A provincial regulator believes it has sent specific deterrent message to wealth managers regarding fees after a settlement hearing yesterday.
The Ontario Securities Commission found that AlphaNorth Asset Management and its CEO, Steven Douglas Palmer, failed to ensure changes to the fee structures of two of its mutual funds were undertaken properly, and that its internal controls and compliance systems were inadequate.
The firm was found to have set a lower “High Water Mark” – the NAV per share at which a performance fee was due - for its Growth Fund and its Resource Fund without referring the changes to the Independent Review Committee (IRC) or providing timely disclosures. The changes should also have been brought to meetings of the holders of the funds’ shares to allow shareholders to consider whether to approve the changes.
The OSC said AlphaNorth collected $65,574, inclusive of HRT, that it was not eligible to receive between June 2016 and April 2017 for the Growth Fund, and June 2016 and March 2017 for the Resource Fund.
As punishment, AlphaNorth will pay an administrative penalty of $147,000, with Palmer paying $100,000. AlphaNorth must also pay $10,000 costs to the OSC while Palmer has 12 months to complete the Osgoode Compliance and Legal Risk Management for Financial Institutions course.
The OSC said: “Compliance with Ontario securities laws is critical for all investment fund managers to ensure robust protection to investors from unfair or improper practices and to foster fair and efficient capital markets and confidence in capital markets.
“Specifically, rules providing for shareholder approval and conflict mitigation are fundamental to fair markets and investor protection. Fund managers must ensure full compliance with these rules before instituting changes to fees, including by referring potential conflicts to the Independent Review Committee (IRC).
“More practically, responsible management of retail investment funds requires adequate financial resources for compliance programs and compliance staff, and internal and external professional advice where necessary.”
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