Securities Litigation - Identifying and Limiting the Risk of Regulatory and Civil Litigation Presented by Bruce O’Toole

Overview Suitability Best Interest Standard Seniors Cybersecurity

Advisor’s Primary Obligation Suitability Advisor’s Primary Obligation Make investment recommendations that are suitable for the client given his/her particular circumstances MSN-0069 Suitability

Three Step Process Suitability KYC: learn the clients particular circumstances KYP: know the fundamental characteristics of the product Suitability: apply your professional judgment to marry KYC and KYP to make recommendations that are suitable for the particular client

Client Intake KYC Process Standardize it Strongly consider using Investor Questionnaires See MFDA Bulletin #0611 –C Ask questions: Don’t just accept what the client says Keep notes

KYP Process Risk Ranking: rely on the most recent prospectus Split categories: use the most conservative Concentration and diversification issues with certain funds

Suitability Process When is it triggered? Every order accepted or recommendation made Transfer of assets – within a “reasonable time” Material change in client’s KYC information

Suitability Process What is Required? Matching KYC to KYP Matching the characteristics of the investments with the investor’s stated circumstances as recorded in the KYC Never this easy: Not just a single fund, but a group of funds Need to consider diversification, sector concentration etc.

Discussions About Investments Suitability Process Discussions About Investments Duty to tell the good, the bad and the ugly about an investment Must be a balanced presentation of upside and downside of investment Keep notes

Suitability Leverage Duty to tell the good, the bad and the ugly about leverage Recommend getting as much backup financial documentation as possible from the client Why is the client borrowing to invest? Keep notes

Best Interest Standard Proposed Best Interest Standard 1. Act in the best interests of the client 2. Avoid or control conflicts of interest in a manner that prioritizes the client’s best interests 3. Provide full, clear, meaningful and timely disclosure 4. Interpret law and agreements with clients in a manner favourable to the client’s interest where reasonably conflicting interpretations arise 5. Act with care

Dealing with Seniors Seniors Regulators are taking a close view of dealings with seniors Special concerns: Capacity/authority issues Conflict of interest Litigating with the estate Estate trustee/beneficiary Keep notes

Protecting Client Information Cybersecurity Protecting Client Information Firm Systems Emailing of confidential information: password protect Helping in prevent unauthorized access: viruses, spam and websites Your devices Protection of laptops, phones Securing home computers Use of public Wi-Fi

Social Media Prior Approval Needed Advertising by social media is still advertising Correspondence over social media is still correspondence Use common sense

Reduce the Risk What to do if….. A client complains/the MFDA calls/a lawyer calls: Listen, take notes Do not respond to their questions or provide information Tell your branch manager and compliance They will decide how to follow up

Reduce the Risk Final Thoughts When in doubt, ask Check the PPM Ask your Branch Manager Ask Compliance Go to the MFDA website Keep notes