Dealing With Seniors And Other Vulnerable Clients ACCP Conference May 6,

2 Topics What is a vulnerable client? Vulnerable Clients & Investment Decision-making SRO Approach Seniors as Clients Common Regulatory Issues (recent cases)

3 What is a Vulnerable Client? Not just confined to Seniors Can include those individuals who are easily influenced, limited in investment knowledge and/or experience, unable to make sound and independent decisions. Other examples include: - Disability - Language and Literacy - Financial Means

4 Investment Decision-making: Areas of Vulnerability Cognitive limitations Loss of “ability to doubt” Isolated socially and desire company May be more willing to entrust decisions to others Have strong values about politeness in dealing with others Often avoid reporting or complaining Memory issues Open to claims of quick profits to bolster their retirement savings (senior specific) Controlling/influential Family/friends directing accounts

Seniors & Cognitive Impairment Seniors projected to be 25% of the population in in 11 Canadians over 65 currently has dementia The numbers of Canadians living with dementia may rise to 1.1 million by 2036, absent medical advances 5

BC Securities Commission Report March/12- Report on Canadians over 50 20% are vulnerable to high risk investment offers 40% don’t understand the relationship between risk and return Only 25% have realistic expectations of current rates of return 26% would look further at a clearly fraudulent investment offer or don’t know how they would respond 6

BC Securities Commission Report (cont’d) Greater vulnerability of seniors due to: Little savings for future Low interest rates Low market returns Lack of understanding Sheer number approaching retirement 7

SRO Approach IIROC Express Strategic Priority (since 2011) - issues relating to seniors/vulnerable investors Enforcement’s operational improvements –Case Selection Criteria MFDA MFDA Strategic Plan 2012 – 2014 Enforcement – senior/vulnerable client case tracking, screening guidelines Compliance Examinations – criteria in sampling for high risk securities, exempt products and leveraging Member Education and Investor Education 8

9 Seniors as Clients Need to be aware of on-going KYC obligations  Critical to update documented KYC when circumstances change  proper Trading Authority where necessary Greater importance of certain factors as client ages:  Time Horizon  Risk Tolerance – Inability to recover from loss of principal  Investment Objectives  Income and Liquidity –to address financial needs (eg. health care)  potential estate planning considerations

Common Regulatory Issues Know your Client Suitability Obligations  egs. use of leverage, DSC, complex products  Re Gareau [2011] IIROC No. 53 -Saskatchewan  Harding [2011] IIROC 65 – Ontario  De Vuono, 2012 MFDA – British Columbia Personal Financial Dealings/Conflict of Interest  Daniel Edward Smith [April 2013] IIROC – BC. – Settlement  Levine, 2013 MFDA - Ontario 10

11 Questions ?