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

2. Overview
Suitability
Best Interest Standard
Seniors
Cybersecurity

3. 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

4. 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

5. 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

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

7. 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

8. 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.

9. 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

10. 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

11. 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

12. 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

13. Protecting Client Information
Cybersecurity
Protecting Client Information
Firm Systems
ing 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

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

15. 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

16. 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