If you’re an MFDA advisor with senior clients, or with clients who have risky investments or costly mutual funds, your self-regulatory organization (SRO) might take a closer look at your book.
In a bulletin outlining 2018 compliance priorities, the SRO says its data, including data obtained from its client research report, will be used to review “a sample of approved persons for issues such as concentration in high-risk investments and suitability for senior investors.”
The review will be conducted separately from normal examinations, says the bulletin.
The SRO also reminds members that examiners require access to member books and records to complete examinations—including advisors’ emails to clients.
“This includes access to the member’s electronic records in the firm’s back-office system, and may also include access to electronic communications between approved persons and clients, including e-mails,” says the bulletin.
Recommending funds with lower MERs
MFDA advisors are also reminded to inform clients of funds with lower management expense ratios (MERs).
“There have been several settlement agreements between provincial securities regulators and registrants relating to firms not having sufficient controls to advise clients when they become eligible for a lower MER series of the same mutual fund,” says the bulletin.
Members are expected to have policies in place about advising clients and making appropriate recommendations when clients are eligible for a cheaper series of the same fund. Firms should also have policies to supervise trading and client accounts to identify these eligible clients and whether they’ve received appropriate recommendations.
In examinations, the MFDA will assess whether members have implemented these policies and controls, says the bulletin.
The SRO also continues to review compensation and incentive practices, “including practices that may originate from sales locations or affiliated/related organizations.” Members are expected to have policies and procedures to maintain records of when approved persons receive promotional items or participate in promotional activities funded by mutual fund companies.
The bulletin also says that in 2018, the SRO will focus on members who require cybersecurity guidance, will continue its examination of CRM2 compliance and will explore whether to issue a data request to update its client research project.
For more details, read the full bulletin.