A mutual fund dealer has refused a recommendation from the Ombudsman for Banking Services and Investments (OBSI) for investor compensation in a case involving a couple that lost over $60,000 by following a leveraged investment strategy.
OBSI said Friday that Toronto-based Monarch Wealth Corp. has refused its recommendation that the fund dealer pay compensation to a young couple who lost money due to a leveraged strategy that OBSI found to be unsuitable for them. While they lost over $61,000, OBSI recommended that the firm pay half that amount ($30,628) because the strategy was initiated while their advisor was at another firm, which it considered partly responsible, too.
The other firm, which is not named, has settled with the couple, OBSI’s report on the case indicates.
The dispute resolution service ruled that Monarch should also compensate them for half their loss, as it concluded that the strategy was both unsuitable from the start, and that it “was even more unsuitable by the time their accounts were transferred to Monarch”.
It found that the investors had very limited investment knowledge, did not understand the risks of leveraged investing, and weren’t in a position to take these risks. Moreover, the clients suffered losses as a result of this strategy, and so, OBSI ruled that the firm should be (at least partly) responsible for the financial harm they suffered.
“[The clients] met none of Monarch’s or the investment industry’s typical guidelines for leveraged investing. They did not have sufficient income to pay the loan interest and they did not have sufficient net worth or liquid net worth to pay off the leveraged investment loan if the strategy failed. They also did not have sufficient knowledge or experience to appreciate the risks of the leverage strategy, and their personal and financial circumstances were such that they could not afford or tolerate its risks,” OBSI says in its report on the case.
The report indicates that the firm maintained that the leverage strategy and investments were suitable, given the client’s stated KYC parameters; that they signed leverage risk disclosure documents when they transferred their accounts to the firm; that it is unable to validate the clients’ claims about allegedly forged signatures on certain documents; and that, while they did suffer losses, their investments actually performed relatively well, in the context of a global market decline.
OBSI notes that the advisor in question has left the industry and that it was unable to interview him in this case.
Ultimately, it decided that the complaint has merit, and it made a recommendation for compensation; which, it says, the firm has refused. It then must publish that refusal, and the details of the complaint.