A reader passed on some details regarding compensation for financial fraud. I think it deserves a higher profile than the comments section of an earlier post, hence this post.
It turns out there is some compensation for fraudulent acts by financial advisors but it depends on the province. Mr. Strati notes:
In Quebec, there is a fund that protects in case of fraud of a distributor of financial products. Currently Saskatchewan, Manitoba, and New Brunswick can order compensation of up to $100,000, (a drop in the bucket for those who lost millions) but the order must be registered in court. Quebec can immediately compensate investors, in an amount of up to $200,000.
Investors in other provinces may want to use the courts. Some lawyers are willing to do Pro Bono work but most will want to be paid and at very expensive rates. If you are a small investor of modest wealth or have just lost most of your assets to an unscrupulous advisor, you wont be able to pursue this route.
Mr. Strati also mentions there is the Canadian Investor Protection Fund (CIPF), which protects customers of investment dealers who are registered with IIROC. If you see Member CIPF on advertising literature, you will know that the distributor is an IIROC member and covered by this fund, he notes.
CIPF offers coverage of up to $1 million per customer account. However, this is for protecting clients against the insolvency of a member firm. Limited protection is available to investors in the event of fraud.
Every registered or legitimate independent advisor must carry error and omission insurance. Unfortunately it does not protect against fraud.
The Ombudsman for Banking Services and Investments ( OBSI) offers a free service for resolving investment disputes if the financial planner or other service provider is covered by the ombudsman. OBSI can recommend compensation of up to $350,000.
The IIROCoffers an independent arbitration service for the resolution of disputes. Decisions are binding and awards of up to $100,000 can be granted.