The Mutual Fund Dealers Association of Canada (MFDA) and the British Columbia Securities Commission (BCSC) have both entered into settlement agreements with Vancouver, British Columbia based Credential Asset Management Inc. over the firm’s past internal dealer incentive and sales practices.
Together the fines and costs total $600,000 after the firm admitted that it failed to establish and maintain adequate policies and procedures, controls and supervision to ensure that it complied with securities legislation related to incentives and sales practices.
Registered as a mutual fund dealer in all provinces, Credential serves as the mutual fund dealer for various financial institution partners across Canada.
Branded suite of third-party mutual funds
In November 2011, the firm launched its OnCourse Program, which involved the promotion of a branded suite of related party and third-party mutual funds for sale to the partner firms’ clients. Credential offered the same series of mutual funds for sale outside of the program that had substantially the same holdings, fees and expenses.
As part of its compensation for completing some of the tasks the mutual fund companies might otherwise perform, Credential received higher trailing commissions for selling funds in the OnCourse Program. Specifically, the firm earned 27 basis points and 15 basis points more for selling funds purchased in the program than if they had been purchased outside of the program. The MFDA’s settlement agreement says no increased fees were paid by clients.
Performance bonuses
In turn, between November 2011 and May 2017, the firm offered performance bonuses to two approved persons who worked at its head office if they achieved sales targets tied to the sale of funds in the program. The same bonuses were not tied to their sales of mutual funds outside of the program. Its dually employed approved persons working for both the financial institutions and Credential at the same time, were offered similar incentives to sell funds in the OnCourse Program.
During the same period, one of the financial institutions also paid out a percentage of its profit share from one family of funds to dually employed approved persons who sold that family of funds.
Promotional incentives
Finally in January 2016, one of its financial institution partners implemented a number of promotional incentives to encourage its dually licensed approved persons to promote socially responsible investing (SRI). Those who sold SRI mutual funds were eligible to receive bonuses and credit for soliciting new money and for client investments that were converted into units of SRI mutual funds.
“According to the respondent, the enhanced compensation for the SRI mutual funds was intended to encourage dually employed approved persons to recommend that clients consider environmental, social and governance factors in their investment decision-making process, as this was the core philosophy of this financial institution partner, rather than to specifically discourage investments in other funds,” the settlement agreement states.
In settling with the MFDA, Credential agreed to pay a $280.000 fine and costs in the amount of $20,000. To settle with the BCSC, the firm agreed to pay $300,000.
