MFDA Not Protecting

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Self Regulation is the Perfect De-Criminalization:

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https://business.financialpost.com/news/fp-street/youre-talking-about-how-many-millions-how-sanctioned-mutual-sellers-in-canada-are-avoiding-stiff-punishment?fbclid=IwAR2m9CnvZN4EVgtNnnj2qJE5mEE_42cPEtFwkap8v_ZpGY0nX_sau9tpDg8


How mutual fund salespeople in Canada who lie, cheat and steal from clients are escaping justice
Although the Mutual Fund Dealers Association has banned dozens of mutual fund sellers, a Post investigation finds that only a small minority of cases are pursued by police and prosecutors


Claire Brownell
Claire Brownell
April 13, 2015
2:21 PM EDT

Canada’s court system is hardly known for bringing criminals, especially the white-collar variety, to swift justice. Yet somehow Mark Lindsay — a mutual fund salesman who had lied to and stolen from a long list of his close friends and family — found himself on the other end of a criminal fraud sentence, before his own industry figured out how it wanted to deal with him.

Year-to-date, deal making has more than doubled, according to Bloomberg data. In Canada, pending mergers and acquisitions transactions are up 115% so far this year. Globally, pending deals are up 117%.

While not quite back to pre-crisis highs, the value of deal making so far this year has reached the highest level since 2007


In October of 2010, the Southern Ontario-based Investors Group mutual fund salesman stood in a courtroom pleading guilty to a charge of fraud over $5,000. It would be several months later that the Mutual Fund Dealers Association would conclude that the charge covered just a small portion of the crimes it said he committed over a 14-month period ending in December 2008.

When the MFDA issued its ruling in June of 2011, it found Lindsay processed loans for clients without their knowledge, lied to clients about where their money was coming from and what he was doing with it, and forged their signatures to redeem investments early and pocket the cash. “He is a thief, forger, and liar who stole over $300,000 from his clients,” the hearing panel wrote. Those clients included Lindsay’s own grandmother. The MFDA’s file of evidence even included a confession: An email from Lindsay reading “i am guilty of all the actions noted…i agree to all allegations.”

By the time the panel ruled, an Ontario judge had already sentenced Lindsay to restitution and two years of probation (Investors Group, which was also deceived, made $400,000 in payouts to Lindsay’s clients; contacted for an interview the company responded with an emailed statement outlining its fraud-prevention policies).

But what’s notable about the case is not that the criminal justice system dealt with Lindsay faster than the industry’s regulators; it’s that the salesman ended up seeing the inside of a courtroom at all. Although the MFDA has fired and banned dozens of mutual fund sellers over the last two years — many accused of committing similar kinds of drastic deceptions that Lindsay was — a Financial Post investigation finds that only in a very small minority of cases are their cases pursued by police and prosecutors.

The MFDA maintains that it refers cases to authorities routinely. But there are those who believe that something isn’t working: That either the MFDA is not being diligent enough about collaborating with authorities to spur criminal charges, or that the MFDA’s own rules make it difficult to do so.

I’m always concerned when somebody, especially people dealing with such huge amounts of dollars, are getting away with it
In an analysis of almost 100 MFDA enforcement records over 2013 and 2014, the Post examined what happens to mutual fund salespeople who are found by the MFDA to have stolen money from clients, bullied and threatened clients into loaning them money, and forged documents to open up risky investment loans.

The analysis found 20 records where, if the MFDA’s findings were accurate, representatives engaged in behaviour sufficiently troubling as to raise the question of whether the criminal justice system should review the cases.

Only three of these cases, or 15 per cent, appear to have resulted in criminal charges being laid. Because Canada lacks a publicly accessible national database of criminal records, the analysis relied on phone calls to local police departments and inquiries with the courts, in addition to searches through online data.

The MFDA does use its regulatory power to impose fines on dealers it finds to have acted improperly. They look hefty on paper, but once it expels a member, the association lacks any real power to force payment. The regulator noted in its 2014 annual report that it was able to collect just 1.4 per cent of the $3.6 million in fines it levied that year against people who have since left the industry.

Shaun Devlin, head of enforcement for the MFDA, said the regulator always notifies police when it uncovers suspected criminal activity. “We are always looking for ways to make sure this information is brought to the attention of law enforcement officials so that can be considered and they can make a decision about what to do with those cases,” he said.


But conversations with police departments across the country indicate this is not consistently the case. The MFDA does participate in quarterly Toronto-area information-sharing meetings with members of Ontario police departments. But in Calgary, Colin Harper, acting staff sergeant of the Calgary Police Service economic crimes unit, said he has never heard of the MFDA bringing a single case to his department’s attention.

That includes the second-largest case the MFDA closed during the two-year period analyzed by the Post: a case involving an alleged $1.6 million Calgary-based fraud, adjudicated by the association in 2013. Harper confirmed the MFDA never contacted Calgary police despite the large dollar amount and considerable evidence collected by the MFDA in the course of its investigation. The MFDA says it does not comment on specific cases.

“I’m always concerned when somebody, especially people dealing with such huge amounts of dollars, are getting away with it. You get walked out of the office and that’s the only consequence,” he said. “My concern would be that they move on to another company in the same industry and perhaps do the same thing.”

Indeed, in addition to the three out of 100 that are confirmed to have been charged for significant crimes, this investigation uncovered two more disciplined MFDA members who were not charged for their behaviour with with mutual funds — but after being sanctioned went on to get in further trouble that resulted in them being charged criminally.


Peter J. Thompson/National Post
In the period 2013–14, the amount the MFDA claims was stolen by salespeople ranged from $3,500 to $11.6 million. The representative in the latter case, Toronto’s Paul Yoannou, was one of the three who were criminally charged. Yoannou was sentenced to six years in prison last year after pleading guilty.

(The Post’s investigation restricted its scope to cases that appeared to constitute crimes, as defined by the Criminal Code, and where it appeared that the representative should have reasonably known the behaviour would harm victims or amount to improper personal gain. Not included, for instance, were cases where mutual fund salespeople were found to have forged client signatures for the sake of convenience; but the investigation included several cases where the MFDA found representatives falsified information to get around limits on highly leveraged — and handsomely commissioned — investments.)

One of the victims of Mark Lindsay, who spoke on condition of anonymity because he didn’t want to open old family wounds, said he has discovered the low rate of criminal charges to be shocking. In that case, victims made the difficult decision to go to the police and the MFDA themselves.

“You’re talking how many millions of dollars? Why isn’t there police involvement?” he said. “But someone down the street is ripping off a senior citizen’s purse and they go chase after him? That doesn’t make sense.”

* * * * *

The Canadian Securities Administrators established the MFDA in 1998, in response to the skyrocketing popularity of mutual funds. Today, the MFDA’s 81,000 representatives handle a vast amount of the country’s wealth. As of February, Canadians had $1.2 trillion invested in mutual funds, almost one-third of their total financial wealth, according to the Investment Funds Institute of Canada.

Because mutual funds allow small investors to pool capital in professionally managed portfolios, salespeople market heavily to average, middle-class Canadians with limited investment knowledge. Investors are to trust that their mutual fund representative is an expert with their best interests at heart.

One of the goals of the MFDA’s enforcement system is to impose meaningful penalties when their representatives breach that trust.

In one case, the MFDA sanctioned Markham, Ont. representative Enzo DeVuono for what they claim was an overstatement of the income and investment knowledge of two married clients, who he then helped qualify for a leveraged investment — effectively a loan to buy more funds. One of those clients was a retired bus driver with a Grade 7 education, while the other was mentally handicapped. But Harold Geller, an Ottawa-based lawyer with McBride Bond Christian LLP who has represented both mutual fund salespeople and their clients, said even cases that appear to be examples of misrepresentation are probably beatable in a criminal court, because of the MFDA’s unclear rules and procedures.


Peter J. Thompson/National Post
He believes there is too much grey area in the association’s rules around what a salesperson can use to qualify a client within a certain risk category, or how to definitely qualify a client’s income and financial security — critical concepts when managing a client’s risk tolerance level. In a court of law, he said, a prosecutor would have a hard time proving a representative deliberately deceived clients to enrich him or herself, as opposed to just misunderstanding or making a mistake.

“How can you prosecute on a criminal level when the rules are so obscure?” Geller said. “The MFDA rules need a complete overhaul.”

Between 2013 and 2014 there were an additional 12 cases where mutual fund salespeople “misappropriated” client funds, as the MFDA calls it. A common method the salespeople used was to incorporate a company with a misleading name and get clients to make cheques out to it, thinking the money would be used to purchase securities.

In one case, Barrie, Ont. representative Reginald Roskaft was found to have incorporated a company called Corporate Receivables Agency and cashed client cheques made out to CRA — payments the clients thought were going to the Canada Revenue Agency for taxes. Roskaft was sanctioned by the MFDA in April 2014. Criminal charges were not laid. However, after the MFDA dealt with him, in November 2014 Roskaft went on to get into legal trouble: he was charged by police with running a Ponzi scheme. He has not been convicted and the case is ongoing.

In another case, the MFDA also disciplined Halifax mutual fund salesman Geoffrey Gaunt who it found had pressured a client to loan him money, allegedly using his control over her portfolio as leverage. Gaunt generally co-operated with the MFDA investigation, and in a letter to the association said he would “let stand the evidence” the association had compiled and, according to the MFDA, Gaunt did “not deny the Allegations brought against him.” No charges have been laid.

* * * * *

Because MFDA decisions are not backed by the same enforcement authority as a court of law, of the $12,372,500 in fines and costs levied against the 20 mutual fund salespeople disciplined in the cases between 2013 and 2014, only $20,000 has so far been repaid.

Devlin, the MFDA’s head of enforcement, said the regulator has asked provincial securities commissions for the power to enforce fine payment by non-members — or, more to the point, ex-members — but so far, it has been to no avail. He said the regulator’s most important enforcement role is suspending people who have made serious ethical breaches from the profession, with 75 per cent of the cases the MFDA completed last year resulting in a suspension or a permanent ban.

“The primary job of a regulatory agency, is to protect the public by taking them out of the regime,” Devlin said. “I think that process works very well.”

There are some practical reasons why not every criminal act described in an MFDA disciplinary hearing will result in a criminal charge. Harper, the acting staff sergeant with the Calgary Police economic crimes unit, said even with a client willing to press charges, it can be difficult to make a charge stick.

These corporate entities don’t want their dirty laundry aired in the media. Investor confidence, or client confidence, is everything
He believes that the more effective way of prosecuting salespeople found to be committing possibly illegal acts is for their financial institutions — the banks or investment groups that operate the funds — to bring the matter to police, instead of the MFDA. The bank or investment firm is, after all, another victim in a fraud case, but one with the ability to hand over valuable internal documentation.

However, Harper said he has rarely seen that happen in his nine years of experience with the financial crimes unit. Generally, these institutions opt to repay victimized clients and put the matter to rest more quickly.

“These corporate entities don’t want their dirty laundry aired in the media. Investor confidence, or client confidence, is everything,” Harper said. “If you lose that, you lose potentially millions of dollars in business.”

Neil Gross, executive director of the Canadian Foundation for the Advancement of Investor Rights (FAIR), pointed out the MFDA can proceed with enforcement hearings in situations where police can’t, such as when the accused cannot be found. Additionally, the MFDA makes findings based on a balance of probabilities — a lower standard than finding guilt beyond a reasonable doubt as criminal courts must do.

However, Gross said we should still be making every effort to bring people to justice.

“We certainly don’t want to be attracting a criminal element in Canada. We want there to be a sense this is a good place to set up shop,” he said. “There are good, sound policy reasons to make every effort to enforce criminal law.”

After Mark Lindsay’s victim and relative lost his money, he said people wondered how he could have allowed himself to be deceived. He now says he thinks he may have trusted too much in the system to protect investors at the time; today he doesn’t trust it at all.

“I’m not saying all agents are like this. There are bad apples in every pile,” Lindsay’s victim said. “But how do I know the guy sitting in front of me isn’t going to be one of them?”

Illustration by Mike Faille, National Post

[admin]

I received this today from an industry expert...

K

"Thanks for sending. Always will remember a meeting I was in with Ruth Grant, the then partisan political advisor to the Secretary of State, my Minister. She had to truncate our meeting because she had just realized she was going to be late for a board meeting.

She proceeded to say she was an independent lay person on the MFDA board. (Mutual Fund Dealers Assn)

Her husband was the chairman and CEO of one of the larger mutual fund companies.

So much for independent consumer representation although the MFDA was able to state that it had an “independent female non industry board member”.

J

[admin]

A True “Wild West” Story
A story of lawless financial services, and conflicted regulators
A story of layers of deceptions that rob the public of fair financial services

Where we count the numerous examples of public deception as well as try to keep track of the number of layers of systemic-depth, that those deceptions penetrate in Canada’s self governing investment industry systems. A measure of the extent of industry and regulatory willful blindness which is used to harm the public, while unjustly enriching the already rich.

How millions of clients are cheated out of billions of dollars, simply by paying millions of dollars to the “right” regulatory layers. As experienced/revealed by a former industry insider.

It only requires the paying of a few hundred million dollars to handpicked, handmaid regulators…and for this money, investment product sellers are allowed to ignore rules and laws in Canada.

Laws which were put in place to protect the financial assets of all Canadians. Thus the return on investment, by picking and paying each regulator is roughly $200 dollars for every dollar “invested” into regulator salaries. It seems to be money very well spent…for the industry, not the Canadian public.
(The rough numbers indicate that spending a few hundred million on the regulator salaries each year, allows the financial industry to gain approximately 50 billion per year in unjust enrichment, from an unprotected, and misinformed Canadian public.) The numbers and examples used for these comes from a lifetime of industry participation, examples of actual investment costs/harms to the public, and the annual compensation reports of the various Provincial Securities Commissions.

In the second paragraph of a document (provided for reference at end of this article) from a mutual fund company, arguing in support of Deferred Sales Charges (DSC’s), as opposed to proposals to ban their abuses of the public, comes the following:

First Statement from the fund Co:

"However, the DSC option provides two key benefits. “

This is a marketing claim and a false one at that. They count as public deception #1
because they are presented by an industry person, as if it were a true fact, to mis-inform the public. So many investors are harmed by persons whose salary is dependent upon making false claims to the public. Let’s continue to count some of the ways, and dive into some of the layers of depth of the misrepresentations.


Next Statement from the fund Co:

“First, it allows modest investors the ability to invest 100% of their money in mutual funds. “

ANY mutual fund that can be purchased with a DSC also has several other, cheaper and otherwise-equal fund Class options, which more fully meet the suitability requirement of the industry as well as the IIROC rule requirements of “Fairness, Honesty and Good Faith” in dealings with the public.

The other options INCLUDE everything up to and including a FREE to the client, while brokers still can be getting paid out of management fees. This would be an equal but far fairer choice to benefit the investor if we are to adhere to the IIROC industry requirement  of “Fairness, Honesty and Good Faith” in all dealings with the public.  

The industry seems to do a good job of “Rule Shopping” for DSC fees case since they are still “suitable” (as in “this watch I just bought from my local Dollar Store is “suitable”)  Public deception #2

….they still meet the “suitability standard of IIROC, even though they fail IIROC’s higher principles and requirements of “Fair, Honest and Good Faith”. 
Public deception #3



Next Statement from the fund Co:

“Second, it allows advisors the ability to service investors with small amounts to invest. “

This is another claim, and not a truth….but it does bring up questions of what the writer meant by the word “service”…THIS opens up a whole new level of hidden deception, beneath the surface and visible deceptions

How many Public deceptions can we count, under the guise of investment advisory “service”?

Next is the use of the word “Advisor” which is not a legal license category in Canada, and is used by most sales agents who hold the “dealing rep”(salesperson) registration and NOT the “Advising Rep” (Adviser) registration Public deception #4 allows fake advisers to pretend to be real advisers…to the public. This deception is a criminal matter when a Doctor or an engineer does it. We will soon see him many layers of protection the financial industry has in it…

Next Statement from the fund Co:

“This is particularly important for advisors, both new and seasoned, …"

This statement is half-true and half-lie, since it is true that “it” (the DSC sales load option for mutual funds) IS very important for advisors, since it creates an instant 5% commission to them, upon processing of the sale of a DSC fund.  Typically “advisors” (salespersons) need to generate between several hundred and several thousand dollars in commissions each working day, depending upon where they work. They are measured daily on their “production” of commissions and any other fees.

The “half-lie” is that in-excess of 96% of Canadian investment sellers, who refer to themselves as if they were “Advisors”, are in violation of applicable laws of the Provincial Securities Act of the province they are registered in.  Some are registered in six or ten provinces and thus are in violation of the law in six or ten places.  In Ontario the law dealing with such “Representation” is found in section 44, while in Alberta it is found in Section 100 of the Securities Act.  Public Deception #4

The industry-spin that also applies to the half-lie, is that “all of our “registrants” are licensed and regulated”, which of course is true, but which of cousrse hides the cleverness of never, ever, EVER, letting the public know of the …..Public Deception #5

This industry-spun sleight of hand or “lie by commission” hides the real truth from the public (HOW their registrants are licensed behind the lie (by omission) which assuring the public THAT they are registered……while cleverly hiding HOW they are registered...

Simply suggesting that all their registrants are registered assures the public that “all is well”, without informing the public know that “all is well, but not for the investor…for the salesperson, the dealer and the regulator….yes, “all IS well”  Public Deception #6 in layer of deception #2 (regulators beneath the surface of investment “service” providers)

This then allows the public to mistakenly assume that they have a licensed “advisor”, while the industry has accomplished a perfect bait and switch scam, of promising a licensed, trusted and regulated “advisor”, and THEN DELIVERING a sales agent with a sales agent license.

(The actual license category was “Salesperson, for the decade or two prior to 2009.  In September 2009 the Canadian Securities Administrators (CSA)  deleted the "salesperson" license category from the books and the Securities Acts across Canada.  The “Salesperson” license category was deleted from history and replaced with the much clearer term (??) of “Dealing Representative”.  

(Kidding,...it is not clearer in any way and that is Public Deception #7 in layer of deception #2)

The CSA web pages still contained a few remnants of the word “salesperson” on it however. For example the CSA still used the word “Salesperson” in the description of the license categories (what each license category meant), so if an investor was determined to understand what a “Dealing Representative” registration actually means… they could quickly learn if they had a salesperson…or not.   Removing that was another billion dollar “gift” of deception given to the investment industry…..we are still at Public Deception #7 in layer of deception #2

So, in 2009, the CSA (which is 100% paid by the industry they “police” (still spin #7 in layer of deception #2) presents itself to the public as if there are an ‘un-conflicted” government regulator and protector of the public interest…..when nothing could be further from the truth. spin #8 in layer of deception #2 is that we now have industry created, industry chosen and industry paid (fake) “regulators” altering rules, ignoring laws and ensuring that fake advisors can prey upon a real public….Public Deception #8 in layer of deception #2, (fakes regulating fakes….is the third level or layer of depth of systemic financial abuse

Then, in January of 2018, the industry artifice regulator, the CSA took further steps to confuse, obfuscate and place obstacles before the public’s right to fair protection from predatory financial services…. the public who rightly deserve to be informed of the rather simple question that all investors deserve to know….and I dealing with a sales agent or a professional advisor…..yest that CSA which has so far placed many obstacles in front of the blind”…so to speak by helping the public be misinformed…by the investment firms which pay the regulators salaries……Public Deception #9 in layer of deception #3 (regulators altering documents/definitions to confuse public, regulatory malevolence?)

Where is the “KNOW YOUR ADVISOR” (KYC) form? There has always been a know your client form, but never has there been a know your advisor disclosure  Public Deception #10 in layer of deception #3

Yes, the CSA….which is now in on scam, REMOVED the “salesperson” description in the license category page….

History is forever cleansed and no investor in Canada is now allowed to have a clear, fair, honest and good faith description of who handles their family’s entire life savings….(Client Relationship Disclosure??)

Stepping back within the very recent past, I recall the introduction of a new Client Relationship Model by the 13 Securities Commissions after years, decades of deliberation.  Public Deception #10 in layer of deception #3 are the facts that the CSA and all “stakeholders. Again indications of regulator malevolence.

spin #11 in layer of deception #4 is the seen any time the CSA and all “stakeholders” get together to decide upon new directions in securities legislation or rules, they fail to invite, involve, include or listen in meaningful ways to members of the investing public….I have participated in a few conference calls where the word “stakeholder” is used as a euphemism for “everyone BUT the public. spin #11 in layer of deception #4

Here is how that looks from the inside of any sales manager meeting in any investment office….(only partially joking…banks can afford their own offices…:)

youtube advisor fake contest winner

Adviser vs. Advisor: There's a Difference

Written and Directed by Nora Novak
Sponsored by Small Investor Protection Association (sipa.ca)
https://www.youtube.com/watch?v=r0smCYv ... JvZNEqAt42
This video is indicative of the sales training/marketing deceptions that go deep inside nearly every investment product selling firm in both Canada and the US.
spin #12 in layer of deception #4

If you prefer CBC news for credibility here is what they found in 2017 on the topic of systemic deception of millions of Canadians, and their life savings:

https://www.youtube.com/watch?v=FlSLckMxMnw
3 minute video from CBC News: The National
Published on 29 Mar 2017

click on image to enlarge

Now lets pause and check out this image from the BC Securities Act, section 54

Click to zoom in on image

representation requirements in BC (which are not followed) spin #15 in layer of deception #7 (seventh layer is revealed by how the deception is malignant enough to circumvent even the law of the land)


(e.g. BC Sec Act Sec’s 50 to 54  [url] http://www.bclaws.ca/civix/document/id/complete/statreg/96418_01#section50[/url]  Similar Ontario law is found in sec 44 of its Securities Act and Alberta’s I believe is found in Section 100, if you wish to check those.  In each province some 20,000 or more licensed “Dealing Representatives” merely ignore the law, to better deceive the public.  This indicates that the same laws are across Canada and also indicates that the systemic scam pervades 13 provincial and territorial securities commissions.

Just the top FOUR of those commissions is paid approximately 250 million by the industry…to police the industry.

Therefore spin spin #16 in layer of deception #7 is revealed in the fact that some top regulators are being paid like millionaires…in return for helping the industry make money like billionaires…

there are over 100 agencies, offices, regulators, self regulators, ombudsmen, and so on in Canada, so the layers go farther than I am willing to imagine today.

In each province each regulator mentioned above simply ignores the law in each province…for those who violate the “representation” portions of the law...for salaries of up to $700k in salaries paid to “select” regulators at the top who direct the tone of all regulators in the system….

By lying to clients about being licensed advisors, improperly, they earn the trust of clients under a false pretense, and by earning trust under false pretenses they lower the level of caution or natural suspicion that Canadians would ordinarily have toward their bank “advisor”, Life Insurance “advisor”, or investment “advisor”. The lie is used to build trust on a falsehood. Public Deception #12

finally….the comment by a fund company person: ”...who make a living servicing the modest investor.” conjures up so so many ways that a falsified investment advisor is taught to “service” the clients of Canadian Banks, Insurance Companies and Mutual Fund Dealers

This lowering of caution and raising of trust allows the investment industry to pretend to be licensed like a “Doctor”, with certain minimum duties of care to protect you, whilst actually delivering to the public a licensed sales-agent, with a much, much lesser standard of protection, a falsified license and in some cases a 30 day training course since joining the “profession”.  Lets call those Public Deception #13

They can then sell the most profitable crap investments for their bank, their life insurance company or their mutual fund dealer…..(because their license DOES day “Dealing Representative” on it doesn’t;t it……we just made sure that nobody had a chance in hell of figuring out what that ….means  GOTCAH!!

Selling expensive, fee burdened investment products is not professional “advice” , and giving professional “advice” is not selling expensive, fee burdened products which make someone else rich…unjustly richer.  That is not “Service” but rather “malevolence” dressed up as “service”.  Public Deception #14

Expensive, fee burdened products sold to Canadian investors costs anywhere from about 2% extra to the client, all the way up to 5% extra.  That is scam Public Deception #15

2% additional costs added to your investments will cut a retiree’s retirement capital by HALF, if compounded over a 35 year investment time frame.  Public Deception #16

5% fees would be like killing Canadians retirement chances altogether. I won’t even begin to count how many brokers I worked with who could churn, fee, reverse churn, and DSC churn their trusting and vulnerable clients for 5% a year.  Each firm called those people “Vice Presidents” and THAT is scam Public Deception #17

Then while publishing the book “ABOUT YOUR FINANCIAL MURDER…”  (non fiction 2018 LuLu.com)  a friend reminded me of the following which I had forgotten entirely:  He said something like, “remember Larry that when you speak of an average “skim” of 2% cutting your retirement in HALF, that you are talking about the investor’s BEST CASE SCENARIO when dealing with a falsified investment “advisor”.  This is a person who is selling all the company-most-profitable-product-crap funds etc…”
He was correct and he went on to point out: “What about the occasional false-advisor who goes beyond the sale of crappy and expensive bank or house-brand products?  What if they put your money into a tech stock that explodes. What about if they “leverage” the clients like many Sun Life agents did to their customers? What of they do any of the hundred other stupid things to the client, but profitable things for themselves, under the guise of being a licensed, trusted, professional, regulated investment “advisor”?  Money could be all gone.  

+++++++++++++++++++

Below is the info from a mutual fund company:  I was forced to stop reading at paragraph #2 (in red), as the misrepresentations were so grotesque, as to demand the entire article be cast aside as junk. Simple deception designed to attract, lure, and misinform the public, which is contrary to industry rules and requirements.

Deferred Sales Charges 

Retirement savings in mutual funds were very small before the DSC was introduced in 1987 in Canada.  Since that time, investments in mutual funds have grown dramatically because the DSC made mutual funds available to the average Canadian.  

There is much debate around the ongoing viability of the DSC option to purchase mutual funds. It has become popular to argue that the DSC option should be banned.  However, the DSC option provides two key benefits. First, it allows modest investors the ability to invest 100% of their money in mutual funds. Second, it allows advisors the ability to service investors with small amounts to invest.  This is particularly important for advisors, both new and seasoned, who make a living servicing the modest investor.

The MFDA recently released a report which studied the potential impact of a ban on embedded commissions. It used real data from its members. The report concludes that a ban is most likely to impact non-bank dealers and will have the most impact on smaller asset advisors who are more reliant on DSC.  Approximately 56% of advisors with non-bank firms rely on DSC to finance their operations.  It also points out that most of these advisors are dually licensed (mutual funds/insurance products) and so the outcome may be that these advisors simply sell competing products that continue to have embedded commissions.

Many bank dealers as well as large dealers like IG have announced that they will no longer offer DSC.  While eliminating the DSC for IG clients, it is interesting to note that features of the DSC will continue to exist.  The amendment to the IG fund prospectus states that after September 30, 2016, IG Consultants may receive a sales bonus of up to 2.50% of the amount invested.  Further, if the Consultant has been with IG for less than four years, he or she “may receive an additional amount of up to 40% to help establish their practice.”  So while IG, a large and profitable organization, can afford to help these smaller advisors get established in the absence of the DSC, there is clearly a recognition that in lieu of a DSC, some kind of financial assistance is needed for newer advisors.  It is unlikely that smaller dealers will be able to afford this kind of subsidization.

Arguments are made that the DSC is missold or is unsuitable for investors. And while that may have been true in the past, we see that the MFDA has made this issue a priority in its exams and bulletins. We believe that this issue has improved consistently and dramatically. If the main issue around DSC is misselling, as investor advocates and regulators alike claim, then we believe ongoing vigilance by dealers, UDPs, compliance officers and regulators is critical. It is important not to throw out a structure that serves a meaningful purpose both for modest investors and newer advisors.

There is evidence that the DSC is actually helpful for some investors. In a 2015 study by Argento, Bryant and Sabelhaus, the authors found that U.S. households under the age of 55 make $0.40 of taxable withdrawals from retirement accounts for every $1.00 of contributions, in spite of tax penalties imposed.  This is a major offset for flows and has significant potential implications for retirement security. It also indicates that there is a real issue with self-control around retirement savings.

A 2015 study entitled “Self Control and Commitment:  Can Decreasing the Liquidity of a Savings Account Increase Deposits?” is also instructive.  This paper studied illiquid financial accounts versus liquid financial accounts.  It found that U.S. households have a behavioral bias known as a “present bias”.  U.S. households place a disproportionately high weight on present consumption and low weight on the future.  The authors of the study point out that in many countries, policy makers address this present bias in various ways, including mandating completely illiquid accounts (until a particular point in time, like retirement) or penalties for early withdrawals.  The preference by policy makers around the world is to mandate completely illiquid accounts to address the present bias issue.  But the second preference is to offer a partially illiquid account with a penalty to discourage present bias.  However, this study argues that for social policy purposes, having a completely illiquid account is most useful for retirement savings, but does not take into account the need to address emergencies like loss of jobs, in which case, people do withdraw money from their retirement accounts.

In addition, this study found that for accounts that prohibit early withdrawal, investments into those accounts actually increase compared to accounts with no penalty or a modest penalty for withdrawal. The paper hypothesizes that investors who are aware of self-control problems are motivated to use accounts with penalties in order to ensure savings are retained.  

In the context of DSC, this purchase option may actually be playing an important behavioral role in retirement savings in Canada.  It helps people exercise the self-control needed to stay with their savings program.

The last point we would like to make about DSC is simply that it is widely used for smaller registered investments like TFSAs, RESPs and RDSPs.  We have heard from advisors that the elimination of the DSC could and likely will have an impact on savings in these vehicles.  These are longer term vehicles in any event and in most cases they are suitable retirement products.

[admin]

To a jaded eye it appears like the MFDA "protects, defends, deflects & buries evidence of wrongdoing by it's members" That would coincide with my personal experience with them. Buyer beware. Self regulation often turns into de-criminalization.

click to enlarge image
click twice to zoom in

[admin]

Image "Self Regulation is De-Criminalization"


An excellent example of "regulator run-around",.......the process unique to "self" regulatory agencies when it comes to investigating the "self" part. (or those who pay their salaries)

After writing to the MFDA about an MFDA mutual fund member, and waiting a period of time, he gets this reply (and brush-off):


The Mutual Fund Dealers Association of Canada ("MFDA")completed its
assessment of your complaint against Investors Group Financial Services
Inc.

The MFDA carefully reviews complaints to determine whether there is
evidence of violations of MFDA By-laws, Rules or Policies ("MFDA
Requirements") by Members or their Approved Persons that would warrant
disciplinary action. It is important to note that the MFDA does not
offer financial compensation to individuals for any money they may have
lost.

Based on our review of the facts, this is not a matter within the
jurisdiction of the MFDA.
Your concerns involve the sale of segregated funds, insurance products,
by an individual registered with the Insurance Council of British
Columbia. We forwarded your concerns to the Insurance Council of British
Columbia on August 14, 2012. Their contact information is provided in
the link below.

http://www.insurancecouncilofbc.com/Pub ... actUs.html


Regards,


Case Assessment Analyst
Enforcement Department
Mutual Fund Dealers Association of Canada

Now it becomes incumbent upon the victim, (in this case someone in their 9th decade of age) to begin the process all over again and write to yet another "can't help", "self" regulating agency........so they in turn can delay another six months and send yet another letter of rejection. This can continue with the IIROC folks, (investment dealers) with securities commissions, ombudsmen, RCMP, and others. Clients tell me that it is like being abused twice, once by the financial abuse and a second time by the system of "self" protection that the industry has surrounded itself with. Shame. Elder abuse.

[admin]

A look at IFIC – a powerful and effective bare-knuckles lobbyist

The Investment Funds Institute of Canada (IFIC http://www.ific.ca) is a formidable lobbyist for the Canadian mutual fund industry. According to its website:”IFIC is the voice of Canada’s investment funds industry, including fund managers, distributors and industry service organizations. IFIC proactively influences and advances industry issues within the regulatory framework, members’ efficiencies, knowledge and proficiency. IFIC provides a consistently high level of service to enable dealer and manager members to work together in a cooperative forum to enhance the integrity and growth of the industry and strengthen investor confidence. ”

IFIC's influence is not limited to securities regulators. They have political clout as well and are prepared to use it.

They're not perfect however. In August 2005,the Autorité des marchés financiers (AMF) ordered Norbourg Asset Management Inc. to cease all activities, alleging that it and its president and controlling shareholder Vincent Lacroix "no longer have the integrity required under the Securities Act." Norbourg's and Mr. Lacroix's licences to act as investment counsellors were suspended, as were those of three securities brokers working for Norbourg. The dramatic developments led to the sudden resignation of the Chairman of the Investment Funds Institute of Canada , Michel Fragasso, who was a senior vice-president of Norbourg. http://investorvoice.ca/PI/2179.htm IFIC however recovered quickly and continued its hard ball lobbying without missing a beat.

IFIC's makes numerous submissions during the year on regulatory change proposals. They have been exceptionally effective at blunting, watering down and delaying numerous investor protection initiatives. To this day, fund prospectuses are delivered only after the sale has been consummated .

Other “successes” include the elimination of the mandatory provision of Annual financial statements, the gutting of better fund governance rules, the disintegration of the OSC's Fair Dealing Model and continued delays for POS disclosure regulations.

IFIC convinced regulators to use their own document Volatility Risk Classification Rating system for use in Fund Facts. Investor advocates were aghast at the very poor disclosure of risk but IFIC refused even to supply a copy of the controversial document.

IFIC produces “research “ reports which purport how great mutual funds are for investors. Every one of them has been discredited by analysts, media, bloggers and investor advocates Example :the Value of Advice Report.http://www.canadiancapitalist.com/reade ... to-shreds/

“Many readers felt that the criticism contained in a post last week on some of the conclusions drawn from a survey contained in a report titled The Value of Advice put out by The Investment Funds Institute of Canada’s (IFIC) report did not go far enough. They ripped apart the report’s junk science that found an association between households that received financial advice and their average investable assets.”

Investor advocates have learned to respect IFIC's multi-pronged approach to lobbying. Their deep pockets , political access and influential power make them a formidable force.

IFIC are not afraid of a public fight.

In Feb. 2004, IFIC publicly called on CDIC to stop pointing out that mutual funds are not insured .https://www.ific.ca/Content/Content.aspx?id=302

When respected Harvard University professor Peter Tufano published a paper showing Canada's fund fees were the highest in the world IFIC shot back. IFIC commissioned two studies on fees..First was an Ipsos Reid study on the Value of financial advice, which found Canadians who opt for advice accumulate more assets and are better prepared for retirement as a result. Second was a study by Bain & Company, underwritten by fundco Mackenzie Investments, which found the total cost of ownership of mutual funds sold in Canada is no costlier than American ones .http://www.canada.com/story.html?id=30f ... 71e9325bba Both reports were critiqued by media, bloggers and advocates as flawed and designed to deceive readers.

Back in 2009, IFIC took off the gloves on the HST issue. Under IFIC's direction, the mutual fund industry pressed the Ontario, B.C. and federal governments to tax funds fairly when they harmonize provincial sales taxes with the GST, warning them against siphoning off retirement savings from consumers ( ironic given Canada's notoriously high fees).The lobbying was so intense that officials in Ontario Finance Minister Dwight Duncan's office said they were prepared to release a document on the negative impact of management fees for investors if executives continue to complain in public. http://m.theglobeandmail.com/globe-inve ... ice=mobile This was one of the few losses for IFIC, ironically one that would actually have benefited retail fund investors by preventing an increase in the MER due to taxes.

In May 2010 , IFIC tried to block a Morningstar Canada report on fund stewardship by appealing to Morningstar Canada's parent in Chicago. http://opinion.financialpost.com/2010/0 ... ewardship/ The attempt failed but this demonstrates how far IFIC is prepared to go to impose its will.

In May, 2010 IFIC jumped on the financial literacy bandwagon. Personal finance journalists were not convinced of their true intentions. http://opinion.financialpost.com/2010/0 ... y-want-it/ Advocates believe their love of financial literacy was an attempt to divert attention from real problems in the mutual fund industry.

In 2012 , FAIR Canada summarized criticisms of IFIC's distortion of facts and propagation of half-truths. Under the heading “Value of Advice” Claims “Completely Refutable” FAIR said "Many financial industry participants, particularly the mutual fund industry and the groups that lobby for them (such as the Investment Funds Institute of Canada (IFIC)), love to tout “research” that demonstrates the value of advice. Often, industry spins the results of studies, drawing very tenuous conclusions that, while unproven, fully support the products and services they sell. These tenuous conclusions, which assume cause and effect that are not necessarily demonstrated by the research, are then marketed to unsuspecting financial consumers as proof that if they receive advice from an “advisor”, they will be better off financially. The industry’s latest gem is a research paper entitled “Econometric Models on the Value of Advice of a Financial Advisor”, prepared by researchers at the Centre for Inter university Research and Analysis on Organizations (CIRANO). As noted in a recent Globe and Mail article by Preet Banerjee, problems arising from the limitations of the studies that have been conducted “are serious and could undermine almost all of the study’s conclusions”..."

More recently IFIC has made submissions to the CSA/OSC that openly demonstrate their displeasure with current regulatory investor protection initiatives. Some believe the tone of the letters border on arrogance. They appear opposed to applying a fiduciary standard to “advisers”, improving fee disclosure and enhancing client statements.

In their submission on Phase 2 of POS disclosure http://www.osc.gov.on.ca/documents/en/S ... ntiisj.pdf IFIC commented “ What are the risks of this fund? Remove the list of specific risks as it provides incomplete information.A summarized narrative of the top risks may result of oversimplification and confusion as different companies may describe similar risks in different ways ,without definitions ,simply naming risks does not inform clients . There is concern also that as an offering document liability could attach from not naming all relevant risks. Furthermore we understand that the AMF is conducting research and analysis regarding the means by which risks are communicated to investors. It would be prudent to have the benefit of these findings before introducing more risk section. In the meantime, the volatility risk information combined with other the other narrative about the fund including a direction to consult the prospectus for more information, informs the investor that risk is involved with purchasing of fund.”. As is now well known, the current FF disclosure has utterly failed to communicate risks and is under revision to correct the obvious deficiencies. As can be seen, IFIC often gives a view on investor reactions although its contact with investors is zero or near zero. Note the attempt to stall by waiting for yet another report on how to communicate with retail investors.



Their position on trailer commission disclosure: “Current fund industry documents explain the trailing commission as a percentage of your invested assets in a fund – 1 per cent for an equity fund, typically, and 0.5 per cent for a bond fund. Ms. De Laurentiis said that’s a sufficient level of detail. “We think it gets to the point, which is informing investors. It gives them the information they need to say [to an adviser], by the way, tell me more about what you’re being paid.”
http://www.theglobeandmail.com/globe-in ... le4540911/ IFIC often cunningly claim to express the interests of investors, but it is clear who their masters are.The suggestion they make here is with the full knowledge that Canadians are by and large financially illiterate and unlikely to even know what questions to ask , never mind understand the answer.

In its formal submission to the CSA http://www.osc.gov.on.ca/documents/en/S ... ntiisj.pdf IFIC said: “We support the clear and simple disclosure of costs and commissions that is in the fund facts document. We do not believe it is necessary to provide the additional disclosure related to trailing commissions, especially when , for reasons stated above, it will mislead investors, put the mutual fund industry at an unfair disadvantage and raise cost for the industry and investors for a benefit that is asserted but not demonstrated to be “worth the cost”.It concludes by saying “We urge the CSA to reflect on its recognition of the unfairness issues towards mutual funds and work towards a common performance of the cost disclosure practice across financial products that do not disadvantage individual industry sectors.” In other words , do nothing right now; leave us alone. If you read their Comment letter , it is quite evident it is combative and disrespectful of the CSA.

IFIC hasn't yet made its submission on the CSA fiduciary duty consultation but there are clues as to what its position will likely be." ..But the Canadian advisory industry already has most of the elements of the fiduciary duty in place, said Joanne De Laurentiis, president and CEO of IFIC, listing the obligation to deal fairly and in good faith, conflict disclosure and account supervision. Compensation disclosure is already in place, she says, and that’s more than can be said for the UK and Australia, where the fiduciary duty has been adopted. And the introduction of the mutual fund fact sheet in July will lay fees out even more clearly.She pointed out that Common Law already lays out where there should or shouldn’t be a fiduciary duty, regardless of what your designations are. The argument that Canada needs the fiduciary standard undermines confidence in current industry standards, she said, pointing out that the Canadian market is hardly subject to utter chaos at the moment...” http://www.advisor.ca/news/industry-new ... dard-50489 While the Canadian fund market may not be in utter chaos at the moment, it is one of the world's most expensive and investor-unfriendly in the world.

Bottom line : IFIC is a formidable foe blocking the path of regulatory reform in the Canadian mutual fund industry.


Thanks to Ken K for this post, it is in draft form and the final version might be slightly altered.

Ken strives continually to protect the public at http://www.canadianfundwatch.com

[admin]

MFDA uses one set of terms when describing its "salespeople", or those registered and licensed as "salespeople",.......and allows those salespeople to use an entirely different set of terms (title inflation) to suggest to the public that they are something else...........

This smacks of less than professional practices by the MFDA, and suggests a "self-regulator" which does not have the "self -discipline" to really do the job. The seem to be happy to simply "have" the job, and find it unnecessary to actually "do" the job of protection of the public interest AND protection of the reputation of the mutual fund industry.

It could also be called fraudulent misrepresentation, bait and switch, and may meet the criminal provisions of the "misleading" provisions of the Competition Act of Canada.

eg https://docs.google.com/document/d/1yjE ... jw6y8/edit

Notice of Hearing
File No. 201128



IN THE MATTER OF A DISCIPLINARY HEARING
PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA

Re: Arthur George Pretty

NOTICE OF HEARING

NOTICE is hereby given that a first appearance will take place by teleconference before a
hearing panel of the Atlantic Regional Council (the “Hearing Panel”) of the Mutual Fund Dealers
Association of Canada (the “MFDA”) on October 26, 2012 at 10:00 a.m. (Atlantic) concerning a
disciplinary proceeding commenced by the MFDA against Arthur George Pretty (the
“Respondent”). Members of the public who would like to listen to the teleconference should
contact the MFDA Hearings Coordinator at 416-945-5146 or mwynnyckyj@mfda.ca to obtain
particulars. The Hearing on the Merits will take place in St. John’s, Newfoundland at a time and
venue to be announced.

DATED this 31st day of August, 2012.

“Jason D. Bennett”
Jason D. Bennett
Corporate Secretary
Mutual Fund Dealers Association of Canada
121 King Street West, Suite 1000
Toronto, Ontario, M5H 3T9
Telephone: 416-943-7431
Facsimile: 416-361-9781
Email: corporatesecretary@mfda.ca

NOTICE is further given that the MFDA alleges the following violations of the By-laws, Rules
or Policies of the MFDA:

Allegation #1: Between March 2005 and July 2008, the Respondent recommended and
facilitated a leveraged investment strategy for at least 6 clients without performing the necessary
due diligence to learn the essential facts relative to the clients, and without ensuring that the
leveraged investment strategy was suitable for the clients and in keeping with the clients’
investment objectives, contrary to MFDA Rules 2.2.1 and 2.1.1.

Allegation #2: Between March 2005 and July 2008, the Respondent misrepresented or failed to
adequately explain the benefits, risks, material assumptions and features of a leveraged
investment strategy and its underlying investments to at least 6 clients, thereby failing to present
the leveraged investment strategy to the clients in a fair and balanced manner, contrary to MFDA
Rule 2.1.1.

Allegation #3: Commencing September 14, 2010, the Respondent failed to comply with multiple
requests to provide a written statement to the MFDA in response to client complaints and to
attend at an interview requested by the MFDA during the course of the investigation, contrary to
section 22.1 of MFDA By-Law No. 1.

PARTICULARS

NOTICE is further given that the following is a summary of the facts alleged and intended to be
relied upon by the MFDA at the hearing:

Registration History of Respondent

1. The Respondent was registered in the provinces of Newfoundland and Labrador, Nova
Scotia and Prince Edward Island as a mutual fund salesperson with Berkshire Investment Group
(“Berkshire”), a (former) Member of the MFDA from October 2000 to July 1, 2008.

2. On July 2, 2008, Berkshire amalgamated with Manulife Securities International Ltd
(“MSIL”) and the combined entity carried on business as Manulife Securities Investment
Services Inc. (“Manulife”), a Member of the MFDA.

3. Prior to his registration with Berkshire, from September 1995 to October 2000, the
Respondent was registered as a mutual fund salesperson with Investors Group Financial Services
Inc.

4. On May 25, 2010, the Respondent was terminated by Manulife as a result of the activities
described herein.

continued with lots of good info for other investors interested in learning about salesperson misrepresentation, misconduct and malpractice........at the link https://docs.google.com/document/d/1yjE ... jw6y8/edit

[admin]

Kenmar Associates Investor education and protection (thanks to Ken at http://www.canadianfundwatch.com for this)

Case Study MFDA Settlement Agreement- Jennifer Killins

This case http://www.mfda.ca/enforcement/hearings11/SA201109.pdf dates back to a period between 2007 and 2009 when Jennifer Killins was a mutual fund salesperson for Interglobe Financial Services Corp. We are not told what title she had on her business card, her professional qualifications or the size of her book. She sold the funds for Interglobe through her establishment, Dollars & Sense, the name of a entity owned and operated by herself. While registered with Interglobe, Ms. Killins conducted business on behalf of Interglobe using the business name, “Dollars & Sense”, which had been approved by Interglobe in accordance with the requirements of MFDA Rule 2.8 [ this was a typo in the Agreement ; s/b Rule 1.1.7 (trade name) and 1.2.1(c) (outside business activity) ]. If Interglobe had checked , they would have found that Dollars & Sense did not have its own bank account ( which suggests its not a real business) and had few, if any, assets that could have been liquidated or realized upon to pay back the amounts owing on the Promissory Notes should that have been necessary. Interglobe was required by MFDA rules to obtain from Killins basic information about the activity, including the name and nature of the business, the title or position of the Approved Person, the number of hours to be devoted to the business and a description of any potential for confusion or conflicts of interest.

What exact relationship did Ms. Killins have with Interglobe ? Was she an employee? Agent? It's of interest for an investor to know even if MFDA requirements are the same. Documents provided to the Mutual Fund Dealers Association show that between October 29, 2007 and Jan. 16, 2009, the client RZ wrote seven cheques to Dollars & Sense totaling $97,966.22. The Settlement agreement says Killins deposited the money received from Client RZ into her personal bank account. Killins issued promissory notes, with interest rates ranging between 3.5 and 6 %. Five of the notes had a maturity date of two years; two were sold as open-term investments. Borrowing from clients is not explicitly prohibited under MFDA Rules, but the MFDA state that they are unaware of any circumstances where Members or Approved Persons proposing to enter into any such arrangements would be able to demonstrate that the conflict has been properly dealt with ( ref MR-0047 Personal Financial Dealings with Clients ). Question: Should the MFDA explicitly prohibit personal financial dealings with clients? - this would add investor protection and enhance the tarnished image of the industry and its dealer Reps .

According to the settlement agreement, signed on Nov. 20, 2011 , Ms. Killins solicited and accepted almost $98,000 from a mutual fund client (“RZ”) that was to be invested in Dollars & Sense. She described the investments as guaranteed personal loans ( “Promissory Note” ).In order to provide Killins with $40,000 on Jan. 5, 2009 (Promissory Note #6), client RZ redeemed the net amount of $40,590.83 from mutual funds held in his account at Interglobe incurring early redemption fees of approximately $2,845. An unexplained redemption ( a decrease in book size or commission levels received by an Approved Person ) without a repurchase may indicate movement of RZ's assets to other business /investment activities offered to clients by the Approved Person. Did Interglobe query the not- insignificant redemption?
Ms. Killins completed Interglobe Transaction Forms that set out the amount and terms under which client RZ provided the monies to the Respondent. On some of the Transaction Forms, it was indicated
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Kenmar Associates Investor education and protection
that the monies received from client RZ were for a “Private Loan”. These documents also stated that the investment was a “Guaranteed Personal Loan” (in some instances the acronym “GPL” was used). Ms. Killins provided copies of the Transaction Forms to client RZ but did not provide them to Interglobe. It appears that she created a document that created the illusion that Interglobe was involved.

According to the Settlement Agreement , Dollars & Sense was not an investment product approved for sale by Interglobe. Further, Interglobe was apparently unaware that Ms. Killins was selling investments in Dollars & Sense to client RZ but obviously it was aware that stream of redemptions of mutual funds had taken place. Interglobe became aware that the Respondent had obtained monies from client RZ after client RZ moved his investments from Interglobe to a different mutual fund dealer. Did Interglobe assess why the account transfer had taken place? Anyways, on or about May 19, 2009, a representative of client RZ’s new mutual fund dealer contacted Interglobe about Killin's activities with client RZ according to the settlement Agreement .The question is how did the new dealer discover these private transactions while Interglobe did not. The Settlement agreement says Killins was terminated by Interglobe in May 2009 after it learned that the client had invested in Dollars & Sense.

On or about May 26, 2009, client RZ requested that Killins return his investment of at least $97,966.22, which represented the principal amount invested by client RZ through the Respondent in Dollars & Sense. 26. On June 1, 2009, the client RZ received a total of $97,966.22 as repayment of the total principal amount she had received from client RZ pursuant to the Promissory Notes. Eleven days later, the MFDA sent her a letter asking her to respond to an allegation that she had provided promissory Notes to a client that were guaranteed by her business. After launching its investigation, the MFDA requested documents and records from Killins. The Settlement agreement describes how, over the course of many months in 2009 and into June 2010, there were repeated incidents in which Killins claimed she had sent documents by FAX and Canada Post to the MFDA, when, in fact, those documents never arrived. We interpret this as stonewalling on a grand scale.

Ms. Killins has accepted a settlement agreement that prohibits her from conducting securities-related business with a member of the MFDA for just nine months. She was fined $15,000 plus $5,000 in costs. A mitigating factor cited is that Killins has not been the subject of previous MFDA disciplinary proceedings . No aggravating factors are articulated. When you consider that Killins broke MFDA rules, caused a client to incur unnecessary DSC charges , misused Interglobe's forms and thwarted the investigation at every turn , it's hard to see how this sanction fits the egregious behaviour. The Agreement does not mention as to how or if client RZ was “made whole”. (i.e . interest on Notes and return of DSC early redemption charges)

Under the terms of the Settlement agreement, Killins must provide the MFDA with the bank records and other documents and information it previously requested or she could be permanently prohibited from conducting securities-related business with mutual fund dealers and face further fines. The Settlement agreement asserts that because the MFDA wasn’t able to get the requested documents and information, it was unable to determine whether any other clients loaned money to Killins, invested in her business, or had their money used to repay the client who invested in Dollars & Sense. This doesn't makes sense to us. One would think a simple chat with InterGlobe would have revealed if any other of Killin's clients had been similarly invested by simply asking them. Since Interglobe was responsible
2
Kenmar Associates Investor education and protection
for supervising Killins and “approved ' the use of the Dollars and Sense business name, shouldn't Interglobe be held accountable ? According to the MFDA ,Members are responsible for supervision of Approved Persons in relation to Member business ( see MFDA Staff guidance in Member Regulation Notice MR-0040 Outside Business Activities.). It appears as if some dealers are ill -equipped to detect such shenanigans – that's why investor advocates urge clients to query anything unusual at the first opportunity before the problem escalates.

One final point: Note that it took over 2 years for this rather uncomplicated case to be investigated / resolved. Disputes that are not resolved quickly tend to fester and become more difficult to settle in the future. As time passes, memories may fade, important witnesses may die or move away, and critical documents may go missing. In addition, as individuals invest more time and money in their conflict, they tend to become more entrenched and less flexible in their positions. The expression "justice delayed is justice denied" reflects the reality that, whether rights or interests are at stake, both sides suffer when a conflict cannot be resolved relatively quickly. That is why we continue to inspire the SRO's and OBSI to speed up complaint handling cycle times. A faster MFDA decision would also possibly help clients in any dispute/mediation proceedings.

What the Agreement doesn't say is that Killins promoted herself as a financial planning expert, author and motivational speaker .Earlier this year she published a book called Finding the G Spot: A Sassy, Sensible, Entertaining Approach to Finance [ still available for purchase at amazon.ca ]. According to an article http://www.guelphmercury.com/news/busin ... ng-expert- reprimanded-by-mutual-fund-dealers-association Killins still runs Dollars & Sense. She maintains she has not sold mutual funds for four years. Her “business” still provides insurance and Segregated fund investment products and she is still licensed by the Financial Services Commission of Ontario to sell them. Does FSCO know she's been sanctioned by the MFDA ? Should FSCO act on this information? For us ,this is a further indication that the vertical walls between regulators causes wide gaps in retail investor protection.
Takeaways....
1. Reading Settlement Agreements can be educational for retail investors on how to detect/avoid adviser/dealer abuse
2. Check out adviser credentials and qualifications- ignore hype . Be sure to check out insurance registration too as such agents can sell Segregated funds ( a mutual fund with a insurance wrapper) even if they've been sanctioned by the MFDA
3. Even though MFDA requires policies and procedures for outside dealings , it appears that if dealers can claim they knew nothing of the outside dealings of their Rep, they probably can walk away from any liability – maybe it's best to avoid side deals with advisers ( including lending them money!)
4. Don't assume the MFDA will get you your money back – that is not their primary mission. Any
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Kenmar Associates Investor education and protection
fines actually collected ( and few are ) from Approved Persons are retained by the MFDA.
5. Although a MFDA sanctioning can be helpful in supporting the merits of a complaint , in many cases , the long cycle times make such a tactic impractical. In the view of some investor advocates . Additionally,in our view, the level of sanctions doesn't always seem to fit the seriousness of the financial assault.
6. Settlement Agreements would be more useful if they included the information in Appendix 1
7. Perhaps if the MFDA held dealers responsible for the payment of fines , account supervision would be enhanced [ In 2011 , 35 hearings were concluded in the year resulting in fines of $137,500 against Dealers and $2,820,400 against Approved Persons. MFDA Staff recovered a total of just $373,000 in respect of fines levied in fiscal 2010–2011 and previous years. ]
8. There appears to be a regulatory gap between securities regulators and insurance regulators
Kenmar Associates , December, 2011 Appendix 1 : Suggested minimum information for Settlement Agreements :
Title used by dealer Representative ( in comms, business cards)
Date licensed – year licensed -nature of license [ list ALL licenses ]
Years of service with dealer
Professional designation held by Dealer rep ( if none, so state)
Avg. $ assets under dealer Reps care
Branch location of dealer
The age of the victim ( and-or other vulnerabilities i.e. infirm)
The date of the victims complaint ( state NONE if no complaint filed) and the start date of the MFDA/ IIROC/ review of the case
Whether or not the victim lost money/incurred undue expenses and how much
What criteria the MFDA/IIROC/ determined that the loan ( if applicable)was excessive, churning occurred or the investment was unsuitable
Whether or not the victim was compensated for losses
Delineation of dealer shortcomings in the case e.g. inadequate supervision, poor systems, defective KYC....
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Kenmar Associates Investor education and protection
Has the MFDA /IIROC/ considered the OSC’s Jan. 13, 1998, Dino DeLellis “fiduciary duty” reasons
The sanctions -penalties imposed vs. the MFDA/IIROC/ penalty guidelines. Aggravating factors [not just Mitigating factors] Whether or not the Rep is still employed in the industry and by who
For example if the Rep. uses a title like Financial advisor and has NIL or minimal qualifications ,this would be useful to know. If the person has been licensed for a short time and exposed to a large account for a retiree ,this too would be useful. If the victim is a senior , we would expect some special criteria to be applied given the vulnerability of the elderly. We also think that Aggravating factors need to be added such as exploitation of a unsophisticated, trusting client to counter the Mitigating factors one so often sees in these Settlement Agreements.

(If you are having any difficulty with a mutual fund "advisor" or losses from same, see the topic GET YOUR MONEY BACK, in this forum)

[admin]

From: Ken Kivenko <kenkiv@gmail.com>
Date: December 20, 2011 10:31:56 AM EST
To: Shaun Devlin <sdevlin@mfda.ca>, Larry Waite <lwaite@mfda.ca>
Cc: Stan Buell <stanbuell@rogers.com>, Ermanno Pascutto <Ermanno.Pascutto@faircanada.ca>, John Lawford <jlawford@piac.ca>, Anita Anand <anita.anand@utoronto.ca>, Ken Kivenko symp <kenkiv@sympatico.ca>, Rhonda Goldberg <rgoldberg@osc.gov.on.ca>, Ken Kivenko gmail <kenkiv@gmail.com>, Doug Melville <dmelville@obsi.ca>
Subject: From the Regulators - MFDA to use risk-based methodology in sales compliance exams - Article - investmentexecutive.com

http://www.investmentexecutive.com/-/mf ... EN-morning

This is a good idea.

From our exposure we see the following issues:

1. excessive equity content in the accounts of seniors/retirees/pensioners
2. promotion of excessive leveraging generally,
3. Poor explanation on ROC vs. real income leading to unsuitable investments
4. Misleading ads/sales communications
5. Poor portfolio construction - too risky , analysis tools appear inadequate or are not used
6. No financial plans or IPS preparation ( some sales pitches presented as Financial plans)
7. Weak KYC regimes- incomplete or obviously incongruent NAAF forms
8. Investor-unfriendly terms and conditions in recent revisions to Account Agreements e.g. risk tolerance, privacy, investment loans
9. Failure to advise of OBSI services at multiple touch points
10. Increase in client-"adviser" side deals - the sale of "off book' products and loan arrangements
11. Creative titles/credentials on business cards and stationary
12. Use of Social media
13." Free lunch" seminars generally and in particular in retirement homes

The usual problems also continue - sale of DSC funds in RRIF's and to the elderly , sale of unduly high MER funds w/o justification, lack of salesperson supervision, failure to disclose fees and liquidity /transfer constraints at POS and the marketing of expensive wrap accounts

In addition, we are extremely concerned that Fund Facts with its identified shortcomings ( in particular weak, misleading and inconsistent risk disclosure) could lead to the increased sale of unsuitable investments.

Other advocates may be able to add to the list.[ Hoefully 2012 will seee the creation of an MFDA Investor Advisory panel and retail investor representation on the Board of Directors]

Hope this is useful in your targetted exams.

Best wishes for 2012.

Sincerely,
Ken Kivenko
Kenmar Associates

PS Some of the advice being given on tax matters is downright wrong but that's another topic

(advocate comment.......consumers must always remind themselves that self regulators like the MFDA are bought and paid for by the investment industry sector that they represent. Any and all attempts to portray self regulatory bodies as willing or able to protect the public, have shown to be more likely false. Self regulation is decriminalization and it is still buyer beware out there with your money)

[admin]

June 21, 2011, Complaint re apparent MFDA failure to enforce suitability rules?

To: David Liptrott CIM, FCSI
Manager, Case Assessment
Mutual Fund Dealers Association of Canada
toll-free: 1-888-466-6332 ext. 4668
direct: 416-943-4668
fax: 416-361-9073
dliptrott@mfda.ca

David,

I send this email with the first of two official complaints on behalf of Canadian investors. I would like an MFDA response to an allegation of MFDA willfully ignoring investment rules, principles or regulations designed and put in place to protect Canadians and their money. I feel that the MFDA is not addressing or enforcing some of these and I bring this forward in an attempt to narrow down the problem:

From MFDA MEMBER REGULATION NOTICE MR-0069 regarding “suitability”.

To the extent that there is subjectivity in the analysis, the expectation of MFDA staff is that the Member and AP take the most conservative approach and act in the best interests of the client:

How do you (MFDA) explain (or allow) mutual fund representatives to place mutual funds product sales into the highest revenue (commission) generating mutual fund class (DSC), when equal and identical mutual fund classes would be more cost effective to the client, and therefore more suitable for the client?" This appears to be a commission grab in complete willful ignorance of suitability rules, of principles of honesty and fair play, and all other principles and rules of placing client into transactions that benefit their interest.

Can you please reply to me with a non-legal-jargon response, so that average Canadians can be informed as to the safety (or the additional risks) of investing under the watchful (or blind) eye of the MFDA?

Thank you very much for the considered response of the MFDA on this matter.

Larry Elford

[admin]

19 These are the parts of MFDA Rules 2.1.1 and 2.1.4 relevant to this review: 2011 BCSECCOM 197


Mutual Fund Dealers Association of Canada
Tony Tung-Yuan Lin

“Rule 2.1.1 Standard of Conduct.
Each Member and each Approved Person of a Member shall:
(a) deal fairly, honestly and in good faith with its clients;
(b) observe high standards of ethics and conduct in the transaction of business;
(c) not engage in any business conduct or practice which is unbecoming or detrimental to the public interest; and
. . . .

Rule 2.1.4 Conflicts of Interest
(a) Each Member and Approved Person shall be aware of the possibility of conflicts of interest arising between the interests of the Member or Approved Person and the interests of the client. . . .
(b) In the event that such a conflict or potential conflict of interest arises, the Member and the Approved Person shall ensure it is addressed by the exercise of responsible business judgment influenced only by the best interests of the client and in compliance with Rules 2.1.4(c) and (d).
(c) Any conflict or potential conflict of interest that arises as referred to in Rule 2.1.4 (a) shall be immediately disclosed in writing to the client by the Member, or by the Approved Person as the Member directs, prior to the Member or Approved Person proceeding with the proposed transaction giving rise to the conflict or potential conflict.
. . . .”

¶ 20 The MFDA says Rules 2.1.1 and 2.1.4 are principles-based and intentionally broad so they can be interpreted in a manner consistent with the MFDA’s primary mandate of investor protection.

¶ 21 At the time of Lin’s impugned transactions in late 2005 and early 2006, the MFDA had any published any guidance or other information about what, in the mutual fund context, would constitute excessive trading. About two years later, in October 2007, the MFDA issued Member Regulation Notice MR-0065 Churning. MR-0065 provides guidance from the MFDA about what constitutes excessive trading and expresses the MFDA’s view that excessive trading contravenes Rules 2.1.1 and 2.1.4.

[admin]

What do you think of this monetary fine by the MFDA? I was hoping to give a reply
after I heard from the advocate.

http://www.advisor.ca/news/industry-new ... nian-44579

rbr
------------------

advocate comment
First, the fine will likely never ever, ever, ever, EVER be collected.

So it is a bullshit PR exercise by a bullshit industry lobby group posing as some kind of protector of the people. Did I mention bullshit?

Second, 80% to 90% of "advisors" out there selling mutual funds, are violating many, many rules, codes and laws by doing things in a manner to MAXIMIZE sales commissions in 80% to 90% of fund sales (and this fact comes from the fund industry sales stats)

I could go into the rules violated but I think they are posted recently at http://www.investoradvocates.ca Here a few just for starters..........

Simple rules like "best execution" (best price to client) (not best commission which is what actually happens 80% or more)
like "suitability" (funny, but it does not mean most suitable choice for the salesman)
like negligent misrepresentation of the salesperson license to help fool the public into believing they are trusted professional "advisors"
Like "best price" obligations of the industry (not worst price, not best commission...)
Like ethical principles, "client first" principles" (not followed by four out of five sellers) (not enforced by MFDA)

Wow, the MFDA penalized a guy. Big deal. They turn their heads and "see no evil" on 80% of the mutual fund sales in Canada. They WILL be sued one day for this failure to the public whilst pretending to serve the public in some way.

Bruce sorry for the ranting answer but I just have to say how "fraudulently" this industry represents itself to the public for money. If it were not for the "decriminalization" protection that self regulation gives them, many would be in jail. Should be in jail.



where to even end this little rant. I fear getting on a radio program with any industry mouthpiece, for fear of what I will say to them. They (the majority) are just to corrupt for words in my opinion. (and the honest ones are gagged into silence for fear of losing their jobs)

larry

[admin]

What do you call people who are willing to take six figure salaries to lie, cheat and financially abuse the public.........or to act as "pretend" regulators while actually only pursuing the interests of the industry that pays them the salary?

In this case, we call it Larry Waite.

"just following orders" or "just doing my job" is the answer of all small men who abuse others.

see http://www.thestar.com/article/943353-- ... s-up-front

[admin]

Contact: Ken Woodard MR-0077
Director, Communications & Membership Services December 7, 2010
Phone: (416) 943 - 4602
Email: kwoodard@mfda.ca


MEMBER REGULATION NOTICE

APPROVED PERSON PROFICIENCY REQUIREMENTS

The purpose of this Notice is to set out details of proficiency requirements that apply under
MFDA Rules and National Instrument 31-103 Registration Requirements and Exemptions (“NI
31-103”).

1. Salespersons

(a) Proficiency Requirements. Each Approved Person who is a salesperson
and who trades or deals in securities in respect of a Member must have:

(i) passed the Canadian Investment Funds Course Exam, the Canadian
Securities Course Exam or the Investment Funds in Canada Course Exam;

Or

(ii) earned a CFA Charter and have 12 months of relevant investment
management experience in the 36-month period before applying for
registration; or

(iii) received the Canadian Investment Manager designation and have
48 months of relevant investment management experience, 12 months of
which was in the 36-month period before applying for registration.

(b) Additional Proficiency for Particular Securities

(i) Commodity Pools. Each Approved Person who is a salesperson and who
trades or deals in commodity pools in respect of a Member must have:

(A) satisfied the requirements of paragraph (a)(ii) or (iii); or

(B) passed the Canadian Securities Course Exam or the Derivatives
Fundamentals Course Exam.

(ii) Exempt Market Securities. Each Approved Person who is a salesperson
of a Member registered as an Exempt Market Dealer and who trades or
deals in exempt market securities must have:

satisfied the requirements of paragraph (a)(ii) or (iii); or (B)
passed the Canadian Securities Course Exam or the Exempt
Market Products Exam.

2. Chief Compliance Officers

(a) Proficiency Requirements. An individual may not be designated by the Member
as the chief compliance officer pursuant to Rule 2.5.3(a), or an alternate chief
compliance officer pursuant to Rule 2.5.3(c), unless the individual:

(i) has passed the Canadian Investment Funds Course Exam, the Canadian
Securities Course Exam or the Investment Funds in Canada Course Exam
and has passed the Officers’, Partners’ and Directors’ Exam, the Partners,
Directors and Senior Officers Course Exam or the Mutual Fund Dealers
Compliance Exam; or

(ii) has met the relevant requirements for the chief compliance officer of a
portfolio manager as prescribed under securities legislation.

(b) Additional Proficiency for Particular Securities

(i) Commodity Pools. An individual designated as a chief compliance officer
pursuant to Rule 2.5.3(a), or an alternate chief compliance officer pursuant
to Rule 2.5.3(c), by the Member whose Approved Persons trade or deal in
commodity pools in respect of a Member must have passed the
Derivatives Fundamentals Course Exam or successfully completed the
Chartered Financial Analyst Program.

(ii) Exempt Market Securities. Where a Member is registered as an Exempt
Market Dealer, the individual designated as its chief compliance officer
pursuant to Rule 2.5.3(a), or an alternate chief compliance officer pursuant
to Rule 2.5.3(c), must have:

(A) satisfied the requirements of paragraph (a); and

(B) passed the Canadian Securities Course Exam or the Exempt
Market Products Exam.

3. Branch Managers

NI 31-103 does not retain the branch manager category of registration and, as a result, all
requirements in respect of branch managers are contained in MFDA Rules.
Branch managers must meet the requirements set out under MFDA Rule 2.5.5. In addition,
branch managers supervising Approved Persons trading or dealing in commodity pools or
exempt market securities must also meet the requirements for salespersons as noted in subsection
(A) 1(b), above.

[admin]

MFDA spells out proficiency requirements

Notice sets out requirements for salespeople, compliance officers and branch managers

Tuesday, December 7, 2010

By James Langton

The Mutual Fund Dealers Association of Canada has detailed how proficiency requirements apply, under both its rules, and the securities commissions’ registration reform rules.

An MFDA notice published Tuesday spells out the basic proficiency requirements that apply to salespeople, and the additional qualifications needed for various products, such as exempt securities and commodity pools. It also sets out requirements for chief compliance officers, and branch managers.

For example, the registration reform rule has done away with the branch manager category. As a result, all of the requirements for branch managers are contained in MFDA rules.

Additionally, the notice sets out the circumstances in which proficiency requirements are considered current. Under both the MFDA rules and the registration reform rules, individuals are not deemed to have passed an exam, or successfully completed a program, unless they have done so within 36 months before they applied for registration.

The MFDA rules also allow it discretion to consider a longer period in cases where it is satisfied that the individual’s experience, knowledge and proficiency remains relevant and current, the notice says.

“In determining whether an individual’s knowledge and proficiency is relevant and current, the MFDA will consider the factors set out in [the registration reform rule], for example, previous registration and relevant securities industry experience,” the notice says, adding that these exemptions can be sought from both sets of regulators at the same time based on the same information.

IE
(advocate comments.....in the ultimate example of industry misrepresentation for profit and greed, this so called regulatory organization plays "name games" with its members in an attempt to shield their true role from unsuspecting customers, and to promote the myth that they:
a) trusted to place client interests first (which they are not required to do)
b) acting as advisors, and not as salespeople
c) have earned the moral right to police themselves