Time for firms to pay advisor fines?

Time for firms to pay advisor fines?

Time for firms to pay advisor fines? It’s unlikely to sit well with firms, but one seasoned player is suggesting they should be on the hook for fines that SROs are unable to collect from banned advisors.

“What’s the whole idea of a mutual fund dealer?” asks Ken MacCoy, a Chilliwack-based advisor. “The mutual fund dealer is supposed to ensure that their financial advisors are compliant and do things the right way. But, if they don’t, who’s responsible? The firm should be responsible.”

The comments come on the heels of a new report from the MFDA outlining its 2014 collection of fines. While it imposed more than $7.5 million, only slightly more than 2 per cent were successfully collected.

MacCoy doesn’t see the point of issuing a fine to an advisor who’s been permanently prohibited from selling mutual funds if they don’t make the fine some kind of deterrent against future actions by others. Until both the firm and advisor are held financially responsible for breaking MFDA rules, those who aren’t interesting in abiding by those rules will continue to break them knowing there won’t be any financial consequences other than being permanently banned.

In early March, WP reported on the case of a former dealing representative broke a number of MFDA rules revolving around leveraged loans, all of which resulted in a permanent prohibition for the former advisor from conducting business with any MFDA member.
 
Along with that ban came a $250,000 fine.
 
Given the MFDA’s track record for collecting fines (except in Alberta where liens are possible) against advisors who’ve been permanently prohibited from working with any MFDA firm, it’s a wonder they bother levying any fines in the first place, says another advisor.
 
“Here’s this huge fine. It becomes a condition if they want to be licensed again,” says an advisor who asked to remain anonymous. “It’s almost like the long-gun registry. Registering long guns will prevent crime [government rationale]. I don’t think so. It’s not going to prevent people from being stupid and it’s not going to prevent crooks from being crooks.”
 
8 Comments
  • Ken MacCoy, CHS 2015-05-05 10:42:22 AM
    Someone needs to pay...and it shouldn't be the form of increased fees downloaded to either the MFDA members and/or investors!
    Post a reply
  • Mike Paugh CFP, CDFA 2015-05-05 11:51:07 AM
    MacCoy makes a good point. Our firm spends a lot of money on compliance and it shows in our higher MERs. But they also settle with clients because its the right thing to do.

    If the MFDA can't collect the fines and can't compel member firms to pay restitution to clients they aren't much of an SRO.

    Meanwhile those of us who are honest have to pay fees to be a member of this SRO and I have no doubt that much of that money is spent on investigations.

    I wouldn't be surprised if those that are banned can go to work for a non-member firm or go on selling exempt securities as well.

    I wouldn't mind paying membership fees to two securities commissions, two insurance councils, one SRO and the FPSC if they could actually stop the bad behaviour and get clients their money back. Instead I just get told by the media that mutual fund fees are too high in Canada. I think they will stay that way until this mess gets sorted out.
    Post a reply
  • Mike Paugh CFP, CDFA 2015-05-05 12:00:09 PM
    I think MacCoy makes a good point. Our firm spends a lot of money on compliance and it shows in our higher MERs. But when someone causes a loss to the client the firm pays up.

    If the MFDA doesn't have the power to enforce the rules it sets then it needs to be able to delegate enforcement to some agency that can.

    I pay fees to two securities commissions, two insurance councils, one SRO and the FPSC. None of them can get the clients their money back if the advisor leaves the business. And I wouldn't be surprised if that same advisor could walk into a non-member firm in another province or an exempt market dealer and get hired again anyway.
    Post a reply