Settlement Agreement

I. INTRODUCTION

1. The Mutual Fund Dealers Association of Canada (the “MFDA”) will announce that it proposes to hold a hearing (the “Settlement Hearing”) to consider whether, pursuant to section 24.4 of MFDA By-law No. 1, a hearing panel of the Pacific Regional Council (the “Hearing Panel”) of the MFDA should accept the settlement agreement (the “Settlement Agreement”) entered into between Staff of the MFDA (“Staff”) and the Respondent, Sergio Salina (the “Respondent”).
2. Staff and the Respondent consent and agree to the terms of this Settlement Agreement.
3. Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement.

II. CONTRAVENTIONS

4. The Respondent admits to the following violations of the By-laws, Rules or Policies of the Mutual Fund Dealers Association of Canada (“MFDA”):
   1. in July 2014, the Respondent recommended for the account of a 95 year old client a switch of approximately $498,511 from a no-load mutual fund to the same mutual fund which was subject to a seven year deferred sales charge schedule, generating a commission for the Respondent to which he would not otherwise have been entitled, thereby giving rise to a conflict or potential conflict of interest that the Respondent did not address by the exercise of responsible business judgment influenced only by the best interests of the client, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4,[1]1.1, 1.1.2, and 2.5.1;
   2. between March 2016 and November 2016, the Respondent failed to disclose to the Member that he had been named a beneficiary in a deceased client’s will, thereby failing to disclose a conflict or potential conflict of interest to the Member, contrary to the Member’s policies and procedures and MFDA Rules 2.1.4, 2.1.1, 1.1.2, and 2.5.1; and
   3. between 2010 and 2018, the Respondent obtained and possessed 24 pre-signed account forms in respect of 13 clients, contrary to the Member’s policies and procedures and MFDA Rule 2.1.1.

III. TERMS OF SETTLEMENT

5. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall pay a fine in the amount of $30,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.1.1(b) of MFDA By-law No. 1;
   2. the Respondent shall pay costs in the amount of $5,000 in certified funds upon acceptance of the Settlement Agreement, pursuant to section 24.2 of MFDA By-law No. 1;
   3. the Respondent shall in the future comply with MFDA Rules 2.1.4, 2.1.1, 1.1.2, and 2.5.1; and
   4. the Respondent will attend in person or by videoconference, on the date set for the Settlement Hearing.
6. Staff and the Respondent agree to the settlement on the basis of the facts set out in this Settlement Agreement herein and consent to the making of an Order in the form attached as Schedule “A”.

IV. AGREED FACTS

Registration History

7. Between February 6, 1991 and May 23, 2018, the Respondent was registered as a dealing representative in British Columbia with Investors Group Financial Services Inc. (the “Member”), a Member of the MFDA.
8. The Respondent was also registered in other provinces and territories with the Member as follows:
   1. between June 1, 2004 and May 23, 2018 in Nunavut;
   2. between October 10, 2006 and May 23, 2018 in New Brunswick;
   3. between September 10, 2007 and May 23, 2018 in Ontario; and
   4. between April 12, 2010 and May 23, 2018 in Alberta,
9. On May 23, 2018, the Respondent’s registration was terminated by the Member.
10. Since January 2, 2019, the Respondent has been registered in British Columbia, Alberta, New Brunswick, Nunavut, and Ontario as a Registered Representative with Echelon Wealth Partners Inc., a Member of the Investment Industry Regulatory Organization of Canada. The Respondent has also been registered in Saskatchewan and in the Yukon Territory since June 2019.
11. At all material times, the Respondent conducted business in the Victoria, British Columbia area.

Member’s Policies and Procedures

12. At all material times, the Member’s policies and procedures:
    1. required its Approved Persons to report any conflict or potential conflict of interest to their branch manager;
    2. required that its Approved Persons not permit a client to name them as a beneficiary of the client’s estate; and
    3. prohibited its Approved Persons from receiving a gift (other than a non-monetary gift of token value) from a client.
13. At all material times, the Member’s policies and procedure prohibited its Approved Persons from obtaining or possessing pre-signed account forms.

Conflict of Interest – DSC Trade

14. From 1994 to January 25, 2016, when she passed away at age 97, client FD was a client of the Member. At all material times, client FD’s investment account with the Member was serviced by the Respondent.
15. At all material times, client FD was a vulnerable client by virtue of her age, employment status (retired), and her lack of investment knowledge.
16. On or about January 7, 2014, the Respondent met with client FD at her home. During this meeting, client FD advised the Respondent that she wished to sell her home and move into a retirement residence.  The Respondent also recorded notes of the meeting, which among other things, included the following:
    1. Main concern for client is if she has enough money.  Assured her that with the proceeds of her home there should be more than enough funds to cover housing and care expenses for the remainder of her life. 
17. In April 2014, client FD moved into a retirement residence.
18. On May 15, 2014, client FD sold her home for approximately $483,866 (the “House Sale Proceeds”). At the time of sale, the House Sale Proceeds represented a significant portion of client FD’s net worth.[2]
19. On May 20, 2014, client FD deposited the House Sale Proceeds into her non-registered account. On the same day, client FD used the entirety of the House Sale Proceeds to purchase the Investor Dividend Fund B (no load) mutual fund.
20. The Respondent states that in or about July 2014, client FD advised him that she wished to encourage an intended beneficiary of her estate to become a client of the Member and keep the inheritance invested with the Member after client FD passed away.[3]
21. The Respondent states that in response, he recommended that client FD switch her investment in the Investor Dividend Fund B (no load) to the deferred sales charge (“DSC”) series of the same fund, Investor Dividend Fund A (DSC), in order to discourage client FD’s future beneficiary from redeeming the mutual fund prior to the expiry of the 7-year DSC schedule.
22. The Respondent was aware that the switch from a no load to a DSC mutual fund would generate a commission that the Respondent would not otherwise be entitled to receive.
23. On or around July 9, 2014, the Respondent requested and helped client FD write a letter, stating the following:
    1. […] Based on my desired approach for disbursement of the funds to my beneficiaries, [the Respondent] has created an investment strategy as per my wishes.  He has fully explained the Investors Group DSC fee structure and time frame and I am familiar with all of the implications for fees, taxes and liabilities of this strategy; specifically that the fees incurred would be 5.5% in the first two years and decrease thereafter as per the chart provided by [the Respondent] and IG.  I am comfortable investing these funds with a long-term view.
    2. I recognize my estate may be liable for fees in the near future should I pass away.  However, I believe that this is the appropriate investment approach as I wish to encourage and motivate my heirs to keep their inheritances at Investors Group, and to remain clients so they are able to continue enjoying the financial planning advice and guidance of [the Respondent].  I also specifically instructed him to proceed in this way as I wish [the Respondent] to be compensated for his work. […]
24. The Respondent did not inform the Member about his recommendation to client FD to switch her holdings into a DSC version of the mutual fund that she had already purchased with the House Sale Proceeds, and he did not produce a copy of the letter from client FD to the Member prior to the death of client FD.
25. On July 14, 2014, the Respondent facilitated the processing of a switch of approximately $498,511 in client FD’s non-registered account held in the Investors Dividend Fund B no load mutual fund to Investors Dividend Fund A (DSC) that was subject to a 7 year DSC schedule (the “Switch”).
26. Client FD was 95 years old at the time of the Switch.
27. The Respondent states that he recommended the Switch as a result of client FD’s wish to have her beneficiary remain a client of the Member, and his belief that client FD did not require the monies to support her living expenses.
28. The Respondent earned approximately $18,943 in commission from the Switch, which he would not otherwise have received if the House Sale Proceeds had remained invested in the no load mutual fund.
29. The Respondent’s conduct gave rise to a conflict of interest by advancing a financial benefit to the Respondent and imposing a DSC schedule on the client.
30. On January 25, 2016, client FD passed away (approximately 18 months after client FD’s purchase of the mutual fund subject to a 7-year DSC schedule).
31. Client FD’s will did not contain any provision requiring the executor to maintain the investments held in client FD’s account or to transfer those investments in kind to the beneficiaries.
32. On April 16, 2017, client FD’s estate redeemed the investments held at its account at the Member, which resulted in DSC fees of approximately $24,380.

Conflict of Interest – Failure to Disclose Being Named a Beneficiary

33. On or about March 7, 2016, the Respondent completed an annual attestation on which he declared that he had not been named a beneficiary of a client’s estate.
34. On March 9, 2016, after the death of client FD, the Respondent received a copy of client FD’s will.
35. Upon review of client FD’s will, the Respondent learned that he had been named a beneficiary in her will and had been bequeathed a share of her estate. The share that the Respondent was bequeathed had a value of approximately $185,000.
36. Attached to the will was also a letter signed by client FD, which stated:
    1. I have decided to leave my friend, [the Respondent], a bequest in my will of one quarter of the residue of my estate.  [The Respondent] does not know that I have done this and he has on several occasions told me that it is improper for me to leave him any money.
    2. …
    3. I do not want to die without leaving [the Respondent] part of my estate.  I have left him a bequest of one quarter of the residue of my estate in my will.  I want anyone who may be concerned about this to know that I am doing this of my own free will and without any encouragement or coercion from [the Respondent].  To the contrary, he would be cross with me if he knew I have done this and I have instructed my solicitor not to tell him until after my death.
    4. I am writing this letter in the hope that [the Respondent] will be free to accept this bequest without any negative consequences.
37. After receiving and reviewing client FD’s will, the Respondent continued to act as the Approved Person responsible for servicing the accounts of client FD’s estate at the Member.
38. Following the Respondent’s receipt of client FD’s will, he forwarded a copy to the Member’s Estate Department. The Respondent did not identify or advise the Estate Department or anyone else at the Member that he had been named a beneficiary of the deceased client’s estate.
39. The Respondent was aware of his obligation to disclose to the Member that he had been named a beneficiary in a client’s will, but chose to instead inquire outside the Member whether he could accept the bequest that he stood to receive in accordance with client FD’s will.
40. In November 2016, during an internal audit, the Respondent was asked whether he had been named a beneficiary in a client’s will. In response, the Respondent disclosed that he had been named a beneficiary in client FD’s will.
41. At the direction of the Member, the Respondent disclaimed the benefit that he stood to receive under client FD’s will.

Pre-Signed Account Forms

42. Between 2010 and 2018, the Respondent obtained and possessed 24 pre-signed account forms in respect of 13 clients.
43. The pre-signed account forms consisted of investor profile questionnaires, Tax Free Savings Account client application forms, non-registered client application forms, transfer authorizations, pre-authorized contribution agreements, and RSP client application forms.

Other Factors

44. The Respondent states that while he appreciated that the switch from a no load to a DSC mutual fund would generate a commission for him, his principal intention was to facilitate client FD’s stated wish to have her beneficiary remain a client of the Member.
45. The Respondent further states that he believed based on his review of client FD’s finances that she would not require the monies invested in the DSC fund to pay for her living expenses during her lifetime.
46. The Respondent acknowledges that he now realizes that the switch from a no load to a DSC mutual fund was not an appropriate recommendation by which to have client FD’s beneficiaries become clients of the Member. At 95 years old, client FD was likely to pass away prior to the expiry of the 7 year DSC schedule.  The investment in the DSC fund would not ensure that client FD’s beneficiaries would remain clients of the Member, but would subject any redemptions of client FD’s estate to a penalty.  Finally, the recommendation exposed client FD’s investment to a potential penalty if she required those monies during her lifetime.
47. The Member approved the Switch at both Tier 1 and Tier 2 review. On May 1, 2019, the Member entered into a settlement agreement with Staff that addressed, among other things, its failure to query the Switch (MFDA File No. 201927).
48. The Member compensated client FD’s estate for the DSCs incurred and clawed back the commission earned by the Respondent for the trade.
49. On March 24, 2017, the Member sent audit letters to all of the Respondent’s clients advising of prohibited conflict of interest situations, including an Approved Person being named a beneficiary of a client’s estate. No clients reported any concerns in response to the audit letters.
50. On June 13, 2017, the Member issued the Respondent a warning letter in connection with the DSC Trade and the Respondent’s failure to immediately disclose to the Member that he had been named a beneficiary under a client’s will.
51. There is no evidence that the Respondent received any financial benefit from the pre-signed account forms beyond the commissions or fees that he would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
52. There is no evidence of client complaints, client loss, or lack of authorization in connection with the pre-signed account forms.
53. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
54. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time and expense of a contested disciplinary hearing.

V. ADDITIONAL TERMS OF SETTLEMENT

55. This settlement is agreed upon in accordance with section 24.4 of MFDA By-law No. 1 and Rules 14 and 15 of the MFDA Rules of Procedure.
56. The Settlement Agreement is subject to acceptance by the Hearing Panel. At or following the conclusion of the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement. MFDA Settlement Hearings are typically held in the absence of the public pursuant to section 20.5 of MFDA By-law No. 1 and Rule 15.2(2) of the MFDA Rules of Procedure. If the Hearing Panel accepts the Settlement Agreement, then the proceeding will become open to the public and a copy of the decision of the Hearing Panel and the Settlement Agreement will be made available at mfda.ca.
57. The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately, and any suspensions, revocations, prohibitions, conditions or other terms of the Settlement Agreement shall commence, upon the effective date of the Settlement Agreement.
58. Staff and the Respondent agree that if this Settlement Agreement is accepted by the Hearing Panel:
    1. the Settlement Agreement will constitute the entirety of the evidence to be submitted at the settlement hearing, subject to rule 15.3 of the MFDA Rules of Procedure;
    2. the Respondent agrees to waive any rights to a full hearing, a review hearing or appeal before the Board of Directors of the MFDA or any securities commission with jurisdiction in the matter under its enabling legislation, or a judicial review or appeal of the matter before any court of competent jurisdiction;
    3. except for any proceedings commenced to address an alleged failure to comply with this Settlement Agreement, Staff will not initiate any proceeding under the By-laws of the MFDA against the Respondent in respect of the contraventions described in this Settlement Agreement.  Nothing in this Settlement Agreement precludes Staff from investigating or initiating proceedings in respect of any  contraventions that are not set out in this Settlement Agreement, whether known or unknown at the time of settlement.  Furthermore, nothing in this Settlement Agreement shall relieve the Respondent from fulfilling any continuing regulatory obligations;
    4. the Respondent shall be deemed to have been penalized by the Hearing Panel pursuant to s. 24.1.1 of MFDA By-law No. 1 for the purpose of giving notice to the public thereof in accordance with s. 24.5 of MFDA By-law No. 1; and
    5. neither Staff nor the Respondent will make any public statement inconsistent with this Settlement Agreement. Nothing in this section is intended to restrict the Respondent from making full answer and defence to any civil or other proceedings against the Respondent.
59. If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent time, the Respondent fails to honour any of the Terms of Settlement set out herein, Staff reserves the right to bring proceedings under section 24.3 of the By-laws of the MFDA against the Respondent based on, but not limited to, the facts set out in this Settlement Agreement, as well as the breach of the Settlement Agreement. If such additional enforcement action is taken, the Respondent agrees that the proceeding(s) may be heard and determined by a hearing panel comprised of all or some of the same members of the hearing panel that accepted the Settlement Agreement, if available.
60. If, for any reason, this Settlement Agreement is not accepted by the Hearing Panel, each of Staff and the Respondent will be entitled to any available proceedings, remedies and challenges, including proceeding to a disciplinary hearing pursuant to sections 20 and 24 of MFDA By-law No. 1, unaffected by the Settlement Agreement or the settlement negotiations.
61. The terms of this Settlement Agreement will be treated as confidential by the parties hereto until accepted by the Hearing Panel, and forever if, for any reason whatsoever, this Settlement Agreement is not accepted by the Hearing Panel, except with the written consent of both the Respondent and Staff or as may be required by law. The terms of the Settlement Agreement, including the attached Schedule “A”, will be released to the public if and when the Settlement Agreement is accepted by the Hearing Panel.
62. The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement. A facsimile or electronic copy of any signature shall be as effective as an original signature.