Regulator sanctions advisor for inappropriate deferred sales charge fund sale

A Mutual Fund Dealers Association of Canada (MFDA) hearing panel has accepted a settlement agreement between MFDA staff and Tyler Weldon Davidson, a former Investors Group Financial Services Inc. advisor working in Medicine Hat, Alberta. 

Weldon is being sanctioned after admitting that he recommended a trade in a mutual fund that unnecessarily subjected a client to a deferred sales charge (DSC) schedule, generating commissions for himself in the process.

The MFDA’s settlement agreement states that at all material times, Investors Group policies and procedures required its dealing representatives to ensure that the acceptance of any order for any account is within the bounds of good business practice. Policies also stated that representatives were not to become involved in any situation that could give rise to a conflict of interest.

Client was eligible to access no-load mutual funds 

After transferring her investments held at another institution to Investors Group, Weldon’s client, identified only as PD in the settlement agreement, redeemed her investments into a cash position. She was eligible to access a pool of no-load mutual funds because she had non-registered, investable assets greater than $250,000. 

“Rather than creating a non-registered account in order to access the no-load mutual funds offered through that program as previously recommended, on or about September 5, 2014, the respondent facilitated the purchase by client PD of a mutual fund in the amount of approximately $403,800 that was subject to a seven-year DSC fee schedule, which client PD held in her non-registered account.” Weldon received commissions of approximately $15,346. Four days later he switched the non-registered money into the same portfolio of mutual funds she was eligible to invest in on a no-load basis.

The client ultimately incurred significant DSC fees after redeeming some funds and also needed to put a down-payment on her house purchase using money borrowed from a personal line of credit. Investors Group has since repaid both the DSC fees and the interest charges incurred on the line of credit.

For recommending the trade, the MFDA has fined Weldon $22,500 plus costs in the amount of $5,000. Weldon is also prohibited from conducting securities-related business while employed by any MFDA member firm for a period of one month. Although Weldon is currently licensed in the insurance industry, he is not currently registered in the securities industry in any capacity.