In an increasingly familiar scenario advisors find themselves paying the price for regulatory misdeeds while dealers often get to keep their share of the compensation from those transactions.
A recent IIROC settlement agreement saw a big bank representative pay for forging a transfer document in order to move a client’s shares into a newly opened account. But what happened to the dealer?
“Dealers must be held accountable for the actions of those who put the advisor into the marketplace,” wrote investor advocate Ken Kivenko. “Why aren't dealers always required to disgorge the commissions they received via the abusive actions of their advisors?”
Many advisors are wondering the same thing.
The details of that recent case had many readers asking why the dealer didn’t pay a financial price for actions of its advisor.
That’s a very good question. WP reached out to Warren Funt, IIROC's Western Canada vice president of enforcement. Funt was very helpful in his explanation.
“It is difficult sometimes to figure out exactly what the profit is. It’s not always as obvious as you might think sometimes,” Funt told WP. “It’s a conscious decision that is made by a panel usually on the recommendation of staff.”
In that recent case it would have been virtually impossible for IIROC staff to calculate any profit in this particular instance. It’s possible that the client profited by the transfer getting completed in a more expedient manner but that’s not relevant to the question at hand.
“We will look at how much money could have been made and whether compensation has been paid. Those are things that we at least consider in cases where there is a loss, and again compensation isn’t the same as disgorgement.” Funt told WP. “The panel is only able to act on the parties before it. If (the bank) had profited and (the advisor) hadn’t, the panel couldn’t order BMO to pay compensation. That would be a separate disciplinary event.”
While it seems dealers rarely get disciplined, Funt pointed to the recent August settlement agreement between IIROC and Scotia Capital that saw the bank pay a $500,000 penalty for letting advisors sell funds to clients under prospectus exemptions that didn’t exist.