A financial advisor must adhere to the portfolio allocation, otherwise they will have to reimburse the losses incurred by the investor.
Many people have experienced difficulties following investments in the stock market. Were they careless, overly ambitious, or simply misinformed? It is the latter point that an investor invokes when addressing the Court and attributes their losses to the "negligent conduct" of their financial advisor.
An investor signs a management contract to entrust their portfolio exclusively to their financial advisor. The contract stipulates that the composition of this portfolio should not include more than 9% of "junior securities". In the weeks following the signing of the contract, the investor repeatedly informs their advisor that they are not adhering to the terms of the agreement, as the percentage of "junior securities" varies between 36% and 51% of the total portfolio. Despite these notifications, the advisor neglects to restore the initially agreed upon allocation with the investor. The latter terminates the contract and demands reimbursement of the incurred losses from their advisor.
The Court determines that this is a case of "default management" contract since the investor, having delegated the full management of their portfolio, only has obligations to collaborate in good faith and pay fees. The advisor, on the other hand, never adhered to the portfolio allocation and furthermore, never had the modifications approved. Therefore, the Court orders the manager to reimburse the losses suffered by the investor. However, the investor must bear a loss equivalent to the percentage (9%) of "junior securities" that their portfolio was supposed to contain according to the management contract.
The role of an advisor is primarily to provide advice, and it's even better if it's good advice. Give them your watch to be well synchronized, give them your glasses to have the same vision, but don't invite them to a barbecue, as they might burn you alive.
Furthermore, I take this opportunity to wish you a pleasant summer season. The legal overview will return in September.
*CA 500-09-010600-013, 2003-05-27
