A Toronto financial advisor has been fined $150,000, inclusive of disgorgement, and is under close supervision until the end of year, as part of a settlement agreement with IIROC staff.
David Durno is currently registered with Canaccord Genuity Corp., but was registered with the Toronto branch of TD Waterhouse (TDW) Canada during his misconduct, IIROC says in a release.
According to the settlement agreement, Durno “recommended and implemented active trading in new issue securities and government bonds” for two clients over a period of five years (2010 to 2015). The two clients, who were both in their 90s, “were in accounts where they paid a commission on every trade,” the agreement says. Durno’s trading “generated large commissions for [himself] and TDW which reduced the profits realized by [the clients].”
As a result, the agreement says, he “did not adequately consider and address the best interests” of the clients. Durno “was terminated allegedly for cause” by TDW, the agreement adds.
Both of the clients affected had “average investment knowledge” and were retired, according to their 2010 KYC documents. Further, one “had a total net worth of $2.3 million ($2 million was liquid) and an annual income of $75,000,” while the other had, as of a 2012 update, “a total net worth of $1,460,000 ($560,000 liquid), annual income of $40,000, and a reduction in investment knowledge from ‘average’ to ‘none.'”
The client with no investment knowledge and fewer assets had low risk tolerance in 2010, which was updated to “to 80% medium, 20% high” in 2012, the agreement says. The richer client had risk tolerance of “40% low, 40% medium and 20% high” as of 2012, which was updated from “30% low risk, 60% medium risk, and 10% high risk” in 2010, it adds.
Neither client had documented “an interest in short-term trading,” the agreement says, but the “trading was active with the turnover rate in three of the five years exceeding two times” for both. However, Durno did obtain authorization for all trades, the agreement adds, and the clients received all necessary account statements and trade confirmations.
Between the two clients, Durno generated commissions for TDW and himself of more than $600,000, nearly $400,000 of which was paid by the clients, the agreement says, noting that between 2010 and 2015, the aggregate value of the clients’ accounts exceeded $2 million, generating profits of approximately $73,000.
During that period, the agreement says, “most of the securities traded” in both accounts “were government bonds and medium-risk new issue securities,” and all were consistent the clients’ stated risk tolerances.
However, in 2015, the client with more assets complained to TDW, the agreement says. While the firm “had not raised any concerns” prior to the complaint, it did initiate an internal investigation and compensate her “for the difference between the commissions she paid and the fees she would have paid in a fee-based account. [Durno] contributed to the compensation paid to [the client].”
IIROC staff found Durno failed to consider the best interests of the clients because their “costs would have been significantly lower in fee-based accounts. [He] did not adequately consider the overall impact of the transaction costs on the profits realized in [the clients’] accounts,” the agreement says.
The securities traded were consistent with the clients’ risk tolerances, however. Another mitigating factor: “the commissions charged per trade were at or below the amounts authorized by TDW’s policies and procedures,” the agreement says.
Further, Durno helped pay back one client and “has no disciplinary history and has recently re-taken the Conduct and Practices Handbook. The Respondent was under close supervision since January 2016 with no issues reported by his Dealer Member firms,” the agreement adds.
Alongside his fine and sanction, Durno must also pay costs of $5,000.
When contacted by Advisor.ca, a TD Bank representative said the bank has no further comment on the case. Canaccord Genuity did not respond by press time.