for the client and it refused to compensate him for his losses.

However, OBSI concluded that the client likely didn’t understand that the investments were high risk. It found that he trusted his advisor and relied heavily on him.

“Based on all the evidence, we find it reasonable that [the client] believed the exempt-market securities [his advisor] recommended were not high risk,” OBSI’s report says. “Given his low-to-medium risk tolerance we conclude that he would not have purchased these investments if the risks had been properly disclosed to him.”

Thus, OBSI ruled that the firm should be held fully accountable for his losses and it recommended that Sentinel provide $103,362 in compensation for the unsuitable investments and purchase his remaining units at their current market price, for total compensation of $128,799.

“Sentinel Financial is responsible for the financial harm caused by one of its advisors,” says Sarah Bradley, ombudsman and CEO of OBSI, in a statement. “It’s rare for any firm to refuse our recommendation to compensate an investor when warranted. But this marks the fourth time Sentinel has refused an OBSI recommendation in the past two years. To date, Sentinel has refused to pay almost $450,000 in compensation to investors.”

OBSI has no power to force firms to follow its compensation recommendations. When a firm refuses to comply, its only recourse is to “name and shame” the firm involved and to publish some of the details of its investigation and decision.

The latest independent review of OBSI found that the ombudservice should be given the power to impose its recommendations on firms and that its decisions should be subject to appeal. The regulators that oversee OBSI have not revealed whether they’re willing to follow the independent reviewer’s recommendations. The previous independent review of OBSI recommended similar reforms and the regulators did not follow those recommendations.

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