SUITABILITY
(a) Commissions Compared to Losses Incurred For One Client
Simon Roy Jaques, Decision 14-0185
The Respondent, an investment advisor, was unresponsive to IIROC and did not participate in the hearing. He was fined $50,000 for his failure to cooperate.
He was also found to have failed to use due diligence to ensure that orders for one client were suitable.
Client was 56 years old, retired with $70,000 income, $30,000 in spousal income, $750,000 in liquid assets, $350,000 in fixed assets, 50% medium and 50% high risk objectives. Investment assets were required to produce income as she was unable to work due to illness.
The purchase and sale of Orko Silver Corp. was found to be unsuitable in part because the Respondent earned $675 in commissions while the client incurred a loss of $3,953. Further purchases of resource based securities in a margin account which generated losses to the Client but profit to the Respondent were also found unsuitable.
A further purchase of KCC Capital Corp. at a cost of $15,000 was also found to be unsuitable as it is stated the Respondent earned $1,200 in commission "paid by KCC". It is unknown whether or not the client incurred losses.
Respondent was fined an additional $30,000 for these suitability infractions.
Costs were also ordered in the amount of $20,000.
The full text of the decision can be read here.
(b) The Cheapest Option not offered
Re: David Edward Sloan, Decision 14-0191
The Respondent, an investment advisor, admitted to discretionary trades with a value "in excess of $30,000". These are described in the Settlement Agreement as unauthorized as opposed to discretionary.
The Respondent further admitted that he failed to report accurate risk tolerances and investment objectives when he recorded 100% high risk and 100% aggressive income in respect of 13 client accounts when "he knew or ought to have known that the information did not reflect the true profile of these clients". All of the clients were born between 1919 and 1945.
With respect to "at least" 20 clients, which included the 13 clients above, the Respondent further admitted that he recommended securities on the basis of certain fees and purchase options when less expensive options to purchase the same securities were available, but not offered to client.
It was admitted that this conduct resulted in the Respondent receiving the highest available compensation for the purchases. In particular, he recommended and used a 5% frontend fee for a total charge to these clients of approximately $12,200 for the Hartford Fund. The dealer's policies recommended charging a minimum 3.5% frontend fee.
The Respondent admitted that he failed to advise his clients that the frontend fees could be less than 5%. Although he was aware of a DSC option, he did not recommend it. He admitted that none of his clients required access to their funds in a time frame that would justify the selection of a 5% frontend fee over a DSC option, but he received the same compensation as he would have received on a DSC basis. (Note: this is curious due to past regulatory skepticism regarding DSC).
The Respondent was fined $13,000, suspended for one month, ordered to rewrite the CPH, subject to one year of strict supervision and costs of $2,000. He had been unemployed for 18 months and evidenced financial hardship in order to minimize the fine.
A full text of the Settlement Agreement can be read here.
(c) Time Discretion for Knowledgeable Client
Ronald Anton Putzi, Decision 11-0180
The Respondent admitted to failing to use due diligence to ensure that recommendations he made in respect of three client accounts were suitable.
He further admitted to conducting discretionary trades with respect to one of those accounts.
With respect to unsuitability, the time period at issue was selected to be November, 2010 through to August, 2011, as opposed to the inception of the accounts. There is no explanation as to why this time period was selected.
Two of the three clients comprised a married couple in their early 40's. One spouse was selfemployed as a chartered accountant with an annual income of $350,000. The couple had fixed assets of $2,850,000, liabilities of $325,000 and estimated liquid assets of $325,000. The chartered accountant had 18 years of investment experience and trading authorization over his spouse's accounts.
Their investments were found to exceed the risks in their new client application forms. The settlement agreement indicated a 21% and 38% respective decline in their accounts between October 31, 2010 and August 31, 2011, which translated to an approximate loss of $64,408.17 during this period, though it is unknown whether this was realized or reflective of the entire currency of the account.
Admissions regarding discretionary trading were with respect to the chartered accountant's accounts. It was found that he did not have an understanding of the risk of Horizons Beta Probe S&P 500 BIXETF in respect of which some form of time discretion was used regarding the sale.
The Respondent had already paid an internal fine of $25,000 to his dealer, rewritten the CPH course, was under heightened supervision for one year and had no prior disciplinary history.
He was fined an additional $25,000 and ordered to pay $2,500 in costs.
A full text of the Settlement Agreement can be read here.
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