Supreme Court backs small investors

The Supreme Court of Canada has ordered a stockbroker to pay his client $2.3 million dollars. The judges said Wednesday the broker’s bad advice and mismanagement had cost the client his retirement nest egg.

Armand Laflamme, 73, celebrated at his home near Quebec City. It was a successful end to a 10-year legal battle.

In a 7-0 decision, the Supreme Court upheld a ruling that the broker, Jules Roy, and the investment firm, Prudential-Bache Commodities Canada Ltd., breached fiduciary duties by placing most of Laflamme’s $2-million retirement fund in high risk investments.

In the words of one Supreme Court judge, the broker “failed to construct an organized and diversified portfolio, carried out transactions that were inconsistent with the client’s general instructions, acquired speculative securities and failed to have regard to his client’s investment objectives.”

Coming at a time of growth in numbers of investors and investment options, including discount brokers, the decision is likely to have important ramifications.

Protection for the small investor

The same day the Supreme Court released its decision, Stan Buell, present of the Small Investor Protection Association, took questions in the Fifty-Plus.Net chat room.

Buell said he started the organization after losing most of his savings when a trusted broker took advantage of him.

In the course of investigating his own case two years ago, Buell said he found a widow who had also dealt with the same broker. She lost all the savings from sale of the family home and business.

“Our priority is to make people aware of how the industry operates and to make them aware of what they can do to avoid problems. It’s easier to avoid major losses than to gain restitution.”

The warning signs

Buell says anyone with serious concerns about how their investment portfolio is being handled should seek some expert help through a lawyer who has experience in securities litigation.

He also had some warning signs for small investors:

  • Generally, if your account is not following the general market trend—losing money when the market seems to be going up, this could indicate a problem.
  • If there is activity in your account which you did not order or approve, that could also indicate a problem.
  • Not all statements will give the rate of return, but comparing month end statements will show whether or not investments are increasing.
  • If you are having a problem getting an up to date statement from your investment company, contact the regulator and ask them to contact the company to ask that a statement be provided.
  • If you are using a full service broker, ask for adequate reports which outline reasons for investments and an annualized rate of return.
  • Be wary of investing in penny stocks or using margin for investment or investing in limited partnerships.
  • Financial advisors make a commission when they sell you an investment product. If you don’t understand the product, don’t buy it.

Making informed decisions

Buell recommends that investors read and study all they can about investing and investment products, so they can make informed decisions about the financial advice they receive.

“If you do not feel comfortable with what a broker says, or if you don’t understand it, then you should talk to another broker. It’s also difficult depending solely on the advice of a friend. He may have different investment objectives and more tolerance for risk.”

“If investment money is lost, it is very difficult to recover. For many, it’s impossible because of the time and money required to gain restitution.”

“The additional stress of fighting for what is right after your savings have been decimated is often too much.”

Buell said that’s why his organization focuses on investor awareness and working with Canadian Securities administrators to try and provide more information for investors.