RESP deal exposes advisor wrongdoing

RESP deal exposes advisor wrongdoing

RESP deal exposes advisor wrongdoing A recent settlement agreement between a former Vancouver advisor and an MFDA hearing panel highlights why compliance regulations are just fine the way they are.

Abner Sarabia Hufanda, a former dealing representative with PFSL Investments Canada, was registered as a mutual fund salesperson in British Columbia for more than a decade until his termination on April 19, 2013, for several breaches of MFDA rules.

The advisor convinced four clients to invest $90,000 in an unsanctioned real estate deal. He lost all of the funds as the project didn’t exist.

How did the advisor get involved in such a deal?

Hufanda learned about a potential real estate investment in Portland, Or., while attending a meeting discussing the start-up of a new multi-level marketing company in Bellingham, Wash. It turns out the owners of the soon-to-be MLM were also putting together the real estate deal promising returns of up to five times his investment.

Over the course of two years between July 2010 and June 2012, Hufanda convinced four PFSL clients to give him $90,000 towards the real estate investment that wasn’t approved for sale by its advisors.

One of the clients, a friend of the advisor, gave a total of $12,000 to Hufanda in two instalments. Things went off the rails when the client gave the advisor a second check for $4,000 which was intended to be an RESP contribution. When the client didn’t receive a trade confirmation on her contribution she contacted PFSL directly whereupon they discovered that no such RESP account existed launching an investigation into Hufanda’s activities as a result.

In undertaking this real estate investment outside PFSL, the former advisor breached four MFDA rules including those related to the clients’ best interests and fair and honest dealings.

Although Hufanda did manage to repay most of the $90,000 using funds from family members, it underscores how difficult it is for dealers to keep rogue advisors in check. Almost no amount of regulation would have prevented this from happening. However, the fact compliance was able to figure out the advisor wasn’t being honest to clients demonstrates why compliance regulations are fine just the way they are.

As a result of funds being repaid and the advisor having no previous disciplinary proceedings, the hearing panel has accepted the lighter than normal penalties ($10,000 fine and $2,500 costs) recommended by MFDA staff and agreed upon by Hufanda.

More importantly, he’s been banned for life. 
3 Comments
  • John Kehoe CFP FMA CIWM 2015-09-21 2:19:06 PM
    Hi Will. I receive the WP e-letter and appreciate the information it provides -- especially on subjects related to advisor behaviour and industry regulation. However, this article, ostensibly about a case of advisor misconduct, includes a very subjective claim about the need for regulation:

    "...The fact compliance was able to figure out the advisor wasn’t being honest to clients demonstrates why compliance regulations are fine just the way they are."

    Beyond the difficulty of judging the state of the industry's regulatory framework based on a single event, I am concerned about the article's conflation of fact and opinion.

    I suggest that the story would be better served by an objective, journalistic approach, rather than that of an editorial. My understanding is that it's generally best not to comingle the two - even if the latter accounts for only a small portion of the content relative to the former.

    A fact-based report of the story could be followed by a separate, opinion-based commentary about the relevant issues.

    I say this because these articles and WP are important resources and are, therefore, elements of the industry itself. I think it's important that the industry represent itself in as clear and objective a manner as possible, and that participants' opinions be identified as such so that readers of articles and consumers of advice have a clear understanding of these matters.

    Thanks,
    John
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  • Ken MacCoy, CHS 2015-09-21 2:53:02 PM
    Hurrah for the MFDA!

    Great News! The clients got their money back and another rogue advisor is banned for life.

    My 'usual' question: Will the MFDA actually collect the penalty ($10,000 fine & $2,500 costs) from Hufanda? - Sorry to sound pessimistic, but I wouldn't bet on it!
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  • Will Ashworth 2015-09-21 4:53:14 PM
    John, I appreciate your comments and to a certain extent I agree with your viewpoint.
    However, I think you'll agree that the advisor community as a whole is fed up with the amount of regulatory BS that exists.
    I was simply trying to recognize why compliance did their job in this instance.
    Keep the great comments coming.
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