The dealer arm of fund industry giant Investors Group, which has since abandoned deferred sales charges (DSCs), has settled regulators’ allegations that it failed to properly review a couple of instances when reps put elderly clients into DSC funds.
A hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) approved a settlement with Investors Group Financial Services Inc. that will see the firm pay a $150,000 fine and $15,000 in costs to settle allegations that it violated MFDA rules by failing to adequately query the suitability of two clients over 90 years old being sold DSC funds with seven-year redemption schedules.
In both cases, the clients died less than two years later and their estates were obliged to pay DSCs. The firm has since reimbursed both estates for the redemption fees.
According to the settlement, one 92-year-old client put the bulk of the proceeds from selling her condo into DSC funds. Her KYC information listed her as having a high risk tolerance and an investment horizon of over 10 years.
The settlement notes that the firm’s compliance department queried the suitability of the trades but accepted assurances that the DSC fees had been disclosed to the client, without independently assessing whether the funds were suitable.
The other instance involved a 95-year-old client who was also put into DSC funds with a seven-year redemption schedule. Once again, the suitability of the trades was initially questioned by compliance but allowed to proceed anyway.
Since these instances, the firm adopted enhanced suitability reviews for any DSC purchase involving a client over 70 and began waiving DSC fees for estates of deceased clients. In 2017, IG stopped selling DSC funds altogether.