The Mutual Fund Dealers Association of Canada (MFDA) announced on Tuesday that a hearing panel approved a proposed settlement agreement with Toronto-based mutual fund dealer HollisWealth Advisory Services Inc., which admitted that it didn’t have adequate controls to ensure that clients were qualified to purchase investment funds under prospectus exemptions from September 2005 to June 2013.
According to the settlement, representatives with HollisWealth’s predecessor firm, Dundee Private Investors Inc. (Bank of Nova Scotia acquired Dundee in February 2011), “sold certain investment funds offered pursuant to prospectus exemptions to clients over the course of approximately eight years without ensuring that certain clients were qualified to purchase the exempt funds.”
HollisWealth, the settlement says, “failed to identify that exempt funds were being sold by advisors to certain clients where the account information contained in client files did not evidence the clients’ qualifications to purchase exempt funds.”
The firm self-identified the documentation deficiencies and conducted an internal review of all exempt funds sold to clients during those eight years, and it reported the results of that review to the MFDA.
According to the settlement, the review found that exempt funds were sold to more than 1,000 clients and that approximately 219 clients were sold these funds without properly qualifying for a prospectus exemption.
Of these clients, 76 suffered losses. Clients experienced approximately $1.74 million in net gains (including unrealized gains) and approximately $744,300 in net losses (including unrealized losses) in these funds, the settlement reports.
The clients who suffered losses are being compensated, the settlement notes. The reps who sold the funds will be fined between $2,500 and $5,000 (totalling approximately $55,000), which will be donated to charity. These advisors will also have to contribute between 20% and 30% of the remediation payments that are being made to clients.
HollisWealth has since implemented enhanced compliance procedures, policies and training modules, the settlement reports. The firm has also introduced new supervisory procedures to ensure that clients properly qualify for exemptions; and it has also enhanced its automated compliance system.
As part of the settlement, the firm must report to MFDA staff on the status of its remediation plans by Jan. 30, 2016; the fines it imposes on the reps who sold the funds must be donated to charity; and the firm will pay a $200,000 fine to the MFDA.
The MFDA’s settlement says that in self-reporting the issue and carrying out an extensive review, HollisWealth provided the MFDA with “proactive and exceptional co-operation,” which was considered as a factor in agreeing to the sanctions in the case.