What is the duty of an advisor to warn a client that an investment may not be suitable for them?

Ontario, Canada


The following excerpt is from Parent v. Leach, 2008 CanLII 26688 (ON SC):

In the report of the case, the trial judge observed with respect to the question of suitability: As testified to by both experts, the Know Your Client rule is designed to ensure portfolios are suitable for the client. Suitability of the portfolio is the cornerstone of the investment industry. An advisor must ensure the information being received from the client is consistent and makes sense, that orders being received are in the client’s best interests and are suitable for the client. If a client wants to make an investment that is not suitable for the client then the extent of the duty to warn on that point depends on the level of sophistication of the client. For an unsophisticated client, the advisor should warn the client that the investment is unsuitable and if the client does not understand the risks and the harm that could follow the advisor should refuse to execute the instructions even if the client wants the investment. For a sophisticated investor there is still a responsibility to advise the client that the order may not be suitable for them. If the client insists on proceeding notwithstanding the advice, the order can be executed but the advisor should then have the client sign a waiver that they have been advised that the investment is not suitable, but have instructed the advisor to proceed notwithstanding the advice. (Robinson v. Fundex, supra, at para. 101)

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