Since Manulife has been brought up, and a couple people in this conversation work there, I would like to bring up the precedent setting case of the Manulife advisor who sold a couple some garbage that he shouldn't have, and the couple successfully sued Manulife for it, because it illustrates some interesting points that have been brought up so far. (I am too lazy to find it, but I am guessing that you Manulife guys have it readily handy if anyone wants to post a link to the case)
This was an very important and influential case because it upped the responsibility of the dealer over their advisors.
The advisor in question has a Manulife sign over his door and thus the clients (rightly) believe that they are dealing with a Manulife representative. (
Note: this is not about Manulife - the advisor could have been with any dealer and everything would have transpired identically)
The couple is discussing potential investments with their advisor. He shows them some standard investment options (which were all endorsed by Manulife), but when they don't bite, he then slides into some venture that he is personally flogging (unknown to, and definitely
not endorsed by, Manulife).
Needless to say, the investment goes to #### and the poor old couple lose their savings. It is obvious to anyone that the investment was inappropriate for them, so they have a good case for a lawsuit.
They (well, their lawyer) serves the claim to Manulife as well as the advisor, on the basis that the advisor was a representative of Manulife and therefore the clients' assumption that Manulife endorsed the investment was a reasonable one.
Manulife argued that the investment was not something that they endorsed or even knew about, and was therefore not their responsibility, but simply the responsibility of the individual advisor.
The judge ruled against Manulife, and for the plaintiffs, essentially saying that it was totally reasonable for them to assume that if the advisor was licensed by Manulife (and all that that implies), that they could assume that this product was also endorsed/supported by Manulife, and therefore they are responsible.
This case is interesting for a lot of reasons:
- independence can mean a lot of different things
- who is/should be at fault here?
- should the dealer be responsible for the actions of a rogue advisor?
- if the dealer is responsible for the advisor, where does that responsibility end?
- if the dealer is responsible for the advisor, how does the dealer protect itself against rogue advisors?
One might argue that this case shows why the dealer needs to have
more control over what individual advisors are up to. But I would argue that is naive.
First, going back to the independence issue, the more control the dealer has over their advisors, the less independent those advisors are.
Second, there is no way that dealers can possibly keep track of individual advisors and the things they are doing outside the scope of the dealer's influence and control.
Therefore, the only defenses dealers have are to reduce advisors' independence, or - and far more importantly - to continue to soften and cloud the rules and regulations, in order to protect themselves.
(Note: at an independent firm, the advisor and the firm are one and the same, and are therefore would be directly responsible and accountable)