Investment fund manager Mackenzie Financial Corp. has agreed to pay a $900,000 administrative penalty and $150,000 in investigation costs as regulators voice concerns surrounding their mutual-fund sales practices.
A subsidiary of fund giant Power Financial Corp., Mackenzie investments manages more than $127.2-billion in assets – with the majority of their financial products being sold to investors through financial advisers.
Earlier this week, the Ontario Securities Commission (OSC) issued a statement of allegations regarding the mutual-fund sales practices found at Mackenzie. Under Ontario securities law, fund companies are allowed to provide only benefits that are promotional in nature and of minimal value.
The OSC is alleging that between May, 2014, and October, 2017, Mackenzie permitted excessive spending on mutual-fund representatives for promotional activities and gifts. During that time, financial advisers attended golf trips that ranged from $830 to $1,149 per adviser. In one such trip to Bermuda in 2013, the cost was $565-$730 a day, for each adviser.
In addition, between November, 2014, and May, 2017, the fund manager provided excessive non-monetary benefits to advisers during six conferences, in amounts that did not comply with allowable limits.
Other activities paid by the fund company for advisers included ski trips, Raptor playoff games, National Hockey League games, Toronto Blue Jays games and concert tickets to A-list shows featuring artists such as Madonna, Metallica and Imagine Dragons.
Mackenzie also acknowledged that it failed to maintain adequate compliance controls. In a sales compliance guideline introduced in December, 2014, the firm permitted financial contributions to non-educational participating dealer events, which are not permitted under securities law National Instrument 81-105. Form September, 2015, to December, 2017, Mackenzie admitted to making financial contributions to such dealer events.
“We take this matter seriously and continue to enhance our sales-practice policies and controls,” Mackenzie said in a statement. “Sales practices is an important issue for the investment fund industry, and we are committed to working collaboratively with regulators and other industry participants to meet all legal requirements and regulatory expectations.”
Regulators have been cracking down on elaborate sales tactics that could persuade a financial adviser to choose one investment product over another.
Last April, Sentry Investments Inc. was ordered to pay a $1.5-million administrative penalty and $150,000 in investigation costs; while its former chief executive agreed to a series of reprimands in a first-of-its-kind settlement by the OSC.
The settlement followed a multiyear investigation into sales practices at the Toronto-based independent mutual-fund company, including conferences where lavish gifts were handed out to attendees such as bottles of Dom Pérignon champagne, Tiffany and Co. necklaces for female reps and engraved sterling-silver cufflinks for male representatives.
Sentry also allegedly hosted a number of elaborate parties and dinners for representatives at the sales conference that featured open bars, flapper dancers, a cigar bar and fortune-tellers.
In a research note released by Desjardins Capital Markets this week, research analysts found the Mackenzie allegations to have a slightly negative impact to its parent company overall, commenting on similarities to the Sentry case and indicating that a similar penalty would be manageable from a financial perspective.
“In terms of net flows read-through, we have not seen any impact (Mackenzie has had $400-million in net mutual-fund inflows since October 2017); however, we will monitor this closely near-term. Nonetheless, there could be a sentiment hit, in our view,” said analysts in the note.
Clare O’Hara