Sun Life settlement raises questions
Company says it implemented remediation plan
This past December, Sun Life Financial Investments Services Inc., a division of insurance giant Sun Life Financial Inc., entered a settlement agreement with the Mutual Fund Dealers Association of Canada to resolve a number of issues the regulator had discovered during a compliance examination in 2015.
Among the findings was that there had been inadequate supervision of leveraging — where clients borrow money in order to invest — and of concentration risks in client portfolios.
While the settlement agreement does not reveal how many clients were affected or how much money was involved, related documents show the regulator’s compliance staff identified one case in which an employee “serviced” more than 800 client accounts in which about 96 per cent of the assets (over $18 million) were invested in natural resource and precious metal sector funds.
Ultimately, Sun Life paid a $1.7-million fine and voluntarily developed a “remediation plan” that included “recommending rebalancing and offering compensation to clients for losses that might occur as a result of the rebalancing.”
But some investor advocates, including a lawyer who specializes in advising on financial losses in the investment industry, are taking issue with the way in which Sun Life is dealing with the remediation, while others are questioning whether the MFDA, a self-regulatory organization for mutual fund dealers, is doing enough to oversee the process.
Harold Geller, a lawyer whose firm MBC Law Professional Corporation issued a notice last month that urged Sun Life clients to get legal advice before signing a remediation offer, says he had concerns with two offers he saw after Sun Life clients were referred to him.
“We believe that the offers we have seen do not identify all relevant losses and the formula used to calculate the damages is unfair,” Geller told Financial Post.
In both remediation offers, clients were “asked to kick in more money” to collapse the investments that had been deemed to be unsuitable for them, said Geller, who spent four years as a member of the Ontario Securities Commission’s Investor Advisory Panel, an independent group that advises the OSC on policy from an investor perspective.
Geller said he considers the time given to investors to respond to the remediation offer — a few weeks — too short in light of the information that was provided to them.
“Simply put, key information was missing,” he said.
“An investor would have to rely on the good faith of Sun Life with respect to the accuracy and completeness of the loss calculation.”
A Sun Life spokesperson responded to questions about the remediation program and the concerns raised by Geller and other investor advocates with an emailed statement that said the firm had been reviewing and revising its overall compliance policies and procedures since 2015, “prior to the MFDA settlement agreement” in 2017.
“Further to this review, we voluntarily developed and implemented a remediation plan to address circumstances where suitability was a concern,” the statement said. “This included working with and compensating eligible clients.”
The statement concluded by encouraging clients with questions about the remediation plan to contact a Sun Life Financial adviser.
In a follow-up email, the company spokesperson said Sun Life “proactively contacted all impacted clients on multiple occasions,” and that “additional time and support was provided to clients who requested it.”
The precise number of clients affected does not appear to have been disclosed, even to the three-member MFDA panel that approved the settlement.
That panel agreed to hold the Sun Life settlement approval hearing in-camera — with no members of the public present — provided that their reasons for the decision on the matter, which are issued in a separate document, would be made public.
According to those written reasons, which were released in March, counsel for Sun Life was asked about the full “scope of the harm” by the MFDA panel. But neither the number of affected clients nor the amount of money involved was disclosed.
“We haven’t disclosed to you in the settlement agreement how many clients were affected, but these programs, these policies, affect the entire book of business,” the lawyer representing Sun Life told the panel, according to the March document.
“They supervise the entire book of business with respect to Sun Life. What that means is that, to the extent there are clients impacted by leveraging, impacted by concentration issues, impacted by DSC (deferred sales charges), they’re covered by the remediation plan.”
Marian Passmore, director of policy at the Foundation for the Advancement of Investor Rights (FAIR Canada), said the MFDA panel deciding whether to accept the negotiated settlement agreement should have been provided with the number of investors harmed — as well as the “quantum of investor losses,” and the fees generated by recommending the unsuitable strategies to investors — to help determine whether the sanctions were appropriate.
“Moreover, this information should be made public,” she said.
Passmore said the case raises “significant concern” about whether clients are being properly compensated for what happened, and should prompt questions about the role of the regulator in overseeing the implementation of the remediation plan and how clients are advised.
“Has the regulator assessed whether the remediation plan will put clients in the position they would have been in had they received suitable recommendations?” she asked, adding that compensation from losses that may result from “rebalancing” leveraged or overconcentrated portfolios — as the settlement agreement states — “is not the same as determining what the clients would have generated in returns had they been suitably advised.”
Shaun Devlin, the MFDA’s senior vice-president of member regulation and compliance, told Financial Post he could not discuss the settlement with Sun Life, or the remediation program, beyond what was laid out in the settlement documents.
In an emailed response sent by his communications director, Devlin urged any Sun Life clients with concerns about the remediation plan to contact the regulator directly “so that the specifics of the client’s concern can be thoroughly reviewed by the MFDA.”
Geller said the Sun Life clients he consulted with did not retain him or authorize him to take concerns about the remediation program to the Mutual Fund Dealers Association.
But he said he feels there should have been more oversight than there appears to have been.
“I think the MFDA should have reviewed the remediation offers or should have required that an independent counsel review them,” he said. “But, that’s not how the MFDA interprets its role.”