Past complaints against advisors not admissible in court. This issue is a very common request…these kinds of motions are generally unsuccessful, says Laura Paglia in Investment Executive

Past complaints against advisors not admissible in court

August 31, 2009

Financial advisors and investment dealers will be sleeping more soundly, thanks to a recent ruling from the Supreme Court of Nova Scotia that past complaints against an advisor cannot be used in a current dispute.

The decision in MacGowan v. RBC Dominion Securities Inc., revolves around a disgruntled couple, Bruce and Susan MacGowan. They were RBC Dominion Securities Inc. clients from 1997 to 2002. Their accounts were closed after they suffered significant losses. The following year, they took legal action against DS and their investment advisor, Hugh Bagnell, claiming negligence, breach of fiduciary duty and breach of contract. These claims were based on allegations of unauthorized and unsuitable trading in the couple’s accounts.

The MacGowans also contended in their statement of claim that DS failed to supervise Bagnell’s activities with respect to their accounts and failed to put in place adequate systems to prevent unauthorized and unsuitable trading in the accounts.

The former Investment Dealers Association of Canada (now the Investment Industry Regulatory Organization of Canada) agreed. In a formal hearing, a DS vice president was found not to have properly supervised the trading activity in the clients’ accounts to ensure that the recommendations were appropriate and in keeping with their investment objectives.

At the conclusion of the IDA hearing, the couple requested that DS produce, for purposes of litigation, various documents including those pertaining to the complaints of other Bagnell clients that had been entered as exhibits in the IDA regulatory hearing.

DS refused, and off to court they went. (By the time the case reached the court, only DS and the original clients remained. Bagnell had already had a default judgment entered against him.)

DS's refusal to produce the documents is not surprising, says Laura Paglia. "This issue is a very common request. They ask; we always refuse. These kinds of motions are generally unsuccessful."

Read the full article here.

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