Although web sites are becoming de rigueur when running a financial advisory business, they can also be a source of legal risk, lawyers warn.

That harmless article you posted on your site, any copy touting your talents as an advisor or the confidential client information you made available through your Web site can send you afoul of intellectual property laws, regulatory rules governing advertising or voluntary ethic guidelines. This can open advisors to lawsuits or actions from regulators and disgruntled clients or businesses.

When it comes to the Internet, Gilles Daigle, an intellectual property lawyer with Gowling Lafleur Henderson LLP in Ottawa, says advisors often misconstrue how laws apply.

“[Laws] apply the same way as they apply to all other media,” he says. Just because the Web is an electronic form of communication does not mean advisors can ignore issues such as copyright or trademarks.

Nor can they ignore the professional rules of advertising and sales literature, or the protection of personal information. For example, Advocis, the association for financial and insurance advisors, has a voluntary code of ethics that requires certified financial planners to disclose conflicts of interest in providing products and services and to protect confidential information, both of which apply to Web sites.

Both the Investment Dealers Association of Canada and the Mutual Fund Dealers Association have bylaws governing business conduct, which includes Internet communication.

In 1995, the IDA issued a compliance interpretation bulletin advising those it governs that information made available online is a form of advertising or sales literature, and is governed by IDA Bylaw 29.7. That bylaw prohibits IDA-regulated firms and advisors from issuing advertisements or sales literature that contain “any untrue statement or omission of a material fact, or is otherwise false or misleading.”

And such information can’t contain any “unjustified promise of specific results” or use “unrepresentative statistics to suggest unwarranted or exaggerated conclusions.”

Opinions and forecasts of future events must be clearly labelled as such, and the communication should fairly present the potential risks to the client. As well, there is a vague, catch-all clause that prevents communication that is detrimental to the public.

IDA firms must also have in place a supervision and review process, and certain types of communication — including research reports, market overviews and text used at promotional seminars — must be reviewed by compliance experts before they’re presented to the public. So advisors need to be careful when simply posting on their Web sites a PowerPoint presentation they had given to a group of clients.

There’s also a requirement that copies of sales material and advertising be retained for two years from the date of creation. And correspondence has to be kept for five years.

The MFDA rules work along the same lines. Rule 2.7 governs advertising and sales communication, including information on Web sites, market commentaries and research reports. Superiors at your firm must approve such communications before they are posted on a Web site.

But regulatory hurdles are only part of the equation. Simply getting your site up and running can be a challenge because of intellectual property rights. An advisor who doesn’t pay attention to the content on his or her Web site and how it is managed could face lawsuits or injunctions for breach of copyright, or legal action for violating trademarks or for disclosing confidential information.

> Who owns your site? It starts with the design of your site, says Howard Knopf, an intellectual property lawyer with Macera & Jarzyna in Ottawa. “If you don’t take the appropriate steps to own the rights [to] your own Web site, you can become hostage to the Web design firm,” he warns.

That’s because the federal Copyright Act protects creators. In Canada, copyright is automatically granted to the creator of a work, unlike in the U.S., which has a requirement that creators must register their copyright.

Copyright applies to literary, dramatic, musical and artistic works, and lasts for the life of the creator plus 50 years after his or her death. There is also a moral right associated with copyright, which means the creator has the right to the integrity of the work and it can’t be modified in a way that denigrates it.

So, if an advisor hires a designer to build a Web site, the design firm is the copyright holder unless the contract explicitly states otherwise. The design firm must also explicitly waive its moral rights in the contract or those rights will survive.

@page_break@Without such safeguards in place, an advisor can be hamstrung when it comes to updates or changes to a Web site template, and the advisor may not easily be able to change design firms. “If you have a falling out, you want to be able to take [your Web site] with you. That has to be dealt with by contract,” Knopf says.

If the designer doesn’t waive his or her moral rights, you could be prevented from modifying the look and feel of your Web site. “You don’t want people to say they can’t make changes because of their moral rights, which translates into ‘Pay me’, ” he says.

> Content conundrum. Design is only one of the risks. A big mistake people make is simply posting other people’s articles on their Web sites. “They don’t understand what they can and can’t do, in terms of copyright,” says Daigle. “They may put on their Web site materials they don’t have the right to [post].”

Daigle says an advisor can’t simply take an article from the local newspaper or a business magazine and post it on his or her Web site. “You need the owner’s permission to do that,” he says.

Michael Manson, an intellectual property lawyer at Smart & Biggar in Vancouver, says advisors can also be exposed to copyright infringement through the acts of an employee or the graphic design firms they hire.

He cites the case of a corporation that hired a university student to work on its Web site. The student used content from a third party without permission and the business was sued. The same could happen to an advisor.

If a graphic designer alters a photo or uses information he or she doesn’t own when building an advisor’s site, the copyright holder could also sue the advisor. So the contract with a Web design firm should include provisions that the designer agrees not to breach anyone’s copyright and will indemnify the advisor if this happens.

An advisor who develops a Web site using internal staff also needs to make sure he or she formally documents that creating the site is part of an employee’s job. Otherwise, Knopf says, a disgruntled employee can later claim to be the copyright owner because his or her real job involved something else and the employee worked on the Web site as a favour to the boss.

Penalties for breaching copyright are harsh. A court could order damages and an accounting of any profits earned from using the work. The act also sets out automatic statutory damages, which range from $200 to $20,000, depending on the nature of the offence. The copyright holder could also get an injunction shutting down your Web site until you stop violating the copyright.

In addition, there is the potential of a criminal penalty. If an advisor knowingly distributes copies of an infringing work, he or she can be subject to a $25,000 fine and six months in jail. In the most extreme case, a person can be fined $1 million and jailed for up to five years.

> Tracking trademarks. Trademark and trade-name violation is another area of concern for Web site owners. “You have to be really careful when a trademark is used. It’s potentially a minefield for all businesses,” Knopf says, noting the law is “is developing in a very complex way.”

The federal Trade-Marks Act protects “certification marks” that distinguish a ware or a service. An advisor can’t simply use a logo that is associated with another firm. For example, mutual fund firm AGF Fund Management Ltd. has a trademark on its use of a tiger, while AIM Funds Management Inc. has trademarked its chevron logo. Advisors need to obtain permission to use these trademarks on their sites.

One area in which advisors can get into trouble lies in the computer coding of Web pages, which is read by Web search engines. In order to get higher placement in a Web search, a Web designer may use a competing financial advisor’s trademark or trade name in the hopes that someone searching for information about that brand will be directed to your site.

For instance, a Web designer may incorporate the words “Investors Group” or “BMO Nesbitt Burns” into the Web code so if someone searches for one of those firms, a search engine will list your site. Unless the advisor works for those firms, that’s a no-no — and such activity will be stopped dead in its tracks.

“It’s something to be wary of,” Knopf says. “Some Web designers are too aggressive.”

When it comes to penalties for breaching trademarks, there are no limits. Lawyers say most of the time businesses are subject to injunctions to stop the activity, but damages can follow. It can amount to millions of dollars, depending on how flagrant the violation is.

> Protect information. If your Web site is transaction-based and provides clients with access to their confidential information, you have to be particularly careful because of the privacy laws, Daigle warns. That’s because the Personal Information Protection and Electronic Documents Act requires advisors to protect any confidential information they collect about their clients.

If advisors don’t, they can find themselves answering to the provincial or federal privacy commissioner, which has happened to a number of financial institutions over their handling of client information. It is publicly humiliating — and can also lead to civil lawsuits.

> Notices and disclaimers. Advisors should also protect themselves by posting disclaimers and notices on their Web sites. “A lot of [businesses] don’t bother putting copyright notices on their Web sites,” says Manson.

He says a notice means someone who takes information from your site and uses it can’t claim it was an innocent infringement.

Craig Zawada, a technology and intellectual property lawyer with Wallace Meschishnick Clackson Zawada in Saskatoon, says such disclaimers should be prominently displayed, preferably on the home page.

“You can never really, absolutely bulletproof your Web site [from lawsuits],” he adds, “but you can make it bullet-resistant.” IE