A hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) has accepted a settlement agreement between MFDA staff and PFSL Investments Canada Ltd. representative, Tuomo Tapio Kostamo, banning Kostamo for five years after he recommended that 25 clients concentrate their holdings in precious metals sector mutual funds.
Kostamo is also accused of inaccurately recording purchases by clients of precious metals sector mutual funds as unsolicited when he recommended the purchases to clients.
According to the MFDA’s settlement agreement with Kostamo, PFSL’s policies prohibited its approved persons from recommending that clients invest in sector mutual funds at all, unless the customer’s documented know your client (KYC) information reflected that the client had a growth or aggressive growth investment objective, a long-term time horizon and a risk tolerance consistent with the risk rating classification specified in the fund’s prospectus. PFSL policies also prohibited approved persons from recommending the investment of more than 25 per cent of a client’s account holdings in sector mutual funds in all circumstances. It characterizes an investment of more than 25 per cent of a client’s account holdings in sector mutual funds as a speculative strategy.
At least five clients were seniors
Despite this, the MFDA says 25 clients purchased precious metals sector funds in amounts exceeding 25 per cent of their holdings. Most were invested in a single fund, the AGF Precious Metals Fund, a high-risk fund for investors with a long-term horizon. At least five of the 25 clients who purchased the precious metals sector funds based on Kostamo’s recommendation were seniors.
To process the orders, Kostamo had clients sign a “speculative investments acknowledgement form” which inaccurately indicated that clients were making unsolicited trades and had been told that their account holdings were unsuitable when Kostamo had in fact recommended that clients invest more than 25 per cent of their account holdings in the fund.
In addition to banning Kostamo from working in any capacity with any MFDA member firm for five years, the MFDA also assessed a fine of $15,000 and costs in the amount of $5,000.
