Conflict of interest breach leads to ban

Conflict of interest breach leads to ban

Conflict of interest breach leads to ban

The MFDA has issued both an ban and a fine for the kind of conflict of interest case sparking calls for fiduciary standard.

An advisor created a conflict of interest when he put investors into loans from a private company that he held shares in, according to an MFDA ruling, handing out a six-month ban and more than $15,000 in fines.
 
Between November 2007 and March 2009, (Clayton Kurt) Swerdelian, a former mutual fund salesperson with Armstrong & Quaile Associates Inc. allegedly referred 15 clients and 12 other individual to obtain loans totalling $954,000, for which he was paid $9,540 in referral fees. 
 
Swerdelian did not have permission to enter referral arrangements and in October 2010, the Canadian Revenue Agency highlighted concerns about the lending program. 
 
Another key problem was Swerdelian’s personal interest in the company.
 
“Between February 2006 and May 2007, Swerdelian purchased $192,500 of shares in a private company in his name to be held on behalf of six clients and five individuals,” the MFDA reports reads. 
 
“Personal financial dealings with the six clients … created a conflict or potential conflict of interest between the Respondent and the six clients, which the Respondent failed to ensure was addressed by the exercise of responsible business judgment influenced only by the best interests of the clients.”
 
The former MFDA player also failed to ensure that the investment strategies he recommended were suitable for the clients and failed to make sure his clients could afford the costs associated with the loans. 
 
The aggressive approach of industry regulators demonstrates their ongoing concerns about the ethical lapses of players who are unwilling to make client concerns paramount. 
 
Still, Canada is seen to be lagging behind the U.S. in embracing the idea of imposing fiduciary standards on advisors after President Barack Obama raised eyebrows earlier this year with his own call for that kind of licensing requirement.
 
In Swerdelian case, he referred a total of 13 clients and 12 individuals, obtaining loans totalling $942,000.

5 Comments
  • Peter 2015-05-06 3:38:17 PM
    I would like to know where are the Dealers and Branch Managers who are supposed to do compliance on every single transaction and why are they not being fined and reprimanded?
    I have seen a handful of Bank owned firms get a slap on the wrist for non-compliance or lack of proper supervision of their advisors.
    Post a reply
  • Mike Paugh CFP, CDFA 2015-05-06 4:19:02 PM
    So wouldn't Armstrong & Quaile Associates Inc have some explaining to do about not knowing about his Outside Business Activities?

    Those of us who are CFPs already have to meet the standard of putting your clients' interests first. So by all means bring on the standard. But rules only work for people that follow them and this guy already didn't have permission to refer and clearly wasn't disclosing the conflicts of interest he was supposed to. So how would a higher standard, put in place by a SRO that can't recover clients money through fines anyway, make a difference?
    Post a reply
  • Harley Lockhart CLU CHFC 2015-05-06 4:41:14 PM
    "Swerdelian did not have permission to enter referral arrangements..."
    "The former MFDA player also failed to ensure that the investment strategies he recommended were suitable for the clients and failed to make sure his clients could afford the costs associated with the loans"

    This individual was operating outside existing regulatory rules. Why would anyone think that a legislated fiduciary standard would have had any effect on him?
    Post a reply