Posted by Anjali Kaur on Jun 21, 2022

Compliance Issues

In your role as a dealing representative, you will face a number of compliance issues relating to your job duties and your dealings with clients. In many cases, your mutual fund dealer’s Compliance Department will have policies and procedures in place to guide you.

Common Compliance Issues

  1. Personal financial dealings with clients
  2. Benefits to or from clients
  3. Outside business activities
  4. Dual licensing as a life insurance agent
  5. Referral arrangements
  6. Discretionary trading
  7. Power of attorney
  8. Sale communications
  9. Trade names and holding out to the public
  10. Business cards and stationery

Conflict of Interest

If there is an actual or potential conflict of interest between you and your client, you must notify your mutual fund dealer immediately, and disclose it to the client in writing before conducting business for the client.

This applies to all conflicts of interest, regardless of whether they relate specifically to the business of your mutual fund dealers, such as conflicts of interest that arise where you are engaged in outside business activity or personal dealings with clients.

A conflict of interest is likely to arise when there is a financial interest in favor of the dealing representative, which might influence the type of advice or service that is being offered to the client.

Under no circumstances are you permitted to put your interests or the interests of your mutual fund dealer ahead of the client’s interests.

How to deal with Conflict of Interest?

The simplest way of dealing with conflicts of interest is to avoid having any conflicts of interest with your clients. However, if you are unable to avoid a conflict of interest, then you need to bring it to the attention of your employer.

The conflict must always be resolved in the best interests of the client using responsible business judgment. How this happens depends on the nature of the conflict and the client’s circumstances.

Sometimes written disclosure to the client will suffice. However, if there is a serious conflict of interest, the action creating that conflict may be prohibited.

Personal Financial Dealings with Clients

If you as a dealing representative have personal financial dealings with a client that are not conducted through your mutual fund dealer there is a significant chance that those activities will constitute a serious conflict of interest. Examples of personal financial dealings include:

  1. borrowing from or lending to clients
  2. private investment schemes with clients
  3. monetary or non-monetary benefits to or from clients
  4. outside business activities

Benefits To or From Clients

Non-monetary benefits such as gifts or charitable donations are sometimes used as compensation for inappropriate activities carried on by dealing representatives. Sometimes they are used as a means of private settlement where MFDA regulations may have been breached or in exchange for referrals.

To ensure that any monetary or non-monetary benefit to or from a client does not represent a conflict of interest, you must ensure that all such benefits of a material amount flow through your mutual fund dealer. You must get your mutual fund dealer’s approval prior to carrying out any such arrangement, as it needs to resolve any conflicts and monitor the activity.

In general, benefits of nominal value are not normally seen as a conflict of interest and may be provided, as long as the mutual fund dealer has established procedures to address them.

Outside Business Activities

An outside business activity means any business carried on by you other than business done on behalf of your mutual fund dealer. You must not engage in any outside business activities without obtaining written approval from your mutual fund dealer.

In addition, you as a dealing representative and your mutual fund dealer must comply with provincial securities legislation, which generally requires full disclosure of any outside business activity and prior approval from the applicable securities commissions.

As a dealing representative, you are permitted to be engaged in an outside business activity under certain circumstances provided that:

  1. You are permitted by legislation to devote less than your full time to the business of the dealer.
  2. The activity is not prohibited by a securities commission in the jurisdiction in which you carry out the business.
  3. Your dealer is aware of and has approved of the outside activity.
  4. Your dealer has procedures to ensure adequate service to your clients and to address potential conflicts of interest.
  5. The activity does not bring the MFDA, its members, or the mutual fund industry into disrepute.
  6. You clearly communicate to your clients that any activities related to your second occupation are not the business of the dealer and are not the responsibility of the dealer.

For instance, a permitted outside business activity is the sale of deposit instruments, such as Guaranteed Investment Certificates (GICs) through an entity other than your mutual fund dealer, provided that in your local securities legislation, deposit instruments do not fall within the definition of “securities”. If they do they may only be sold through your employer, who is a member of the MFDA.

Inappropriate Outside Business Activities

An outside business activity carries the potential for conflicts of interest. Before approving any outside business activities, a mutual fund dealer is required to take conflict of interest considerations into account, including: the compensation to be paid under the arrangement, the nature of the relationship between the dealing representative and the outside entity, and any other potential conflicts that are identified. If a conflict cannot be properly managed, the outside activity cannot be permitted by your mutual fund dealer.

A number of outside business activities are considered inappropriate. These include, but are not limited to the following:

  1. The sale of securities outside of the mutual fund dealer, including:
    • principal-protected notes deemed to be securities under provincial legislation
    • private placements
    • limited partnerships if the mutual fund dealer is not also registered as an exempt dealer
    • other securities sold pursuant to exemptions from securities legislation
  2. The referral of securities-related business outside of the mutual fund dealer’s referral agreements

Time To Test

  1. Which of the following dealing representatives are in a conflict of interest situation?

Jonathan, who is named and agrees to act as an executor in the estate of his non-family member client

2. A conflict of interest exists when there is a ______________ that could influence the type of advice and service to the client.

Financial interest

3. Under MFDA Rules you have the duty to disclose which of the following?

Outside business activities

4. Christian is a dealing representative with ABC Investments Inc. He has recently been elected to serve as the Treasurer of his church. The church is a client of ABC Investments Inc. and Christian is the designated dealing representative for the account. Is Christian required to inform his employer as the position is a voluntary position?


Thank You!

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