Management mandate: a missed capital gain does not, in itself, constitute a regulatory breach on the part of the manager

Many investors choose to delegate the management of their financial instrument portfolio to a professional. The manager then has complete discretion to make investment decisions, provided they comply with the terms that have been set out in advance. This dossier serves as a reminder that a loss of profit on a security that has been disposed of, is not, alone, sufficient to constitute a regulatory breach by the manager, whose decisions must be assessed in the light of the mandate as a whole.

Mr X holds a personal equity plan (PEA) with Bank Y and decided to entrust its management to that institution. On the date the portfolio management mandate was signed, his PEA held, among other assets, shares in listed company ‘A’.

A month later, Mr X noticed that his shares in ‘A’ had been disposed of in order to acquire other securities. However, shortly after their disposal, their price rose sharply.

Believing he had suffered a prejudice due to the loss of profit on the ‘A’ shares, Mr X sought my assistance in order to obtain compensation.

I contacted the institution in question to obtain its comments.

Firstly, Bank Y informed me that, in accordance with the applicable regulations, prior to concluding the management mandate, the information necessary to establish Mr X’s client profile and risk profile had been collected. Mr X had thus stated that he was prepared to accept a ‘very high’ level of risk as he was seeking significant long-term capital gains and, in return, he accepted a high level of risk.

Secondly, Bank Y argued that, by signing the portfolio management mandate relating to his PEA, Mr X had authorised it to carry out, under the terms set out in the mandate, all the transactions necessary for the management, in his name and on his behalf, of the cash and financial instruments eligible for the PEA.

In these circumstances, Bank Y considered that it could not grant Mr X’s request.

I carefully examined all the information in this dossier.