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Posted by Mr. Joel W. on May 19th, 2015 1:06pm

                                                                  Comment on


             Graham v. Wells and CIBC World Markets Inc., 2015 BCSC 734 (BCSC)


                                                                Joel Wiesenfeld


The troubled relationship between investor expectations and objectives is highlighted in the May 5, 2015 Judgment in Graham v. Wells and CIBC World Markets Inc., a decision of the British Columbia Supreme Court.  While each investor loss case presents on facts particular to the individual investor client of the financial advisor and dealer, the basic situation in this case was not unique.  Essentially the claim was that by July 2008 (when the equity markets were high in the context of months of market volatility), the client raised sufficient concerns about her desire for capital preservation and her aversion of risk, specifically to a variation of value greater than 15% of her investments, that the financial advisor should have taken appropriate steps to rebalance her portfolio.


The market crash of the fall of 2008, extending to March of 2009, together with other factors, caused the client to lose faith in the financial advisor, such that in early March of 2009 (at the low point of the markets), she liquidated substantially all of her account holdings (which consisted of managed funds) and transferred the resulting proceeds to another dealer.  Her damages claim was for losses calculated as the difference between the values of her portfolio as at the end of the months of July 2008 and February 2009, totaling $841,939.


Following what appears to have been a 20 day trial in 2014, the trial Judge dismissed the client’s action.  The 45 page Judgment sets out a detailed consideration of the facts and circumstances, including the testimony of the participants to the conduct of the account, the record of communications between them during the period at issue, the account documents (such as they were), and expert evidence concerning aspects of the investment industry and the calculation of losses.


Some general observations about the case, as derived from the Reasons for Judgment:


  1. The KYC forms, acknowledged by the financial advisor and dealer to be improperly inadequate, inaccurate, “replete with errors”, and not updated as required in the circumstances, nevertheless did not form a basis for a finding of a breach of duty on the part of the advisor or dealer.  In essence, the forms were superceded in importance by the evidence (records of communications and the testimony of the parties) of the client’s expectations, and the client’s and advisor’s actions during the July 2008 to March 2009 time period.
  2. The degree to which the client’s portfolio should have been allocated to equities was a function of the client’s investor profile during this period.  In the view of the trial Judge, the client was “reasonably knowledgeable about investing” and continued to have expectations of fairly substantial returns from her account.  The Judge contrasted these expectations with the client’s “increasing anxiety, sometimes panic about the decline in the value of her portfolio” and her increasingly conservative risk averse objectives.  While accepting the experts’ opinion that the duty to determine that a specific asset allocation was no longer suitable for the client was the financial advisor’s and not the client’s, the Judge was satisfied that the advisor had met his suitability duty in the context of the investor profile of the client and her circumstances. 
  3. The trial Judge noted that the client invested the proceeds of disposition from her account at the defendant dealer with her new financial advisor/dealer in mainly precious metals investments, with the attendant value volatility, commenting that:  “However, she testified that owning gold and silver – and especially bullion, or the metals themselves – brings her peace, because of the relationship of those metals to mother earth, as well as their long-standing role in proving [sic – providing] security and safety to threatened or persecuted peoples through the history of time.  In that sense, she considers her current investment approach to be a conservative and low-risk one.”  The plaintiff’s post cause of action investments and strategy did not seem to factor into the decision one way or the other.
  4. While there is a limited amount of financial information in the Reasons, it appears that the actual amount at issue was only $241,939!  The Judge states that the original $4 million in capital deposited in the account in 2003 was not depleted as of July 2008.  (During the 2003 – July 2008 time period, the client withdrew approximately $1 million from the account, and, in addition, fees and commissions were deducted from the account balance.  In other words, the account had performed well to that point in time.)  The account was substantially liquidated in early March 2009, and the experts calculated damages as the decline in value between the end of July 2008 and the end of February 2009 (likely using the month end values in the account statements), in the amount of $841,939.  That amount, divided by $4 million, constitutes a 21% ‘loss’.  The client’s position was that the account should have been exposed to a variation of no more than 15%, meaning (at least to the writer) that any ‘loss’ up to 15% (or $600,000) would not have been actionable and form part of the claim.  The difference is $241,939, for which the parties went through a lengthy trial. 


Each of these 4 disparate points are informative of issues that frequently arise in investor loss cases and are indicative of the risk and expense of litigating to an adjudicated result.


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