The Ontario Divisional Court recently confirmed the dismissal of a certification motion against an investment dealer and two individual advisors for breach of fiduciary duty. In Boal v. International Capital Management Inc., the court held that a regulatory “best interest” obligation imposed by the Mutual Fund Dealers Association rules and by-laws and the Financial Planners Council Code of Ethics do not in and of themselves create a common law fiduciary duty. The Court confirmed that whether a fiduciary duty exists between an investment advisor and a client must be determined on a case-by-case and client-by-client basis using the multi-factor analysis established in Hodgkinson v. Sims and followed in Hunt v. TD Securities which looks at five interrelated factors: vulnerability, trust, reliance, discretion and professional standards and rules.
The proposed class action alleged that International Capital Management Inc. (“ICM”), and investment advisors John Sanchez and Javier Sanchez, breached their fiduciary duties to class members by recommending the purchase of promissory notes without disclosing that the advisors held an ownership interest in issuer of the notes or that they received a commission of 2% for each note issued. Each of the defendants was a former registrant with the MFDA. The defendants did not have discretionary authority over the accounts of the proposed class members. The plaintiff pleaded only that an ad hoc fiduciary duty existed between the defendants and the proposed class members because of the “best interest” obligation of the regulatory rules and by-laws of the MFDA and professional standards of the FP Council.
Five causes of action were advanced at the certification hearing: breach of fiduciary duty, knowing assistance, knowing receipt, breach of contract and oppression. The defendants did not dispute that the plaintiff had met the cause of action criterion with respect to breach of fiduciary duty. The motion judge did not agree with that concession, instead examining whether the pleading established a viable cause of action. In the end, the motion judge determined that it was plain and obvious that the fiduciary duty cause of action must fail. Because the fiduciary duty claim failed, the plaintiff’s other pleaded causes of action of knowing receipt and knowing assistance necessarily failed. The motion judge further determined that there were no common issues, nor was a class proceeding the preferable procedure since a case-by-case, client-by-client analysis was required to establish a fiduciary relationship existed.
On appeal, the majority of the Divisional Court agreed that a regulatory best interest standard does not, on its own, establish a common law fiduciary duty. Rather than pleading facts to show vulnerability, trust, reliance, and discretion, the plaintiff’s pleading focused only on the professional rules and conduct factor. The majority stated that relying solely on professional standards to establish a fiduciary duty “could have a significant impact on elements of the capital markets including those with restricted advice business models (like many mutual fund dealers) and could have significant negative effects on both investors and capital markets.”  The court further cautioned that such an approach would result in a “one size fits all” duty that applies to all investors, regardless of the advisor’s discretionary authority over the account or the sophistication of the client.
This case confirms that a fiduciary standard is exceptional. An advisor’s regulatory or professional standards obligation to act in the best interests of the client and to avoid conflicts of interest does not raise the relationship to that of a fiduciary where the traditional hallmarks of a fiduciary relationship – trust, confidence, dependency and vulnerability – do not exist.
  3 SCR 377
 (2003), 66 OR (3d) 481 (CA)
 Boal v. International Capital Management Inc., 2022 ONSC 1280 (CanLII), at para 67