Legal Issues

The Ontario Securities Commission (OSC) has approved a settlement agreement with Royal Mutual Funds Inc. (RFMI), which will pay an administrative penalty of $1.1 million for offering higher commission fees to its reps for selling proprietary funds.

The RBC-owned dealer was also ordered to pay $20,000 for the investigation costs, the settlement agreement said.

RFMI distributes RBC mutual funds—including the RBC Portfolio Solutions suite of mutual funds (RBC PS Funds)— and third-party mutual funds.

Between November 2011 and October 2016, RFMI paid its reps 10 basis points more in commission for selling RBC PS Funds over the other RBC and third-party funds, says the settlement agreement. The higher commissions added up to more than $24.5 million and average additional annual commissions of $5,500 per rep.

Read: OSC hands out $800,000 penalty to 1832 for sales practices

“RMFI failed to establish, maintain and apply policies and procedures to establish a system of controls and supervision to ensure that it and each individual acting on its behalf complied with subsection 4.2(1) of NI 81-105 (Mutual Funds Sales Practices) in contravention of section 11.1 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations,” said the OSC’s oral reasons for approval of a settlement.

The violation of NI 81-105 was uncovered during a review of MFDA member compensation and incentive programs by the MFDA and the OSC in 2016, said the settlement agreement.

RFMI stopped offering these higher commissions as of October 2016.

The settlement agreement said that after the higher commissions were revealed, RMFI created enhanced procedures and controls so that the dealer won’t contravene section 4.2 of NI 81-105 again.

Read the settlement agreement here.

Also read: 

Details on Mackenzie financial penalty for improper sales practices

National Bank fines $700K for disclosure failure

Originally published on Advisor.ca
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