In this week's edition

In Ontario, the Appeal Court revived a proposed class action that alleges a breach of fiduciary duty between financial advisors and a group of their clients. The decision restates the factors that a judge considers when determining whether a fiduciary obligation exists, such as the client’s vulnerability and how much trust the client places in the advisor. The story is a good reminder that, depending on circumstances, a fiduciary relationship could exist between you and your clients, even if a statutory one doesn’t.

We learned this week that the proposed class action against former fund manager Emerge Canada Inc. won’t proceed. The firm has no assets or insurance, the lawyer for the class told Advisor.ca. The action, filed last June, had alleged that investors suffered damages because of Emerge’s misconduct and the prolonged cease-trade order under which its 11 ETFs were placed. The order followed an investigation by Advisor.ca’s Melissa Shin that found the fund manager had borrowed millions from the funds it managed.

A minor budget measure could put a major dent in a constitutional challenge to the Canada Revenue Agency’s new mandatory disclosure regime. The regime affects taxpayers and their financial advisors who engage in transactions for the primary purpose of a tax benefit. The government intends to remove the associated information returns from being subject to a failure-to-file penalty, given that penalties exist under the mandatory disclosure rules. The problem? The move could undermine a legal challenge against the mandatory disclosure.

The higher capital gains inclusion rate announced in Budget 2024 applies to all gains earned by corporations and trusts (not just gains above $250,000, as is the case for individuals). We confirmed that mutual fund corporations and trusts will likely be largely unaffected, given that they pass their gains on to investors. In turn, many funds are held in registered accounts, which would mitigate the effects of the increase on investors (as would the $250,000 threshold). REITs, on the other hand, could be a different story.

Returning to fiduciary duty, mentioned earlier, do clients ask if you’re a fiduciary? What do you tell them if you aren’t? Maybe you assure them you’ll put their interests first regardless, or that your compensation structure helps avoid conflicts. By the way, certain advisors emailed last week in favour of the idea of a Hippocratic Oath to do no harm (from last week’s newsletter). One advisor wrote that “think like a client” has always steered him in the correct direction. What steers you? Do you operate as a fiduciary? Or does another principle act as your north star? Let me know in an email.