IG fined for selling DSCs to elderly clients

Mutual fund dealer reprimanded for failing to query sales charges on funds sold to 92 and 95 year olds

IG fined for selling DSCs to elderly clients

Investors Group Financial Services has been fined $150,000 for failing to query deferred sales charges on mutual funds sold to two clients who, at the time, were 92 and 95 years old.

The MFDA concluded that between May, 2013 and July, 2014 the mutual fund dealer failed to question the suitability of the funds for the clients.

Both elderly ladies died before the expiry of the applicable DSC schedule and their estates were subject to charges of $14,493 and $24,380 respectively. After a complaint was lodged, IG conducted an investigation and subsequently reimbursed both estates.

The first client, who later passed away at 93, sold her condo and was advised to invest $340,000 of the proceeds into funds with DSCs, with the KYC form stating that she had an investment time horizon of 10+ years and had a high risk tolerance.

The second client passed away at 97, 18 months after purchasing the DSC mutual fund. Her KYC form said her time horizon was 6-10 years and that she had a medium risk tolerance.

A total of $498,511 of the proceeds from her house sale was transferred into the mutual fund, which had a seven-year DSC schedule. The move was queried by the branch manager and the advisor justified the switch in an email, which read:

“She now has an up-to-date will and a more appropriate Power of Attorney, [the client’s] motive to switch from B funds to A is mainly to provide incentive for the heirs to remain clients of IG as well as acknowledging remuneration for myself and my staff.”

As a result of the misconduct, IG updated its policies and procedures to indicate that DSC products are rarely suitable for clients age 70 and over due to the nature of the fee structure. Also, effective July 1, 2016, IG announced that DSCs would be waived upon the death of an account holder (or upon the death of the last surviving owner for jointly held accounts) on units purchased after June 30, 2016. Any estate settlement transfers in kind from an account with the Respondent to a beneficiary’s account(s) with the Respondent will have DSCs waived on units purchased after June 30, 2016.

From October 1, 2016, IG stopped accepting DSC purchases for clients age 65 and older, and from January 1, 2017, it discontinued purchases of its proprietary mutual funds that would trigger DSCs on redemption for all clients.

IG also agreed to pay costs of $15,000.

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