What to Know Before (and After) You Hire an Advisor (w/ Matthew Taylor) | #427
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What is the main topic discussed in this episode?
Welcome to episode 427 of the Ratchet Minder Podcast. I'm Ben Felix, Chief Investment Officer at PWL Capital.
And I'm Camera Passmore, Chief Executive Officer at PWL Capital.
Today we're joined by Matthew Taylor, a litigation lawyer with Sotos Class Action in Toronto, who represents retail investors and pension funds and securities class actions. He also works with Harold Geller, who's a guest on this podcast in episode 236.
And today we discuss what makes a successful negligence claim against an advisor, the fiduciary standard in Canada, and what retail investors need to know about private equity and influencers.
And stick around to the end to hear our thoughts on the conversation, but for now let's get into the conversation with Matthew Taylor. Matthew Taylor, welcome to the Irrational Reminder Podcast.
Thank you for having me.
Very excited to be talking to you. I think we're gonna have a great conversation here. Matthew, what are the most common financial advisor errors that result in successful negligence claims from their clients?
For there to be a successful claim, there basically always has to be some form of failing in the suitability analysis. That might be failure to accurately gather and know your client, KYC information. It might be a failing in understanding the products you're recommending, a KYP failing. But just because there's been some sort of a failure there, that doesn't mean an investor is actually Going to be able to prove their claim. So that's a very big element of all of this. A lot of the outcome of any kind of lawsuit turns on what evidence is available to you. There's what people know, and there's what people can prove. And very seldom do those two things perfectly overlap. And so what you can prove question that's going to drive the analysis at the end of the day.
In terms of things that are helpful and what you can prove, something like an advisor taking a one size fits all approach, if you know there's a lot of people that have identical portfolios, but very different life circumstances, very different needs, that's very powerful evidence. If you move away from a he said, she said to a he said, she said, she said, he said, they said, you're in a much better position. And that's something that's going to move a judge quite a bit compared to just somebody saying something. Off channel communications can be very helpful as well. It seems like a small thing, but it can suggest that there's issues with compliance going on. Trades being entered without any kind of confirmation, that's a big one.
If you have a clearly problematic portfolio, like a greater than 80, 90% concentrated position, which I have seen and say a micro cap, that in and of itself is going to raise a flag. Things like Churning transactions that serve no purpose other than generating a commission. Again, that's very difficult for the advisor or the firm to explain. Or you might have something like for multi-account clients, double dipping, where there's a purchase made in a commission-based account, and then those assets are moved over for no apparent purpose into a fee-based or AUM-based account. So all of those kinds of things, that's a pretty strong indicator. That you've got a good chance with your claim just because of the fact that there isn't really any rational explanation for that kind of behavior most of the time.
The one size fits all one is super interesting because I'm sure you're familiar with the research on this, but there's pretty strong research out there showing that advisor fixed effects, the advisor themselves has a much bigger influence on their clients' portfolios than the client's specific circumstances.
Yeah, I'm not shocked to hear that and anecdotally, and obviously there's a big sampling bias in what I see. But I think the type of person that's likely to get sued is the type that comes up with an idea and a sales pitch and then they're looking to pound those square pegs into those round holes with everybody they get. And I'm sure that that matches up quite nicely with the evidence that you're talking about there, and that's probably in part explanatory
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:04–5:27
2
What common advisor errors lead to successful negligence claims?
5:27–27:04
3
How can investors recognize poor advice through communication changes?
27:04–35:48
4
What warning signs should investors check before hiring an advisor?
35:48–41:57
5
Which investor traits make people more vulnerable to negligent advice?
41:57–1:00:55
6
What steps should a client take after suspecting negligent advice?
1:00:55–1:17:57
Speakers
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