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Law-suit limitation makes family teamwork on investments even more important

by Wayne Cheveldayoff, 2005-07-14

There is an important connection between a recent survey showing Canadians are not talking about money with their aging parents and the move by some provincial governments to reduce from six years to two years the limitation period on civil law suits related to investment losses.

What it boils down to is the following: Parents and children should be talking and helping each other on investments because if money is lost through inappropriate advice or wrongdoing, there is even less chance now of getting it back.

The reduction in the law-suit limitation period was highlighted recently by the Small Investor Protection Association (SIPA) (www.sipa.to), which believes it is the single most important policy issue for individual investors.

Stan Buell, SIPA’s founder, says the stakes are high.

“Gag orders (related to settlements) prevent the public and the media from knowing the magnitude of the problem of investors losing their life savings due to widespread industry practices of wrongdoing,” Mr. Buell states.

“We estimate investor losses due to wrongdoing to be well in excess of $1 billion every year. It’s hard for us to estimate it accurately but it’s huge. If the public knew how big it was, they’d be more careful about their investing.”

Mr. Buell thinks a two-year time limit on the right to sue is simply too short.

“When people suffer a significant loss, it can take more than two years to deal with the betrayal of trust and the disruption to life, let alone getting organized to take legal action.”

Another factor is the time it takes for most people to work their way through investment dealer and regulator channels to try get their money back without resorting to a law suit.

“If it takes them more than two years to find their way through the system, to learn that they’re not going to get their money back through the regulators, then they’re out of luck.”

The curtailment from six to two years in the civil litigation limitation period became effective in Ontario on January 1, 2004 and subsequently in Alberta and Saskatchewan. It covers other things as well and while it was not specifically directed at individual investors, it nevertheless applies to them. Other provinces have varying limitation periods up to six years.

If you suffer a loss, you can ask a lawyer to launch a suit right away, although the loss would have to be substantial to make it worth the lawyer’s time.

But if you start a civil law suit, the Ombudsman for Banking Services and Investments (OBSI) won’t accept your case for resolution. And to be considered by OBSI, you need to have already worked your way through the financial institution’s branch manager, compliance officials and, if bank-owned, its own ombudsman. It all takes time and two years is not enough for every case.

Individual investors could reasonably conclude that the system is stacked against them. Certainly, Mr. Buell believes it is, based on the hundreds of cases brought to his attention.

So, what should you do if something is stacked against you?

My answer is don’t get involved. That means making sure that inappropriate advice or wrongdoing are just not allowed to happen in your or your family’s investment life.

In a lot of families, where parents may not be as knowledgeable about investing as their children, or perhaps too trusting than they should be, children can be an important resource for their parents, perhaps checking out investment recommendations or sitting in on meetings with investment advisors.

The Decima Research survey looking at families and money, sponsored by Investors Group (and published June 28 on www.newswire.ca), rightly pointed to the need for children to get more involved in estate planning with their parents.

But while one wouldn’t expect an organization like Investors Group with its legion of investment advisors to focus on it, there is an equally important need for children and parents to work as team to make sure money is appropriately invested and not whittled away by inappropriate advice or wrongdoing – in other words, that there is actually something left over for the estate.

Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. His columns are archived at www.smartinvesting.ca and he can be contacted at wcheveldayoff@yahoo.ca.

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©2005 Wayne Cheveldayoff