IIROC has fined a branch manager, who is also an investment advisor with his own book, $75,000 for supervision failures related to commissions generated in fee-based accounts.
Steven Brophy of Toronto, a branch manager at BMO Nesbitt Burns since 1998, failed to adequately supervise an advisor who generated excessive commissions in fee-based accounts from new issue purchases, says a settlement agreement. The lack of supervision occurred despite Brophy’s prior knowledge that the commissions generated by the advisor, Graeme Kirkland, were a concern for Kirkland’s previous supervisor. That supervisor had informed Brophy of his concerns in 2012 when Brophy was a divisional branch manager.
In March 2014, when Brophy became Kirkland’s supervisor, Brophy was responsible for allocating bought-deal new issues to Kirkland, who continued to generate high levels of commissions.
From March 2014 to June 2015, Kirkland’s purchases of new issues almost doubled—to $81 million from $42 million, says the agreement. As a direct result, the advisor’s net commissions in 2014 from new issue purchases roughly tripled the previous year’s, reaching about $358,000. During the March 2014 to June 2015 period, Brophy “took no measures to limit Kirkland’s requests for allocations of new issues, leading to high levels of commissions,” says the agreement.
In January 2015, senior staff at BMO’s head office notified Brophy about the level of commissions the advisor was generating. Six months later, Brophy took steps to review the advisor’s commissions from the new issues, says the agreement.
By June 2016, when Kirkland left BMO, his purchases of new issues over his tenure totalled more than $85 million. Client complaints resulted in an IIROC investigation, and a 2018 settlement agreement where Kirkland paid $90,000.
In addition to failing to provide adequate supervision in circumstances where he knew of ongoing concerns over generated commissions, Brophy didn’t take steps to more closely supervise the advisor’s activity and to restrict the purchases of new issues, says the agreement.
It adds that Brophy has no discipline history and ultimately addressed the problem. Further, there were no suitability concerns, and BMO implemented initiatives for supervision of new issues.
Along with the fine, Brophy must pay costs of $5,000 and rewrite the CSI branch managers course exam.
For full details, read the settlement agreement.