Abraham immigrated to Canada from Mexico in 1999 with his

Abraham immigrated to Canada from Mexico in 1999 with his family. After university studies he held a variety of positions in the financial services sector before joining RBC Dominion Securities Inc. (“RBC”) as an investment advisor in 2002. By that time his professional credentials included the designation of Chartered Financial Analyst (“CFA”). His RBC profile described him as providing “professional investment management services to a diverse international clientele ranging from affluent individuals and families to large corporations, foundations and trusts”. It continues “He also coordinates access to executive, private and offshore banking services…” An itemised list of the services provided by Abraham included “investment and portfolio management and retirement and estate structuring. On the 24th of May 2003, Francis hired Abraham to provide investment advice in preparation for his retirement. Approximately one year later, Francis retired as a lawyer and informed Abraham of this fact. Abraham did not do any formal update of the client’s KYC documentation. In 2008, the market experienced a significant downturn and the Francis’ portfolio began to decline. Francis was particularly concerned about one of his positions – preferred shares that were linked to a note. When constructing Francis’ asset allocation, Abraham had classified this security as a fixed income security. If the security had been classified as an equity security, the portfolio would have held more than what was allowable under the agreed asset allocation. Francis brought an action against Abraham for damages.

Note The applicable professional rules are found in IDA / IIROC Rule 1300.1. The relevant provisions of Rule 1300.1 are as follows: 1300.1(a) Each Dealer Member shall use due diligence to learn and remain informed of the essential facts relevant to every customer and to every order or account accepted. 1300.1(q) Each Dealer Member, when recommending to a customer the purchase, sale, exchange or holding of any security, shall use due diligence to ensure that the recommendation is suitable for such customer based on factors including the customer’s financial situation, investment knowledge, investment objectives and risk tolerance. Canadian Securities Institute publishes a Conduct and Practices (CPH) Course Handbook makes the following statements with respect to the role of registered representatives: Know Your Client: The Know Your Client (KYC) rule is paramount for the industry. All registrants, except those granted the exemption from the suitability requirement, must make a diligent and businesslike effort to learn the essential financial and personal circumstances and the investment objectives of each client. Client account documentation should reflect all material information about the client’s current status, and should be updated to reflect any material changes to the client’s status in order to assess suitability of investment recommendations. Due Diligence: Registrants must make all recommendations based on a careful analysis on both information about the client and information related to the particular transaction.

a) Identify and explain the legal issue(s) or subject(s) that arise in this case. With particular attention to the details of the scenario above, explain and advice Francis what he must establish for a successful action in court.

b) Discuss the remedy(s) if any, available to any of the parties. Ensure to name the party to whom the remedy outlined is available.

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