Answer: The Investment Industry Regulator Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) have rules against such arrangements. Although these rules do not apply to non-member firms and their employees, they reflect a general concern on the part of securities regulators about such arrangements. In particular, they are concerned about the potential conflicts of interest associated with one person performing both roles.
For example, if the client of the advising representative (Representative) passed away, the Representative could find themselves in the situation where they were expected to act as the executor of the estate and as the portfolio manager for the account now held by the estate, and these roles could come into conflict. As executor, the Representative would be expected to act in the best interests of the estate, but as portfolio manager, they would be interested in continuing to manage the portfolio. This potential conflict might cause the estate’s beneficiaries (or regulators) to smell a rat if the Representative maintained their appointment as portfolio manager in such circumstances.
Before deciding to accept an appointment as executor for a client, a registrant should consider whether the underlying exposure from a legal, regulatory and reputational perspective is worth providing such a service to clients. Similar considerations would arise if a registrant is asked to act as a trustee, hold a power of attorney or otherwise take control or authority over a client’s financial affairs outside the scope of a traditional, managed account relationship. AUM Law can help you evaluate your options and, if you decide to proceed with such an arrangement, we can draft the appropriate agreement, disclosures and protocols to manage such arrangements.
January 31, 2020