MFDA Not Protecting

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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.

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[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
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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

[admin]

Contact: Paige Ward Director, Policy & Regulatory Affairs
Phone: 416-943-5838 E-mail: pward@mfda.ca
MFDA Bulletin

BULLETIN #0459 – P
December 3, 2010

For Distribution to Relevant Parties within your Firm

Transition Periods for MFDA Rule and Policy Amendments Implementing the Client Relationship Model Proposals

On December 3, 2010, staff issued Bulletin #0458-P Amendments to MFDA By-law No. 1, Rules and Form 1 – Financial Questionnaire and Report, which advised Members that proposed amendments implementing the MFDA Client Relationship Model (“CRM”) proposals have received all requisite approvals. The purpose of this Bulletin is to set out certain requirements under the MFDA CRM proposals and transition periods for such requirements, which are summarized in the table attached as Appendix “A”.

1. Relationship Disclosure Requirements
Rule 2.2.5 (Relationship Disclosure) requires that, on account opening, all clients be provided with written disclosure that sets out certain core information about the nature of their relationship with the Member and its Approved Persons. The required disclosure, which may be adopted in one document or several, includes a description of:
• the nature of the advisory relationship; • products and services offered by the Member; • the Member’s procedures regarding the receipt and handling of client cash/cheques;
• the Member’s obligation to ensure that each order accepted or recommendation made is suitable for the client and advising when the Member will assess the suitability of investments in the client’s account;
• definitions of the various terms with respect to the Know-Your-Client (“KYC”) information collected by the Member;
• the content and frequency of reporting for the account; and • the nature of the compensation that may be paid to the Member.
Members must ensure that relationship disclosure materials are approved at the head office and/or branch level, maintain evidence that the required relationship disclosure has been provided to clients and take reasonable steps to notify clients when there is a significant change to relationship disclosure information that was previously provided.
Transition Periods
2.
• •
New Clients: a transition period until September 28, 2011 is being provided to allow Members sufficient time to provide the relationship disclosure to new clients; and
Existing Clients: a three-year transition period (expiring December 3, 2013) is being provided to allow Members sufficient time to address logistical issues involved in distributing information to existing clients.
Account Suitability Triggers/Updates to Client Information
Under MFDA Rule 2.2.1(e), Members and Approved Persons must use due diligence to ensure that the suitability of investments within each client’s account is assessed:
• whenever the client transfers to the Member or transfers assets into an account at the Member;
• whenever the Member or Approved Person becomes aware of a material change in client information, as defined in Rule 2.2.4; or
• by the Approved Person, where there has been a change in the Approved Person responsible for the client’s account at the Member.
Under Policy No. 2 Minimum Standards for Account Supervision, Approved Persons must assess the suitability of investments in each client account within a reasonable time, but in any event no later than the time of the next trade. Approved Persons must maintain evidence of all suitability assessments performed and any follow-up action taken with respect to the assessments. In addition to suitability assessments performed by the Approved Person, supervisory staff at the Member is also required to review the suitability of investments in client accounts using a risk- based sampling methodology, as set out in Policy No. 2.
Amendments to Rule 2.2.4, regarding the updating of client KYC information, provide greater detail as to the client authorization, verification, and approval requirements for such changes.
Transition Period
A one-year transition period (expiring December 3, 2011) is being provided in respect of new requirements under Rules 2.2.1 and 2.2.4.
3. Performance Reporting/Rates of Return
Under MFDA Rule 5.3.5 (Account Performance Reporting), information must be provided to clients on an annual basis with respect to the performance of the client’s account at the Member.
Page 2 of 4
For the annual period covered by the report, account performance reporting must include: the total market value of the account as at the start and end of the period, total assets deposited to and withdrawn from the account during the period, and gain or loss in the account as at the end of the period.
Where market values cannot be readily and reliably determined by the Member in respect of security positions held in the account, such values must not be included in the report and the Member must disclose to the client in the report the security positions for which values have not been included, as well as why the information has not been provided in the report.
Amendments to Rule 2.8.3 (Rates of Return), clarify that, where a client communication discloses a rate of return, the rate of return must be calculated in accordance with standard industry practice and also clarify Member supervisory obligations where such communications are issued by an Approved Person.
Transition Period
An 18-month transition period (expiring June 3, 2012) is being provided in respect of changes made under Rules 5.3.5 and 2.8.3.
4. Policy No. 2
A one-year transition period (expiring December 3, 2011) is also being provided to accommodate certain changes made under Policy No. 2, including:
• branch and head office trade review criteria/thresholds; • amendments to the list of mandatory KYC information that must be collected on account
opening; and
• the requirement, where any material changes have been made to the information contained in the New Account Application Form or KYC form(s), to promptly provide the client with a document or documents specifying the current risk tolerance, investment objectives, time horizon, income and net worth that apply to the client’s account.
Page 3 of 4

Appendix “A” Summary of Transition Periods
Rule
Transition Period
Expiry Date

2.2.1 (“Know-Your-Client”)
One year
December 3, 2011

2.2.4 (Updating Client Information)
One year
December 3, 2011
2.2.5 (Relationship Disclosure)
– New Clients
Until September 28, 2011
September 28, 2011

2.2.5 (Relationship Disclosure)
– Existing Clients
Three years
December 3, 2013

2.8.3 (Rates of Return)
18 months
June 3, 2012

5.3.5 (Account Performance Reporting)
18 months
June 3, 2012

Policy No. 2 Minimum Standards for Account Supervision
One year
December 3, 2011

(advocate comment, the public should keep in mind that these "industry referees" are fully paid by, and owe a duty of care to "the investment industry" and NOT to the public. They have of course slipped into our regulatory system under the guise of protecting the public and public markets etc., etc, but the words they use should NOT be something that you bet your retirement upon. Thousands of Canadians have found out the hard way that this "self regulator" is but another in a long chain of self seeking organizations. Buyer Beware in my view and even greater buyer beware when bad referees are on the job)

[admin]

I am going to post this article by Jon Chevreau about IFIC here, (investment funds institute of canada) rather than starting a new thread. They fall under the same conflicts of interest failures as the MFDA anyway. Naked self interest by greedy industry participants, same shit different shovel.


IFIC tried to block Morningstar report on fund stewardship
Comments Twitter Facebook LinkedIn Digg Reddit Buzz Email
Jonathan Chevreau June 21, 2010 – 12:26 pm


Morningstar Canada
President Scott Mackenzie
While I was on vacation last week — I attended a writer’s workshop in Guelph — Morningstar Canada released a controversial report on mutual fund “stewardship” grades for the Canadian mutual fund industry. You can read Jim Daw’s report here. What wasn’t covered in initial media reports was an attempt by the Investment Funds Institute of Canada to discourage Morningstar from releasing the report.

The industry needs more stewardship and less asset-gathering

The concept of stewardship is tied in with the idea of being a fiduciary: always doing what is best for the investor. Indeed, Wilfred Hahn incorporated the very phrase into the name of his ETF-based business: Hahn Investment Stewards.

Another BC-based firm that emphasizes this approach is Steadyhand Investment Funds Inc., which got the top stewardship score of eight in the survey. It was one of five firms that received an A grade, while none of the 27 firms it covered got a failing F. Some big firms, including IA Clarington and Desjardins, were not included in the survey.

MERs and corporate culture should be important to investors

According to a Morningstar release that quotes Morningstar president and CEO Scott Mackenzie [pictured above] the score is based on four components: corporate culture, manager incentives, fees (MERs or Management Expense Ratios) and Regulatory history.

The Corporate Culture component hits at the heart of the stewardship issue: is the fund company in question focused on investing or on gathering assets? Do its best managers spend most of their careers there?

Just as relevant is the Fees section: companies with expensive funds got zero points on this measure while firms with MERs cheaper than 85% of their peers got two points. This makes a certain amount of sense since all other things being equal, the higher the MER, the more the drag on performance.

Steadyhand, Chou, Mawer & Capital International did best

After Steadyhand, the next best scores were 7.5, earned by Chou Associates, Capital International Asset Management and Mawer Investment Management. Leith Wheeler Investment Counsel and TD Asset Management Inc. got 6.5%, Invesco Trimark, McLean Budden and Manulife Mutual Funds 6.

Investors Group, Sceptre, National Bank did worst

The lowest scores were National Bank with 3, and Investors Group and Sceptre Investment Counsel at 3.5. Most of the big independent broker-sold firms were in between at around 4 or 5.

IFIC goes over Mackenzie’s head in bid to suppress report’s release


IFIC
President and CEO Joanne De Laurentiis
A few days before Morningstar released the study, IFIC president and CEO Joanne De Laurentiis [pictured, right] sent to member firms a copy of a two-page letter addressed not to Mackenzie but Don Philips, president of Fund Research for Morningstar Inc. in Chicago. In it, De Laurentiis expressed “serious concerns” with the firm’s planned issuance of the Stewardship grades.

It felt that Morningstar’s view is that “firms that believe in advice and deliver investment products through the advisors should be penalized.” A second point slams the study for being “qualitative and subjective,” presenting “no evidence of research into investor experience at all.”

Why disclose fund manager comp if it’s not “required?”

Next, IFIC attacks Morningstar for its belief that fund companies should disclose fund manager compensation (including co-investment). Such disclosure is “not a requirement in Canada” and there are various views on whether fund managers should or should not invest personally in the funds they manage, she says.

She then complains that Morningstar is “attempting to impose a new regulatory standard in place of the existing robust regulatory set of standards currently active in Canada.”

She concludes that the new Stewardship Grades have no predictive value to investors and recommends that “you not release this first study.”

IFIC didn’t get unanimous support from member firms

I understand that IFIC even sent this letter to fund companies that are not IFIC members, including influential C.I. Funds Inc — which received a midling Stewardship Grade of 5.0.

Not all fund companies that are members agreed with the letter: as a result, rather than the usual statement that IFIC was acting on behalf of its member firms, the letter is signed only by De Laurentiis.

No doubt Morningstar’s process can be improved in future iterations but I’d say this is a pretty good start for investors looking for guidance as to where to put their hard-earned money.


Read more: http://opinion.financialpost.com/2010/0 ... z0rWHoPG16
The National Post is now on Facebook. Join our fan community today.

[admin]

This article is such puffery, I am ashamed to reproduce it. I do so just to point out the one bit of interesting info about the MFDA. The fact that if they recover money or fine bad investment people, they KEEP THE MONEY THEMSELVES tells just about all you need to know about this industry paid, industry staffed puppet organization. (advocate)
MFDA : A watchdog with teeth
by Rudy Luukko | 15 Apr 10 |
"The protection fund doesn't reimburse investors for market losses. Nor does it pay for unsuitable investments or in the event of a default of an issuer of securities."

Agency stands on guard for investors over insolvency risk and dealer misconduct.

When you add up the activities of roughly 140 dealer firms and more than 70,000 individuals who are authorized to sell mutual funds, there are bound to be instances of administrative sloppiness, questionable sales practices, or worse. That's where the Mutual Fund Dealers Association of Canada-- the industry self-regulatory organization -- comes in.

The MFDA presides over a growing investor-protection fund, and it has demonstrated repeatedly during its nearly nine years as an SRO that it is willing to put the bite on transgressors big and small.

Given the ravages of the 2008-2009 bear market and the low minimum capital requirements for mutual fund dealers, what's impressive is how little has had to be paid out to compensate investors for dealer insolvency.

Nearly five years after it began operations, MFDA Investor Protection Corp. has a claims-payout record that would be the envy of the property and casualty insurance industry.

As of last June, the end of its 2009 fiscal year, the fund -- a not-for-profit corporation established by the MFDA -- had reached $22.9 million in assets.

So far, however, the dealer-financed fund has barely touched its asset base. The total amount of losses claimed by investors and paid to date is $63,300, all in fiscal 2009 and all of it resulting from the collapse of the Toronto-based discount dealer ASL Direct Inc.

ASL Direct was one of two insolvencies among the 145 member firms that made contributions to the fund during the fiscal year ended June 30, 2009. The other was Farm Mutual Financial Services Inc., also of Ontario, but in this instance there were no insolvency claims made because all of the investor losses were investment-related. (At last report, there are 141 member firms, and 72,531 registered salespeople.)

The fund began providing coverage on July 1, 2005. With the near-absence of claims it is continuing to grow in size, since it is collecting contributions from dealers to the tune of $5 million a year.

The current level of dealer levies is to be maintained until the fund's initial funding target of $30 million is reached. In addition, the fund can draw on a credit facility with a Canadian bank, with a maximum limit of $30 million.

The coverage available is up to $1 million for each of a customer's "general" and "separate" accounts. The general account is defined as the aggregate of non-registered (trading) accounts, and the separate account is defined as the total of all registered accounts such as RRSPs and registered retirement income funds (RRIFs). With the exception of Quebec, the protection fund covers investors in all provinces and territories.

Along with individuals, the customers whose accounts are eligible for coverage also include corporations, partnerships, unincorporated organizations, trusts and trustees, executors, administrators and other legal representatives. The fund's coverage policy excludes various insiders such as general partners or directors of insolvent MFDA member firms, and the firms themselves.

The protection fund doesn't reimburse investors for market losses. Nor does it pay for unsuitable investments or in the event of a default of an issuer of securities.