Toronto-based Mackenzie Financial Corp. agreed on Friday to pay penalties and costs of more than $1 million for violating mutual fund sales practices rules by excessively spending on outings and gifts for mutual fund advisors and for funding certain dealer events.
According to the settlement, the mutual fund company has agreed to pay a $900,000 administrative penalty and $150,000 in costs. Mackenzie also agreed to tighten its compliance practices.
Mackenzie violated sales rules by allowing “excessive spending on [reps] for promotional activities,” the Ontario Securities Commission (OSC) says in the settlement agreement.
For example, the settlement reveals that Mackenzie spent excessively on golf outings for advisors and provided them with espresso machines, iPads and tickets to concerts and sports events, which exceeded requirements that these sorts of items be of “minimal” value.
As well, the firm violated rules in its funding of mutual fund dealer events, such as spending more than $20,000 for a cocktail reception at a hotel in Montreal in 2016.
In settling the case, Mackenzie admitted to breaching securities law and acting contrary to the public interest by engaging in the excessive spending detailed in the OSC’s case against the firm.
According to the settlement, Mackenzie has since revised its sales compliance policies and its internal controls in order to avoid similar violations of the sales rule. It has also hired an independent consultant that recommended changes to its compliance program, which the firm is now implementing.
The settlement also notes that Mackenzie co-operated with the OSC investigation.
Securities regulators adopted mutual fund sales practices rules back in the 1990s amid concerns about poor sales practices and conflicts of interest, such as the staging of sales contests and the hosting of lavish industry conferences that were designed to drive mutual fund sales without regard for clients’ interests.
The rules were designed to curtail such practices by setting limits on the types of gifts and outings fund companies could provide in an effort to gain favour with dealers and advisors.