The Investment Industry Regulatory Organization of Canada (IIROC) has fined a former Winnipeg advisor $100,000 for KYC and suitability failings concerning his recommendations that clients invest a portion of their pension proceeds in Flow-Through Limited Partnership Units (FTLPUs).
In a settlement accepted by an IIROC hearing panel, Donald Phillips admitted that he made recommendations to 11 of his clients that they purchase FTLPUs. Phillips failed to know these clients and failed to recognize that such an investment was unsuitable for them.
The conduct occurred between April 2006 and November 2008, while he was a registered representative with the Winnipeg branch of Wellington West Capital Inc., which is no longer an IIROC-regulated firm.
According to IIROC documents, Phillips took part in a trading strategy that was targeted at, and marketed to, railway workers and their pensions. The strategy was promoted by a Mutual Fund Dealer Association (MFDA) approved person with Wellington West Financial Inc., who had been advising the workers about the possibility of a tax-free rollover of their pension funds.
According to IIROC, the MFDA approved person and Phillips suggested that these clients invest a portion of their pension proceeds in FTLPUs in order to reduce their tax burden.
In the course of recommending the investments, Phillips failed to inform the clients that FTLPUs were high risk, speculative securities. Many of the units declined in value. As a result, eight of the 11 clients suffered losses in their accounts.
In addition to the fine, Phillips agreed to an 18-month suspension, to successfully rewrite the Conduct and Practices Handbook exam, and to six months of close supervision upon any return to the industry. He also agreed to pay $10,000 in costs.
IIROC formally initiated the investigation into Phillips’ conduct in May 2012. He is no longer a registrant with an IIROC-regulated firm