CI Fund Management Inc. and IQON Financial Inc. have received regulatory relief allowing CI to help fund a one-time retention payment from IQON to its top reps.

According to a the latest OSC Bulletin, the Ontario Securities Commission granted an exemption from the sales practices rule to allow CI to make a payment to assist IQON, an indirect wholly-owned subsidiary of CI, in implementing a retention plan for its reps. The decision notes that IQON needs CI’s assistance in funding the plan because its cost exceeds the cash flow the firm generates.

The OSC granted relief for CI to subsidize the retention plan with several conditions, including: IQON’s compliance officer monitors reps’ adherence to suitability requirements; reps receiving a payment must execute “an acknowledgement” that they will comply with the suitability requirement and that receiving the payment will not influence their recommendations; and, that the reps are not, and shall not in the future be, subject to quotas or other incentives to recommend CI Funds over third party products.

The decision notes that, “There currently is strong competition among registered dealers in Canada to recruit successful sales representatives who have developed significant client bases and assets under administration.” This sort of rep recruiting usually includes offering financial incentives to reps to leave their current dealers.

It reports that IQON is aware that a number of its most successful sales representatives have received offers of from competing dealers, and that it is concerned that, “in the absence of providing such sales representatives with a comparable financial incentive to remain with IQON, such sales representatives may depart IQON for competing registered dealers.”

In turn, this will likely cause IQON to turn around and use similar payments to recruit reps from other firms. “It is IQON’s strong preference to pay a financial incentive to its existing sales representatives to encourage them to remain with IQON, rather than to pay a financial incentive to sales representatives at competing registered dealers to encourage them to relocate to IQON,” it notes. “Consequently, IQON proposes to implement a retention plan in order to provide its successful sales representatives with a financial incentive to remain at IQON and not accept the offers of financial incentives from competing registered dealers.”

According to the decision, under the retention plan, IQON will determine an amount to be paid to each of its eligible reps, which will be calculated as a percentage of the AUA attributed to the sales representative as of December 31, 2004. The plan also will include a threshold level, below which sales representatives will not receive any payment, and it expects that less than half its reps will qualify.

The proportion of AUA invested in CI Funds and the proportion of sales commission revenues generated from the sale of CI Funds will not be a factor in determining these amounts, it notes. And, it says that reps will be advised that the payment will be based on historical information which cannot be changed, and that this is a one-time program so reps should not expect that any similar financial incentive will be offered to them in the future. “The retention plan is neither intended nor expected to influence the decisions made by sales representatives concerning the mutual funds which they recommend to their clients for investment,” it says.