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Wealth Management Case Study

Investment Risk Higher than Expected

You are on: The Problem

From the Perspective of the Client

Urged by a close relative, an RBC® client met with an investment advisor (IA). He shared that he was extremely averse to risk, and all his current investments were in his opinion "risk free," such as GICs. He said he would like higher income, but not if it involved greater risk. He believed the IA promised to make no-risk investments, and felt deceived when his first account statement showed lower values.

From the Perspective of RBC

The client wanted better returns. The IA explained that higher rewards involved higher risks, and after listening to the client felt he fit the profile of someone wanting to be "investment grade," which is the lowest risk. The IA suggested a specific investment, which the client authorized and was immediately sent a prospectus which outlined the risks involved. According to accepted regulations, an IA can only make recommendations; clients are responsible for their investment decisions.

You are on: The Resolution

The Office of the Ombudsman Reports:

"After discussing with both parties, and doing our fact-finding, it was clear that each party had a responsibility. After talking to his IA the client made the investment decision, giving the IA the go-ahead. He didn't dispute the investment after receiving the prospectus or trade confirmations. But, while the low-risk investment respected the client's wishes for more income, it was not 'investment grade’, and considering his clear aversion to risk, should not have been recommended to him.

Our office helped both parties get a better understanding of their responsibilities, and each other. They accepted our recommendation to work together on a settlement."

You are on: What Can be Learned

For RBC:

Listen carefully to clients, and reconfirm your interpretation of their needs and your ability to meet their expectations. Be up front if you can't offer a client better returns without increased risk.

For Clients:

Listen carefully to your IA - take notes and be informed. Since you are responsible for your investment decisions make sure you carefully read all documents without delay. If you're unhappy with a decision, call your IA as soon as you receive the trade confirmation.