HUMAN RIGHTS TRIBUNAL OF ONTARIO
B E T W E E N:
Stanley Williams
Applicant
-and-
Independent Planning Group Inc., Mutual Fund Dealers Association of Canada, and Ontario Securities Commission
Respondents
DECISION
Adjudicator: Ruth Carey
Indexed as: Williams v. Independent Planning Group Inc.
APPEARANCES
Stanley Williams, Applicant
Self-represented
Independent Planning Group Inc., Respondent
Naomi Calla, Counsel
Mutual Fund Dealers Association of Canada, Respondent
Hugh Corbett, Counsel
Ontario Securities Commission, Respondent
Chris Berzins and Paloma Ellard, Counsel
Introduction
1This is an Application filed under s. 34 of the Human Rights Code, R.S.O. 1990, c. H.19, as amended (the “Code”), alleging discrimination with respect to goods, services and facilities because of age. The essence of the applicant’s complaint is that age is a factor that is taken into account by the mutual fund investment industry when recommendations are made about investment strategies and this constitutes impermissible discrimination under the Code.
2The applicant is an eighty-four year old retired businessman who, for many years, has actively invested in various financial instruments with an eye to increasing his income and net wealth.
3The Independent Planning Group Inc. (“IPG”) is a mutual fund dealer. It sponsors the licenses of individual financial planners who sell mutual funds to clients. IPG does not however, operate as a financial institution, meaning it does not hold client funds. Rather client investments like self-directed mutual funds are held by an intermediary, B2B Bank. IPG also provides a variety of advice giving services in the areas of financial planning, estate and succession planning, and retirement planning. The applicant has been a client of IPG’s since June of 2004.
4The investment industry is subject to layers of accountability mechanisms.
5The Ontario Securities Commission (“OSC”) is responsible for overseeing securities markets in Ontario under the Securities Act and the Commodity Futures Act. Section 2.1 of the Securities Act says that “subject to an appropriate system of supervision” the OSC is to perform its function in part by using the “enforcement capability and regulatory expertise of recognized self-regulatory organizations”. A self-regulatory organization (“SRO”) is an entity that is organized for the purpose of regulating the operations and the standards of practice and business conduct of its members and their representatives with a view to promoting the protection of investors and the public interest.
6The Mutual Fund Dealers Association of Canada (“MFDA”) is one of the SROs recognised by the OSC. It is a non-profit corporation that operates nationally. It is a self-regulating organisation for that part of the financial industry involved in selling mutual funds to consumers. MFDA is the front-line regulator for mutual fund dealers in Ontario which means it is involved in regulating IPG. MFDA is required to report to the OSC, provide rules and amendments to the OSC for review and approval to ensure they are in the public interest, and is subject to periodic review by the OSC.
7MFDA and the OSC are regulators. They do not make a profit from selling mutual fund products to consumers, but IPG does. That means the IPG has a vested financial interest in selling its products. One of the primary purposes of the regulatory scheme is to impose strictures on entities like IPG so they do not take advantage of their clients by selling them investment products that are not appropriate.
8On October 10, 2012, the Tribunal issued a Notice of Intent to Dismiss the Application. The Notice indicated that the Application might be outside the Tribunal’s jurisdiction as two of the respondents appear to be conducting business that falls within federal jurisdiction, and the narrative contained in the Application did not identify specific incidents of alleged discrimination. The applicant replied to this Notice by way of letters dated October 13, 2012 and December 24, 2012.
9By Case Assessment Direction (“CAD”) dated January 8, 2013, the Tribunal indicated that in light of the information in the applicant’s letter of October 13, 2012, it was not plain and obvious that IPG’s and MFDA’s activities fell exclusively within federal jurisdiction. However, the CAD also directed that the Tribunal schedule this Application for a summary hearing to explore whether the Application should be dismissed on the basis that there is no reasonable prospect of success.
10The summary hearing took place by teleconference on May 22, 2013.
FACTUAL BACKGROUND
11As clarified in the applicant’s letter to the Tribunal of October 13, 2012, the Application is about two incidents: a loan application that was denied in April of 2010; and a letter that IPG wrote to the applicant on November 8, 2011.
12Prior to these events, the applicant developed an investment strategy with his dealer who is also his cousin. The cousin’s dealer’s license was held by IPG. The plan was to borrow up to one million dollars, invest those funds, and use the profits from investing to repay his loans and enjoy a reasonable retirement with his spouse. This practice of borrowing money to invest is known as leveraging. In September of 2009 the applicant applied for a $100,000 leveraging loan from B2B and was approved. According to the Application, IPG initially did not recommend B2B make this loan but “somehow the loan was approved”.
13In April of 2010 the applicant applied for another $100,000 leveraging loan to be used for investment purposes. IPG did not recommend the loan and B2B subsequently refused it as a result.
14On November 8, 2011, IPG wrote to the applicant regarding his leveraging strategy and its suitability for him as an investor. The letter sets out IPG’s criteria for recommending leveraging as an investment strategy. It says:
In our view, leveraging strategies are best suited for investors who are under the age of 60, with good or sophisticated investment knowledge, a medium risk tolerance or higher, and a long term horizon. Also, a client’s income should be sufficient to service the debt payments on all of the client’s loans; therefore, the total of all loan payments should not exceed 35% of a client’s gross income before tax, not including income generated from the leveraged investments. In addition, the investment loan should generally not exceed 30% of a client’s net worth and 50% of the client’s liquid net worth.
15Although mutual fund dealers like IPG set their own policies, they must comply with rules established for the industry by MFDA. MFDA’s Guideline on Suitability discusses the same criteria as are reflected in the letter from IPG of November 13, 2011. With respect to age as a criteria, the Guideline says:
A leveraging strategy is mostly for long term portfolio growth investments. Most clients who are 60 years or older have a portfolio that is maximized for income generation and capital preservation, as opposed to long term growth. Further, when clients are at or nearing retirement, their earning potential and ability to withstand investment losses decreases. As such leveraging is generally not considered suitable for these clients and a red flag must be raised and an objective assessment of the KYC [“Know Your Client”] information should be provided.
16With respect to net worth as a criteria for consideration, MFDA’s Guideline says in part:
Where the total leverage amount exceeds 30% of a client’s total net worth, the leverage recommendation must be flagged for further review. In some instances, it may be acceptable to exceed these thresholds, and this will require judgment. For example, it may be appropriate, in some circumstances, for a young client with very little liquid net worth, but with a high income to be leveraged. As always, this factor must be considered in conjunction with all others. Where these criteria are exceeded, Members must consider the client’s ability to access assets in circumstances where the investments decline below the value of the loan and additional funds are required to meet the terms of the loan.
17As can be seen from the above, IPG’s use of criteria in making leveraging recommendations as reflected in its letter of November 8, 2011, to the applicant are wholly consistent with MFDA’s Guideline.
18After discussing the general criteria IPG considers, the letter of November 8, 2011, then lists specific information it obtained from the applicant about those criteria. For example, the letter says the applicant had a loan balance of $264,072.67 as of October 27, 2011 and a net worth of $445,000 which meant that his loan to net worth ratio was more than 59%. (It turned out this was actually not true. The applicant had borrowed an additional $100,000 on a line of credit secured against his home which had not been disclosed to IPG, so his true loan to net worth ratio at the time was in excess of 80%.) The last items on the list of information are the dates of birth of the applicant and his spouse, both of whom were born in 1928.
19The letter goes on to say that in light of the criteria for leveraging used by IPG, the applicant’s leveraging strategy did not appear to be in the applicant’s best interests or in the best interest of the eventual beneficiaries of his estate. It also states that IPG was not comfortable approving any transactions initiated because of market conditions due to additional risks. It then says: “we are strongly recommending that your leverage strategy be collapsed and the loan paid off in full by February 1, 2012”. The letter concluded by asking the applicant to agree in writing to collapse and pay out the loan as recommended. The applicant did not sign the letter, or collapse and repay the loan and continues to be a client of IPG. According to the Application, after this letter was sent the applicant’s funds were “frozen” and he was unable to transfer his investments into money market funds to protect his portfolio.
20After receiving the letter of November 8, 2011, the applicant came to the conclusion that the loan refusal in April of 2010 was also related to his age.
ANALYSIS
21None of the respondents deny that age was a factor in the recommendations made by IPG. Rather they take the position that it was wholly appropriate to consider age as a factor along with the other listed criteria when assessing the applicant’s financial situation and making recommendations about leveraging and mutual fund purchases, and doing so does not constitute discrimination under the Code. The applicant takes the position that it is a breach of the Code for age to be a factor that is considered when mutual fund dealers like IPG make recommendations about investing, and that he should be able to pursue a high risk leveraged investment strategy without their interference.
Every person has a right to equal treatment with respect to services, goods and facilities, without discrimination because of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, gender identity, gender expression, age, marital status, family status or disability.
23The key phrase in this provision is “equal treatment … without discrimination”. In interpreting the concept of discrimination under the Code, the courts and the Tribunal have accepted that there is a difference between formal equality and substantive equality, and the Code is intended to address only substantive inequality. In Ontario (Disability Support Program) v. Tranchemontagne, 2010 ONCA 593, the Ontario Court of Appeal stated at paras 77-79:
The concept of a distinction on a prohibited ground (or on an enumerated or analogous ground in the Charter context) that creates a disadvantage is integral to both Code and s. 15 Charter jurisprudence because both are aimed at achieving substantive equality as opposed to formal equality.
Formal equality essentially involves ensuring equal treatment for those in similar situations and different treatment for those in dissimilar situations – it is a concept that involves “treating likes alike”. On the other hand, substantive equality recognizes that not all differences in treatment are violations of equality rights and that differences in treatment are sometimes necessary to achieve true equality: see Andrews at p. 169.
Accordingly, the focus of the discrimination analysis is on the effect of the differentiation on the claimant(s), and it is only where making a distinction on a prohibited ground has the effect of creating a disadvantage that concerns about substantive inequality are engaged.
24This idea that not all differences in treatment will constitute a violation of the Code is reflected in decisions of the Tribunal. For example, Maclean v. The Barking Frog, 2013 HRTO 630, involved a male applicant who alleged he was discriminated against on the basis of sex by the respondent bar because it was charging male patrons a higher cover charge for entrance than female ones in a practice commonly referred to as “ladies’ night”. The Tribunal noted that the purpose of differential pricing for ladies’ nights was to attract more women into the bar which in turn, would attract more male patrons. The Tribunal also noted that the practice was not reflective of a societal value that men were less worthy than women, or was in any way demeaning towards men. As a result, although the practice reflected a formal inequality between the treatment of men and women, it did not constitute substantive discrimination under the Code.
25So for this Application to have a reasonable prospect of success, the applicant must be able point to some evidence that would support the proposition that using age as one factor in making investment recommendations is discrimination in the substantive sense. If he cannot, then the Application shall be dismissed as having no reasonable prospect of success.
26The question of the legality of a scheme that takes age into account as a factor came before the Supreme Court of Canada in Law v. Canada (Minister of Employment and Immigration), 1999 CanLII 675 (SCC). That case involved the equality rights provision contained in section 15 of the Canadian Charter of Rights and Freedoms but is relevant here because part of the Court’s analysis addressed the question of whether or not treating people differently based on their age in the context of survivor’s benefits payable under the Canada Pension Plan (the “CPP”) was substantive discrimination. Under the CPP widowers and widows younger than 35 were not eligible for a survivor’s pension and recipients between the ages of 35 and 45 received a lower benefit than those over 45. The Court described a guideline on how equality rights issues should be approached (at paragraph 88) and with respect to the issue of what constitutes substantive discrimination, articulated the question as follows:
Does the differential treatment discriminate, by imposing a burden upon or withholding a benefit from the claimant in a manner which reflects the stereotypical application of presumed group or personal characteristics, or which otherwise has the effect of perpetuating or promoting the view that the individual is less capable or worthy of recognition or value as a human being or as a member of Canadian society, equally deserving of concern, respect, and consideration?
27In Law, above, the court indicated that it is helpful in answering this question to look at the purpose of the treatment, comparator groups if that is constructive, and the context. With respect to the CPP survivor’s pension the Court found that the age distinctions did not constitute substantive discrimination. It observed that the purpose of the survivor’s pension was to provide long-term financial security to people who lost their spouses and were at a time in their lives when recovering financially from that loss would likely be difficult.
28The documents filed by the parties indicate that the reason age is a factor that is taken into account when recommending investment strategies is because age is tied inescapably to some of the realities of life. The older you are the shorter your life expectancy, so the amount of time you have to repay loans or recoup losses from market downturns is shorter. As is the case with the applicant and his spouse, aging often results in retirement from active employment which means that the ability to earn extra income to offset unexpected losses is decreased. In other words, the purpose of including age as a consideration in recommending investment strategies is to match investment advice with the lived reality of the investor.
29The applicant took the position that the actions of IPG and the requirement that age be taken into account as a factor when considering leveraging as an investment strategy, had the effect of perpetuating the view that older persons were incapable of savvy high-risk investing or making sound financial decisions. This would only be true if IPG and the MFDA Guideline indicated that a leveraged investment strategy was never recommended for older persons regardless of their financial position but that is actually not true. If the applicant had plenty of liquid assets, a low debt to asset ratio, high income, and a high tolerance for risk, there is no real dispute between the parties that IPG would not have behaved as it did. It would appear from the materials filed that if the applicant had been 25 years of age and had the same amount of income, debt and assets, a leveraged investment strategy would also not be recommended. In other words, there is no evidence the applicant can point to that would support the proposition that any of the respondents view older persons of being incapable of high risk investing. As a result, I am satisfied that there is no evidence the applicant can point to that would support the proposition that taking age into account as a factor when making recommendations about leveraged investment strategies is substantive discrimination. The Application shall be dismissed as having no reasonable prospect of success.
30This does not mean I do not accept that the applicant felt like he was being demeaned. I do not doubt that he did, but the Code does not address all situations where someone genuinely feels they have been treated badly based on one of the enumerated grounds.
DECISION
31The Application is dismissed.
Dated at Toronto, this 19th day of August, 2013.
“Signed by”
Ruth Carey
Member