I WFGS Policies and Procedures Manual July 2016
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I
WFGS Policies and Procedures Manual
July 2016
II
Contents
INTRODUCTION .............................................................................................................................. 1
1.1 Purpose of the Policy & Procedures Manual.............................................................................................. 1
1.2 Management’s Statement Concerning Compliance .................................................................................... 2
1.3 The Rights of Clients ................................................................................................................................. 2
1.4 Consequences of Not Adhering to Policies & Procedures ........................................................................... 3
1.5 Supplemental Materials .......................................................................................................................... 4
1.6 Policies and Procedures ........................................................................................................................... 4
CODE OF ETHICS ......................................................................................................................... 5
2.1 Philosophy ................................................................................................................................................ 5
2.2 Purpose of the Code .................................................................................................................................. 5
2.3 Standards .................................................................................................................................................. 6
2.4 Conflicts of Interest ................................................................................................................................... 6
2.5 Advertising and Sales Communications ................................................................................................... 7
2.6 Confidential Information .......................................................................................................................... 7
2.7 Direct Payments to APs of Unaffiliated Distributor Organizations ................................................................ 7
2.8 Review ...................................................................................................................................................... 8
2.9 WFGS COMPLIANCE STRUCTURE .............................................................................................. 9
2.10 WFGS Directors & Officers ........................................................................................................................ 10
COMPLIANCE ROLES & RESPONSIBILITIES ..................................................... 10
3.1 Overview ................................................................................................................................................. 10
3.2 Ultimate Designated Person (UDP) ......................................................................................................... 10
3.3 Chief Compliance Officer (CCO) .............................................................................................................. 10
III
3.4 Role of the WFGS Compliance Department ........................................................................................... 11
3.5 Process for Communicating Policies & Procedures .................................................................................... 11
3.6 AP Obligation to Report Contraventions to Head Office ............................................................................. 12
WFGS COMPLIANCE FUNCTION ............................................................................... 12
4.1 Trade Supervision: Follow Up/Resolution ............................................................................................... 13
4.2 Trade Supervision: Records ..................................................................................................................... 13
4.3 Testing Compliance ..................................................................................................................................... 13
4.4 Complaint History .................................................................................................................................... 13
4.5 Maintaining Awareness of Regulatory Changes .......................................................................................... 14
4.6 Education ................................................................................................................................................ 14
HEAD OFFICE SUPERVISION ......................................................................................... 14
5.1 HO Trade Reviews ................................................................................................................................... 14
5.2 Description of Daily Trade 2nd Tier Review Criteria ................................................................................. 14 5.2.1 Documenting 2nd Tier Trade Review ........................................................................................................ 15
5.3 Guidelines Regarding Suitability ............................................................................................................. 15
5.4 Additional HO Reporting/Trend Reviews ............................................................................................... 17
5.5 COMPONENTS OF A SUITABILITY REVIEW .................................................................. 18
5.6 Sampling Trade Tickets ............................................................................................................................ 19
5.7 Sampling: Accuracy of KYC Information ..................................................................................................... 19
5.8 Sampling: New Account/Plan Opening ...................................................................................................... 19
5.9 Review of Trading Activity in Open Leveraged Accounts ............................................................................. 20
HO TRADE REVIEW PROCESS ...................................................................................... 21
6.1 Timeline .................................................................................................................................................. 21
6.2 Documenting Reviews ............................................................................................................................ 22
IV
6.3 Query Resolution .................................................................................................................................... 22
6.4 Escalation/Discipline ............................................................................................................................... 23
6.5 HO Trend Reviews/Analysis ..................................................................................................................... 23
6.6 Limited Trading Authorization (LTAs) ....................................................................................................... 25
6.7 Review of Trading Activity in Leveraged Accounts (HO & RBMs) ................................................................. 25
6.8 Additional Leverage Reviews ................................................................................................................. 25
6.9 Types of Products Offered at WFGS ................................................................................................................ 26
6.10 Definition of an Off-book Transaction ....................................................................................................... 26
6.11 Procedure: Off-book Transactions ............................................................................................................ 26
6.12 Procedure: Out of Jurisdiction Trading ....................................................................................................... 26
6.13 P & P: Trading in Products Without Proficiency ..................................................................................... 27
WFGS PRODUCT DUE DILIGENCE ............................................................................. 28
7.1 List of Approved Products ........................................................................................................................ 28
7.2 Permitted Products ................................................................................................................................. 28
7.3 Product Review Process ............................................................................................................................ 28
7.4 Process of Communicating Product Approvals .......................................................................................... 29
7.5 Know Your Product (KYP)........................................................................................................................... 30
7.6 Due Diligence Core 3rd Party Service Providers ..................................................................................... 30
BRANCH REVIEW REQUIREMENTS ......................................................................... 30
8.1 Introduction ............................................................................................................................................ 30
8.2 Branch Review Procedures ....................................................................................................................... 31
8.3 Scope of Review ....................................................................................................................................... 33
8.4 Branch Review Cycle & Schedule............................................................................................................ 34
8.5 Qualifications for Auditors ........................................................................................................................ 34
V
8.6 Reporting of Results ................................................................................................................................. 35
8.7 Follow Up of Branch Review Findings ..................................................................................................... 35
8.8 Branch Review Files ................................................................................................................................ 36
8.9 Branch Risk Ratings ....................................................................................................................................... 36
8.10 Reviews Prior to On-site Review ................................................................................................................ 36
8.11 Standardized Templates ......................................................................................................................... 37
8.12 Procedure: Reports, Escalation & Completion of Review ........................................................................... 37
8.13 Maintaining Adequate Records ................................................................................................................ 37
REGISTRATIONS & LICENSING ................................................................................... 38
9.1 WFGS Policy & Securities Registration .................................................................................................... 38
9.2 Qualification Requirements .................................................................................................................... 39
9.3 Examinations & Licenses ........................................................................................................................... 40
9.4 Initial Evaluation of Candidates .............................................................................................................. 40
9.5 Ongoing Evaluation of AP ....................................................................................................................... 40
9.6 Candidate Application Accuracy ............................................................................................................... 41
9.7 Activities Prior to Formal License Approval ........................................................................................... 41
9.8 Transferring Licenses from Other Dealers ...................................................................................................... 42
9.9 Material Changes in AP Information: Application & Registration ......................................................... 42
9.10 Errors & Omissions Insurance (E&O) ....................................................................................................... 43
9.11 Concurrent Securities License Registration............................................................................................ 43
9.13 Registration - “Parking” .......................................................................................................................... 44
9.13 AP Termination ....................................................................................................................................... 44
9.14 AP Re-registration .................................................................................................................................. 44
OUTSIDE BUSINESS ACTIVITY (OBA) ................................................................... 45
VI
10.1 Positions of Influence .............................................................................................................................. 47 10.1.1 AP Websites Relating to OBAs .................................................................................................................. 48
10.2 Ongoing OBA Obligations ....................................................................................................................... 49
10.3 Policies & Procedures to Detect Undisclosed OBA Activity ........................................................................ 51
10.4 APs Appealing Declined OBAs ................................................................................................................. 51
10.5 Unregistered Trading Activities .............................................................................................................. 52
10.6 OBAs: Potential Conflicts of Interest ......................................................................................................... 52
10.7 Conflict of Interest: Definition .................................................................................................................. 53
AP REGISTRATION ............................................................................................................... 54
BRANCH REGISTRATION ............................................................................................. 54
12.1 Definition of Branch and Sub-branch Locations ........................................................................................ 54
12.2 P & P: Registration of Branch and Sub-branch Locations ...................................................................... 54
12.3 P & P: Reconciling Branch NRD/WFGS Records ....................................................................................... 54
AP REGISTRATION & RELATED REQUIREMENTS ...................................... 55
13.1 P & P: Registration & Renewal of Registration for APs .......................................................................... 55
13.2 P & P: Reconcile AP Registration Information on NRD to WFGS Records ............................................... 55
13.3 P & P: APs Must Complete Schedule G ................................................................................................... 55
13.4 P & P: AP Registration Information & Proficiencies ............................................................................... 55
13.5 AP 90-Day Training Program ................................................................................................................... 56
TRADE NAMES .................................................................................................................... 56
PERSONAL FINANCIAL DEALINGS WITH CLIENTS ................................. 56
REFERRAL ARRANGEMENTS ................................................................................... 57
16.1 Referral: Definition ................................................................................................................................. 57
16.2 Referrals: Permitted Arrangements .......................................................................................................... 58
VII
16.3 Non-Securities Referrals ......................................................................................................................... 59
16.4 Referral Record Keeping ......................................................................................................................... 60
POINT OF SALE CLIENT COPY OF DOCUMENTS .................................................. 60
17.1 Know Your Client (KYC) Rule.................................................................................................................... 60
17.2 Client Relationship Model (CRM) ............................................................................................................ 62
OPENING CLIENT ACCOUNTS .................................................................................. 63
18.1 NAAF/KYC ............................................................................................................................................... 63
18.2 KYC Information Analysis ........................................................................................................................ 64
18.3 Account Opening Documentation List ...................................................................................................... 66
18.4 Ascertaining Identity of Individual Clients ............................................................................................... 66
CLIENT ACCOUNTS .................................................................................................................. 68
19.1 Completion of Client Documents .............................................................................................................. 68
19.2 Account Types .......................................................................................................................................... 68
19.3 Account Opening Procedures & KYC Information ...................................................................................... 68
19.4 Approval of New Accounts ...................................................................................................................... 68
19.5 Changes to KYC Information ..................................................................................................................... 69
19.6 Procedures for Amendments to KYCs ....................................................................................................... 70
CLIENT ADDRESS CHANGES ..................................................................................... 71
21.1 Client Accounts Designated as Hold Mail ................................................................................................... 71
22.0 SUITABILITY GUIDELINES ................................................................................ 72
22.1 Conducting Client Suitability (KYC) .......................................................................................................... 72
22.2 3rd Party Suitability Questionnaires ....................................................................................................... 73
22.3 Risk Tolerance Suitability ......................................................................................................................... 73
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22.4 Investment Objective Suitability ............................................................................................................ 75
22.5 Time Horizon Suitability .......................................................................................................................... 75
22.6 Concentration ......................................................................................................................................... 76
22.7 Suitability Assessment ............................................................................................................................ 77
22.8 HELOC & LOC ........................................................................................................................................... 78
22.9 Head Office Process ................................................................................................................................. 78
22.10 Permitted HELOC Referral Arrangements: ......................................................................................... 79
ACCOUNT TRANSFERS ................................................................................................. 79
23.1 Client Accounts of APs that Leave WFGS ..................................................................................................... 80
DISCRETIONARY AUTHORITY/TRANSACTION AUTHORIZATION . 80
24.1 Power of Attorney & Limited Trading Authorization .................................................................................. 81
SUITABILITY OBLIGATION FOR UNSOLICITED ORDERS ...................... 81
GUARANTEES ...................................................................................................................... 82
SIMPLIFIED PROSPECTUS ................................................................................................ 83
27.1 Electronic Delivery of Fund Facts ........................................................................................................... 84 27.1.1 Delivery of Fund Facts ........................................................................................................................... 84 27.1.2 Delivery of Fund Facts for Subsequent Purchases under a PAC/PAD Plan ........................................... 85
27.2 Disclosure Responsibilities ...................................................................................................................... 86 27.2.1 DSC/Fees/Withholding Tax Disclosure: WFGS Trade Ticket ................................................................... 87
27.3 Right of Withdrawal/Rescission ................................................................................................................ 88
27.4 Client Relationship Disclosure Document .............................................................................................. 89
OUT OF PROVINCE TRADING .................................................................................. 89
KNOW YOUR PRODUCT ............................................................................................... 90
28.1 Procedures in General ............................................................................................................................ 90
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28.2 Conventional Mutual Funds ................................................................................................................... 91
28.3 Unique or Complex Products .................................................................................................................... 91
28.4 Notification to APs ................................................................................................................................... 92
TRADING ................................................................................................................................ 92
29.1 Trade Processing ..................................................................................................................................... 92
29.2 Letter of Indemnity (LOI) .......................................................................................................................... 92
29.3 TRADING PRACTICES ............................................................................................................................. 93 29.3.1 Churning................................................................................................................................................. 93 29.3.2 Questionable Trades (DSC to DSC) ......................................................................................................... 94 29.3.3 Recommendations ........................................................................................................................... 95
29.4 Switch/Conversion: DSC to FE ................................................................................................................. 95 29.4.1 Non-automatic Switches ................................................................................................................ 95 29.4.2 Automatic Conversion of DSC to 0% FE ................................................................................................ 96
29.5 Split Sales .............................................................................................................................................. 96
29.6 Late Trading ............................................................................................................................................ 96
29.7 Market Timing ........................................................................................................................................ 97
LEVERAGING GUIDELINES ........................................................................................ 97
30.1 General ................................................................................................................................................... 97
30.2 Suitability ................................................................................................................................................ 97
30.3 Leveraging Identification ........................................................................................................................ 99
30.4 AP Understanding Leverage ................................................................................................................... 99
30.5 Leveraging: Advertising and Sales Communications ............................................................................ 100
30.6 Leveraging: The Role of the RBM ........................................................................................................ 100
30.7 Leveraging Course .................................................................................................................................. 100
30.8 Leveraging Parameters ........................................................................................................................... 100
30.9 Exit Strategy.......................................................................................................................................... 103
30.10 Documenting & Calculating Client Assets & Liabilities ......................................................................... 105
X
30.11 Parameters for RSP Loans ................................................................................................................... 106
30.12 Required Documentation ................................................................................................................... 106
30.13 Recording Client Investment Loan Details ....................................................................................... 107
30.14 Consistent Client Information on KYC & Loan Documents ................................................................... 107
30.15 AP Arrangements with Lenders .......................................................................................................... 107
ADVERTISING & SALES COMMUNICATIONS ............................................. 107
31.1 Communication’s with the Public ........................................................................................................... 107 31.1.1 Overview .............................................................................................................................................. 107 31.1.2 Proper Personal Identification to the Public .............................................................................. 108 31.1.3 Office Identification ............................................................................................................................ 108
31.2 Business Cards & Letterhead .................................................................................................................. 109
31.3 Phone Listings ....................................................................................................................................... 109
31.4 Telephone Voice Mail ............................................................................................................................ 110
31.5 Business Cards & Stationery ................................................................................................................... 110
31.6 Usage of Trade Names ............................................................................................................................ 111
31.7 Business Titles ....................................................................................................................................... 111
31.8 Designations ......................................................................................................................................... 111
SALES MATERIAL .......................................................................................................... 112
32.1 Advertising ............................................................................................................................................ 112
32.2 Client Communication .......................................................................................................................... 112
33.3 Sales Communication ........................................................................................................................... 113
32.4 Approval of Sales Material ................................................................................................................... 113
32.5 Advertising Library ............................................................................................................................... 114
32.6 Materials for Limited Distribution or “Internal Only”.............................................................................. 115
32.7 Correspondence .................................................................................................................................... 115
32.8 Social Media & Internet Communications ............................................................................................... 116
XI
32.9 Web Sites .............................................................................................................................................. 116
32.10 Email .............................................................................................................................................. 117
32.11 Chat Rooms ...................................................................................................................................... 117
32.12 Telephone Solicitations ........................................................................................................................ 117
32.13 Additional Telephone Considerations.................................................................................................. 118
32.14 Do Not Call List ................................................................................................................................. 118
32.15 Other Public Communications ......................................................................................................... 118
32.16 Recorded/Broadcast Communications .............................................................................................. 119
32.17 Testimonials and Endorsements ............................................................................................................. 119
32.18 Expert Testimony ............................................................................................................................... 119
32.19 Content Standards for Public Communications ................................................................................... 119
32.20 Misleading Statements in the Marketing of Leveraged Strategies ....................................................... 120
32.21 Rates of Return .................................................................................................................................. 121
32.22 Signage ............................................................................................................................................. 121
32.23 Co-operative Marketing Requests/Reimbursements ......................................................................... 122
32.24 RBM Advertising Supervision ........................................................................................................... 123
OTHER SALES POLICIES ........................................................................................... 123
33.1 Mobility Exemptions .............................................................................................................................. 123
33.2 Out of Jurisdiction Accounts .................................................................................................................. 123
33.3 AP Proficiency ....................................................................................................................................... 124
33.4 Pre-Signed/Blank/Partially Completed Forms/DocuSign ....................................................................... 124
33.5 Disclosure of Commission Rebates to Clients ........................................................................................... 125
33.6 Minors ................................................................................................................................................... 125
33.7 Foreign Investors .................................................................................................................................. 126
33.8 WFG EI Anti-Money Laundering Course ............................................................................................... 127
XII
33.9 Fraudulent Activity ............................................................................................................................... 127
33.10 Bank Accounts ................................................................................................................................... 127
33.11 Commission Refunds ........................................................................................................................ 128
33.12 Payment of Commissions to Others.................................................................................................... 128
33.13 Charging Clients Additional Fees ...................................................................................................... 128
33.14 Referral Fees ..................................................................................................................................... 128
33.15 Client Funds and Securities ............................................................................................................... 129
CLIENT REPORTING .................................................................................................... 129
34.1 Account Statements .............................................................................................................................. 129
34.2 Content of Account Statement .............................................................................................................. 130
34.3 Electronic Statements ............................................................................................................................ 130
34.4 eStatement Guidelines ......................................................................................................................... 131
34.5 Annual Letter to WFGS Clients .............................................................................................................. 131
34.6 Rates of Return ...................................................................................................................................... 131
34.8 Automatic Payment Plans .................................................................................................................... 133
34.8 Review & Sampling of Client Statements ................................................................................................. 133
34.9 Trade Confirmations ............................................................................................................................. 133
34.11 Portfolio Summaries Prepared by APs ............................................................................................. 133
34.12 Account Performance Reporting ....................................................................................................... 134
34.13 Financial Interest .............................................................................................................................. 134
34.14 Repurchasing .................................................................................................................................... 134
34.15 Tax or Legal Advice .............................................................................................................................. 135
SERVICING CLIENTS ......................................................................................................... 135
35.1 Client Frozen Accounts ......................................................................................................................... 135
XIII
35.2 Competition .......................................................................................................................................... 136
35.3 Private Securities Transactions (Selling Away) ....................................................................................... 136
35.4 Confidentiality ...................................................................................................................................... 137
35.5 Personal Financial Dealings with Associates & Clients ............................................................................... 137
35.6 Branch Attendance ................................................................................................................................ 138
35.7 Standards of Conduct ............................................................................................................................. 138
PROCESSING BUSINESS .............................................................................................. 139
36.1 Suitability .............................................................................................................................................. 139
36.2 Payment ................................................................................................................................................ 140
36.3 Non-Sufficient Funds (NSF) Cheques ..................................................................................................... 140
36.4 Signature Guarantee ............................................................................................................................. 141
36.5 Supervisory Review of Orders .............................................................................................................. 141
DESIGNATED PROCESSING CENTER ................................................................. 142
37.1 Client Transaction Records: Designated Processing Center ................................................................. 142
37.2 Trading-Nominee Name Accounts .......................................................................................................... 143
MONEY LAUNDERING ............................................................................................... 143
38.1 Introduction .......................................................................................................................................... 143
38.2Money Laundering: PCMLTFA ..................................................................................................................... 143
38.3 FINTRAC ............................................................................................................................................... 143 38.3.1 Compliance .......................................................................................................................................... 143 38.3.2 Process for Reportable Transactions .................................................................................................... 144 38.3.3 Process for Identifying Suspicious Transaction .................................................................................... 144 38.3.4 Process for Reporting Suspicious Transactions .................................................................................... 145
38.4 Process for Identifying & Monitoring PEFPs ......................................................................................... 146
38.5 Identifying Potential High Risk Clients .................................................................................................. 147
38.6 Processes for Record Keeping ................................................................................................................. 147
XIV
38.6.1 A Client Identification Records ............................................................................................................. 147
38.7 Business or Company Name Accounts .................................................................................................... 148
TRAINING & EDUCATION ....................................................................................... 149
39.1 Mutual Fund 90-Day Training Course ................................................................................................... 149
39.2 Leveraging Course Requirement ............................................................................................................. 149
39.3 WFG EI AML Training .............................................................................................................................. 150
39.4 Continuing Education ........................................................................................................................... 150
39.5 Branches vs. Sub-branches ..................................................................................................................... 150
REGISTRATION OF BRANCH & SUB-BRANCH LOCATIONS ............. 151
40.1 Reconciling Branch Information to NRD ................................................................................................ 151
BRANCH OPERATIONS ............................................................................................... 151
41.1 Licensed Assistants ................................................................................................................................ 151
41.2 General Operation of Branch Locations .................................................................................................. 151
REGIONAL BRANCH MANAGER RESPONSIBILITIES ........................... 152
42.1 Supervision ........................................................................................................................................... 152
42.2 Suitability Review .................................................................................................................................. 152
42.3 WFGS Trade Ticket ................................................................................................................................. 153
42.4 Account Opening & Consistency of Information ..................................................................................... 153
42.5 Reconciling KYC Information on W.connect ......................................................................................... 154
42.6 DSC/Fees/Withholding Tax Disclosure: WFGS Trade Ticket ................................................................... 154
42.7 Application Review & Suitability .......................................................................................................... 155
42.8 Daily Trade Review ................................................................................................................................ 158
42.9 Documenting Branch Trade Review ......................................................................................................... 159
42.10 Trade Blotter & Suitability Reviews ...................................................................................................... 159
XV
42.11 Monthly Reporting Procedures .......................................................................................................... 160
42.12 Close Supervision .............................................................................................................................. 160
42.13 Supervision of New APs .................................................................................................................... 160 42.13.1 The first 90 day period: ........................................................................................................................ 161 42.13.2 The subsequent 90 day period: ........................................................................................................... 161
42.14 Compliance Meetings & Training ...................................................................................................... 162
42.15 Contact with APs ............................................................................................................................... 162
42.16 AP Interview: AP Estrangement ....................................................................................................... 163
42.17 RBM Monthly Report ........................................................................................................................ 163
DELEGATION OF DUTIES .......................................................................................... 163
43.1 Qualifications ........................................................................................................................................ 163
CONFIDENTIALITY ..................................................................................................... 163
ULTIMATE RESPONSIBILITY ............................................................................. 164
CLIENT COMPLAINTS ............................................................................................... 164
46.1 Complaint Definition ............................................................................................................................ 164
46.2 Reporting Complaints to Compliance........................................................................................................ 164
46.3 New Clients ............................................................................................................................................ 164
46.4 Acknowledgement Letter for Mutual Fund Complaints .......................................................................... 164
46.5 Verbal Complaints: Additional .............................................................................................................. 165
46.6 Complaint Handling Responsibility ....................................................................................................... 165
46.7 Complaint Handling Process ................................................................................................................... 165
46.8 Complaint Investigation ....................................................................................................................... 167
46.9 Additional Investigation for Complaints & AP Conduct reviews ............................................................... 167
46.10 Steps of an active supervisory investigation could include ................................................................ 168
46.11 Conducting a Review at the Branch or Sub-branch ............................................................................. 168
XVI
46.12 Complaint Response Letter ................................................................................................................ 168
46.13 Confidentiality Restrictions .............................................................................................................. 169
46.14 Insurance Carrier Complaints [Dually Licensed APs] ......................................................................... 169
46.15 Complaints Received at Head Office from Regulators ......................................................................... 169
46.16 Complaints Closed & Resolved............................................................................................................ 170
46.17 Complaints from Quebec Clients ..................................................................................................... 170
Transferring a Complaint to the AMF: ................................................................................................................ 170
Compensation: .................................................................................................................................................. 170
46.18 Cooperation ...................................................................................................................................... 171
46.19 Regulatory Contacts ........................................................................................................................... 171
46.20 Reporting to the MFDA ...................................................................................................................... 171
46.21 Record of Complaints ......................................................................................................................... 172
46.22 Complaint Log & File Maintenance ..................................................................................................... 172
46.23 METS Requirements Mutual Fund Client Complaints ....................................................................... 173
46.24 Review Internal Procedures & Business Practices ................................................................................ 173
MEMBER REPORTING REQUIREMENTS ....................................................... 174
47.1 Designated Person ............................................................................................................................... 174
47.2 Introduction .......................................................................................................................................... 174
47.3 General Reporting Requirements ........................................................................................................ 174
47.4 General Events to be Reported ............................................................................................................... 175
47.5 Reporting of Updates & Resolution of Events ........................................................................................ 176
47.6 Other Events to be Reported ................................................................................................................. 176
47.7 Part C - Other Reporting Requirements for Members............................................................................ 176
47.8 Bankruptcy, Insolvency & Related Events .............................................................................................. 177
47.9 Change of Name .................................................................................................................................... 177
XVII
47.10 Change of Contact Information ......................................................................................................... 177
47.11 Change in Member Registration or Licensing .................................................................................... 177
47.12 Changes in Organizational Structure ................................................................................................. 177
47.13 Other Business Activities ................................................................................................................... 177
47.14 Change of Auditor ............................................................................................................................. 177
47.15 Capital Requirements ....................................................................................................................... 178
47.16 Risk-Adjusted Capital (RAC) Formula ................................................................................................ 178
47.17 Communication ................................................................................................................................. 178
47.18 Filing Requirements .......................................................................................................................... 179
47.19 Bond & Insurance .............................................................................................................................. 179 47.19.1 Financial Institution Bond .................................................................................................................... 179 47.19.2 Amount Required................................................................................................................................. 179 47.19.3 Provisions ............................................................................................................................................. 180
47.20 Notification of Claims to MFDA ........................................................................................................... 180
47.21 Business Continuity Planning (BCP) ................................................................................................... 180
BOOKS & RECORDS ..................................................................................................... 181
48.1 AP Record Keeping ............................................................................................................................... 181
48.2 AP Client File: General ...................................................................................................................... 181
49.3 Access & Maintenance ........................................................................................................................... 181
48.4 Retention Period .................................................................................................................................. 182
48.5 Client Records ....................................................................................................................................... 182
48.6 Corporate Records ................................................................................................................................. 182
RECORD KEEPING: AP ACTIVITIES .................................................................. 184
49.1 AP Approved Advertising ..................................................................................................................... 184
49.2 Sales Literature ..................................................................................................................................... 184
49.3 Client Complaints: Files ........................................................................................................................ 184
XVIII
49.4 Branch Office File .................................................................................................................................. 185
49.5 Branch Office Audit BRP File ................................................................................................................. 185
49.6 WFGS Policies & Procedures .................................................................................................................... 185
RECORD STORAGE ........................................................................................................ 185
50.1 Record Retention ............................................................................................................................... 186
OUTSOURCED SERVICES .............................................................................................. 186
MFDA INTERNAL CONTROL POLICY STATEMENT ............................... 187
52.1 Insurance ............................................................................................................................................. 187
52.2 Control Objective ................................................................................................................................... 187
52.3 Minimum Firm Policies & Procedures ..................................................................................................... 187
52.4 Indications that Internal Control is Not Adequate .................................................................................. 187
52.5 Cash & Securities .................................................................................................................................. 188
52.6 Control Objective ................................................................................................................................... 188
52.7 Minimum Required Firm Policies & Procedures ....................................................................................... 188 52.7.1 Trading: General ................................................................................................................................... 188 52.7.2 Trading: Nominee Name Accounts ............................................................................................. 188 52.7.3 Cash: General ....................................................................................................................................... 189 52.7.4 Trust Accounts for Client Funds .......................................................................................................... 190
WFGS BRANCH REVIEW PROGRAM (BRP) ................................................. 190
53.1 Purpose of the WFGS Audit Program ...................................................................................................... 190
53.2 Structure of the Audit Function: Audit Supervisory Structure ........................................................ 190
53.3 Internal/Desk Audit .............................................................................................................................. 191
53.4 WFGS Branch or Field Audit .................................................................................................................. 191
53.5 Responsibilities/Expectations of the Field Auditor ................................................................................ 191
53.6 Maintaining Knowledge and Proficiency ............................................................................................... 192
53.7 Branch Risk Ratings .............................................................................................................................. 192
XIX
53.8 Scheduling ............................................................................................................................................. 192 53.8.1 Pre-Branch Visit ................................................................................................................................... 192
53.9 General Branch Information .................................................................................................................. 192
53.10 Selection of Approved Persons Interview .......................................................................................... 194
53.11 Client File Selection ........................................................................................................................... 194
53.12 AP Branch: ........................................................................................................................................ 194
53.13 Branches Containing More than 1 AP ................................................................................................ 194
53.14 General File Review Guidelines ......................................................................................................... 194
53.15 BRANCH VISIT ................................................................................................................................... 197
53.16 POST BRANCH VISIT .......................................................................................................................... 197
53.17 The Branch Audit Report ................................................................................................................... 198
53.18 REPORT FOLLOW UP ......................................................................................................................... 198
53.19 BRANCH AUDIT CLOSURE REPORT .................................................................................................... 199
53.20 Risk Ratings ....................................................................................................................................... 199
53.20 Branch Risk Ratings ........................................................................................................................... 199
53.21 Definition of Risk Ratings .................................................................................................................. 199
53.22 Branch Audit Reporting ..................................................................................................................... 200
AUDIT OF REGIONAL BRANCH MANAGER SYSTEM................................................... 201
54.1 General File Review Guidelines ............................................................................................................. 201
54.2 Review of Trade Blotters ....................................................................................................................... 202
54.3 Supervision of Representatives under Increased Supervision ................................................................ 202
54.4 The Field Auditors will review 15 completed 180 day training reports. ............................................. 202
54.5 RBM Interviews ..................................................................................................................................... 203
XX
WFG Securities Inc. Head Office 5000 Yonge Street, Suite 800 Toronto, ON, M2N 7E9 Tel: 416.225.2121, option 2 Fax: 416.225.2113
WFG Dealer Connect (WFG DC) 400 Applewood Crescent 3rd floor Vaughan, ON, L4K 0C3 Tel: 905.479.3907 Toll free: 1.877.59WFGDC (877.599.3432) Fax: 1.800.922.7740 Email: [email protected] Hours of Operation: 8:30am - 5pm EST.
WFG HOST Tel: 416.225.2121 option 1 Email: [email protected] Educational Providers
CFA Institute www.cfainsitute.org CSI Global Education Inc. www.csi.ca IFSE www.ifse.ca
WFG EI www.wfgei.com MFDA Mutual Fund Dealers Association (MFDA) www.mfda.ca MFDA Investor Protection Corporation - www.mfda.ca/ipc/ipc.html
1
INTRODUCTION
Who is this Manual Intended For?
WFG Securities Inc. (WFGS) conducts securities business (i.e. engages in the sale of mutual fund products) throughout Canada. This Manual is intended to provide the policies, procedures and general guidance that all Approved Persons (APs) registered with WFGS must follow.
Note: Sections that specifically refer to Québec rules & policies are noted separately.
WFGS operates as WFG Valeurs Mobilières Inc. in Québec. About this Manual
Throughout the PPM we have include links, and added “Notes” and “Did You Know?” sections to highlight the key aspects of a section. Abbreviations are used extensively throughout the manual. The key observation to pay attention to is “AP” which stands for Approved Person which is the technical term for advisor. The index and glossary are also added to make finding information more user-friendly and intuitive.
1.1 Purpose of the Policy & Procedures Manual WFG Securities Inc. (“WFGS”, the “Member”, the “Dealer”, or “We”) is a registered Mutual Fund Dealer in all Canadian jurisdictions whose activities are regulated by various provincial agencies and the Mutual Fund Dealers Association of Canada (MFDA). WFGS and its APs are mutually responsible for compliance with applicable rules, regulations and statutes as outlined by WFGS internal policies and those of applicable Regulators.
This Policy & Procedures Manual (“PPM”) describes policies and procedures designed to help all WFGS individuals (APs, Regional Branch Managers (“RBMs”), Head Office (HO) Personnel, Compliance Personnel, and others) comply with their responsibilities. While the PPM is intended to be a reference tool to assist APs in servicing accounts, performing business functions & operating in a professional manner, it cannot address all rules, statutes, regulations and policies that are applicable to all activities or situations that may be encountered.
APs that have passed the examinations & maintain an active license are expected to familiarize themselves with the PPM, understand all of the rules and regulations that pertain to their activities & are responsible for adhering to the rules & regulations.
APs must actively stay informed and knowledgeable concerning any changes, amendments or updates to policies or procedures as presented by Compliance Memos, Bulletins, Notices or
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updates to the PPM. Failure to comply with WFGS rules, regulations and good business practices may lead to reprimands, fines, suspension or other disciplinary actions.
Should any individual have questions concerning the PPM, statutes, regulations or rules, they should contact their RBM.
Note: Contact information for head office compliance Tel: 416.225.2121 option 2, email: [email protected] .
1.2 Management’s Statement Concerning Compliance Management at all levels is strongly committed to creating, fostering and developing a culture of compliance within WFGS. Policies that develop best practices, maintain proper controls (checks and balances), and foster an understanding of the “spirit” of regulation are some of the ways by which this culture of compliance and commitment towards excellence is demonstrated by management.
Regulatory rules and policies (e.g. MFDA) generally prescribe minimum guidelines or standards that must be adhered to. WFGS reserves the right to develop and implement policies and procedures that are more robust than these minimums.
1.3 The Rights of Clients Clients of WFGS shall have the following rights: competent, professional and courteous service; recommendations that are consistent with stated financial goals and needs (Suitability and Know Your Client); appropriate disclosure of the benefits, risks and fees associated with a strategy or product (e.g. Fund Facts and benchmark disclosure), appropriate transaction or product recommendations; timely, accurate and confidential treatment of transactional and account information (including associated costs) communicated in an understandable manner; and prompt attention to, and fair consideration of, client issues and/or complaints. Clients also have rights under the WFGS Privacy Policies, PIPEDA, PIPA [AB & BC], and Act Respecting the Protection of Personal Information in the Private Sector [Québec] as applicable [see WFGS Privacy Policies].
Most client complaints arise as a result of APs not providing clients with appropriate levels of attention, care and regard for client rights. APs should always act in accordance with the standards of professionalism when dealing with clients.
Client telephone calls should be promptly returned, regular client meetings are important, and clients should always receive and understand client copies of documentation and any and all applicable fees and Outside Business Activity (OBA) Disclosure forms. APs should always keep good client notes.
Common causes of client complaints: poor client servicing & lack of client understanding
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concerning products & fees. Note: APs must understand the requirements of the Client Relationship Model (CRM) that has been introduced by the regulators.
see 18.1 Point of sale Client Copy of Documents
APs should not assume that the client is aware of the fees or nature of the products being recommended just because the client has received a Fund Facts. APs are responsible for obtaining the pertinent Know Your Client (KYC) information for all clients. This includes any and all clients that the AP may inherit or be assigned due to another AP leaving the business or at the request of the client. In these situations it is the responsibility of the AP to contact the new client, to inform the client of a change in AP and to sufficiently determine the needs of the client & the client’s KYC.
In situations where an AP inherits a client and is unable to reach the client, due to inaccurate telephone number, address, etc., it is the responsibility of the AP to take all reasonable steps in attempting to contact the client, to try searches such as 411.ca, to contact the fund companies to see what records they may have on file, to try a sufficient number of attempts & methods (minimum of 3 required), to take detailed notes of these attempts and to finally inform the Licensing Department that they are unable to contact the new client.
APs are responsible for ensuring that clients are informed of extended absences and can still obtain service by another licensed AP. These arrangements must be communicated to clients by reasonable methods such as: voice mail, letter, and email. RBMs must be made aware of any extended periods of absence, and of all arrangements made by an AP to provide for client servicing in their absence.
Note: What is one of the best defenses an AP has? Detailed client notes. If a complaint arises, client notes will help an AP demonstrate what happened during an interaction or transaction. It is not just “what was said,” it is being able to prove it.
APs should document and maintain records of all of their client interactions in as much detail as practical.
1.4 Consequences of Not Adhering to Policies & Procedures APs can minimize their likelihood of experiencing compliance issues, client complaints, regulatory problems, negative publicity and reputational damage, by maintaining a high standard of professionalism and conducting business in accordance with the policies set out in this PPM (and other applicable rules, regulations, and statutes).
Any financial loss resulting from errors or omissions made by an AP are the sole responsibility of that AP and are not the obligation of WFGS. see 9.9 errors & omissions insurance (E&O)
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Note: Failure to comply with the requirements set out by WFGS & the applicable regulatory bodies, may lead to termination from WFGS, lawsuits, fines, suspension, &/or other disciplinary actions. This may include: letters of caution, limitations on trading activities, censures, fines, supervisory requirements, forfeitures of commissions, requirements to retake examinations, civil action &/or legal action.
1.5 Supplemental Materials Supplemental information to the PPM may be distributed by WFGS (as needed) to amend, clarify, or introduce new policies and/or procedures. Supplemental materials may take the form of formal amendments, WFGS (Compliance) Memos/Bulletins, Notices, Manuals or other similar materials. These may be posted to MyWFG, sent via email (or other means) to APs and/or RBMs to be distributed and communicated to all APs.
Materials may also be available via W.connect, WFG EI, WFG Dealer Connect (WFG DC) or directly from Compliance.
Locations are encouraged to maintain accessible copies (print or electronic) of updated materials (such as bulletins and memos) to assist APs. RBMs are able to assist new or existing APs with any questions that they may have in regards to policies and procedures.
Note: Newly licensed APs are required to complete the 90-Day Training Course as well as familiarizing themselves with WFGS policies & procedures.
WFGS employees, officers, RBMs and APs must know how to access these materials, & comply with policy/rule changes.
1.6 Policies and Procedures Maintaining effective internal controls that reflect the requirements of regulation, WFGS business practices, and WFGS general policies and procedures is essential to the continued success of WFGS. WFGS policies and procedures will be reviewed on an as needed basis, but no less frequently than annually, to ensure that policies and procedures reflect all relevant rules, regulations, statutes, laws, WFGS business objectives and risk management practices.
see 1.5 supplemental materials
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CODE OF ETHICS
2.1 Philosophy WFGS operates in a high regulated industry. It is impossible for any set of rules to encompass all of the situations that an individual may encounter in their daily professional activities. Individuals should adhere to the general spirit or intentions behind these policies.
The WFGS Board of Directors and Management developed and adopted the following code of ethics to provide guidance in situations where industry rules and regulations may not fully prescribe an appropriate course of action.
WFGS is committed to the entire organization being aligned in regards to the code of conduct. WFGS is in an industry that requires trust from clients and to maintain that trust, WFGS is committed to maintaining high ethical standards.
WFGS operates on the principle that all activities must be conducted ethically and in full accord with just and equitable principles of trade. WFGSs objective is to offer clients and prospective clients quality securities products combined with exceptional service and full disclosure of applicable fees and costs. WFGS will refrain from unfair competition, and will not knowingly permit illegal activities, conduct that brings disrepute to the industry, or any misrepresentation of its products or services.
As a member of the Investment Funds Institute of Canada (IFIC), WFGS has adopted the IFIC Guidelines for a Retail Distributor Code of Ethics. WFGS endorses and supports IFIC’s efforts in establishing an industry Code of Ethics and formally incorporates the IFIC Code of Ethics into its policies and procedures. Amendments may be made by WFGS to reflect changes of laws, regulations, and rules in the mutual fund industry. APs that have obtained or are pursuing designations (e.g. FCSI, CFP, CFA) may also be bound by additional codes.
Note: Some codes, such as the CFA Code of Conduct, encourage individuals to disclose these additional obligations to their supervisors. Under some of these codes, supervisors may be held to higher standards.
2.2 Purpose of the Code
A. Application of Code: It is fundamental to the fair treatment of investors that the highest standards of integrity and ethical business conduct be maintained. This can only be achieved by the employees, licensed APs, Officers and Directors of WFGS continuing to adhere to the highest principles of conduct in the discharge of their duties.
B. Breach of Code: Failure to comply with the Code may be grounds for a warning, revision of
responsibilities, suspension, dismissal or termination without further notice, depending on the
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particular circumstances. Failure to comply with certain sections of this Code may also be a violation of securities laws and may be punishable accordingly. All employees, licensed APs, Officers and Directors have a duty to report any contravention of this Code which comes to their notice, and to co-operate in the investigation of possible breaches of this Code.
2.3 Standards A. Obligations to Clients: It is WFGS policy to continue to maintain the highest standards of
service for its clients. WFGS has an obligation to inform clients about various suitable investment options, including risks associated with those investments and the potential tax consequences in those investments. WFGS also has a duty to its clients to act honestly, in good faith and in the best interests of clients and to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances. This standard of care extends to the service provided by all employees, licensed APs, officers and directors in each area of business operations.
B. Compliance with Laws and Regulations: WFGS and all persons acting on its behalf shall
comply with the laws and regulations governing its business in each jurisdiction in which it operates. Officers and other supervisors are responsible for making sure that employees under their supervision are made aware of the laws and regulations related to their job activities.
C. Licensed APs: Any employee, Officer or Director who is registered with a securities
commission for the sale of mutual fund securities is required to comply with the Know Your Client and suitability rules as set out in the regulations under the Securities Act (Ontario) or other applicable provincial acts, in addition to all other rules and regulations governing the sale of securities in the jurisdiction(s) of registration.
2.4 Conflicts of Interest
A. General: WFGS and its APs shall be aware of the possibility of conflicts of interest arising between the interests of WFGS or its APs and the interests of the client. In the event that such a conflict or potential conflict of interest arises, WFGS, its employees, licensed APs, Officers and Directors shall ensure that they exercise responsible business judgment influenced only by the best interests of the client.
B. Disclosure: Where an AP becomes aware of any conflict or potential conflict of interest, he/she
shall immediately disclose such conflict or potential conflict of interest to Compliance, Registrations and to the client in writing. Disclosure of potential conflicts of interest must take place in advance of a client instructing WFGS to proceed with the proposed transaction giving rise to the conflict or potential conflict of interest on the client’s behalf.
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2.5 Advertising and Sales Communications Standards: Each employee, licensed AP, Officer and Director shall adhere to the sales communication rules as set out in National Instrument 81-102 Part 15, as well as any other sales communication and advertising standards, and shall take all reasonable steps to ensure that no sales communication or advertisement, includes an untrue or misleading statement or fails to state a fact necessary to prevent such sales communication from being misleading.
2.6 Confidential Information A. Ensuring Client Privacy: In the course of conducting its business, WFGS must obtain and use
certain personal information relating to clients. To ensure the privacy of its clients, WFGS will conduct its business in accordance with the following principles:
B. Confidentiality: Personal information that is collected and retained will be considered to be
confidential, and proper safeguards will be employed to protect that confidentiality.
C. Accuracy of Information: Every reasonable effort will be made to ensure that personal information collected, used, retained or disclosed is accurate, relevant, timely and complete. A client will be encouraged to correct, clarify or update personal information in a timely fashion.
D. Release of Confidential Information: Without the client’s express written consent, WFGS, its
employees, licensed APs, Officers or Directors will not permit inappropriate access to, or disclosure of a client’s personal information to any person, except as may be required by legal process, or statutory authority.
2.7 Direct Payments to APs of Unaffiliated Distributor Organizations
A. WFGS has implemented appropriate procedures to ensure that:
(a) Details of the cash and non-cash sales incentives available to WFGS and the AP on each sale of a mutual fund security are provided to investors upon request
(b) APs understand that the interests of investors must be placed first in determining the suitability of
a particular mutual fund for the investor’s investment program, regardless of the cash and non-cash incentives to be received.
(c) APs are advised that all material cash and non-cash sales incentives will be paid or awarded to
WFGS for subsequent payment or allocation to the registered salesperson in accordance with WFGS internal compensation arrangement, unless specifically exempted in writing by the chief executive officer of WFGS.
B. Details of the cash and non-cash sales incentives will normally be provided to clients and
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prospective clients by referring to the appropriate information in the fund’s prospectus. Clients and prospective clients should also be advised that the prospectus contains additional important information concerning the fund’s securities and that it should be read carefully before investing.
C. For the purposes of this section, the term “material” is considered, when used in the context of a
cash incentive, to include any cash payment, and when used in the context of a non-cash incentive, to include any item or benefit with a value in excess of $250.
2.8 Review On a n ongoing basis, WFGS will review this Code to update it for any changes in the law. Subsequently, the Code will be reviewed by WFGS’s Board of Directors, the Ultimately Designated Person (UDP) and the Chief Compliance Officer annually. If employees, Officers or Directors, APs are uncertain about any requirements or procedures in this Code, they should contact Compliance.
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2.9 WFGS Compliance Structure
Rick WilliamsPresident, UDP
Karl NettenChief Compliance
Officer
Christina SellittoManager,
Compliance
Adrian GrahamAsst. Chief
Compliance Officer
Iordan IordanovManager, RBMs
Suzanne ImbrognoV.P. Managing
Director
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2.10WFGS Directors & Officers Under MFDA Rule 2.5.1, each Dealer (i.e. WFGS) is responsible for establishing, implementing and maintaining policies and procedures to ensure that its business is handled in accordance with the Forms, By-laws, Rules and Policies of the MFDA and with other applicable securities legislation. The duties of WFGS under Rule 2.5.1 extend to all Directors and other Officers. All WFGS Officers and Directors must understand their responsibilities under the applicable securities regulations.
COMPLIANCE ROLES & RESPONSIBILITIES
3.1 Overview Compliance is generally responsible for interactions between WFGS and the Regulators. Functions that Compliance performs include: maintaining policies and procedures in accordance with regulations, monitoring activities of APs RBMs, reviewing client complaints, marketing reviews, and reviewing transactions involving leverage. Compliance also provides general information and support to APs and RBMs.
3.2 Ultimate Designated Person (UDP) The Ultimate Designated Person (UDP) is responsible for promoting a culture of compliance and overseeing the effectiveness of WFGS compliance. The Chief Compliance Officer (CCO) reports directly to the UDP. Currently, the UDP is the President of WFG Securities Inc. Mr. Richard Williams.
See MFDA Rule 2.5.2 (or NI 31-103 Part 5.1) for additional information concerning UDP designation.
3.3 Chief Compliance Officer (CCO) The CCO is responsible for the following:
• Establishing & maintaining policies & procedures for assessing compliance by WFGS & individuals acting on its behalf, with securities legislation
• Monitoring & assessing compliance by WFGS & individuals acting on its behalf with securities legislation
• Report to the UDP as soon as possible any circumstances indicating that the firm, or any individual acting on its behalf may be in non-compliance with securities legislation & any of the following apply:
• The non-compliance creates, in the opinion of a reasonable person, a risk of harm to the client
• The non-compliance creates, in the opinion of a reasonable person, a risk of harm to the capital markets
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• The non-compliance is part of a pattern of non-compliance • The CCO will submit at least on an annual basis (& more
frequently if required) a report to the Board of Directors, or individuals acting in a similar capacity for WFGS, for the purpose of assessing compliance by WFGS & individuals acting on its behalf, with securities legislation. This would include significant & recurring issues arising from branch reviews, regulatory changes, status of any regulatory examination or enforcement case(s), APs terminated or disciplined, client complaints & lawsuits, adequacy of regulatory capital & insurance coverage & other such related items.
See NI 31-103 Part 5.2 or MFDA Rule 2.5.3 for additional information concerning CCO responsibilities.
3.4 Role of the WFGS Compliance Department Compliance is committed to ensuring general adherence to established WFGS policies and regulatory requirements for WFGS business. This is accomplished through education, implementation and enforcement practices administered diligently within the framework of the Code of Ethics, integrity, fairness, respect for the capital markets while upholding applicable laws and regulations.
Compliance is responsible for ensuring that all applicable legislation is monitored on an ongoing basis so that it may identify and implement new initiatives as required. Compliance’s role is to educate RBMs and APs regarding existing and changing rules and regulations. All documents will be reviewed on a periodic basis to ensure that they meet regulatory requirements.
Note: Foundations of compliance: Prevent, Detect & Remedy 3.5 Process for Communicating Policies & Procedures Changes to WFGS policies and procedures may be initiated by the Board of Directors, Officers, Directors, the UDP, the CCO, or departments such as Registrations. These policies and procedures can only be realized if they are effectively distributed to all required persons and implemented in a timely manner.
All WFGS personnel, and APs must familiarize themselves with this PPM that represents all of the current and relevant policies at the time of writing. Any changes, developments or clarifications regarding WFGS policies and corresponding procedures will be posted in a Compliance Bulletin accessible via MyWFG, W.connect and emailed to all APs.
From time to time, Notices/Bulletins/Memos may also be sent to APs from Compliance or other departments to inform them of any changes or developments to policies and/or procedures.
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3.6 AP Obligation to Report Contraventions to Head Office WFGS strongly believes that all APs play an important role in the overall culture of compliance of WFGS. As such, all WFGS APs have a general obligation to communicate to Head Office whenever they are aware, through written or verbal complaint or otherwise, that any current or former AP has or may have contravened any law or regulatory requirement relating to:
• theft, fraud, misappropriation, forgery, money laundering, market
manipulation, insider trading, misrepresentation or unauthorized trading;
• a breach of client confidentiality;
• engaging in securities related business outside of WFGS;
• engaging in an undeclared occupation outside WFGS; or
• personal financial dealings with a client
WFGS COMPLIANCE FUNCTION
MFDA Policy 2 states that, “Effective self-regulation begins with the Member [i.e. WFGS] establishing and maintaining a supervisory environment which both fosters the business objectives of the Member and maintains the self-regulatory process. To that end a Member must establish and maintain procedures which are supervised by qualified individuals. A major aspect of self-regulation is the ongoing education of staff in all areas of sales compliance.” This PPM outlines supervisory requirements and how these functions are to be performed at WFGS. This PPM contains information on:
• risk management
• applicable legislation
• descriptions of roles, functions & their authority
• responsibilities & duties
• internal investigation procedure
• internal firm controls
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4.1 Trade Supervision: Follow Up/Resolution WFGS has procedures in place with respect to the identification of trade supervision issues. This includes identifying and detecting instances where policies may not have been followed. Once identified, Compliance has processes to properly address these items in a reasonable and satisfactory manner.
4.2 Trade Supervision: Records All trade reviews must minimally include:
• date of initiation
• date of completion
• detailed record of actions & responses. A record of these items must be maintained for at least 7 years after the issue is concluded.
Data collected may be used to identify broader systemic issues and may lead to changes in policies, procedures, and training.
4.3 .. Testing Compliance MFDA Policy 2 directs that an on-going review of sales compliance procedures and practices be undertaken both at head office and at branches. The results of these internal reviews (Branch Audits & Department Internal/Desk Audits) will be used to help identify trends and common issues, which may indicate systemic problems.
Results are reported to senior management so that the adequacy of WFGS internal controls can be assessed.
see 8.0 Branch review Procedures
4.4 Complaint History In compliance with MFDA Policy 3, WFGS maintains an orderly, up-to-date record of complaints together with follow-up documentation regarding such complaints, for regular internal/external compliance reviews. These records are retained for a period of 7 years. WFGS adheres to MFDA Rule 2.11, MSN-073 and MFDA Bulletin #043-P.
When WFGS finds complaints to be a significant factor, internal procedures and practices will be reviewed, with recommendations for changes to be submitted to the appropriate management level.
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WFGS participates with OBSI (“Ombudsman for Banking and Investment Services”) in reaching complaint resolutions.
4.5 Maintaining Awareness of Regulatory Changes The account supervision function specified in MFDA Policy 2 is executed by designated individuals who have the necessary knowledge of industry regulations and WFGS polices. To stay current with changes in regulations and best practices, compliance staff and RBMs stay current with regulatory changes.
4.6 Education MFDA Policy 2 notes that a major aspect of self-regulation is the ongoing education of staff in all areas of sales compliance. To meet this objective, WFGS offers educational programs to staff and APs that include training on recent changes to the regulatory environment, and information relating to new procedures and commonly identified issues.
For further information please refer to MFDA Rule 2.5.2 “Minimum Standard of Supervision – Compliance Officer” and MSN-0037.
HEAD OFFICE SUPERVISION
5.1 HO Trade Reviews WFGS has established procedures for tier-two supervision in keeping with MFDA Policy 2 “Head Office Account Supervision” and MSN-0069.
5.2 Description of Daily Trade 2nd Tier Review Criteria Compliance will perform daily trade reviews to review the previous day’s transactions. This is done by producing a trade blotter using the following criteria:
• All switches in & out
• All purchases & redemptions
• All internal & external transfers in & out Report(s) will be generated from: W.connect -->Isolated Trades--> <Trade Blotter> <Non-wired trade Blotter> & <Wired trade blotter>
The Compliance Officer (CO) generating the report will send an email each day to the CCO and Compliance Manager(s) that the trade blotters have been run and will note any technical issues that may arise, such as the blotters not being able to be produced.
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The report will be reviewed for:
• Lack of suitability
• Excessive switching between DSC/LL funds & FE funds
• Quality downgrading of client holdings
• Supervision of AP on Close/Strict Supervision or internal watch lists
5.2.1 Documenting 2nd Tier Trade Review
• Blotters will be produced & reviewed electronically indicating reviewing CO & date
• Transactions requiring queries will be noted on the blotter
• Emails will be sent to the AP and their RBM regarding the transaction in question
• Queries/issues will be tracked in the Trade Query Database
• Copies of all emails will be maintained
• COs may ask for supporting documents from the AP/branch or from WFG DC
• The CO in charge of trade reviews will track the progress of responses & ensure that they follow up on any outstanding inquiries
• The CO will report any outstanding or complicated issues to the Manager, Compliance or the ACCO to seek further guidance
• Once a query has been adequately resolved, the query will be closed & documented using the spreadsheet format provided by the MFDA
• Copies of physical trade blotters (if produced) will be electronically scanned & saved for archiving
5.3 Guidelines Regarding Suitability To determine suitability of a transaction requires reviewing many different components to determine if the transaction is reasonable and in the best interests of the client. While it may not be practical to provide an exhaustive list of all of the different elements that comprise a suitability review the reviewer should consider (at a minimum) the following elements described below.
Generally, the reviewer should be satisfied that the following questions can be reasonably answered:
KYC: What are the client’s objectives, background, risk tolerance and how does this relate to the transaction? Has the client’s information been updated appropriately to ensure that the KYC information is an adequate reflection of the client’s current objectives? Is the transaction
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reasonable given information provided? What is the client’s age and are the KYC details suitable for the client’s age?
AML: What is the source of funds? Does the funding of the account conform to stated funding policies? Does the client/transaction pose an AML risk/PEFP risk? Is all of the paperwork complete? Have there been recent changes to the client’s account/information that may pose a risk?
Transaction Detail: Is the product in keeping with the client’s general suitability? Is the product approved? Are there additional requirements concerning the product? Is the transaction solicited or unsolicited? What is the amount of the transaction? Are there excessive fees? Are disclosures required that have not been submitted? Is there a Limited Trading Authorization (LTA) or a Power of Attorney (POA) related to the transaction? Does the transaction involve the use of leverage (Investment Loan/RSP Loan/LOC/HELOC)? If a DSC fund is chosen what is the client’s age?
Existing Portfolio Holdings: How does the transaction relate to the client’s existing holdings? Is the transaction in keeping with the existing portfolio? Will the transaction cause the client’s portfolio to exceed the risk tolerance on file? Is the transaction in keeping with the client’s stated time horizon?
AP: Are there licensing or jurisdiction issues with the client/AP? Are there any conflicts of interest? Is the AP on close supervision (Close or Strict Close)?
Privacy: Has the client indicated any privacy considerations on their application?
Signatures & Date: Has the client signed and dated the application appropriately?
Amendments or Changes: Have there been any amendments
to the form? Have these been properly initialed & dated? Is the
transaction reasonable and in the best interests of the client?
Capacity/Capability & Willingness: A client may have great capacity/capability (i.e. they do not need the money, have a high income or high net worth) to undertake an investment. This is not the same as a client’s willingness or desire to assume risk. A client may have a high net worth, a large income & still not wish to take risks with their investments.
Point of Sale/CRM Considerations: Have all of the required disclosures, fund facts and other items required at point of sale been presented to the client?
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5.4 Additional HO Reporting/Trend Reviews Compliance will conduct ongoing reporting and trend review analysis. These reviews would include the generation of the trending reports available within W. connect/W.compliance and include (at a minimum) such reports as:
• Commission
• AUA, Sales Commission
• Cancelled Trades
• 15 Day Report
• Trade Count
• Client Address Changes
• Unlicensed in Client Jurisdiction The reports will be produced and reviewed within 30 days of the preceding month end. As with the process of Supervision outlined in Head Office Trade Reviews (an internal detailed guide on processing reviews for COs), any queries resulting from the review (where appropriate) will be sent to the RBM and AP for comment.
Findings of a more serious nature or inappropriate actions that could represent a serious breach of policies/procedures or transactions not in keeping with the client’s best interests will be brought to the attention of Senior Compliance personnel and/or the CCO for additional guidance on how to proceed.
see 6.5 ho trend reviews/analysis
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5.5 Components of a Suitability Review
KYC Transaction Details
AML/Other AP
If a query arises while conducting trend review(s), the CO will send the AP an email asking for clarification and/or additional information. In situations where a trend indicates potential issues,
Risk Tolerance Investment Objective Client Income
Time Horizon Client Net-Worth
Client Age
Previous Investment Experience/knowledge Plan Type
KYP
Amount of Transaction Type of Transaction Type/Nature of Product
Fees/Commissions/With. Tax FE/DSC/LL/NL
DSC Schedule Approved Product LTA/POA
Solicited/Unsolicited Discretionary
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the CO will notify the Compliance Manager(s) and/or CCO and will seek guidance on how to proceed in regards to next steps.
In situations where an AP is being uncooperative, the CO will escalate to the Compliance Manager(s) and/or CCO.
See 6.0 HO Trade Review Process
5.6 Sampling Trade Tickets
The Branch Review Program (BRP) is responsible for sampling trade tickets during the normal course of their branch reviews. The size and nature of the sample will be dictated by the general mandate of the BRP. Generally, the sampling is intended to provide a general level of review across all WFGS business with a specific focus upon higher-risk activities.
see 8.0 Branch review requirements see WFGs Branch review Program
5.7 Sampling: Accuracy of KYC Information The Branch Review Program (BRP) is responsible for sampling Accuracy of KYC information during the normal course of their branch reviews. The size and nature of the sample will be dictated by the general mandate of the BRP. Generally, the sampling is intended to provide a general level of review across all WFGS business with a specific focus upon higher-risk activities.
see 8.0 Branch review requirements see WFGs Branch review Program
Note: In addition to the monitoring performed by Head Office, all APs are reminded to check their records & W.connect for ongoing accuracy of client information. Inconsistencies or errors can be reported directly to WFG DC for correction.
see 50.0 record Keeping: Branch requirements see 50.3 Branch master Client file
5.8 Sampling: New Account/Plan Opening The Branch Review Program (BRP) is responsible for sampling new account/plan opening information during the normal course of their branch reviews. The size and nature of the sample will be dictated by the general mandate of the BRP. Generally, the sampling is intended to provide a general level of review across all WFGS business with a specific focus upon higher-risk activities.
see 8.0 Branch review requirements see WFGs Branch review Program
Any issues identified will be reviewed for possible action that may include freezing the client account, reversing a transaction, cancelling the client account and/or seeking disciplinary measures against the AP.
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Note: In addition to the monitoring performed by Head Office, all APs are reminded to check their records & W.connect for ongoing accuracy of client information. Inconsistencies or errors can be reported directly to WFG DC for correction.
see 19.0 opening Client accounts
see 19.3 account opening Documentation list see 43.0 Branch manager responsibilities
see 50.0 record Keeping: Branch requirements see 50.3 Branch master Client file
5.9 Review of Trading Activity in Open Leveraged Accounts MFDA Policy 2 and Rule 2.2 reference the minimum requirements for supervising trading activity. WFGS COs will minimally:
• Conduct daily reviews of account activity based upon appropriate criteria.
• All Trades greater than $5,000 for exempt securities, moderate-high or high risk investments or leveraged trades in open accounts
• Trades greater than $10,000 for other investments (excluding money market mutual funds), &
• Redemptions greater than $10,000 To comply with the above requirements, WFGS will conduct a daily review of all leveraged trades in open accounts.
In addition to assessing the suitability of investments, the CO will perform an assessment of the suitability of the leveraging strategy or recommendation for open accounts. This assessment will be in keeping with WFGS Leveraging policies and guidelines.
See 31.0 Leveraging Guidelines
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HO TRADE REVIEW PROCESS
6.1 Timeline Generally, HO trade blotters are produced at 10am (EST) every business day (for the previous day’s transactions) and must be reviewed the same day. The CO generating the trade blotter will email each day the CCO informing that the trade blotter has been produced. If the CO experiences a problem, this will be communicated to the CCO, Compliance Manager(s) immediately. When a transaction inquiry is warranted, the CO will mark the relevant transaction on the blotter, note the transaction in the trade tracking database and send an email query to the AP and RBM on the same day as the blotter is reviewed.
See 4.2 Trade Supervision: Records Typically, 2 business days are permitted for the AP to respond to an initial CO query, unless the situation is such that it must be responded to immediately. In such situations, in addition to email, telephone calls may be placed and other actions taken in order to obtain a timely response or resolution.
The CO responsible for reviewing the daily transactions should note which inquiries are outstanding and/or have not been adequately addressed and require further follow up. The trade review CO will on a monthly basis (minimally) provide a report to the ACCO and Compliance Manager(s) of all outstanding queries, APs that fail to cooperate with CO trade inquiries will face disciplinary action.
Depending upon the nature of the query there may be several different ways to resolve the situation. These may include:
• temporarily freezing the account (see 36.1 Client frozen accounts)
• requiring additional information from the AP & client
• paperwork properly amended
• new paperwork submitted
• cancelling a transaction
• conducting further investigation Cooperating with Head Office and responding to queries in a prompt and professional manner is important. In addition to the weekly reporting that the CO provides the Compliance Manager and/or CCO, the CO should bring a situation to the immediate attention of the Compliance Manager and/or CCO for immediate escalation. Escalation could include suspension, withholding of commissions, and further reviews. This may lead to disciplinary actions that may include termination.
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6.2 Documenting Reviews COs use W.compliance to perform electronic reviews of trade blotters. The CO will indicate transactions that require further follow up or have potential issues in notes within W.compliance. The CO is still required to send a daily email to the ACCO & Compliance Manager(s) indicating that there were no issues found on the blotter that day.
WFGS has a Trade Review database that it uses to track all trade inquiries and the database should be updated, as well as all relevant documents/emails saved on the compliance network.
COs conduct trade blotter reviews via W.compliance & document queries/reviews via Synergize.
6.3 Query Resolution Queries may be sent for a variety of reasons, ranging from simple requests for clarification up to more significant situations in which the trade must be reversed. From the initial query, a series of responses and replies may ensue, but throughout the process the overriding concern should be the client’s best interests, the timeliness of the resolution and WFGSs policies and procedures.
If a query relates to an unsuitable trade (depending upon the circumstances) a new NAAF/KYC may be required (signed by the client and sufficiently documented as to why there has been a change in the client’s KYC information), or a new Trade Ticket (for situations in which the trade is unsuitable and it is not reasonable to have a new NAAF/KYC).
It is inappropriate to alter KYC information in order to match the investments of the client’s account. If the investments within the account continue to be unsuitable, the AP should discuss rebalancing the investments within the account with the client. Transactions in the account must only be made in accordance with client instructions and any recommendations made with respect to rebalancing the account must be properly recorded.
If a KYC is being updated to address an existing suitability concern, the supervising RBM and the CO conducting tier 2 review must review the previous KYC information to assess whether the change is reasonable.
COs should investigate further material changes that accompany trades in higher risk investments or leveraging made within a short period of time (ex. within 6 months). The last date upon which KYC information has been updated by the client must be indicated on W.connect and accessible to COs.
NOTE: Compliance uses [email protected] for general queries. APs responding to a query are asked to reply back to this address.
It is the responsibility of all APs to maintain current information regarding client KYCs. In
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situations where the AP has made repeated attempts (at least 3 separate occasions) to reach the client to update the information or generally contact the client but has been unsuccessful, these attempts must be documented in detailed client notes and included in the branch client file. These notes may be requested during a CO trade inquiry.
6.4 Escalation/Discipline CO inquiries that are not being resolved in a reasonable and timely manner must be escalated to the Compliance Manager(s) and/or ACCO. The ACCO/Manager will provide directions on a course of action that should be taken.
Failure to cooperate with a trade query is a serious breach of policies and procedures. APs that willfully disregard policies, do not take reasonable corrective measures concerning a transaction or demonstrate a pattern of unsuitable behavior concerning transactions or queries will face disciplinary measures that may include such actions as being placed on heightened supervision, formal warning/reprimand, fines, suspensions and/or termination.
6.5 HO Trend Reviews/Analysis In addition to performing day-to-day tier 2 trade reviews, WFGS has established processes to identify trends or patterns that may be of concern.
These reviews include criteria to detect excessive trading or switching between funds indicating possible unauthorized trading, lack of suitability or churning. Tier 2 reviewers should be alert to transactions that indicate trends or patterns of concern, including:
• Redemptions made within 3 months of a purchase
• Redemptions with redemption charges
• Switches with switch fees
• DSC redemptions followed by DSC purchases within 3 months WFGS has also implemented procedures to identify or detect trends or patterns of concern which would include, at a minimum, reviewing:
• Accounts generating commissions greater than $1,500 within the month • Frequent trading reports where there are greater than 5 trades per month in any 1
client account • AUA reports on a quarterly basis and comparing current AUA to AUA at the same
time the prior year, & • Commission reports on a quarterly basis for the previous 12 month period &
comparing them to the same period the prior year After taking into consideration market fluctuations, a significant increase in commissions or Assets Under Administration (AUA) may indicate concerns with churning or leveraging strategies and a significant decrease may indicate potential inappropriate outside business activity.
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During the course of performing Trend Analysis questions/inquiries may arise in regards to a transaction, series of transactions or general activities/events. The CO conducting the analysis/review will follow a similar process that is used for Trade queries to inquire on the event(s).
In the event that there is a lack of cooperation or that a finding/response may be insufficient or lead to greater concerns, these will be promptly escalated to the Manager, Compliance and/or ACCO. Depending on the nature of the situation, additional investigation, reprimands, suspensions, fines and or termination may be pursued.
A monthly status report regarding Trend Analysis is presented to the Manager, Compliance on the status of queries and additional actions may be taken.
see 5.5 additional ho reporting/trend reviews
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6.6 Limited Trading Authorization (LTAs) WFGS does not permit the usage of LTAs. Any LTAs submitted to WFG DC for processing will be declined and the issue will be forwarded to Compliance for review.
6.7 Review of Trading Activity in Leveraged Accounts (HO & RBMs) RBMs are required to review previous day’s trading for unusual activity. This review includes, at a minimum, all:
• Initial trades
• Trades in exempt securities
• Leveraged trades in open plans/accounts (including transfer-ins)
• All trades over $2,500
• Trades in plans/accounts operating under a Power of Attorney (POA)
• Compliance must approve all investment loan applications (and associated initial transactions), transfer-ins of leveraged plans/accounts, material changes to existing loan(s) & reviews of all transactions over $5,000 (includes leverage transfer-ins, HELOCs/LOCs)
Additional leverage reviews may be conducted during audits and regular compliance reviews. WFGS regularly requests updated client loan information from lenders.
All loans submitted to Compliance for approval are tracked via a loan database to record and store client lending details (e.g. date(s) of loan, lending institution(s), type of loans, payment information and term of the loan) electronically. MFDA Bulletin #0431-C “Leverage Supervision Guide.”
WFGS has created a Leverage Worksheet and a separate Leverage Guide that includes additional details concerning leveraging practices for APs.
Note: A Lender or loan company indicating that they would agree to offer a client a loan is not the same as having a loan approved. A loan can only be considered approved once it has been reviewed & approved by Compliance.
6.8 Additional Leverage Reviews In certain circumstances, Compliance may determine that a review of some or all of an APs existing leveraged client accounts is warranted. Some indications that the APs leveraging practices require closer scrutiny include:
• Client complaints regarding leverage suitability • Client defaults on investment loans
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• Letters of indemnity (LOIs) issued to reverse leverage recommendations • APs with greater than 30% of their client assets (either in dollars or by number of
accounts) leveraged • APs who recommend clients borrow from multiple institutions/sources
simultaneously • APs whose clients all have the same or similar KYC information (e.g. all clients
have a high risk tolerance & long term time horizon) • APs who reside at a branch location where unsuitable leveraging recommendations
were prevalent amongst other APs • APs using advertisements, seminars or other marketing/communications to promote
leveraging
6.9 .. Types of Products Offered at WFGS WFGS is a mutual fund dealer. Based on this registration, APs and WFGS are limited to trading and advising on mutual funds. APs/RRs must not advise upon, offer opinions as to the merits, or trade in, or facilitate trading in securities other than mutual funds for which they are appropriately licensed. Please be advised that WFGS conducts a review, on a quarterly basis, of any business placed through intermediaries to ensure that APs are acting within our registration.
6.10 Definition of an Off-book Transaction An off-book transaction is any transaction that is not processed via WFG DC processing center and has not been fully recorded on WFGS books. WFGS prohibits off-book transactions. All AP business must be transmitted to WFG DC for processing and must be recorded on WFGS books.
Note: All client accounts at WFGS are held in client name only
6.11 Procedure: Off-book Transactions WFGS reviews all wired and non-wired trade blotters. The non-wired trade blotter detects transactions that may be conducted in a manner that is not processed directly via WFGS. WFGS receives copies of all transactions that are conducted in an off-book manner with intermediaries. These reports are reviewed by Compliance.
6.12 Procedure: Out of Jurisdiction Trading WFGS is registered as a mutual fund dealer in all Canadian provinces and territories. APs wishing to engage in business in these jurisdictions should ensure that they are appropriately licensed in the jurisdiction before interacting with the public.
APs should contact Registrations if they have any questions concerning which jurisdictions they currently hold a valid securities license.
APs must be aware of any potential issues in regards to a client being in a jurisdiction
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(province/territory) for which the AP is not sufficiently licensed. RBMs must verify that the AP is appropriately licensed in the jurisdiction before approving and submitting any transaction for processing. If a CO or other HO personnel become aware of a jurisdictional issue, they will notify Registrations, Manager, Compliance and/or CCO and seek further guidance. Resolution may include:
• freezing the client account
• notifying the client that their account cannot be serviced
• requesting the client to transfer their account to another Dealer
• having the AP become licensed in the jurisdiction
• assigning the client to another AP that is licensed in the jurisdiction APs with clients residing in or moving to another country should contact Compliance for additional guidance on these accounts. Generally, these types of accounts are not permitted.
see 19.0 opening Client accounts
see 19.3 account opening Documentation list see 36.1 Client frozen accounts
see 50.0 record Keeping: Branch requirements see 50.3 Branch master Client file
6.13 P & P: Trading in Products Without Proficiency APs are required to familiarize themselves with licensing requirements and available products. APs must not sell/trade or solicit business for products that they are not licensed for, have adequate proficiency in, or do not sufficiently understand.
Licensing and proficiency information is recorded and tracked at HO and is available to RBMs and trade processors who are responsible for verifying the APs proficiency before placing the transaction. During the process of performing HO tier-two trade reviews, the CO conducting the
Did You Know? The province in which the client resides is deemed to be the jurisdiction for any transactions. The AP must be appropriately licensed for this jurisdiction.
AP licensing information is recorded within the National Registrations Database (NRD). AP information is recorded in regards to the “Registration Jurisdiction” (province) & “Individual Category.” APs can have the category of: “Dealing Representative” only.
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review will also check for possible licensing issues. See 13.4 P&P: AP registration information & Proficiencies See 29.1 Know Your Product (KYP)
Note: WFGS requires APs to complete the WFG EI Leveraging Course before engaging in leverage practices. Additional proficiencies (such as Labour Sponsored Investment Funds Course) may be required for other product/service. APs should check with the Registration Department.
WFGS PRODUCT DUE DILIGENCE
WFGS and its APs are only permitted to deal in (i.e. sell) specific types of securities products for which they are expressly licensed. Some products/services that WFGS offers may require additional AP qualifications and/or designations in order for an AP to be able to sell/promote or discuss with clients/prospects.
Note: APs wishing to have WFGS consider a new product must submit their request in writing to Sales Desk to initiate a formal product review.
7.1 List of Approved Products APs can access approved product listings via W.connect. APs can contact Compliance to confirm whether a product is approved.
WFGS also maintains a listing of preferred product providers and approved products for sale on MyWFG and APs can contact Sales Desk for further information.
7.2 Permitted Products WFGS does not permit the sale of any product that has not undergone a product due diligence review and received approval for sale.
see 6.10 Definition of an off-Book transaction
see 6.12 Procedure: off-Book transactions
7.3 Product Review Process When reviewing products WFGS considers many factors and reviews diverse documents, including:
• A review of any offering documents
• A review of any marketing materials related to the product
• Consideration of MFDA Rules & securities regulations that may apply in the sale of
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the product
• An assessment of risks associated with the product
• An assessment of costs associated with the product
• An assessment of commissions & other compensation to be paid to WFGS & the AP for selling the product
• Consideration of potential conflicts of interest that may arise due to compensation, affiliation & or association with the product & company
• Consideration of products that are similar in nature & may be less costly or have less risk
• An assessment of the investment objectives & any projected returns for the product (including guarantee features if applicable) & the likelihood that the investment will meet these objectives & projections
• A review of the issuer’s financial position & history
• An assessment of management qualifications & track records
• An assessment of any custodian, investment manager or guarantor associated with the product
A written record of the assessment is maintained and updated if there are any material changes in the product offering.
7.4 Process of Communicating Product Approvals One of the key components of performing the due diligence process involves determining client profiles that would be (or would not be) suitable for the product(s). This may involve:
• criteria related to overall suitability
• client investment knowledge
• previous experience
• % of client’s net worth (portfolio) in the proposed investment
• client income
• age and other related criteria This information is relayed to branches/APs via conference calls, bulletins, emails and general product notices that are posted on the MyWFG.
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7.5 Know Your Product (KYP) Any product that has passed the aforementioned product due diligence, should still be scrutinized by APs to ensure that the AP fully understands the product. This would include any potential risks and benefits, any potential fees or guarantees and in general, how the product functions. APs must have an understanding of which products would be suitable for which clients given the clients suitability information (including risk tolerance).
7.6 Due Diligence Core 3rd Party Service Providers WFGS is required to perform BCP (Business Continuity Planning) reviews of all core 3rd party service providers. Specifically, WFGS requires that all core service providers have a BCP, have provided WFGS with the relevant details and that these details are documented and where applicable incorporated into WFGS BCP. Before engaging a 3rd party, WFGS performs a review and requires that all core 3rd party providers have a BCP.
see 48.8 Business Continuity Planning (BCP) see 52.0 outsourced services
BRANCH REVIEW REQUIREMENTS
WFGS follows the guidelines for branch reviews as outlined in MFDA Policy 5. Reprinted below. 8.1 Introduction This Policy establishes minimum standards for the development and implementation of branch and sub-branch review procedures. All references to “branch” in this Policy include sub-branches as defined in MFDA By-law No.1.
Members are responsible for establishing, implementing and maintaining policies and procedures to ensure that business is conducted and managed in accordance with MFDA By-laws, Rules and Policies and with applicable securities legislation. Under MFDA Policy 2, the Member is required to conduct an on-going review of sales compliance procedures and practices at both head office and at branch offices to confirm that these procedures are adequately fulfilling the purposes for which they have been designed. The requirement to complete regular branch reviews is consistent with these obligations and will serve to enhance the Member’s ability to meet the fundamental supervision requirements under MFDA By-laws, Rules and Policies.
The intent of this Policy is to establish minimum standards for internal branch review programs (“Branch Review Program”), while allowing Members sufficient flexibility to develop procedures that are appropriate to the Member’s size and business model. Accordingly, strict adherence to the minimum standards as set out in this Policy will not necessarily ensure that a Member’s Branch Review Program is effective to ensure proper supervision and compliance with MFDA Rules. The objective is for Members to create and effectively implement processes that maximize their ability to detect potential compliance issues, so that corrective action may be taken before serious
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problems occur. MFDA staff will assess the effectiveness of the Member’s Branch Review Program in the course of conducting compliance examinations and may impose additional requirements to ensure compliance with MFDA By-laws, Rules and Policies.
8.2 Branch Review Procedures Each Member must establish a Branch Review Program (BRP) to effectively assess and monitor compliance with regulatory requirements at all branch locations.
a) General Requirements
• The BRP must include an assessment of the supervisory procedures • and practices in place at the branch, as well as the quality of execution of those
procedures. • The BRP must address all significant aspects of the Member’s policies and
procedures manual and MFDA By-laws, Rules and Policies. • The BRP must include interviews with RBMs and a selection of other APs along
with substantive testing to verify the accuracy of information that is provided in the interviews. Substantive testing should involve reviewing client files, trade blotters, trust account records, advertising and marketing material and other relevant records.
b) Branch Interviews
• The purpose of the interviews is to confirm that the APs are aware of requirements under MFDA By-laws, Rules and Policies and applicable securities regulation. It is particularly important that the reviewer confirm that the AP has a good understanding of the fundamental supervisory requirements. The interview process also serves as a forum for the APs to raise and discuss issues and areas of regulatory concern.
• The interviews must also include discussion about branch policies and procedures relating to:
• products and services offered to clients • complaints • advertising and sales communications • referral arrangements • outside business activities • account opening procedures • other branch and sub-branch supervision issues.
c) Review of Trade Blotters and Other Supervisory Review Documentation
• Documentation must be reviewed to confirm that trade reviews have been performed adequately and in a timely manner covering the minimum requirements of MFDA Policy. This includes a review to confirm that all trades in exempt
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securities and a sample of initial trades, leveraged transactions, trades made under a limited trading authorization or power of attorney, and trades in speculative funds have been reviewed. Samples of different types of transactions, including purchases, switches and redemptions must be reviewed. Trade blotters must be reviewed to assess:
• trading patterns • evidence of supervision • timeliness of review.
• The suitability of individual trades must be assessed to confirm that the quality of trade supervision is consistent with the Member’s standards and regulatory expectations.
• Trade supervision records must also be reviewed to confirm the recording of issues noted by supervisory staff, inquiries made, responses received and resolutions achieved.
d) Review of Client Files • Client files must be examined to verify that there is proper account opening
documentation on file and that branch client files are appropriately safeguarded. Know your client information must be reviewed to:
• assess completeness • confirm that back up for any changes has been maintained on file • confirm that KYC information on the back office system matches with that
recorded in the files. • The branch review process must confirm that account opening approval
procedures have been properly followed, where these are the responsibility of branch staff. Client files must be examined to verify that proper evidence of client instructions and any relevant trading authorizations have been maintained on file. Files should be reviewed to assess the adequacy of notes regarding advice or recommendations provided to the client, as well as notes regarding discussions relating to fees and services, if any. • Trade orders must be reviewed to:
• assess suitability • detect unlicensed / out-of-province trading • confirm proper identification of leveraged trades • confirm timeliness of trade processing.
e) Review of Sales Communications, Advertising and Client Communications
• The BRP must include a review of sales communications, advertising and client
communications, including business cards, letterhead and websites to confirm that any required approvals have been obtained.
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• The BRP must also involve, where appropriate, discussions and testing to detect:
• misleading communications • trade names of APs that have not been approved by WFGS • undisclosed OBAs or personal financial dealings with clients • securities related business conducted outside of WFGS • undisclosed referral arrangements.
• Where the reviewer detects a potential material deficiency with respect to the conduct of
outside business or personal financial dealings under MFDA By-laws, Rules or Policies, the BRP must provide for the review of files of APs relating to non-WFGS business.
f) Complaints
• The BRP must confirm that any complaints that may have been made involving individuals at the branch have been recorded and handled in accordance with WFGS procedures and MFDA By-laws, Rules and Policies.
• The nature of any complaints, as well as the timeliness and fairness of resolution must be assessed.
• The BRP must confirm that all complaints and pending legal actions are made known to the compliance officer at head office (or another person at head office designated to receive such information) within 2 business days in accordance with MFDA Policy No.3. (“Handling Client Complaints”).
8.3 Scope of Review Sample size and the extent of the review are matters of discretion for WFGS. However, at a minimum, the review should involve a preliminary screening of the branch that is sufficient to provide a reasonable indication of items or issues for further investigation. Sample size and the extent of review must be reasonable based on a number of factors such as:
• the specific activities at the branch
• complaint history
• number of APs at the branch
• trade volume/commissions earned
• results of previous reviews
• MFDA compliance examination findings
• daily trade supervision issues
• the nature of dual occupations or OBAs carried on at the branch
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• the volume of leveraged trades
• the date of the last review 8.4 Branch Review Cycle & Schedule WFGS must be able to justify its branch review schedule and cycle by developing a risk based methodology to rank branch locations as high, medium or low risk using appropriate criteria. Such criteria would include the factors set out above under “Scope of Review”.
WFGS is generally expected to perform an on-site review of branches no less than once every 3 years. However, WFGS must review certain branches more frequently than once every 3 years if justified based on risk. Where, under unusual circumstances, WFGS exceeds a 3 year branch review cycle, WFGS must be able to justify the longer review cycle by demonstrating that the branches that have not been subject to an on-site review are low risk and have been subject to alternative compliance review procedures performed by head office, such as an off-site desk review. Under no circumstances however, should WFGS never perform an on-site review of a branch. The branch review cycle and the status of completion of the branch review cycle against benchmarks should be included as part of the annual compliance report to the board of directors of WFGS required by MFDA Rule 2.5.2(b).
8.5 Qualifications for Auditors The individuals responsible for conducting the BRP must have the training, skills and proficiency necessary to accomplish the objectives of the program. The individuals must possess sufficient knowledge not only to be able to follow prescribed procedures, but to be able to know where follow up review should be pursued. In addition, WFGS ensures that individuals delegated the responsibility to perform BRP have adequate time and workloads in order to provide the time necessary for proper performance.
Individuals that have successfully completed the courses required for designation as an RBM as set out under MFDA Rule 1.2.2(a) or that have equivalent experience; training or education would generally be considered sufficiently qualified to conduct the BRP. WFGS considers the responsibilities and functions that are performed as part of the BRP and makes the determination of what constitutes equivalent experience, training or education sufficient to qualify an individual as a branch reviewer. WFGS is required to satisfy the MFDA that the equivalency standard has been met.
Equivalent experience, training or education may include: audit experience, legal training in the area of securities or mutual fund regulation, or experience in a regulatory supervisory or compliance role. WFGS may also have an internal training program for branch reviewers, which may satisfy the equivalency test.
The branch reviewer must be independent of the branch, so as to ensure that the reviewer can act
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objectively without preconceived opinions and is not subject to inappropriate influence when performing the review.
The main individuals performing the reviews will be COs with a more senior status, while supporting roles may be performed by less senior COs. The ultimate review of the BRP and integrity of its implementation reside with the CCO.
8.6 Reporting of Results All serious issues detected in the branch reviews must be escalated to the Manager, Compliance and/or ACCO at head office within a reasonable period of time.
WFGS ensures that RBMs are made aware of all issues that are identified in the branch review in a timely manner. In addition, APs at the branch should be made aware of issues identified in the report relevant to them. The report to the RBM on the results of the BRP must include the following information:
• the date of the review
• basic branch information, including the APs & staff at the branch location
• details of any compliance deficiencies noted in completing the branch review including missing documentation or any gaps in supervision
• the date of the report
8.7 Follow Up of Branch Review Findings WFGS has procedures in place to ensure that the issues identified in the course of the branch review are followed up and resolved. Therefore, BRP provides for:
• consistent and timely reporting of results
• a means of tracking responses to the reports
• a means of ensuring that the branch implements all required changes in a reasonable amount of time.
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8.8 Branch Review Files WFGS maintains orderly, up-to-date files for each branch that has been reviewed. The files must include details of the procedures performed at the branch and all working papers to support the work done and provide evidence of any deficiencies noted. All follow-up documentation, including the report to the RBM, must also be included in the file. Records must be maintained for a period of 7 years and must be made available for review by the MFDA, if requested. BRP records should be used to identify significant deficiencies that may disclose a need for further education and training of RBMs, APs, or other staff. When systemic issues are detected through the BRP, a review of internal procedures and practices may be warranted.
8.9 Branch Risk Ratings WFGS utilizes a risk-based approach in selecting which branch shall be selected for audit/review, the frequency of the review and the scale and scope of the review. At a minimum, branches will be reviewed at least once on a 3 year cycle and may be reviewed on a more frequent basis if the branch is deemed to present a high-risk.
Some of the factors considered when developing a branch risk rating would include: previous branch review score, size of branch (number of APs), complaints filed against APs at the branch, Assets Under Administration (AUA) of branch, percentage of AUA leveraged, OBAs, usage of marketing materials, known issues at the branch, elapsed time since last audit and other factors that aid in determining a risk profile. Generally, the rating will involve assigning a ranking of low, medium or high risk to branches.
8.10 Reviews Prior to On-site Review Prior to visiting the location selected for an audit, the COs conducting the BRP will compile and review a diverse selection of information to ensure preparedness prior to going on-site in part to minimize any disruptions to the branch and to determine if there are additional factors or areas that should be examined while visiting the branch.
This would include (but not be limited to) such elements as : total AUA, percentage of AUA leveraged, number of new accounts opened, branch trading activity, number of APs, OBAs, marketing (including AP websites), complaints, past deficiencies and any other known issues.
Note: WFGS has adopted a regional branch manager (RBM) structure. Under this structure, each location is visited (minimally) on an annual basis by either the RBM or scheduled audit.
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8.11 Standardized Templates Compliance has developed a set of standardized templates for use during the reviews. The templates would include templates for AP interviews, file reviews and general branch review. These templates are reviewed and updated whenever there is substantive policy/regulatory changes, but at least on an annual basis are reviewed for their completeness.
8.12 Procedure: Reports, Escalation & Completion of Review Upon completion of the on-site review, the auditors will prepare a written summary of their findings concerning APs and the branch. This summary will include, a detailed description of any deficiencies found (including the applicable policy that has been breached), possible methods of correcting the deficiencies and timelines in which APs have to respond to the findings of the auditors. APs/branches are typically granted 4-6 weeks for providing a response.
Once a response has been received, the response will be reviewed and a determination will be made as to the completeness and timeliness of the branches agreement to correct the deficiencies. If there are still areas of non-congruence, these will be examined and may be investigated further. With the agreement of the Manager, Compliance and/or ACCO an overall timeline will be established and agreed upon by the branch to remedy the deficiencies.
Should any elements of the review be strongly disputed or contested, or the AP fails to comply within the required timeframe, the issue will be escalated to the ACCO. The auditors are also responsible for following up on the progress of the branch implementations and ensuring that the deficiencies are addressed and if not addressed escalated to the ACCO.
Once all of the deficiencies have been addressed in a satisfactory manner, the audit/review can be closed and marked completed and a corresponding notice will be sent to the RBM indicating the completion of the review.
8.13 Maintaining Adequate Records It is the responsibility of the auditors to maintain adequate, sufficient and reasonable records concerning the pre-branch review, the on-site review and any and all follow up (including reports and responses) during the duration of the review until it has been concluded. The standard should be such that a reasonable individual with sufficient knowledge and experience could review the materials and reasonably derive the same conclusions as to the auditors.
Records would include any and all copies of items used during the review and are required to be stored electronically within the compliance structure.
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REGISTRATIONS & LICENSING
13.4 P & P: AP registration information & Proficiencies 9.1 WFGS Policy & Securities Registration WFGS is committed to developing, promoting and fostering the highest standards in business and conduct. (See Code of Conduct). To this end, WFGS is committed to recruiting individuals of good character, business repute, qualification and experience. Before any individual can engage in activities on behalf of WFGS that involves the solicitation, advertisement or anything in furtherance of a transaction, the candidate must complete required courses, apply for registration, pay applicable fees for registration & E&O, receive formal approval in writing from Registrations and have a supervising RBM.
Individuals cannot act as WFGS APs or engage in any securities related activities (such as selling, advertising or promoting mutual funds) until they have obtained the appropriate Securities Commission registrations, executed their WFGS Field Agreement, and received written notice from Registrations that they are authorized to engage in the solicitation or sale of securities. Once permission has been received, APs are only permitted to engage in activities for products that they are expressly licensed to deal in and that have been approved by WFGS.
Failure to comply with this policy will result in termination from WFGS and may lead to discipline from Regulators and/or criminal prosecution.
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Getting Licensed with WFGS
9.2 Qualification Requirements Provincial law prohibits Dealers [WFGS], APs and other persons involved in the business of securities from willfully permitting individuals who have ever been convicted of any criminal felony involving dishonesty or breach of trust to engage in the business of securities. Accordingly, the following situations may disqualify an individual from WFGS and, if arising after association, may affect their ability to maintain relationships with WFGS. Furthermore, willful misrepresentation of information furnished in the selection process, such as education, employment, criminal record, credit history, etc. may also be grounds for termination.
Other grounds for termination may include:
• a felony
• misdemeanor involving but not limited to the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, conspiracy to commit any such offense, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities
• Current suspension or revocation for cause of a professional license, (e.g. insurance, securities, law, real estate, etc.). Past suspensions/revocations are scrutinized & may preclude contracting
• Expulsion or bar from association with a Member of the MFDA or any other securities self-regulatory organization (i.e. another securities firm).
• Permanent or temporary injunction from acting as an investment adviser, underwriter, broker, dealer, or as an affiliated person or employee of any investment company, bank or insurance company.
WFGS reserves the right to modify these criteria at any time.
E & O
Regulatory Approval
Background Check
WFGS Field Agreement
RBM Supervisory Agreement
Required Courses Registrations Approval
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9.3 Examinations & Licenses Mutual Funds
Individuals must take and pass qualifying examinations to become registered with a provincial Securities Commission. To be licensed as an AP, you must have successfully passed a course such as the following:
• the Canadian Securities Course (CSC)
• the Canadian Investment Funds Course (IFIC) WFGS does not permit the sale of ETFs. Contact Registrations for additional information.
9.4 Initial Evaluation of Candidates
To become an AP, a candidate must submit a licensing package to Registrations. This package will include the WFGS Field Agreement, a copy of successful course completion, Supervisory Agreement. The Supervisory Agreement supplements the WFGS Field Agreement and World Financial Group Associate Membership Agreement, but does not amend it except as provided in the Supervisory Agreement. The candidate will also be required to obtain Errors & Omission (E&O) insurance, be accepted by the provincial securities commission and pass a background/credit check.
The Supervisory Agreement outlines the supervisory obligations between the RBM and the AP. RBMs have many responsibilities to the new AP. These include: ongoing supervision, policy & procedure updates, 90-Day Training & more.
A new AP should be proud of their accomplishments in becoming securities licensed. It’s the start of a great career. Rules, products, and the industry are always changing and evolving. To keep up, APs must be in a continual process of learning and development.
For additional information, please contact Registrations. see 43.0 Branch manager responsibilities
9.5 Ongoing Evaluation of AP WFGS has transitioned to a remote supervisory structure in which all APs are remotely supervised from Head Office by an RBM. See 43.0 Branch Manager Responsibilities
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9.6 Candidate Application Accuracy Candidates must accurately and honestly complete all documents required for affiliation with WFGS. If a candidate is approved and becomes recognized as an AP, the AP assumes the responsibility to ensure that their information maintained on file with Registrations is accurate and up to date.
The National Registrations Database (NRD) that is directly overseen by the Regulators and contains AP information. There are strict rules regarding updating NRD in a timely manner for AP changes. If in doubt on any licensing issue, or what must be reported via NRD, please contact Registrations.
Honesty and integrity are fundamental requirements for an AP. Any known misrepresentations, fraud, committed errors or omissions on application documents may result in disciplinary action that may include termination.
If a candidate/AP does not disclose an event(s) requiring disclosure on NRD and this event is discovered during WFGSs candidate/AP background investigation, WFGS will immediately cease the registration process and return all paperwork and unapplied payments to the candidate. If an event requiring disclosure is discovered after a registration becomes effective, Registrations will:
• suspend your ability to conduct business with WFGS
• notify the Securities Commission of such suspension
• conduct an investigation of the nondisclosure
• take appropriate action as warranted by the results of the investigation 9.7 Activities Prior to Formal License Approval When Registrations receives formal approval from the Securities Commission that a candidate/AP application has been approved, the candidate/AP will receive confirmation in writing. Prior to receiving this approval notice, a candidate/AP cannot solicit clients, recommend products/services, provide investment advice, or generally engage in any activity that can be considered to be in furtherance of a trade. Such conduct will result in disciplinary that may include termination.
Note: WFGS will not pay any commissions to candidates/APs for activities for which they are not properly licensed prior to engaging in the activity.
Contact Commissions &/or Registrations for additional information.
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9.8 . Transferring Licenses from Other Dealers If an AP is transferring to WFGS from another Dealer, they must obtain registration through WFGS before they can transact or solicit securities business on behalf of WFGS. Transfer of registration is not complete until Registrations sends the AP a written approval notice in accordance with this PPM.
Note: WFGS reserves the right to have APs retake examinations/courses. APs transferring from other Dealers are responsible for successfully completing the WFG EI Leveraging Course before they can engage in leveraging activities. Additional requirements may also apply such as completion of the WFG EI AML Course. APs looking to transfer leveraged client accounts must meet all applicable WFGS Leverage Guidelines.
Accounts being transferred to WFGS must be reviewed by RBMs, and be reviewed by Head Office before being accepted by WFGS. These accounts will be viewed as new leveraged business.
To find out more about required requirements for transferring APs contact Registrations.
9.9 Material Changes in AP Information: Application & Registration APs must disclose any change that amends or revises the initial (or subsequent) information contained within NRD to Registrations within 5 days. Candidates/APs must provide notice if they are:
• Found to have violated any rule or standard of conduct of any government agency, or financial, business or professional organization
• a defendant in any regulatory proceeding involving provincial securities, insurance, or commodities laws, rules or regulations
• subject to a personal or business-related bankruptcy • subject to a lien or garnishment • indicted, convicted, plead guilty, or plead no contest to any criminal offense (other
than traffic violations) • a Director, controlling stockholder, Partner, Officer, sole proprietor or associated
person with: • a Dealer, investment company, investment adviser, underwriter or
insurance company which was suspended, expelled, or had its registration revoked by any entity; or
• a bank, trust company or other financial institution which was convicted of or pled no contest to a felony or misdemeanor; or associated in any business or financial activity with a person who is statutorily disqualified.
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In such cases, APs must immediately submit the information to Registrations in writing. For more information, please contact Registrations.
9.10 Errors & Omissions Insurance (E&O) APs engage in the business of providing services and products to clients. There may be situations in which errors, disputes or complaints may arise in regards to an APs business activities. In order for an AP to protect themselves from the potential financial impact of good faith errors or omissions, APs are required to obtain E&O coverage. All WFGS APs are required to purchase E&O coverage through the WFGS E&O Policy. APs must ensure that they maintain their coverage by meeting the ongoing E&O payment schedule. Failure to comply will result in WFGS taking action that may include termination.
Note: Even APs that do everything right may still receive a client complaint. E&O is there to provide support, but it is also important to know policies & procedures, to follow good business practices & to maintain good client notes.
9.11 Concurrent Securities License Registration APs cannot maintain a securities license with WFGS and another securities Dealer or organization. The prohibition concerning concurrent registration would also include ownership, control positions, senior management positions, Directorships, Partnerships, or being an Officer with another Dealer.
Note: For additional information on this subject, please contact Registrations.
9.12 Suspension of Registration
APs that have had their registration/license suspended, revoked or have an inactive status for any reason, are prohibited from engaging in any securities related activities (including such activities as meeting with and servicing clients). Registrations may be suspended, revoked or marked inactive for a variety of reasons, such as: failure to maintain ongoing training/education requirements, disciplinary actions, or failure to renew a license/registration.
Note: APs will not earn or receive any compensation for securities related business during such a period. If an APs status again becomes active, an AP will not receive backdated compensation/commissions for the period in which they were not licensed or registered.
Contact Commissions or Registrations for additional information.
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9.13 Registration - “Parking” Maintaining an active license for an AP that is not actively engaged in the securities business is typically referred to as “parking,” and is not permitted.
WFGS will only register and maintain licenses/registrations for APs who are or will be actively engaged in ongoing WFGS business activities. WFGS will not maintain a registration or a license for an individual that is no longer active (i.e. terminated or suspended) or is no longer actively engaged or performing within the capacity of their registration/license.
9.13 AP Termination Registrations must file an AP termination via NRD within 5 business days of an APs termination from WFGS.
If an AP wishes to voluntarily terminate their relationship with WFGS, they must notify Registrations immediately in writing. Registrations will complete the NRD Termination Notice.
Note: Registrations may request additional information from APs that are terminated or voluntarily terminate
9.14 AP Re-registration If an AP is terminated for disciplinary cause, they may not be allowed to re-register with WFGS in the future. A request for exemption from this policy must be directed to Registrations for consideration and review.
If an AP is terminated for “administrative “cause (such as an error in processing E&O payments), an AP may apply for re-registration. In these cases, Registrations will not consider a candidate/AP for re-registration unless, and until:
9.12.1any conditions dictated by Registrations are satisfied
9.12.2the candidate/AP pays all outstanding fees owing as are established from time to time by WFGS
9.12.3the administrative violation which precipitated the termination is resolved
Note: All applications for re-registration must be approved by Registrations in writing.
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OUTSIDE BUSINESS ACTIVITY (OBA)
WFGS requires all APs that have a fulltime OBA to be on Close Supervision. APs that may, at WFGS’s discretion or pursuant to regulatory requirements, require additional monitoring may be placed on Strict Supervision.
Close Supervision is intended to detect any possible conflicts or potential issues arising through the normal course of business. The requirements are similar to the 1st 90 Day Training supervision period that all new APs undergo. This includes RBM minimum file reviews, AP interviews, RBM monthly reporting. All APs with fulltime OBAs would be subject to the WFGS Close Supervision Reporting Form. The terms of close supervision will be reviewed on an annual basis. Additionally, Conditions of Approval and/or any agreed to restrictions will be reviewed upon new account opening by the RBM.
Strict Supervision is intended to not only detect, but also to prevent possible conflicts and/or potential issues through a heightened course of supervision/business. Strict supervision not only includes necessary file reviews, interviews and spot-checks, but also requires trade approval prior to any trade being placed and a review of monthly generated commissions of $1,500 or higher.
Whether Close Supervision or Strict Supervision is being utilized, all clients whose AP is subject to such supervision must receive a Client Disclosure Form advising the client of appropriate contacts should they need to perform a transaction or if they have questions concerning their investments and the AP is not available.
Close supervision monthly report appendix n strict supervision monthly report appendix o Client Disclosure form appendix P
For additional information concerning these requirements, please contact Registrations [416.225.2121, Option 2].
Note: OBAs must meet the policies outlined within MFDA Rule 1.2.1(c) & MSN-0040 & WFGS. Registrations are responsible for reviewing & maintaining all AP OBAs.
Specific requirements apply to any AP who engages in outside business activities. An OBA is a business activity in which the AP is engaged as a proprietor, Partner, Officer, Director, trustee, employee, representative, contractor, or other similar title or function, and which is carried on by the AP outside of the business done through WFGS. (for information Concerning tax related OBAs see “tax or legal advice”)
An AP may have, and can continue in, another gainful occupation provided that:
(i) Permitted by legislation. The securities commission in the jurisdiction in which the AP carries on or proposes to carry on business specifically permits him or her to devote less than his or her full time to the business of WFGS for
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which he or she acts on behalf of
(ii) Not prohibited. The securities commission in the jurisdiction in which the AP carries on or proposes to carry on business does not prohibit an AP from engaging in such gainful occupation
(iii) WFGS approval. WFGS is aware and approves of the AP engaging in such other gainful occupation
(iv) WFGS procedures. WFGS establishes and maintains procedures to ensure continuous service to clients and to address potential conflicts of interest
(v) Conduct unbecoming. Any such gainful occupation of the AP must not be such as to bring the MFDA, its Members or the mutual fund industry into disrepute
(vi) Disclosure. Clear disclosure is provided to clients that any activities related to such other gainful occupation are not business of WFGS and are not the responsibility of WFGS. The disclosure document must also contain the alternate contact information for the RBM and WFGS (vii) Financial planning. Any AP that engages in financial planning
services otherwise through or on behalf of WFGS must comply with the requirements of any applicable legislation in connection with the services (including):
(A) Access - ensure that, subject to any applicable legislation, WFGS and the MFDA have access to financial plans prepared on behalf of the clients of WFGS by its APs
(B) Proficiency - have satisfied any applicable proficiency requirements by securities regulatory authorities having jurisdiction.
Issues that will be considered by Registrations prior to approving OBAs include:
(a) Conflicts of Interest WFGS must consider issues relating to all potential conflicts of interest that may arise from the APs duties as a salesperson and their OBA. This would include consideration of the compensation to be paid under the arrangement, the nature of the relationship between the AP and the outside entity, and any other potential conflicts that are identified. If any such conflict cannot be properly managed, the outside activity must not be permitted.
(b) Potential Client Servicing Issues WFGS must ensure that the outside activity does not impair the ability of WFGS or AP to provide continuous service to clients.
(c) Standards of Conduct WFGS must be satisfied that the activity will not be inconsistent with the general
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standards of conduct imposed under MFDA Rule 2.1.1 and will not bring the MFDA, its members, or the mutual fund industry into disrepute.
(d) Nature of the Activity The standard of review in considering whether to approve OBA will depend on the nature of the activity. The review process regarding the investment of client funds or financial services provided outside of WFGS which are not otherwise regulated are more stringent than that applied with respect to activities that are clearly unrelated to WFGS business. As a best practice, such review includes consideration of education, experience or other relevant competency thresholds that may reasonably be expected as a prerequisite to allowing certain financial service activities.
WFGS reviews the information provided on the OBA Form to also determine whether the number of hours devoted to the OBA may be in conflict with the number of hours dedicated to their WFGS activities. Registrations may request additional information from the AP including verification of the number of hours devoted to the OBA. This may include letters from employers and other supporting documents. If the number of hours devoted to the OBA are deemed to be excessive and/or in direct conflict with the APs ability to perform their WFGS activities, the OBA may be declined.
(e) Risk Management Issues WFGS recognizes that the potential exposure to complaints and litigation against WFGS in the event the activity is permitted, and reviews the OBA activity accordingly. (f) Ability to Supervise WFGS evaluates its ability to satisfy supervisory requirements regarding the OBA, as outlined within Ongoing WFGS OBA Obligations , and considers the effect such requirements will have on its resources.
10.1 Positions of Influence Some examples of positions of influence may in include, depending on the circumstances, religious leaders, health care providers and military officers. There are several unique considerations with respect to approving and supervising positions of influence.
The nature of the position and degree of influence that the AP has through the position is assessed. If the APs influence is deemed to be significant enough that it would be difficult to separate the influence from the activities that the AP performs as an AP, the OBA would not be approved.
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10.1.1 AP Websites Relating to OBAs
As part of the process in reviewing and approving OBAs, candidate APs and/or existing APs must submit any websites that they use to promote or that are affiliated with their OBA activities.
This would include sites such as:
• www.yourdomain.com
• Google+
• & other sites or media that would reasonably be considered to be affiliated with your OBA
Note: Whenever these are changed, amended, or new ones added, this must be submitted for Head Office records. This is intended to capture situations where the AP has direct control of the content/communication and/or influence over the content and the possibility exists to reference or comingle information regarding WFGS with the OBA activities.
The following examples help to clarify.
Example 1: Bob Smith is an AP for WFGS and also does occasional tax preparation. Bob has a Facebook page that he uses to promote his tax preparation and also references these activities on his LinkedIn profile.
Bob must submit this information and the URLs/addresses.
Example 2: Diane Smith works for ABC a large chemical manufacturing company and is an AP with WFGS. Diane works in a quality control testing lab and mentions this on her LinkedIn profile as well as being an AP with WFGS.
Diane would need to submit her LinkedIn URL (as it references her OBA), but Diane has no control or influence over ABCs corporate website and she would not have to submit ABC.com for inclusion/review.
Example 3: Debbie Brown is a WFGS AP that works full time with WFGS, but volunteers with her local community group. In a previous career Debbie created marketing promotions. Debbie frequently helps her local community group in producing fund raiser materials and decided to
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develop a Facebook page and a website for the charity that Debbie is an administrator for. Debbie frequently posts content on Facebook and has considerable latitude on what appears on the website. While Debbie is not directly employed and does not directly profit from the activities of the local community group, she does have influence over content and also access to the site. Debbie must submit the Facebook page and the community group URL for record purposes. The possibility exists for Debbie to put information (even if unintentionally) regarding her WFGS activities on these sites.
Example 4: David Brown is a Web Designer and a WFGS AP. David designs graphics and builds websites for a variety of charities and businesses. Generally, after David makes a site his role in the site ends. David maintains a website DBrownDesign.com, a Facebook page, LinkedIn, Twitter and google+, as well as actively using Pinterest to promote his web design business. David must disclose all of these sites/URLs/activities to Head Office.
Generally, the sites that David makes for charities or businesses are not for his own use in promoting his business activities and are controlled by other individuals. These David does not need to submit to Head Office.
However, if David was to make a site for financial services for a friend and was an ongoing contributor to the site or had the potential to influence the content of the site, then this would have to be submitted to Head Office.
Conclusion: Failing to report sites/URLs will be deemed to be a breach of the permission that has been granted to the AP to conduct activities with WFGS while they have an OBA.
Note: If in doubt about anything relating to an OBA, ask Registrations
see 33.0 sales material
see 6.5 ho trend reviews/analysis
see 35.5 annual letter to WFGs Clients
10.2 Ongoing OBA Obligations APs wishing to engage in an OBA must obtain prior written approval from Registrations. The AP must complete an Outside Business Activities Disclosure Form available on MyWFG. If the application for OBA is approved, Registrations will update NRD and inform the AP and the RBM that the OBA has been approved.
The AP must inform Registrations upon any changes in their OBA. Failure to provide timely disclosure of OBAs may jeopardize the status of registration and may result in disciplinary
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action (e.g. termination). This would include changes such as:
• changing employers
• positions within the same company,
• or no longer being involved with the OBA APs must at least annually complete the WFGS Annual Representative Compliance Certification (ARCC). ARCC includes questions regarding OBAs and the current OBA status of the AP.
APs are prohibited from personally engaging in the sale of any investments.
Effective processes to monitor OBA activities of APs have been implemented using many of WFGSs existing procedures. For example:
(a) Advertising Reviews In keeping with MFDA Rule 2.7.3 WFGS monitors for any activities it is not previously aware of. (b) Website Reviews WFGS reviews AP websites to ensure conformity with MFDA Rules. These ongoing reviews are conducted by WFGS to look for references to OBAs when conducting reviews of AP advertising (including websites). If issues are discovered, these are reported to Registrations. Websites of APs may include references to activities that have not been properly disclosed. (c) Approval of Trade Names Trade names used by APs require the prior written consent of WFGS. Currently, WFGS does not permit the use of AP Trade Names. (d) Branch Reviews WFGS reviews all OBAs during in person interviews with APs and sample client file reviews when conducting branch audits. Branch risk rankings are partially determined by the number of “high conflict” OBAs at the branch. (e) Annual Questionnaires As a best practice, Annual Questionnaires [ARCC] are employed to update Registrations on dual occupations. (f) Trade Reviews In conducting trade reviews, Compliance looks for patterns of redemptions where there is no repurchase, as this could suggest that an AP is making recommendations aimed at funding client participation in outside activities. (g) Due Diligence in Recruitment When reviewing candidates that are looking to be licensed with WFGS, questions regarding OBAs is included in the due diligence process before completing or
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transferring the candidate’s registration to WFGS. (h) Review of Commission Reports/Trend reviews Unexplained decreases in book size or commission levels received by an AP may indicate movement of client assets to other business investment activities offered to clients by the AP.
(i) WFGS will conduct periodic reviews via internet and other resources to see if there are any undisclosed OBA activities that an AP is engaged in.
All “securities related business” must be conducted through WFGS. “Securities related business” is defined in MFDA By-law No. 1 to mean any business or activity that constitutes trading or advising in securities for the purpose of applicable securities legislation in any jurisdiction in Canada. This includes securities sold pursuant to exemptions under applicable securities legislation.
Note: APs are prohibited from personally engaging in the sale of any investments that would be considered securities under applicable legislation, or selling or advising on such investments through any entity other than WFGS (“selling away” or “off book trading”).
10.3 Policies & Procedures to Detect Undisclosed OBA Activity WFGS will conduct periodic reviews (via internet, etc.), to see if there are any undisclosed OBA activities that an AP is engaged in. Also, WFGSs Branch Review Program (BRP) includes components to test and monitor OBAs.
RBMs must perform regular reviews of APs with OBAs. RBMs should look for any activities that are suspicious, unusual or not in keeping with WFGS OBA guidelines.
This review would minimally include:
• AP interviews
• reviewing AP files/transactions
• monitoring transactions that seem unusual
• monitoring other suspicious activity see 8.0 Branch review requirements
10.4 APs Appealing Declined OBAs Registrations review OBA submissions. OBAs may be, approved, approved with conditions or declined. OBAs that have been declined may be appealed by the AP for reconsideration. OBA appeals must be directed to Registrations that will direct the appeal to the WFGS OBA Committee.
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10.5 Unregistered Trading Activities APs must not sell, recommend, provide advice, or generally perform any act in furtherance of a trade for which the AP is not expressly licensed, has reasonable education, requisite courses, experience, knowledge and express approval from WFGS. WFGS is registered in the category of mutual fund dealer and does not permit the sale of products or the providing of advice on products it does not expressly offer.
Note: APs that engage in these activities will face disciplinary action. 10.6 OBAs: Potential Conflicts of Interest If an APs OBA is reviewed and approved by Registrations (see 10.0 OBAs), the AP and supervising RBM must be sensitive to situations in which any real or perceived conflicts of interest may arise in the normal course of AP business. The AP and RBM must abide by the process as outlined regarding Close Supervision and Strict Supervision. Even in situations that are not expressly covered by the Close and Strict Supervision guidelines (see 10.0 OBAs), if the AP believes that a conflict of interest might exist with a prospective or existing client they should minimally provide full, true, plain, written disclosure(s) to the clients and advise their RBM of the situation.
RBMs must be alert to any potential conflict of interest arising from OBAs and take appropriate actions, such as declining to branch transactions and contacting Registrations for additional guidance.
Some situations for APs and RBMs to be mindful of are:
• sales or prospective sales to individuals that may work at the same company or organization as the AP
• situations in which the AP may be considered to have undue influence over or upon others
Sales or prospective sales expressly prohibited in the APs approved OBA Close supervision and strict supervision require ongoing monitoring and reporting by RBMs. In some situations, a Conditions of Approval letter (COA) may be requested by Registrations prior to approval of an OBA. The COA is signed by the AP and states that the AP will not conduct or engage in activities that are deemed to be a potential conflict of interest. The COA must be accompanied by a letter from the employer (or similar) of the AP acknowledging the OBA and indicating that they do not have any issues or concerns.
In situations where the APs OBA has the potential to cross over to WFGS prospective or existing clients (e.g. accounting or tax services), APs must provide a written disclosure to the clients prior to engaging them in the services associated with the OBA. This disclosure must state that the OBA services are separate and independent from WFGS. The AP and the client must sign this disclosure and the AP must notify the RBM of this activity.
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Note: Signed disclosure(s) must be maintained in the APs client file and submitted to RBM see 10.0 outside Business activity (OBA) see 43.0 Branch manager responsibilities
10.7 Conflict of Interest: Definition A conflict of interest is any action or activity that could be deemed by a reasonable person to potentially compromise the independence of service and duty of care provided by an AP to a client.
A real or perceived conflict may occur under many different scenarios. These would include:
• being in a position of undue influence
• being a public figure
• dealing with prospective or existing clients that may be deemed to be vulnerable or susceptible
• dealing in a service or product outside of WFGS that may not be readily separated in the eyes of the client from WFGS services/ products offered
While WFGS & applicable Regulatory bodies make formal determinations of conflicts, APs must adhere to the spirit of providing full, true, plain disclosure see 10.6 OBAs: Potential Conflicts of interest
Examples of OBAs that might be more prone to perceived or real potential conflicts of interest may include:
• educators
• tax preparers
• medical professionals
• sales oriented professions APs that do not adhere to the policies regarding OBAs may be subject to disciplinary measures that may include termination. APs with OBAs and RBMs with APs requiring Close, Strict or other OBA supervision must familiarize themselves with their ongoing obligations.
APs with OBA questions should contact Registrations for additional guidance. see 10.0 OBAs
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AP REGISTRATION
AP registration is discussed within MFDA Rule 1.2.1, Rule 1.1.5, MSN-0077 and Policy No. 1. AP registration is processed by Registrations.
BRANCH REGISTRATION
12.1 Definition of Branch and Sub-branch Locations
see 40.6 Branches vs. sub-Branches
12.2 P & P: Registration of Branch and Sub-branch Locations
see 40.6 Branches vs. sub-Branches
see 41.0 registration of Branch & sub-Branch locations
12.3 P & P: Reconciling Branch NRD/WFGS Records
WFGS requires that all branch changes, whether it is a proposal to move locations, substantially modify existing branch space, telephone numbers, fax numbers, addition of APs or other similar changes are sent to Registrations for approval and review prior to implementation. Registrations will seek to verify existing NRD information and compare to the current information provided by the branch and the proposed branch changes and will update NRD and internal systems accordingly. If situations should arise in which there is a discrepancy between internal system information and NRD, this must be immediately resolved.
Additionally, at least on an annual basis (via the annual questionnaire) the NRD branch information is scrutinized and compared to the information in NRD for completeness.
Note: NRD (National Registrations Database) is a licensing database that is used by
DID YOU KNOW? ARCC (Annual Representative Compliance Certification) is An
electronic survey sent to All Aps Asking them to Confirm their
information. this is usually done in September/October each year prior
to year-end license Renewal.
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Regulators to monitor & track AP information see 8.0 Branch review requirements see 10.2 ongoing OBA obligations
see 15.0 Personal financial Dealings with Clients see 40.6 Branches vs. sub-Branches
see 41.0 registration of Branch & sub-Branch locations
see 41.1 reconciling Branch information to NRD
AP REGISTRATION & RELATED REQUIREMENTS
13.1 P & P: Registration & Renewal of Registration for APs The procedure for registration and renewal of registration are.
13.2 P & P: Reconcile AP Registration Information on NRD to
WFGS Records Registrations maintains registration information on NRD. Registrations has processes to review and compare information on NRD to WFGS records. APs that think information may be incorrect or not up to date should contact Registrations immediately.
see 9.6 Candidate application accuracy
see 9.9 material Changes in AP information application & registration see 12.3 P&P: reconciling Branch
NRD/WFGs records
13.3 P & P: APs Must Complete Schedule G APs that become or seek to be licensed with WFGS must complete a Schedule G (The Schedule G is an agreement form that the AP signs that acknowledges that the AP is aware of & will abide by MFDA policies & rules) that must be maintained on file with Registrations.
13.4 P & P: AP Registration Information & Proficiencies WFGS requires all AP license, examination or proficiency information to be submitted to Registrations on a timely basis. Registrations will update NRD. see 9.3 examinations & licenses
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13.5 AP 90-Day Training Program As per MFDA Policy No. 1, all newly licensed APs must complete a 90-Day Training Program. Evidence of completion of the course must be submitted to Registrations to ensure that the appropriate records are maintained. (The course is offered by IFIC and combines AP self-study with interaction with the AP’s RBM). Failure to complete the 90-Day Training Course may result in suspension of license and/or termination.
see 13.5 AP 90-Day training Program
Note: The 90-Day Training course is not required in the province of Québec see 40.4 WFGEI AML training
TRADE NAMES
WFG Securities Inc. is licensed with the MFDA as WFG Securities Inc. As such, APs must use the trade name of WFG Securities Inc.
PERSONAL FINANCIAL DEALINGS WITH CLIENTS
APs must not have personal financial dealings with clients. This would include (but is not limited to) borrowing or lending money (securities) to or from clients, having joint accounts, covering client’s trading losses, loan payments, being a participant in an investment club with clients or any other type of arrangement in which a common interest or obligation is created.
Note: This prohibition does not include immediate family members APs must not function as a Trustee, Executor/Executrix or similar role and/or function for a client. In some situations, exceptions may be granted by Compliance for immediate family members.
APs are reminded that they can only sell products for which they are expressly licensed, that WFGS is licensed as a Dealer to sell (and has approved for sale). Activities such as private placements, rights offerings, IOUs, private mortgages/loans or any product/service of a similar nature should not be under-taken by any APs at any time.
To help ensure compliance with the above, WFGS reviews account documentation, cheques, Letters of Indemnity (LOIs), suspicious transactions, performs random internet spot checks and takes other measures including an annual questionnaire to ensure that APs are not engaged in such activities and understand WFGS policies and procedures and agree to uphold and abide by them.
If you have additional questions, please contact Compliance.
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see 10.0 outside Business activity (OBA)
REFERRAL ARRANGEMENTS
16.1 Referral: Definition A “referral arrangement” is an arrangement/agreement whereby WFGS is paid or pays, a fee (including fees based on commissions or sharing a commission), for the referral of a client to/from another person or company. WFGS permits APs to enter into only a select number of pre-approved referral arrangements with pre-established (and monitored) procedures. All WFGS sanctioned referral arrangements require any fees to be paid directly to/from WFGS and must never be paid directly to/from the AP.
APs are prohibited from entering into any formal or informal referral arrangement that has not been pre-approved by WFGS or for which express written permission has not been granted.
There is a potential conflict of interest in all paid referral arrangements, because the individual that makes the referral has a financial interest in introducing the client to the other service provider. WFGS and APs must ensure that this potential conflict is addressed through the exercise of reasonable and responsible business judgment that considers only what is in the client’s best interests. The Licensing department maintains the referral guide.
Note: WFGS also requires APs to participate in a one-time Referral Certification Program from WFG EI before being able to engage in referral business. Please see program information for additional information.
There are no referral arrangements permissible for Newfoundland. see 10.0 outside Business activity (OBA) see 10.5 unregistered trading activities see 10.7 Conflict of interest
see 36.6 Personal financial Dealings with associates & Clients
Clients must be provided with full, true, plain, disclosure (that includes information concerning any fees that may be received for the referral) prior to the AP making any such referral. The disclosure document must outline the nature of the relationship between the referring parties and any licensing limitations of the parties to the arrangements. APs are strictly prohibited from recommending or advising about the products offered in a referral arrangement. To do so would be considered as being “furtherance of a trade” or engaging in activities for which they are not licensed and/or qualified.
Note: All disclosures must be signed by the client, sent to WFGDC and kept in the client file. The client must also receive a copy of the signed disclosure for their records.
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It is expected that any referral activities would be done in accordance with privacy legislation and MFDA Rules 2.1.1 (Standard of Conduct), 2.1.3. (Confidential Information) and 2.1.4. (Conflicts of Interest) that apply to business conduct generally.
16.2 Referrals: Permitted Arrangements National Instrument 31-103 Section 13.10 “Disclosing Referral Arrangements to Clients” requires that:
(1) The written disclosure of the referral arrangement required by subsection 13.8(c) [permitted referral
arrangements] must include the following:
(a) the name of each party to the referral arrangement (b) the purpose & material terms of the referral arrangement, including the nature of the
services to be provided by each party (c) any conflicts of interest resulting from the relationship between the parties to the
referral arrangement & from any other element of the referral arrangement (d) the method of calculating the referral fee &, to the extent possible, the amount of the
fee (e) the category of registration of each registrant that is a party to the agreement with
a description of the activities that the registrant is authorized to engage in under that category &, giving consideration to the nature of the referral, the activities that the registrant is not permitted to engage in
(f) if a referral is made to a registrant, a statement that all activity requiring registration resulting from the referral arrangement will be provided by the registrant receiving the referral
(g) any other information that a reasonable client would consider important in evaluating the referral arrangement.
(2) If there is a change to the information set out in subsection (1), the registrant must ensure that written disclosure of that change is provided to each client affected.
Referral arrangements may only be entered into on the following basis: The referral arrangement is only between WFGS and another Dealer, or between WFGS and an entity that is:
• Licensed or registered in another category pursuant to applicable securities legislation
• Insurance agents or brokers, or • Subject to such other regulatory system • The referral arrangement will not in any way bring the MFDA, its members or the
mutual fund industry into disrepute • The referral arrangement meets WFGSs due diligence criteria (including conflicts
of interest, fees, AP activity assessment) & the requirements of MFDA MSN-0043, MSN-0030, MSN-0071 & MFDA Rule 2.4.2
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• There is a written agreement governing the referral arrangement prior to implementation
• All fees or other form of compensation paid as part of the referral arrangement, to or by WFGS, will be recorded on the company’s books & records
• Written disclosure of referral arrangements must be made to clients prior to any transactions taking place
The disclosure document must include an explanation or an example of how the referral fee is calculated, the name of the parties receiving and paying the fee, and a statement that it is illegal for the party receiving the fee to trade or advise in respect of securities if it is not duly licensed or registered under applicable securities legislation to so trade or advise.
WFGS is required to monitor and account for referral payments and ensure that clients are given sufficient information regarding potential conflicts of interest and the fees that will be paid under the arrangements to both WFGS and the AP. Where referrals have been given, WFGS must satisfy itself that:
• the recommendations that have been made are in the best interests of the clients • the recommendations are not inappropriate in the circumstances • the recommendations are not tied to a specific security • the AP received client consent before releasing any confidential information to outside
parties WFGS is also responsible for putting in place controls to:
• prevent situations where unlicensed individuals may be acting in furtherance of trades, or individuals may be providing advice beyond the limits of their registration contrary to securities legislation
• detection of referral arrangements that have not been disclosed to WFGS • ensure clear disclosure is provided to clients • prevent any conflicts that cannot be properly managed in accordance with MFDA
Rule 2.1.4 • monitor, on an ongoing basis, conflicts of interest and potential conflicts of interest
to ensure they are properly addressed • ensure that continuous service is provided to clients regarding products for which
the AP is licensed These responsibilities will be accomplished by the review of client files, review of client complaints, review of cash flow, branch audits and interviews.
16.3 Non-Securities Referrals This section applies to all referrals arrangements both securities and non-securities related. With regard to non-securities related referrals disclosures must be given to clients indicating that the arrangement is not the business of WFGS or the responsibility of WFGS.
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For further information please refer to MFDA Rule 2.4.2 and MFDA Notice MSN-0030 and MSN-0048 “Referral Arrangements.” Please contact Compliance for additional information concerning referrals.
16.4 Referral Record Keeping Client disclosure regarding the referral must be kept in the client file and be available for review by Head Office, WFGDC and the client file.
Point Of Sale Client Copy Of Documents
When an AP meets with a client to conduct a sale or other activity, such as signing a NAAF or Trade Ticket, the client must be provided with a copy of the signed document at the time of signing.
17.1 Know Your Client (KYC) Rule APs must use diligence to learn the essential facts pertaining to the unique financial needs and objectives of a prospective or existing client in a manner that is reasonable and complete. APs should also be able to demonstrate or confirm responses provided by a prospect or client (e.g. Client Previous Investment Experience: “client stated that they had balanced equity mutual funds with a major bank. Client showed me copy of fund statement that confirmed they owned $5,000 of X”).
Note: “The Approved Person or Member must update the KYC information whenever they become aware of a material change in client information” as defined in MFDA Rule 2.2.4
APs must only recommend products appropriate to address the unique needs and objectives of their client only after learning all essential facts about the client. Information concerning the client’s financial status (including but not limited to financial responsibilities, current income, net worth, time horizon and ability to pay for products), tax status, risk tolerance, investment objectives and other such information is required to provide appropriate investment recommendations in keeping with the client’s profile.
At no time should an AP alter or adjust a client’s KYC information to facilitate an unsuitable transaction for the client.
Note: APs must make all recommendations based on a careful analysis of both information about the client & information relating to the particular transaction. This duty is, in most cases, independent of whether a client’s order is solicited or unsolicited.
see 25.0 suitability obligation for unsolicited orders
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If a client is unwilling to disclose material information during the review, the AP should decline to do business with the client.
Note: RBMs must review all KYCs & KYC changes for reasonableness prior to signing & forwarding for processing
“All material changes in client information...must be approved by the individual designated as responsible for the opening of new accounts...no later than one business day after the date on which notice of the change in information is received from the client. When approving material changes, branch managers should be reviewing the previous KYC information to assess whether the change appears reasonable. Branch managers should be aware of situations where material changes may have been made to justify unsuitable trades or leveraging. For example, branch managers should investigate further material changes that accompany trades in higher risk investments or leveraging or changes made within a short period of time (for example 6 months). Records of all such approvals must be maintained in accordance with Rule 5” [MFDA Policy No. 2 MINIMUM STANDARDS FOR ACCOUNT SUPERVISION December 3, 2011].
Note: APs must not make claims or promises to clients that imply that a guarantee exists in regards to a product that is not expressly stated within the product prospectus or Fund Facts. Transactions that involve leverage or borrowing to invest must be treated cautiously, & APs must be fully familiar with (& meet all requirements) WFGS policies concerning leverage prior to engaging in a transaction that involves borrowed funds
see 10.7 Conflict of interest: Definition
see 15.0 Personal financial Dealings with Clients see 16.0 referral arrangements
see 26.0 guarantees
see 31.0 leveraging guidelines
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17.2 Client Relationship Model (CRM) APs must familiarize themselves (and abide by) the CRM requirements concerning point of sale disclosures. CRM [CRM2] includes a description of benchmarks [contained in the WFGS NAAF/Trade Ticket], and pre-trade disclosure of costs.
Cost disclosure includes a discussion of:
• Charges that a client will pay for the purchase (or reasonable estimate if actual amount not known at time of disclosure)
• Details of any deferred charges that the client might be required to pay (including fee schedule)
• Any trailing commissions that will be received The Canadian Securities Administrators (CSA) also recommend that advisors explain terms [found on Fund Facts] such as:
• Management fee
• Sales charge or deferred sales charge option available to client
• Any other redemption fees or short-term trading fees that may apply
• Trailing commission, or other embedded fees
• Options regarding front end loads
• Fees related to the client changing or switching investments It is also recommended that discussion includes Fund Facts sections that focus on “How much does it cost?” and “Word about tax.”
See section 27.21 & 43.6 for more details on CRM2
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OPENING CLIENT ACCOUNTS
18.1 NAAF/KYC The New Account Application Form/KYC (NAAF/KYC) is used to open a client account and record or update the client’s information. No client account should be opened without the NAAF/KYC form being properly filled out, reviewed and approved by the RBM or designated compliance officer. Any subsequent changes must also be reviewed and approved by the RBM or designated compliance officer.
see 20.3 account opening Procedures & KYC information see 22.0 suitability guidelines
see 29.0 Know your Product see 30.0 trading
see 31.0 leveraging guidelines
see 43.0 Branch manager responsibilities
When an account is opened 1 of the following must be checked on the NAAF [Account Type] to determine the type of account being opened:
• Individual
• Individual-ITF (“Individual in-Trust For”)
• Joint-ITF (“Joint in-Trust For”)
• Joint-JTWOS (“Joint Tenancy with Right of Survivorship”)
• Joint-JTIC (“Joint Tenancy in Common”)
• Corporate
• Estate
• Formal Trust In the section of “Know Your Client Information - Investment Information” on the NAAF/KYC form, the client’s information of investment time horizon, risk tolerance and investment objective should be collected for the following single or multiple plans:
• Non-registered
• RRSP (Registered Retirement Savings Plan)
• Spousal RRSP
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• RRIF (Registered Retirement Income Fund)
• LIRA (Locked-in Retirement Account)
• LIF (Life Income Fund)
• RESP (Registered Education Savings Plan)
• RDSP (Registered Disability Savings Plan) • TFSA (Tax-Free Savings Plan)
Note: If a plan is also leveraged, the leverage box in the plan type section must also be checked
A client’s NAAF/KYC form must be updated to reflect any material change in client KYC information whenever you become aware of such change. At the minimum, APs should attempt to update client information annually. When an AP inherits a new client, the KYC should be updated within 3 months. This includes clients that indicate there is no change to the recorded KYC information. In situations where an AP has made at least 3 reasonable attempts (and conducted 411. ca search, etc.) to contact a client but has been unable to reach the client either due to the client moving, changing telephone numbers, etc. the AP should document and take notes concerning these attempts and contact Licensing & Contracting to have this information recorded.
After review by the RBM, all NAAF/KYC forms must be submitted to WFG DC for processing or returned to the AP due to deficiencies. RBMs must record and document items returned to APs due to deficiencies.
When a client requests or authorizes a change in banking information, APs must ensure a copy of the instruction, dated and signed by the client, is retained in Client File.
It is essential to ensure that updated, accurate and complete KYC information is on file and that the KYC information in the Client File and W.connect are consistent. Any changes in KYC must be submitted to WFG DC.
For additional information concerning account and/or KYC updates, please contact Licensing & Contracting.
18.2 KYC Information Analysis MFDA Rule 2.2.1 describes the process of due diligence that each AP must use in regards to client KYC information. Briefly summarized:
• APs are responsible for learning all of the relevant information & details concerning their clients
• APs must review all of the client’s essential information prior to opening an account &/or making recommendations for a transaction (i.e. find the client’s needs & only recommend a transaction/product afterwards that
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meets the client’s need)
• Before placing a transaction for a new client or existing client, the AP should review the KYC information & determine whether there have been any changes & whether the proposed transaction would be suitable
KYC review includes:
• Investment Knowledge
• Risk Tolerance
• Investment Objectives
• Time Horizon
• Income, Assets, Liabilities, & Net Worth
• Employment
• Dependents
• Age
• AML (Anti-Money-Laundering)
• Other KYC Information A KYC may not always provide a clear picture of the clients details, for example, a client may believe they have a high investment knowledge but don’t fully understand the investment process and how products and markets truly operate. A client may rate themselves as having a high risk tolerance but they may not fully understand the potential financial impact and any un-foreseen events which can have an impact on their financial circumstances and personal life. APs should evaluate the client’s financial circumstances including potential financial changes and the client’s stage in life and discuss this with the client. APs should also take notes, acquire appropriate client documentation and be able to support their client KYC analysis. The MFDA has recently identified numerous issues with “off the shelf” investment analysis tools and investment questionnaires. APs wishing to utilize these tools must contact Compliance for a listing of approved questionnaires and/or tools that may be utilized.
Note: The WFG FNA Tool must not be used in developing a needs analysis or financial plan for WFGS clients
see 20.6 Procedures for amendments to KYCs
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18.3 Account Opening Documentation List A WFGS New Account Application Form NAAF/KYC must be completed for all new accounts and updated as required. In addition to these forms additional documentation may be required. Additional items may include:
• Power of Attorney: Any account that is to be opened with a Power of Attorney or Trading Authorization must be forwarded with all legal documents attached to Compliance for approval
• Cheque verification: a personal void cheque or a copy of the cheque received for the deposit can be attached to the NAAF/KYC form as one evidence of identity verification
• Photo Identification: The AP must review client identity
• Client Social Insurance Number: Clients are required to provide SIN numbers for tax reporting purposes
• Corporate Resolution: a document authorizing the opening of an account on behalf of a corporate client & designating the person(s) duly authorized by the corporation for that purpose, normally issued under the signature of a Corporate Secretary & authenticated by the corporate seal
• Articles of Incorporation: A document or charter that specifies the name, purpose, incorporators, description of ownership structure & any special features
• Disclosure(s): Any disclosures required to be provided to the client, whether for APs OBA, leveraging, or other purpose
• Documents required under leverage guidelines: Any client documents as outlined within the leveraging guidelines such as proof of income, etc.
The collection of all information must be in accordance with the WFGS privacy policy (http://www.wfgopportunity.ca/).
18.4 Ascertaining Identity of Individual Clients In accordance with FINTRAC, as of June 17 2016, all photo identification used to ascertain client identity must be current (not expired) and original issued by the federal, provincial or territorial government, municipal government photo identifications are not acceptable.
Approved Persons must view the original document in the presence of the client in order to compare to photo to the client.
The photo identification must include:
1. Client’s name
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2. A photo of the client 3. A unique identifier number
It is not acceptable to view photo identification online, through a video conference or any other electronic means. A scanned image of a photo ID is not acceptable.
When ascertaining client identity using a photo ID you must record:
1. The client’s name 2. The type of card/document used (driver’s license, passport, etc.) 3. The unique identifier number 4. The country and province 5. The expiry date 6. The date you have verified and viewed the information
The above information must be recorded in the “Identity Verification, Client Acknowledgment and Consent” section of the KYC.
Acceptable photo ID:
Type of Photo Identification Issuer
Passport Canada
Permanent Resident Card Canada
Canadian Citizenship Card with photo (Issued prior to 2012) Canada
Secure Certificate of Indian Status Canada
Driver’s License All Provinces
Provincial or Territorial Identity Cards All provinces excluding Quebec
Provincial services cards British Columbia
A provincial health card with a photo may be used if allowed by that particular province or territory. You cannot use a provincial health card from Ontario, Manitoba or PEI. In Quebec, you cannot ask to see the Quebec health insurance card but if the client wants to use it for ID you can accept it.
see 10.0 OBAs
see 18.0 sales Policies
see 20.6 Procedures for amendments to KYCs see 31.0 leveraging guidelines
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CLIENT ACCOUNTS
Requirements concerning client accounts is discussed within MFDA Rule 2.2, Rule 2.3, MSN-0017, MSN-0035, MSN-0064, MSN-0069, Policy No.2, Rule 2.12.2, MSN-0068, Rule 2.3.1, MSN-0031, Rule 2.3.2, MSN-0038, and MSN-0042.
19.1 Completion of Client Documents
Note: Clients must sign & date documents 19.2 Account Types WFGS permits open (non-registered) plans, RSPs, TFSAs and a variety of other registered plan types. APs looking for a complete listing should contact WFG DC.
19.3 Account Opening Procedures & KYC Information For new accounts where KYC information is missing or incomplete, this information must be provided within 25 days or the account will be restricted and the APs commissions will be frozen. In situations where a client is transferred to a new AP, the new AP must obtain a new NAAF for the client within 3 months of taking over the account. Failure to obtain a new KYC will result in the account being restricted and AP commissions being forfeited.
see 19.0 opening Client accounts
19.4 Approval of New Accounts All new accounts must be reviewed and approved by a RBM no later than 1 business day after the initial transaction date. Approved accounts must be forwarded to WFG DC the same day as approved (or next day if approved after normal business hours).
Note: WFGS has adopted a remote supervisory structure. Under this arrangement RBMs review AP business from WFGS Head Office. As part of this arrangement documents/paperwork is directed by the AP [branch/location] to WFG DC directly. Through a workflow the document are then reviewed by RBMs. In some situations, paperwork may also be directly sent to RBMs for review and the RBM then enters these into the WFG DC workflow. WFG DC maintains WFGS books & records.
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19.5 Changes to KYC Information The client KYC/NAAF is the most important document that APs have to demonstrate the client’s current financial position, their suitability for investments, their verification that the information is true and accurate, and their authorization to proceed with opening the client account. The NAAF records client knowledge and acknowledgement of all required disclosures and general KYC information. These documents should not be altered in any manner (except for inclusion of RBM signature) after the client has signed.
see 18.1 Point of sale Client Copy of Documents see 20.5 Changes to KYC information
see 20.6 Procedures for amendments to KYCs
If an amendment or alteration is required to a form or document, any and all changes must be initialed and dated by the client. The RBM should note that they have reviewed the amendments and acknowledge the changes. The RBM can evidence their acknowledgement by either adding their own initials and date besides the client’s initials or include a note or comment on the document that states that they have reviewed the changes, the date of review and their signature.
Note: RBMs utilize an electronic workflow & these approvals may also be recorded electronically
RBMs should question any changes being made to a document and maintain sufficient records to ensure that they can demonstrate that the indicated changes are in keeping with the client’s best interests. All document changes must be submitted to WFG DC to ensure that the client’s electronic records on W.connect are updated. APs should complete a KYC update whenever there is a material change to a client’s existing KYC information that is on file. Client’s must be provided with a copy of the changed document whenever there is a revision to material information such as Annual Income, Net Worth, Risk Tolerance, Investment Objectives or Time Horizon. APs must never obscure/deface original client information on forms or documents. This would include redacting, using whiteout or any other means.
Branches should take all necessary precautions to minimize the possibility of documents being altered once the RBM has signed them without the knowledge and consent of the RBM.
Note: WFGS does not accept &/or process client KYCs with changes that have not been initialed by the client or have only been initialed by an AP
see 18.0 sales Policies
see 18.1 Point of sale Client Copy of Documents see 20.6 Procedures for amendments to KYCs see 43.0 Branch manager
responsibilities
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see 43.7 application review & suitability, item 5
19.6 Procedures for Amendments to KYCs There are occasions during the normal course of business when information is either entered on a KYC that is incomplete or entered incorrectly due to a good faith error upon the part of the client or the AP. All APs are reminded that the KYC form must adequately and honestly reflect the client, the client’s position, objectives, risk tolerance and general information. The KYC form naturally stems from the client and should never be altered or adjusted to have the client’s information conform to a transaction, eligibility requirement or adjusted in any manner that would not reasonably reflect the client but instead reflects an ulterior purpose (such as adjusting the KYC solely to have the client conform to leverage guidelines).
If a situation arises where the client’s information genuinely needs to be revised due to good faith error or the addition of information previously not known to the AP or client, then it is permissible to adjust the existing KYC form. Any changes made to the form must be initialed and dated by the client, the client must receive the revised copy of the KYC form and the KYC form must be reviewed and acknowledged as being approved by the APs RBM. Any KYC changes must be reviewed, documented and approved by the RBM within 24 hours of said change. If the RBM determines that the change to the KYC is not reasonable or that a new KYC form would be required due to the extensiveness of the changes, the RBM must document such findings and instruct the AP to provide a new client KYC form within a reasonable timeframe (24 hours). If the KYC form is part of a recently submitted client transaction, the AP/branch has 24 hours to submit the RBM approved amended KYC to WFG DC or else the trade will be cancelled. All updated/changed forms must be submitted to WFG DC.
Note: Any costs related to a cancelled trade will be the responsibility of the AP
The adjustment or alteration of client KYC forms must only be done for the right reasons and must be sufficiently documented as to why the amendment is being undertaken. The AP must ensure that they take notes of the meeting(s) with the client(s), state in writing why the KYC is being amended and ensure that the client signs and dates the APs notes agreeing to the changes. APs are reminded that the amendment of a KYC should only occur when there has been a good faith error and that KYCs must never be amended solely for the purpose of altering client information to enable the client to qualify for a loan, transaction or other activity for which the client’s information would otherwise preclude them from. KYCs must conform to the client’s unique information.
Amended KYCs and the documented AP notes concerning the amendment must be submitted to WFG DC. RBMs must not approve amended KYCs that do not have accompanying documentation as outlined above, do not seem reasonable or consistent, or generally fail to uphold the high standards required for maintaining fair, honest and complete documentation. RBMs must provide evidence of reviewing the KYC with changes [for RBMs these may be electronic]. The RBM can either initial or date the noted changes (after the client initials and dates) or the RBM can provide a note/comment indicating review of the changes signed and
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dated.
see 20.6 Procedures for amendments to Kicks
see Bulletin “Client NAAF/KYC amendments, CB.04.13.30.02”
CLIENT ADDRESS CHANGES
Client address changes can be made in 2 ways:
1) WFGS Client Information Change Form 2) letter of direction (LOD) from the client
Changes must be dated and signed by the client, submitted to WFGDC for review and signature and subsequently submitted to WFG DC for processing. RBMs must review address change requests and verify if the address change involves a P.O. Box, branch address, AP home/business address, an address that is out of jurisdiction or any other issues that might be a concern.
A change of address for a joint account should be signed by both account holders. This is to verify that both parties to the account confirm the change.
Unless a client actually lives with the AP, client mail must never be directed to an APs home or business address.
Note: In some rural jurisdictions P.O. Boxes may be the only address available for a client. RBMs should review P.O. Boxes carefully before approving an account or address change as these may be used by APs to redirect client mail to hide client losses or withhold information from a client.
21.1 Client Accounts Designated as Hold Mail A client may request that their mail/statements from WFGS be redirected to another address or be sent/held at the branch for either the AP to forward to the client or for the client to pick up in person. There may be several reasons why a client may make such a request such as, travelling for an extended period, moving, or other personal issues.
This practice must be strongly discouraged by RBMs as this could be a method by which information is withheld from the client (such as an AP hiding client losses). Clients may also be seeking to hide information from others such as family members or authorities.
Note: Client request to Hold Mail must be in writing from the client, dated, and signed (by both account holders if a joint account).
The letter must include a start date, stop date (less than 6 months is permitted to hold mail) and the reason as to why the client is requesting that mail be held at the branch. All such requests must
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be reviewed and approved by the RBM and submitted to WFG DC. WFG DC will forward this information to Compliance. Hold Mail requests approved by a RBM must be for a term of less than 6 months.
Note: If an account is held for longer than 6 months the client account Hold Mail status will be revoked by Compliance
It is the responsibility of the RBM to follow up on any client accounts that have Hold Mail status at the branch. As part of the RBM Monthly Report submitted to Compliance the RBM must note any accounts that are classified as Hold Mail.
22.0 SUITABILITY GUIDELINES
22.1 Conducting Client Suitability (KYC) An investment suitability analysis is mostly an objective analysis. To the extent that there is subjectivity in the analysis, APs and RBMs shall take the most conservative approach and act in the best interests of the client. The analysis generally involves matching the characteristics of an investment with the overall assets in the account to the investor’s stated investment needs as set out in the KYC information. Where there is a discrepancy between the KYC information and the investments, the investments will generally be considered unsuitable or the KYC information may need to be updated.
Client risk tolerance, investment objectives and time horizon noted in the KYC information give direct information regarding what is suitable for a client. These three elements must be directly compared against the assets in the client’s account to ensure that the trades are suitable. The other categories (investment knowledge, annual income, net worth, liquid net worth and age) serve two main functions. Firstly, they are used in assessing the suitability of any leveraged loans and secondly, they can be used as a check against the three categories that give direct information regarding whether the investments are suitable for a client. For example, if a 70 year-old client is shown as having a high risk tolerance and little or no investment knowledge, it is indicative of a situation which would require follow up.
When assessing suitability, only assets distributed or held by WFGS can be considered in the analysis.
Note: Client purchases should be in keeping with client time horizon. i.e. if the client purchases funds on a DSC basis the client should have a 7 year plus time horizon.
See section 28 Know Your Product (KYP) See section 22.5 Time Horizon Suitability
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22.2 3rd Party Suitability Questionnaires Some product providers (and other 3rd parties) have suitability questionnaires available for use. These questionnaires typically ask a client a few basic questions and then direct the client to a company specific fund or a category of fund. These questionnaires are generally not integrated with WFGSs NAAF and as such should not be signed by the client or utilized in any manner which a client may construe the use of a 3rd party questionnaire as a method of determining suitability of investment selections. While these types of questionnaires may provide an additional layer of client information, the client’s supporting documentation, WFGS forms and APs notes should be seen as being the primary source(s) for determining client suitability. if there is any discrepancy or conflicting information between the questionnaire and the WFG Securities Inc. KYC documentation, the WFG Securities Inc. documentation will be considered to be correct and the information contained on the questionnaire will not be considered. Remember, it is important not only to document/record client information, but also to ask the right types of questions to gain the required understanding of the client and their needs. Should you choose to use a 3rd party questionnaire to facilitate a discussion with your client it should be submitted to WFG DC for review as part of the notes package included with the clients NAAF.
22.3 Risk Tolerance Suitability WFGS uses a 5 point risk rating to record clients’ general risk tolerance: Low, Low/Medium, Medium, Medium/High & High.
Percentages must be used and need to be recorded for each of the client’s plans.. APs should ensure that the investment portfolio in the client account corresponds with the risk ranking indicated on the client’s KYC form. If the information does not match, this may indicate that the KYC information on file requires an update or the client’s objectives are not being met.
Note: RBMs must review transactions & must query transactions in which the risk rating of the product/fund does not match the client’s KYC
see 6.0 ho trade review Process
see 43.0 Branch manager responsibilities
It is not appropriate to use weighted averaging methodology to assess suitability of your client’s plan. 50% low-medium & 50% medium-high does not average out to medium.
Seeking a greater return on investment would require a higher risk tolerance. When assessing risk tolerance suitability, it is not solely the funds risk rating that should be used. Knowing more about the product than just the risk classification is of much importance. See section 28 Know Your Product (KYP)
The risk category selected is the upper limit of risk tolerance acceptable. Example: A risk tolerance of 100% medium/high does not mean 50% in high risk funds and 50% in medium risk
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funds. The total risk of each holding cannot exceed medium/high.
The following definitions have been added to the WFGS NAAF form to help APs determine what type of funds may be suitable to each risk category. The prospectus should always be consulted to confirm the risk rating given by the fund company to a specific fund.
Low: Low risk investments demonstrate a low volatility and are for investors who are willing to accept lower returns for greater safety of capital and may include such investments as Canada Savings Bonds, GICs and money market mutual funds. Low to Medium: Low to Medium risk investments demonstrate a low to medium volatility but a higher volatility than those described above and may include bond or balanced funds. Medium: Medium risk investments demonstrate a medium volatility and are for investors that are looking for moderate growth over a longer period of time and may include Canadian dividend, Canadian equity, U.S. equity and certain international equity funds. Medium to High: Medium to High risk investments demonstrate a medium to high volatility and are for investors that are looking for long term growth and may include funds that invest in smaller companies, specific market sectors or geographic areas. High: High risk investments demonstrate a high volatility and are for investors who are growth oriented and are willing to accept significant short term fluctuations in portfolio value in exchange for potentially higher long term returns and may include labor sponsored venture capital funds or funds that invest in specific market sectors or geographic areas such as emerging markets, science and technology, or funds that engage in speculative trading strategies including hedge funds that invest in derivatives, short sell or use leverage.
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22.4 Investment Objective Suitability Clients’ investment objectives are recorded in the NAAF/KYC by a percentage method, which includes 4 categories: Safety, Income, Growth and Speculative. For example, a client can state his/her investment objectives as Income 50% and Growth 30% and Speculative 20%. When assessing investment objective suitability, it should be determined whether the particular investment or trade meets the objectives of the account.
The following definitions have been added to our NAAF form to help APs determine an objective’s suitability.
Safety – The Objective is mainly the protection of the principal investment. The investment selection could include very low risk mutual funds and GICs. Income – The objective is mainly to generate an income from your investments and you are less concerned with capital appreciation. This could include fixed income funds, funds that invest in bonds and money market funds. Growth – The objective is capital appreciation and current income from investments is not a requirement. This may lead you to hold a relatively high proportion of funds that invest in equities if you also have a medium to higher risk tolerance and longer term time horizon. Speculative – The objective is capital appreciation. Investment could include higher risk funds with a long term time horizon. Speculative objectives are not consistent with a short term time horizon.
If a balanced fund is deemed as a suitable investment for a client, the appropriate investment weightings would need to be selected. Example: 65% growth, 35% income.
22.5 Time Horizon Suitability The characteristics of a particular investment should be suitable given the client’s stated time horizon. Mutual funds are generally considered medium to long term investments. Approved persons must provide clients with fund facts prior to the sale of the product and discuss in a balanced manner any benefits and costs associated with different purchase options. A client’s stated time horizon is an important aspect of the client’s objectives. Approved Persons must also be mindful of the benefits and costs associated with products recommended, including those sold on a deferred sales charge (DSC). Traditional DSC funds include a 6-7 year maturity schedule in which fees would be incurred by the client if the investment was sold prior to maturity. Low Load DSC funds typically have a 2-3 year maturity schedule. Traditional DSC funds would
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generally not be considered to be appropriate or consistent with the client’s interests if the client had a time horizon that was shorter than the DSC schedule.
A client’s stated time horizon is important when considering the fee structure of a mutual fund. Generally, it is considered unsuitable for a client to purchase into a DSC fee fund and have a time horizon that is shorter than the DSC schedule. Additionally, clients above the age of 69 would generally not be considered suitable candidates for investment in mutual funds with a standard 6-7 year DSC schedule due to their age, investment objectives and potential liquidity needs. WFGS recognizes that there may be instances where purchasing a DSC fund at age 69+ may be suitable (ie. ITF accounts), however APs should note that these circumstances are very few and limited. WFGS will review DSC transactions as part of our Tier 1 and Tier 2 review program and any transactions found to be unsuitable will require correction.
Note: Please refer to MFDA Bulletin #0670 for more information.
Note: When considering time horizon, ask the question, “when will the client need to start taking money from the investment?” Generally, this is the same as the liquidity restriction (i.e. when the client needs the money)
22.6 Concentration Accounts that are concentrated in a single investment or sector can be subject to greater volatility and risk compared to those that are well diversified. In keeping with MFDA staff notice MSN-0069, WFGS reviews and assesses trades and client holdings for concentration in high risk sector specific funds such as precious metals and resources funds.
The concentration criteria is set at 25% of the assets in the client’s account. Example: if a client has a value of $100,000 in an account and $25,000 or greater is invested in these funds it would be considered as a red flag indicating concentration.
The clients KYC details will be reviewed to assess if the holding is suitable for the client. If the clients risk tolerance is high and the concentrated amount is less than 10% of the client’s total net investable assets (liquid assets), the investment would be considered suitable.
Examples/Questions:
How do I know if a mutual fund is high risk and concentrated? Always consult the mutual funds fund facts/prospectus to determine the funds risk rating. Any mutual fund which invests in a single sector, such as precious metals funds and resource funds, is determined to be of a higher risk due to concentration in the sector and lack of diversification. It is important to remember, even if a fund may not have a high risk rating, the fact that it’s concentrated in a particular sector imposes more risk. The MFDA policies on concentration points out precious metals funds and resources funds due to the risk of fluctuating prices that can occur.
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If a balanced fund is suitable for my client, would investing 100% in a balanced fund be considered concentration?
No. Since balanced funds generally have an objective of diversification, it would not be considered as concentration. Tier 1 and Tier 2 trade reviewers will send inquiries to APs for any reasoning/explanations regarding the suitability of the holding. For more information please see MFDA Staff Notice MSN-0069. 22.7 Suitability Assessment A suitability review must be performed for each order accepted or recommendation made for any account of a client. In addition, APs should conduct a suitability assessment and confirm or amend KYC information, as appropriate, within a reasonable time but no later than the time of the first trade in the following circumstances:
• Where a client transfers in or a client transfers securities into an existing account
• Where the AP becomes aware of a material change in a client’s KYC information
• Where a client is reassigned from one AP to another AP If an AP identifies an account that contains unsuitable investments, the AP must bring this fact to the client’s attention and discuss whether there has been any change to the client’s circumstances that would warrant altering the KYC information (Review of any previous KYCs should also be conducted to determine if the new KYC is reasonable in comparison to the prior). It is inappropriate to simply alter the KYC information in order to match the securities in the account without discussing the situation with the client. If, even after obtaining a justifiable KYC update, the account continues to be unsuitable, the AP should discuss this situation with the client and recommend rebalancing the account to correspond to the client’s new KYC information. In following this process, the AP must act in accordance with the client’s instructions. Trades must be placed only in accordance with client instructions and any advice given should be properly recorded, particularly if the client declines to follow the recommendation.
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22.8 HELOC & LOC If an AP is aware that the monies a client wishes to invest are from a LOC or HELOC (regardless if arising from a LOC/HELOC referral or not) the Trade Ticket must indicate that the money being invested is leveraged. All leveraging parameters as listed in this PPM are applicable to HELOC and LOC monies. Additionally, the following information must be submitted with the Trade Ticket:
• Up-to-date KYC form (if current KYC is not on file)
• Detailed information regarding the client’s assets, liabilities, & liquid assets
• Employment information including company name, position held, annual income, & years of service
• Details of the source of other income(s) that are in addition to primary employment. For example: rental income, part time employment
• A calculation of the client’s TDSR including all figures contributing to the calculation
RBMs must review and approve all trade documentation and the recommendation of using borrowed funds for investing.
22.9 Head Office Process All accounts investing LOC and HELOC monies will be identified as Leveraged Plans in W.connect.
see 22.8 HELOC/LOC
A Compliance Officer (CO) reviews all the documentation submitted to see if the assets are reasonable to include as Net Worth and/or Liquid Assets. In addition a Leveraged Loan worksheet is completed to test each loan against MSN-0069 parameters. Should a loan not meet the requirements, if the information is inconsistent or incomplete, or does not seem reasonable for a client, the loan is either rejected outright or further requests are sent to the RBM and AP to provide an explanation for the leveraged recommendations.
Note: The HELOC or LOC trade will not be placed until it has been demonstrated to be suitable for the client’s investment needs & objectives meets the leveraging parameters or a reasonable exception has been demonstrated
see 31.0 leveraging guidelines
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22.10 Permitted HELOC Referral Arrangements: WFGS APs are only allowed to receive compensation for approved HELOC referrals. APs are not permitted to enter into a formal arrangement with any other lenders for the purposes of receiving compensation. Compensation includes monetary and non-monetary payments. For approved partners please review the approved products list on MyWFG.
Note: Have any questions, please contact the Sales Desk
ACCOUNT TRANSFERS
In the event a client account is transferred to you from another AP, you must obtain a written authorization from the client holding the account by having the client fill out the Change of Dealer/Rep Code Form. No account transfer shall be effective without the written authorization of the client. A negative confirmation is not an acceptable form of client authorization.
In the event of an account transfer, you must also become acquainted with the account. This is applicable to all new clients as well as transfers from another institution for existing clients. In both these situations a full suitability review should be conducted.
APs must review the account holdings and current KYC on file. The review should be noted in the file by initialing the current KYC document and dating it. The file should then be submitted to WFG Dealer Connect for RBM review. RBMs must also evidence their review.
In the event that the account holdings are inconsistent with the recorded KYC, or the KYC on file is stale dated APs need to meet with the client to review the account, verify suitability, discuss investment objectives, and review the client’s overall KYC information. Accounts must also be adjusted or rebalanced when necessary. A new NAAF/KYC form should be filled out and submitted along with the Change of Dealer/Rep Code Form to WFG DC. The RBM must also review all KYC updates and account adjustments and evidence this by signing the Trade Ticket and KYC updates [RBMs may do this electronically].
If an AP is transferring a client’s nominee account or a client name account from another financial institution to WFGS, in addition to the Change of Dealer/Rep Code and an updated NAAF/KYC, APs are also required to have the client complete a transfer form and the nominee account must be changed to a client name account.
Note: WFGS does not accept nominee accounts
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23.1 Client Accounts of APs that Leave WFGS Clients of former APs of WFGS are assigned to a new AP in order to maintain continuous servicing of the client’s account. APs are provided the client’s information and are expected to contact the client in order to introduce themselves and to arrange for a meeting in a timely basis to ensure that adequate service is being provided.
DISCRETIONARY AUTHORITY/TRANSACTION AUTHORIZATION
WFGS does not permit the usage of discretionary authority over client accounts. Every transaction that an AP places for a client must be specifically authorized by utilizing a signed (and dated) Trade Ticket by the client. Even if the client has notified the fund company that an AP may make transactions on their behalf, this is prohibited by WFGS.
APs must not accept orders to purchase or sell securities from anyone that is not the account holder(s) listed on the NAAF/KYC. In some situations, such as death, incapacitation, infirmity or similar situation, it may be possible for another individual to make decisions on the account on behalf of the account holder. In these situations, a Power of Attorney, limited trading authorization, and/or other supporting documentation may be required. APs should contact Compliance for assistance with these types of situations.
see 24.1 Power of attorney & limited trading authorization
Note: Pre-signed or partially completed Trade Tickets must not be kept on file. The existence of such forms in a file may be evidence that an AP is engaging in discretionary trading. Under securities legislation & MFDA rules, APs are not permitted to accept discretionary trading authority from a client. Such items may lead to disciplinary action not only from WFGS but also from Regulators, & may result in termination
Under no circumstances is it acceptable for an AP to obtain a client signature on an incomplete Trade Ticket, application or any other document. If for whatever reason, a document is incomplete & contains a client signature the document should be securely destroyed.
For additional information on blank signed forms, contact Compliance or RBM
see 50.3 Branch master Client file
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24.1 Power of Attorney & Limited Trading Authorization A “Power of Attorney” is given by a “Principal” to an “Agent” so that the agent can act on behalf of the Principal. The extent of an Agent’s authority is described/detailed in a document signed by the Principal. Both the Agent and this document are often commonly referred to as the Power of Attorney. Principal/Agent relationships also arise when one acts for another in employment situations, in estates, guardianships and situations where a “Trading Authorization” is used. Generally, a Power of Attorney may be either a “Full” Power of Attorney that grants the Agent full powers (short of making a will) or a “limited” Power of Attorney that limits the scope of activities that an Agent may engage in on behalf of the principal.
Frequently, a full power of attorney is utilized to guard against situations in which an individual may be incapacitated and unable to handle their own affairs, while a limited power of attorney is used for temporary situations.
A Limited Trading Authorization (LTA) is a document that is similar to a limited Power of Attorney. Typically, it is valid for a fixed period of time, should be renewed on an ongoing basis (annually) and while it may grant authority to place transactions it does not grant the authority to sign on behalf of the Principal, transfer securities or redeem funds from an account.
Any account that is to be opened with a Power of Attorney or Limited Trading Authorization must be forwarded with all legal documents attached to Compliance for approval. Only in extraordinary situations will approval be granted to permit an account to be opened with a POA. WFGS does not allow the usage of LTAs.
APs are not permitted to hold a Power of Attorney or Limited Trading Authorization for client accounts. In extraordinary circumstances (involving immediate family members), however, the Chief Compliance Officer (CCO) may grant an exemption from this prohibition.
In instances where approval has been granted by the CCO to permit the usage of a POA for an APs family member, the transaction must be adequately documented and a note created on W.connect indicating the details concerning the approval (as to who granted, when granted) and copies of the documents must be maintained on file.
SUITABILITY OBLIGATION FOR UNSOLICITED ORDERS
APs should always keep in mind that the obligation to make a suitability determination applies to all proposed trades, whether or not a recommendation is made. When an AP receives an unsolicited order that is deemed unsuitable for the client given their existing KYC information, the AP must advise the client that the proposed transaction is unsuitable based on the information provided and provide appropriate cautionary advice.
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If the client’s information has changed, the NAAF/KYC form must be updated to reflect the change. If the client’s KYC information has not changed and the client insists to place the order, the AP should mark the order as being unsolicited on the Trade Ticket and document the fact that the client was advised that the proposed transaction was unsuitable. APs must also consult with their RBM as to whether the transaction should still be accepted. Any such transaction should be handled with caution as an unsolicited trade may not exempt an AP from their fiduciary obligations.
Note: APs & RBMs may refuse to transact any transaction that is unsolicited or otherwise deemed unsuitable. If a RBM receives a transaction that they believe might pose risks to WFGS, an AP, or may not be in the client’s interests, they should contact Compliance to seek additional guidance before proceeding with the transaction.
If the selection is not made on the trade ticket, the assumption will be that it is a solicited transaction.
see 43.0 Branch manager responsibilities
GUARANTEES
APs are prohibited from guaranteeing clients against loss, or guaranteeing or implying profits or the future value of a client’s account. APs cannot guarantee or project in any manner the future performance of any security (The only exception to this is a product that is expressly covered by CDIC) or the return of fees upon redemption.
It is not proper to discuss accumulation of capital, preservation of capital, accumulation of an estate, protection against loss of purchasing power, diversification of investments, financial independence or profit possibilities, without adequately explaining to the client the risks inherently involved.
All investments are subject to some form of risk, save those investments secured by CDIC or a similar entity. Financial instruments that contain high levels of risk usually possess a risk premium that may reward investors with higher rates of returns, however these typically carry greater amounts of volatility and there is no guarantee that a higher risk investment will produce a positive return to the investor. While many investors may view risk as being limited solely to equity investments, it should be remembered that fixed income products may also possess risks. Many mutual fund products utilize complex strategies, complex underlying products or engage in activities that may pose risks beyond simply buying the shares or bonds of a company.
Note: Many funds now describe risk in terms of volatility or standard deviation. These measures depict how a fund has performed or fluctuated in the past in comparison to a stated index or other benchmark. Past performance may not be indicative of future performance
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All discussions or presentations that APs have with clients must conform to the standards of client communications and sales practices and present a balanced approach or point of view. There are additional requirements that must also be adhered to in regards to client discussions concerning the use of leverage or borrowing to invest.
see 33.0 sales material
see 31.0 leveraging guidelines
see 35.11 Portfolio summaries Prepared By APs
Many investors and prospects are accustomed to investing in investment instruments such as savings accounts, CSBs, and GICs, where there is a promise to return principle, pay a fixed number of dollars, or pay a fixed percentage of interest that may contain CDIC guarantees and/or are backed by the Canadian Government. While clients are generally being exposed to more types of investments, many still have little or no experience of investments such as equities, fixed income, or derivatives that many mutual funds now employ.
Therefore, the burden is on APs to explain that the market value of, and the return on, any investment rises and falls and that the investor should only assume levels of risk and volatility that is commensurate with their financial means, objectives and general KYC information. APs must be mindful of their duty to their clients and should take notes/document their client discussions and meetings.
Note: Capability/capacity to assume risk is not the same as willingness to assume risk. see 2.0 Code of ethics
see 22.0 suitability guidelines
SIMPLIFIED PROSPECTUS
A simplified prospectus contains an in-depth summary of a mutual fund or product. In the past, a simplified prospectus was required to be delivered to a client. This requirement has been replaced by the requirement to provide the client with Fund Facts. A simplified prospectus may contain additional information not included in Fund Facts. APs have a requirement to “Know Your Product” (KYP), as such, APs should familiarize themselves with the product prospectus. Simplified Prospectuses are available from all of fund companies or product providers The Simplified prospectus can also be found online at www.sedar.com.
If an AP provides a prospectus to a client (in addition to Fund Facts), you should make sure that:
• the prospectus is current
• the client has a reasonable opportunity to review the material
• all required supplements are delivered along with the prospectus
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• the Statement of Additional Information is provided upon the client’s request Additionally, APs must not alter, highlight or mark the prospectus, or state or imply that the product has been approved by any provincial Securities Commission.
see 27.2 fund facts
27.1 Electronic Delivery of Fund Facts Under NI 81-101 Annex C 3.2.05 [(2014) 37 OSCB11028] a Fund Facts document can be emailed to a client under the following circumstances:
• Purchaser consents to email (electronic) delivery
• The fund facts can be an attachment in the email, or a hyperlink that takes the client directly to Fund Facts
WFGS requires that APs document (take notes) that a client consents to being emailed the fund facts. This should include confirmation of the client’s email address, the date and version of the Fund Facts emailed to the client. Only the most current version of Fund Facts should be emailed to client. APs should confirm client receipt with email read receipt. Fund Facts can only be emailed using the APs WFG email account [[email protected]]. Fund Facts delivery needs to be noted on the WFGS Trade Ticket and the email must be sent prior to the Trade Ticket being sent to WFG DC for review and approval.
Note: Some fund companies provide “fund profiles” on their websites. This is not the same as Fund Facts.
27.1.1 Delivery of Fund Facts
In 2011, the CSA began introducing changes to the Point of Sale (POS) requirements by which APs must abide. As part of this process, the CSA introduced a new document called Fund Facts that mutual fund companies produce for delivery to clients. Fund Facts is a shortened document that presents clients with required information before purchasing a product. Information included relates to fund performance, holdings, investment mix, risks, purchase options, MERs, fees, commissions, “What if I change my mind?” [right of withdrawal/recession], and other important information.
As of June 13, 2014 delivery of Fund Facts satisfied the requirement to deliver a prospectus within 2 days of buying a conventional mutual fund.
As of March 15, 2015 CSA amendments came into force that requires the delivery of Fund Facts prior to the client purchasing a fund. APs should be delivering Fund Facts prior to the client’s first purchase of a fund [i.e. when the client is completing the trade ticket]. APs should document delivery of Fund Facts in their notes. The WFGS Trade Ticket includes sections to note if the
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transaction is an initial purchase and a client acknowledgement for Fund Facts delivery. see 27.0 simplified Prospectus
see 27.1 electronic Delivery of fund facts see 18.3 Client relationship model
27.1.2 Delivery of Fund Facts for Subsequent Purchases under a PAC/PAD Plan
Where the client is using a pre-authorized purchase plan [PAC/PAD], Fund facts is not required to be delivered to the client if:
• it is not the 1st purchase under the plan • Dealer has provided notice to purchaser that states, • Purchaser will not receive fund facts after the date of notice unless the purchaser
specifically requests it • The purchaser is entitled to receive upon request [at no cost] the most recent
Fund Facts by calling a specified toll number, or by sending an email to a specified email address
• How to access the Fund Facts electronically • The purchaser will not have the right to withdrawal under securities legislation
for subsequent purchases of a security of a mutual fund under the plan, but will continue to have a right of action if there is a misrepresentation in the prospectus or any document incorporated by reference into the prospectus, and
• The purchaser may terminate the plan at any time. • At least annually during the term of the plan, the dealer notifies the purchaser in
writing of how the purchaser can request the most recently filed fund facts document
see 27.0 simplified Prospectus
see 27.1 electronic Delivery of fund facts see 27.2.a fund facts
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27.2 Disclosure Responsibilities APs are obligated to disclose the following information to their clients. This is a fundamental requirement of securities laws, legislation and MFDA rules and policies.
• Detail the amount of commissions of the transaction on redemptions including dollar amounts for Fees/Charges such as Redemption/Switch, DSC & withholding taxes [part of WFGS NAAF]
• Any increased remuneration, including trailer fees, resulting from switch(is)
• Any other cost of the trade(s) to clients
• Detailed information about the DSC Schedule & the difference between DSC & other sales charge options when clients purchase or switch to DSC fund(s). APs must familiarize themselves with the WFGS policies concerning DSC to DSC transactions. see 30.3.B questionable trades (DSC to
DSC) • Tax implications of client transaction
• Conflicts or potential conflicts of interest
• When an AP becomes aware of any conflict or potential conflict of interest including OBAs, they should immediately disclose such conflict or potential conflict of interest to compliance, which will determine to disclose the conflict or potential conflict of interest in writing to the client(s) as per MFDA Rule 2.1.4.
• Dual Occupations
• Clear disclosure shall be provided to the APs clients that any activities related to other gainful occupation are not business of WFGS & are not the responsibility of WFGS
• Client Complaint Information Form [part of WFGS NAAF]
• APs shall provide the Client Complaint Information Form (CCIF), which is included in the NAAF/KYC, when a new account is opened. see 45.0 Client Complaints: Complaint Definition
• Leveraging Risk Disclosure [part of WFGS NAAF]
• When a new account is opened APs must have their client indicate on the NAAF/KYC form that he/she has read & understand the leveraging disclosure document included
• When an AP makes a recommendation for purchasing securities with borrowed funds, the client must indicate on Section 5 of the WFGS Trade Ticket that they have reviewed the disclosure document on the back of the Trade Ticket & have been advised of & are comfortable with all risks associated with leveraged investing
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• Client Relationship Disclosure on file that has been completed within a 6 month time period [part of WFGS NAAF]
• Disclosure requirements with regards to delivery of Fund Facts. see 27.2.a fund facts
• Other disclosure requirements contained in provincial securities legislation & MFDA rules
APs are required to maintain sufficient documentation in the client file to evidence that the above required disclosure has been provided to the client.
Note: AP client notes are the best line of defense that all APs have to defend themselves if a client makes a complaint
27.2.1 DSC/Fees/Withholding Tax Disclosure: WFGS Trade Ticket
Clients must be advised of any costs (immediate or deferred) that may come with any sale or purchase of a mutual fund. This is in keeping with the Client Relationship Model (CRM2) that has been prescribed by the Canadian Securities Administrators (CSA).
On Purchase/Sale:
• The client must be informed of the dollar amount [$] of any charges (or a reasonable
estimate if not known at time of disclosure)
• Details of any deferred charges that the client might be required to pay including fee schedule that applies
• Any trailing commissions that will be received
• A general description of benchmarks Section 8 of the WFGS Trade Ticket is where APs must indicate the dollar amount of any charges (including any fees or withholding taxes).
• On purchase, the Deferred Sales Charges (DSC) schedule should be included [Ex. 1st year 7%, 2nd yr. 6%...]
• On a sale, the DSC amount must be indicated in dollars [$]
• APs may also want to indicate any trailing commissions received in this section Fund Facts is an important part of the pre-trade disclosure. CSA has recommended that APs explain the following terms with clients (all of these can be found on Fund Facts):
• Management Fee
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• Sales charge or deferred sales charge option available
• Any redemption or short-term trading fees
• Trailing commission or other embedded fees
• Options regarding front end loads
• Fees related to the client changing or switching investments The WFGS NAAF and WFGS Trade Ticket contain a general description of benchmarks. A benchmark is information that helps compare fund performance. Benchmarks should be used by comparing funds’ performance that are in the same class of funds for example it would not be correct to compare an equity fund to a benchmark for bond funds. APs should make sure that clients are aware of the important information contained in these areas.
Writing “client is aware of fees/charges” (or something similar) in section 8 of the Trade Ticket is not acceptable. APs must ensure that they provide proper disclosure as outlined above.
WFGS Trade Tickets submitted without Section 8 fee disclosure completed will be declined or delayed
APs should take client notes in which the AP makes note of topics discussed. APs may want to include reference to specific Fund Facts sections with their clients (and include these in their notes) such as “How much does it cost” which contains information on sales charges, fund expenses (including trailing commissions) and other fees. APs may also want to direct clients to the section “A word about tax.”
Note: 27.3.B is reprinted in Branch Operations, section 43.6 as well.
27.3 Right of Withdrawal/Rescission Withdrawal and rescission rights are outlined in the securities legislation governing the applicable province or territory and are referenced in Fund Facts and the Simplified Prospectus for mutual funds. The request to exercise these rights must be in writing from the client and must be referred to the ACCO/CCO prior to the withdrawal or rescission.
The request must be made by the mutual fund purchaser within 2 business days after the first receipt of the current Fund Facts or 48 hours of receipt of trade confirmation. This right allows the investor to review Fund Facts and change his/her mind based on the information that is in the Fund Facts/SP. If the AP fails to deliver Fund Facts to the client, the client may have a continuing right to withdraw and may, at any time, exercise the right of withdrawal and receive the full proceeds of the money that was originally invested.
Note: Delays in transaction approval at the branch & WFG DC processing are
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serious. These delays may result in the trade being backdated (at the APs expense), and may also extend the period in which a client may withdraw or rescind from the purchase. If there are losses associated with this, these will be charged to the AP
see 18.3 Client relationship model see 27.0 simplified Prospectus
see 27.2.a fund facts see 30.0 trading
27.4 Client Relationship Disclosure Document All new WFGS Clients must receive a copy of the New Client Relationship Disclosure Form. This document is now incorporated into the WFGS NAAF/KYC.
see 18.3 Client relationship model see 27.2.a fund facts
Note: In Québec: “Information sur la relation avec les clients” is required see 31.0 leveraging guidelines
OUT OF PROVINCE TRADING
APs can only open accounts for clients who are located in jurisdictions where the AP and WFGS are registered. APs are required to inform Registrations immediately if they become aware that a client has moved to a jurisdiction in which the AP is not licensed. Generally, APs are not permitted to advise or carry-on functions as an AP for clients that are out of jurisdiction.
RBMs are required to review the APs licensing and ability to service the client when they are performing account opening and trade reviews.
Once it is identified that the client is located in or moved to jurisdictions where the AP is not registered, the AP or RBM must notify Registrations that will assess the nature of the situation and may: transfer the client to another AP that is appropriately licensed, freeze the client account, seek to work with the client to find another Dealer, or take other appropriate actions (Registrations may also work with the AP in assisting the AP in obtaining registration in the jurisdiction).
Note: If a client has relocated to another country, such as the U.S., it may still be permissible to accept client directed redemption orders. APs should con- tact Compliance. This permission, generally only applies to RSP accounts
APs that violate their registration may be subject to discipline, fines, regulatory issues, and termination.
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see 9.0 registration & licensing
see 36.1 Client frozen accounts
KNOW YOUR PRODUCT
28.1 Procedures in General WFGS will perform a reasonable level of due diligence on products prior to their approval.
Before APs sell any products to their client, they should refer to the current Fund Facts and prospectus. For some products, WFGS also issues product guidelines or bulletins that provide additional information, requirements or guidance concerning a product. These bulletins are emailed to RBMs and APs, and are available on MyWFG or W.connect. While WFGS may conduct a review of products and provide guidance, APs cannot solely rely upon WFGSs approval. It is still the APs responsibility to “Know Your Product” (KYP) that is involved in a client transaction.
see 27.0 simplified Prospectus
see 27.2 fund facts
WFGS uses a committee approach in reviewing all products being considered for approval for sale that involves Marketing, Commissions, Registrations, legal review and Compliance. Different procedures and levels of analysis will be considered for different types of products. For conventional mutual funds, an extensive formal review may not be required. However, a more comprehensive review will be performed on products that are novel or more complex in structure. The review process will involve:
• a review of any offering documents
• a review of any marketing materials related to the product
• consideration of MFDA Rules and securities regulations that may apply in the sale of the product
• an assessment of the risks associated with the product
• an assessment of the costs associated with the product
• an assessment of the commissions & other compensation to be paid to WFGS & APs for selling the product, & consideration of the potential conflict issues that may arise under the compensation structure
• consideration of competitive products that may be less costly or less risky
• an assessment of the investment objectives & any projected returns for the product & the likelihood that the investment will meet these objectives & projections
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• a review of the issuer’s financial position & history
• an assessment of any custodian, investment manager or guarantor associated with the product.
If the product is approved for sale, based on the product review, WFGS will develop guidelines to identify investors for whom the product would be generally suitable and for whom the product is not suitable.
Note: WFGS uses the risk profile & investor profile contained within Fund Facts/Simplified Prospectus
Where significant changes in market conditions have occurred that would affect the risks associated with certain products, WFGS will revisit the approval or risk ranking of such products.
28.2 Conventional Mutual Funds Conventional mutual funds will receive a less extensive review that focuses mainly on the fund company’s stability, reputation, financial position and history. Products that are more novel or complex in nature will receive a more detailed review. New conventional mutual fund offerings from companies that have established conventional mutual funds that WFGS already sells, will receive a less extensive review. Should WFGS consider adding a new mutual fund company as a product provider, a due diligence review will be conducted on the company prior to the approval for sale of any mutual funds offered by the company.
28.3 Unique or Complex Products From Time to Time, WFGS may consider products that are more complex or novel in nature. Such products might be: Principle Protected Notes (PPNs), Limited Partnerships (LPs), Hedge Funds, and Labor Sponsored Investment Funds (LSIF). At the time of writing, WFGS did not sell or promote the sale of any of these products.
When these products are considered the following process and documents must be completed:
• Product Due Diligence Request: completed by AP & submitted to Marketing
• Due Diligence Checklist: completed by Head Office & attached to due diligence materials
• Due Diligence Routing Sheet: completed by Sr. Management to confirm approval or rejection of request. Must include Checklist & all other applicable documentation
see 29.0 Know your Product
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28.4 Notification to APs Upon approval of new products notification will be sent to APs. Notification will include confirmation that the products has been approved and any additional limitations that may apply such as licensing requirements, compliance notes or client suitability or qualification requirements. see 29.0 Know your Product
TRADING
29.1 Trade Processing see appendix l - Branch trade Processing see 37.0 Processing Business
29.2 Letter of Indemnity (LOI) All APs should try to ensure that client documentation is properly completed and free of errors and reflects the client’s best interests. APs must follow up in a timely manner to verify that transactions have been processed correctly.
A letter of Indemnity (“LOI”) is used to correct trading errors or unavoidable processing delays in clients’ accounts. As soon as an error is recognized, it must be corrected immediately to prevent any possible losses in the client’s accounts. If a loss is generated in the client’s account due to the APs error, the loss will be charged back to the AP and taken directly from the APs commissions.
Note: Generally, LOIs are not intended to effect a trade when the client has changed their mind or when the client has made the error. LOIs are also not intended to perform transactions that are deemed to be contrary to the integrity of the capital markets & the mutual fund industry. Per MFDA rules, LOI requests are prohibited to be used for late trading & market timing purposes
See 30.6 late trading see 30.7 market timing
To have an LOI processed, the AP must complete a WFGS Request for Letter of Indemnity Form and send the request to WFG DC. The LOI form and detailed instructions are available on MyWFG or from WFG DC. In addition to the WFGS Request for Letter of Indemnity Form, APs must submit any required supporting documentation to evidence the error in processing. Documentation required will vary depending upon the nature of the error, but could include: a copy of the Trade Ticket indicating the error, a copy of the notes from the client meeting, a copy of the client’s Notice of Assessment indicating available RSP contribution room, and any other documentation necessary to support the LOI.
All LOI requests will be forwarded from WFG DC to Compliance for review. The Compliance
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Officer reviewing the LOI will review the reasonableness of the LOI, the factors surrounding the events of the error, the supporting documentation provided, the timeframe in which the LOI is submitted in relation to the trade date, the cost involved in the LOI, if there is a trend or pattern in the AP submitting LOIs and will decide whether the LOI will be approved (Compliance has an LOI tracking spreadsheet that they use to record LOIs). If the LOI is approved, WFG DC will send the LOI letter to the fund company and Commissions/Accounting will track the costing of the LOI and assign the associated costs to the AP.
Note: WFG DC has a policy that WFG DC errors will be corrected at the expense of WFG DC if WFG DC is notified within 10 days of the error. WFG DC errors after this time are the responsibility of the AP
29.3 TRADING PRACTICES
29.3.1 Churning
APs must exercise good judgment in recommending that a client change from one product to another. APs should only recommend a change in product if the change:
• is in the client’s best interest
• the client is aware & understands any & all fees. Just because a client signs a paper saying they understand may not demonstrate that it is suitable or appropriate
• improves the client’s existing position; &
• is not designed for the purpose of generating new sales commissions
• specific considerations for securities products follow
Note: Churning is any practice whereby an AP recommends a trade or multiple trades in a client’s account where the trade(s) will have little or no economic benefit for the client & where there is little or no rationale for the trade(s) other than the generation of commissions or other benefits for the AP
Transactions that are considered as churning are prohibited. The following are some examples of such activity:
• the redemption & subsequent re-purchase of the same fund, generating a commission
on the transaction for the AP
• the movement of money between funds in the same fund family
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executed as a redemption & re-purchase rather than a switch, generating a commission higher than a typical switch fee
Depending on the situation and type of sales charge, the consequences to the client may include tax implications, redemption charges, direct costs to re-purchase a front-end fund or, in the case of a DSC fund, resetting the client’s DSC schedule (The resetting of a client’s DSC schedule must be executed in limited instances and only if there is a valid documented reason for the trade).
The redemption of a DSC fund and subsequent purchase of another DSC fund (i.e. not from the same fund family) or other similar transactions may be considered as churning unless they are justified as being in the client’s best interest in some limited cases and it is not executed simply for the purpose of increasing the APs compensation. To demonstrate that it is in the client’s best interests, APs must provide the client with appropriate disclosure, which would include:
• a statement that the client’s DSC schedule will be reset, where applicable
• specific detail of the amount of commissions the AP will earn on the trade(s)
• specific details of any direct costs to the client on the trade(s). The disclosure should be provided and explained to the client at the time of each transaction and evidence that the disclosure has been provided to the client should be maintained in the client’s file.
see 43.6 DSC/fee/withholding tax Disclosure: WFGs trade ticket 29.3.2 Questionable Trades (DSC to DSC)
In addition to the requirements of Churning - Prohibited Trading Activity, MSN-0065 also requires the close monitor on Questionable Trades (part of churning) as part of WFGSs trade supervision procedures, although those transactions may be justified as being in the client’s best interests in limited cases.
Questionable trades are identified by MFDA staff as the transaction of “a DSC fund is redeemed and another DSC fund (i.e. not from the same fund family) that is purchased. In any case, the client’s DSC schedule is reset, which can lead to redemption fees later, should the client unexpectedly require his or her funds. In addition, there may be tax implications and there is limited transparency of the commissions earned by the Approved Person.”
At minimum, the client must be informed of applicable charges and fees and record their acknowledgment on the WFGS Trade Ticket and NAAF/KYC. Evidence of the disclosure should be maintained in the client’s file. In addition, appropriate notes of any discussions with the clients should, as always, be maintained in accordance with MSN-0035 Recording and Maintaining Evidence of Client Trade Instructions.
Please be aware that disclosure or client consent cannot be viewed as a means to justify churning.
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All recommendations made must be in the best interests of the client.
see 43.6 DSC/fee/withholding tax Disclosure: WFGs trade ticket
See 22.5 Time Horizon Suitability
29.3.3 Recommendations
As per MFDA MSN-0065, these types of DSC to DSC transactions should only be executed in limited instances that are supported by valid documented reasons and not solely for the purpose of increasing the APs compensation. WFGS will question DSC to DSC transactions. RBMs are reminded that all transactions must be in the client’s best interest and DSC to DSC transactions that are deemed not to be in the client’s interest will be declined and/or reversed.
In the limited circumstances where such activity may be justifiable because it is in the interests of the client, the AP must provide the client with appropriate disclosure in order to comply with conflict of interest requirements under MFDA rule 2.1.4. This disclosure would include:
• a statement that the client’s DSC schedule will be reset (if applicable)
• specific details on amount of commission AP will earn on the trade(s)
• specific details of any direct costs to the client on the trade(s) Disclosure should be provided and explained to the client at the time of each transaction and evidence that the disclosure has been provided to the client kept in the file and submitted with the client trade(s). APs should also enter this information in their client notes.
Where Compliance has reviewed the trade and determined that a questionable trend is being established or the trade may not be in the best interest of the client, Compliance reserves the right to request a commission rebate or transfer the funds to the FE type of fund. This will be assessed on a case by case basis and will be discussed with the AP and RBM. Failure to comply with this, or establishing trends of questionable trading, may result in disciplinary measures.
29.4 Switch/Conversion: DSC to FE
29.4.1 Non-automatic Switches
Non-automatic switches from DSC to 0% FE are considered trades and all normal trade requirements will apply. In addition, the client should be advised of any increased remuneration, including increased trailer fees, resulting from the switch. The AP is required to evidence the disclosure by obtaining a signed letter from the client or have the client initial beside a statement on the Trade Ticket indicating the increased remuneration.
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29.4.2 Automatic Conversion of DSC to 0% FE
Prior to engaging in an automatic conversion program whereby clients’ 10% free units in DSC funds each year are redeemed automatically and switched into units of the same fund carrying a 0% front-end load, the AP must obtain a disclosure/consent statement letter from the client. The disclosure letter should include the following:
• Disclosure of any increased remuneration, including trailer fees, resulting from the switch
• Disclosure of any tax implications • Reference to the applicable Fund Facts • The client’s signature to evidence the client’s consent to the conversion.
This requirement does not apply to automatic conversion programs where a mutual fund has included the information in Fund Facts/prospectus.
29.5 Split Sales WFGS does not permit APs to have joint codes (a common code shared by 2 or more APs). WFGS does permit split sales (a commissioned sale made to a client by 2 APs), but this can only be done by APs who are properly licensed for the product.
While the terms “Writing Agent” and “Servicing Agent” are sometimes used to describe the APs roles during a split sale, both APs are responsible for knowing the client and all of the relevant details concerning the transaction, client recommendations, suitability and investment objectives. APs should ensure that they take adequate notes and that they fully understand that each AP has a professional duty to the client and that both APs are accountable.
29.6 Late Trading Maintaining the integrity of the financial marketplace is of paramount concern for all individuals. Clients need to know that all market participants are upholding the highest standards and treating all clients in a similar manner. This includes ensuring that all clients receive the same information regarding pricing of mutual funds purchased.
Mutual funds are typically priced daily at the close of traditional financial markets (4pm EST). It is at this time that the value of the fund and the Net Asset Value (NAV) is determined. Orders received after the fund company cut-off period must not be processed that same day but must instead be processed the next following business days. This prevents the potential abuse of individuals to place transactions in an unfair manner after the NAV has been established for that day. Late trading is a serious criminal offense and is in direct violation of National Instrument 81-102.
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29.7 Market Timing Market timing is generally considered to be the short-term buying and selling of securities with the intent of benefiting from asset mispricing, anticipated trends, news releases or momentum investing. Typically, market timing (by this definition) is something that portfolio managers (at the fund company) might engage in and can carry a higher degree of risk for the overall portfolio.
Short-term trading refers to the frequent buying, selling and/or switching of mutual funds for a client. Typically, this is done with the intention of trying to anticipate tends within the market and can involve greater degrees of investment risk and typically results in lower performance for a client and the chasing of performance returns.
Generally, mutual funds are designed as long-term investment vehicles that require extended holding periods. Aggressive and active trading in mutual funds may result in heavy transactional fees, losses and greatly diminished portfolio returns. Many fund companies charge investors a short-term fee if a client sells a new holding within a short period of time (typically 3 months).
LEVERAGING GUIDELINES
30.1 General MFDA guidelines for leveraging can be found in MSN-069 (revised February 2013) and the “Leverage Supervision Guide (April 7, 2010)” and MFDA Rule 2.2. WFGS has also produced a standalone WFGS Leverage Guide and accompanying WFGS Leverage Worksheets that contain additional information. The Leverage Guide and Leverage Worksheets are available on MyWFG, APs can contact their RBM to receive a copy.
RRSP loans of smaller dollar amounts ($10,000 or less) may be treated differently. APs must ensure that the client is suitable for an RRSP loan and that a fair and balanced presentation is provided to the client.
Note: In Québec, there are specific rules regarding leverage from the AMF that are similar, (but not identical) to the MFDA requirements. www.lau- torite.qc.ca/en/borrowing-to-invest.html
30.2 Suitability APs must recognize at all times that leveraging (borrowing for securities purchases), as with any investment strategy, is not suitable for all clients. Furthermore, leveraging entails a higher level of risk.
Before leveraging is used, it is important that APs carefully review the matter for suitability based on the specific client’s circumstance (including but not limited to) elements such as: investment objectives, needs, investing experience, financial position, their willingness and capacity to
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service the debt load. see 22.0 suitability guidelines see 26.0 guarantees
see 43.0 Branch manager responsibilities
It is important to provide clients with a balanced presentation that includes a full review of the risks of leveraging as well as the benefits. This would include showing positive and negative rates of return, the effects of distributions depleting an account. Investment loans will only be approved for principal & interest loans. Distributions should be reinvested and the client must be able to fund loan payments from their own cash flow (not including the investment loan). If the client’s investment uses Return of Capital (ROC) funds, the AP must fully inform the client of how these products work and potential tax implications.
AP notes must be kept for any meeting or conversation that is part of the planning process or that leads to a transaction of any kind. These notes should be maintained in the Client File and submitted with the proposed leverage transaction.
Leveraging disclosure documents must be reviewed and discussed with the client fully. The WFGS NAAF contains this disclosure. Specifically, it should be explained that:
• The strategy should only be used by individuals that are comfortable with the general risks associated with leveraging
• The value of the leveraged portfolio may fall below the value of the loan
• There is a magnification of the investment risk where a leverage strategy is used
• Even where returns on leveraged investments are positive, interest costs may exceed the returns received
• Whether investment returns are positive or negative, clients must still pay back the loan plus the agreed interest, which may cause client hardship
• The clients may be forced to realize losses as a result of the terms of secured loans
• Any loans secured against a client’s home can put the client’s equity interest in the home at risk
• If a client is relying on investment returns to cover borrowing costs & the investment falls in value, the client could default on the loan
• A lender’s assessment of a client’s ability to repay an RRSP loan may be based on the presumption that the client will use the tax refund to pay back the loan
• A leverage strategy is not necessarily suitable simply because it is being used as a means to take advantage of tax deductions. Tax laws may be
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subject to change APs must also discuss with clients an Exit Strategy. This includes informing the clients of certain obligations they may have should they wish to redeem the investments and repay the loan when the investments are below the value of the loan. The impact of market losses and the effect of any applicable DSC charges or other fees on the value of their investments must be discussed. An Exit Strategy is planning for “what if” scenarios. What if the client losses their job? What if the client suddenly needs access to funds? What if the investments do not deliver positive returns?
Note: Clients must also be provided with Fund Facts. APs must adhere to the regulatory CRM requirements.
see 31.9 exit strategy
30.3 Leveraging Identification APs must ask their clients to disclose the source of funds for their investment and identify whether the source of funds for the investment are in part or wholly borrowed. If the funds for investment are borrowed, regardless of whether it is borrowed as part of an AP recommendation or through other methods, which includes but is not limited to such products as Lines of Credit or Home Equity Lines of Credit, the investment should be identified as a leveraged investment on the Trade Ticket. All leveraged investments identified on the Trade Ticket are subject to the policies and procedures stated in this PPM.
Note: The leverage sections of the NAAF/KYC/Trade Ticket must be completed
30.4 AP Understanding Leverage APs must complete the WFG EI leverage course (or be appropriately grandfathered) before engaging in leveraged transactions with clients. APs should also be familiar with all of the MFDA requirements concerning leveraged investments. It is also suggested that APs that are not experienced with leverage contact their RBM (who can assist with understanding the requirements) prior to presenting a leverage strategy to a client.
An AP that engages in leveraged activities that has been suspended from being able to do so, will face disciplinary action that may include termination.
Compliance must ultimately approve every leveraged account that is opened. If an account is opened which appears to be inappropriate for the client, the AP may be required to close the account, or, in some circumstances, to obtain a guarantee of any debts incurred by the client, from a third party.
Note: If purchases need to be reversed due to the inappropriateness of the account, all losses due to the transaction will be charged back to the AP
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30.5 Leveraging: Advertising and Sales Communications All advertising and sales communications must abide by MFDA MSN-0070. MSN-0070 prohibits the usage of misleading statements regarding the practice of leverage. Some examples of misleading communication cited in MSN-0070 are listed below:
• suggestions that leverage is appropriate for all clients
• promises to clients to “make your mortgage tax deductible”
• recommendations for the use of borrowed funds with “no additional risk”
• projections that presume unrealistic returns or feature overly optimistic examples; &
• statements that promise returns but provide no disclosure or inadequate disclosure of
• downside risk or potential negative returns. 30.6 Leveraging: The Role of the RBM RBMs must review all transactions at the branch, including leveraged transactions. Proposed leverage transactions must be reviewed for the suitability of the leverage strategy as well as the suitability of the investments. If the leverage transaction does not meet with WFGS guidelines, the RBM should either decline the transaction, or the RBM may submit to Compliance a written analysis of why they [RBM] believe the loan is still appropriate if the RBM believes there are mitigating factors that warrant approving the loan (even though it is outside stated parameters).
Frequent submission of inferior leverage business for review may be subject to disciplinary action that may include the requirement to retake courses and/or other actions.
30.7 Leveraging Course
Note: New APs must complete the leveraging course before they can engage in leveraging. The WFG EI leveraging course is available in French
see reference for WFGEI see 40.3 leveraging Course requirement
30.8 Leveraging Parameters WFGS has produced a stand-alone WFGS Leverage Guide. APs wishing to engage in the usage of leverage must familiarize themselves with the guide as well as the MFDA policies and rules concerning the usage of leverage.
see 31.1 general
APs must submit loans following the guidelines outlined within the WFGS Leverage Guide. Some of the requirements of the guide include:
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• Limiting the usage of T-series funds that support high levels of distributions
• Providing all required supporting documents when submitting the loan for approval review
• Open investment loans must have a completed WFGS Leverage Worksheet completed
• Letters of exception may be submitted by APs, but must be limited in use, not templated & written by the AP (The onus is on the AP to demonstrate why in the APs professional judgment they feel it is suitable & be able to sufficiently demonstrate & evidence that suitability)
• Information contained within the loan company documents & WFGS documents must be consistent
• Clients should be made aware that as part of the loan process the lender may perform a credit check that may show on a credit report and may affect a client’s credit score.
WFGS has outlined the following as being the minimum criteria for a client open investment loan:
• Minimum Annual Income $40,000+
• Clients must have a risk tolerance of 100% medium or higher
• The total borrowed funds to invest must not exceed 30% of a client’s verifiable net worth & 50% of the client’s verifiable liquid net worth (For the purposes of the leverage review, pension & RSP assets will not be considered in the Net Worth calculation)
• The client’s total debt payments must not exceed 35% of the client’s TDSR
• Client Liquid Net Worth should be lower than 50%
• Client investment knowledge must be good or sophisticated
• Client investment horizon 5+ years
• Client must be able to afford to service their debt load using their own demonstrated personal income. The following methods to fund a loan will not be included as income when applying for approval: systematic withdrawal plans (SWP’s) & cash distributions from underlying funds (i.e. ROC funds)
• For portfolios in excess of $25,000 APs should consider diversifying to a number of individually chosen funds or a managed portfolio product
• Independent legal advice (“ILA”) may be required for all loans of $250,000 or more. If this is already a requirement of the lender, an additional ILA is not required
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• Investment loans will only be approved on a Principal and Interest (P&I) basis
• If return of capital (ROC) funds are used, the client must be made aware of the unique features of these funds
• Distributions should be reinvested
Note: “Policy No. 2...requires...[WFGS] to obtain, for non-registered leveraged accounts, details of the net worth calculation, specifying liquid assets plus any other additional assets less total liabilities. Where the net worth criteria...is triggered or close to being triggered...assessment should [consider]...portion of client’s total net worth that is comprised of liquid assets” [MFDA MSN 0069 Revised February 2013].
In general, the following clients SHOULD NOT be permitted to leverage their investments:
• Young clients with little in the way of income & assets
• Elderly clients with modest income &/or assets
• Unemployed clients with few assets
Leveraging MUST NOT be permitted for the following accounts:
• Trusts (formal or informal)
• Estate accounts
• Accounts opened under Power of Attorney
• Accounts for unincorporated associations
• Investment clubs
• Accounts opened for Scholarship Plans Exceptions for older clients (age 60 plus) will be considered if the clients have:
• An adequate net worth
• More than adequate retirement savings
• More than adequate income WFGS reserves the right to assess each application for eligibility. APs and their clients must understand that leveraging must be approved by their Supervisor and Compliance before the trade is processed or the loan application is submitted to the lender for consideration.
Note: In rare & extraordinary instances WFGS may consider exceptions to the
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leveraging parameters (Exceptions can only be granted by senior compliance personnel)
30.9 Exit Strategy An Exit Strategy reviews the implications of sustaining or surrendering a leveraged account. This could be due to client hardship (i.e. loss of income to support payments) or a client just changing their mind. Clients must always be provided with a balanced presentation of available options. Risks, DSC fees, any costs, associated with the use of leverage must be clearly presented to the client. One way to consider the EXIT STRATEGY is to think of “what-if” situations. Some examples could include: What if there is marriage break-down, what if there is job loss, what if the markets are volatile, what if client has unexpected events, etc.
APs should take detailed client notes of what was presented to the client and the client’s level of understanding of strategy and the potential risks.
Borrowing to invest or leverage is not a suitable strategy for all investors. Equity markets do not always rise, & past performance is not a guarantee of future returns. Even if a mutual fund goes up in value, the total costs associated with the strategy (i.e. making payments) may still leave the client in a loss position.
Clients must fully understand the following considerations before borrowing money to invest:
• The strategy should only be used by individuals that are comfortable with the higher risks associated with leveraging
• Leverage may introduce greater volatility to the client’s portfolio (magnify gains & losses)
• The value of the leveraged portfolio may fall below the value of the loan (In theory, the value of the leveraged portfolio could fall to $0, while the balance of the loan would still remain)
• There is a magnification of the investment risk where a leverage strategy is used
• Even where returns on leveraged investments are positive, interest costs may exceed potential investment returns
• Whether investment returns are positive or negative, clients must still pay back the loan plus the agreed interest, which may cause client hardship
• The clients may be forced to realize losses as a result of the terms of secured loans
• Any loans secured against a client’s home can put the client’s equity interest in their home at risk
• If loans are issued on a variable rate basis, they are subject to having rates rise which may considerably increase the costs associated with servicing the loan
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• Distributions provided by funds (including T-series funds) may be subject to change. In an environment in which the cost of servicing the loan (interest rates) increases & the fund distribution or performance decreases (or is negative) the client may experience significant declines in the portfolio & may experience hardship
• Clients may have to deposit additional funds if they have a margin loan • APs should never guarantee or imply a guarantee that the performance or
distributions of the investment will pay the costs of servicing the loan. While the cost of servicing the loan may equal the distributions or the performance of the fund, distributions & performance may change & the client must be aware that they should be able to fund a loan independently of the distributions or the investment performance. Distributions should be reinvested
• If a client is relying on investment returns to cover borrowing costs &
the investment falls in value, the client could default on the loan (As per MFDA Leverage Guide: If clients are unable to make monthly loan payments from regular income sources, are relying on funds withdrawn from registered investments to finance interest costs or are relying on growth or distributions from the mutual funds to make loan payments the leveraging strategy is likely unsuitable)
• A lender’s assessment of a client’s ability to repay an RRSP loan may be based on the presumption that the client will use the tax refund to pay back the loan
• A leverage strategy may not be suitable for a client just because a lender is willing to lend the client money
• All loans (including loans transferred into WFGS) must be reviewed for suitability & reviewed using WFGS leverage suitability guidelines (Loans transferred into WFGS that do not meet the parameters may be rejected. Furthermore, loans that are rejected may require WFGS to clearly indicate to the client why the strategy is unsuitable (& their options). This must be documented.
• Leveraged plans being transferred in to WFGS must be reviewed by RBMs & Compliance prior to being accepted. If a leveraged plan is transferred in and declined by WFGS, the AP will be responsible for any losses, costs associated with reversing the transaction
• A leverage strategy is not necessarily suitable simply because it is being used as a means to take advantage of tax deductions. Tax laws are subject to change.
Reviewing these risks with your client and documenting the clients understanding and willingness to accept these risks is essential. APs should take detailed client notes.
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Note: It is the expectation of WFGS that APs will review client leveraged accounts & recommendations with their clients on an on-going basis to ensure clients are receiving service, & the strategy is still suitable
30.10 Documenting & Calculating Client Assets & Liabilities APs must familiarize themselves with all WFGS policies regarding leverage. As part of these requirements, APs must gather all relevant information from a client, including supporting documentation and submit such documentation when they submit the loan for approval/review. Clients must accurately disclose their assets, liabilities, net worth, income and existing loan information (if they have an existing loan) and legitimate supporting documentation.
Loans with inconsistent information (ex. loan application and WFGS NAAF have different information) and incomplete, insufficient or inconsistent supporting documentation will be declined.
APs are responsible to verify client information by asking for valid supporting documents, which may include the client’s income statement from his/her employer, statements from CRA, reliable estimation document(s) for the market value of the client’s properties, e.g. the restoration cost of the client’s house(s) and/or auto(s) in the client’s insurance policy, the cash value (less any surrender charges) on a client’s life insurance policy, etc. The client’s previous investment loans must be clearly disclosed in the client’s loan application or related documents. In general, household contents (e.g. furniture, appliances, jewelry, and collections) cannot be taken into consideration when calculating the maximum amount of loan the client can borrow.
Note: APs should have the client complete a new NAAF/KYC when the client is applying for a new loan, is changing an existing loan or is seeking to make changes to a loan.
Where a client has pre-existing loans and is applying for a new loan, the aggregate amount (past & current proposed) will be used to determine client ratios (i.e. the client’s total debt payments of total loans should not exceed 35% of gross income).
Likewise, if clients are applying for separate loans against the same assets in their joint ownership, the total amount of their combined loans and obligations must be taken into consideration (e.g. if a $200,000 house is owned 50-50, each person only owns $100,000 of house).
Note: All new WFGS loans, whether they originate at WFGS, are transferred into WFGS from another Dealer or were originally taken out with WFGIA (An affiliated company that is outside the Member) must meet WFGS policies & must provide adequate supporting documentation
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30.11 Parameters for RSP Loans RSP loans still require the AP to complete a suitability assessment and for the loan to be reviewed by a RBM. WFGS recognizes that RSP registered loans differ from non-registered investment loans and has established the following parameters for RSP loans. Loans that are under $10,000 are not required to be submitted with a leverage worksheet.
WFGS requires that clients applying for an RSP loan meet the following parameters as a minimum:
• A fair investment knowledge
• A medium risk tolerance • A medium investment horizon (at least 3-5 years)
• Be able to demonstrate that they have the means to repay the loan as required by the lenders contract
30.12 Required Documentation Except where otherwise noted, leveraged loans must be submitted with the following documentation:
• WFGS Leverage Worksheet
• Client supporting documentation
• WFGS NAAF/KYC
• WFGS Trade Ticket
• Loan Agreement
• Loan Application Form
• Fund Company Application
• Signed Disclosure Document/Leverage Loan Disclosure Statement [part of NAAF/KYC]
• Cheque for purchase & void cheque from client
• Letter of assignment if pledged as collateral (if applicable)
• Evidence of ILA, $250,000 or more
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30.13 Recording Client Investment Loan Details Client investment loan details (such as date(s) of the loan(s), lending institutions, type of loans, payment information and term of the loan) are recorded by Compliance within a Loan Tracking database. Compliance utilizes a common workflow with WFG DC that also tracks client loan approvals.
30.14 Consistent Client Information on KYC & Loan Documents RBMs must review all loans submitted for consistency and accuracy (lender documentation and WFGS KYC information). Compliance will decline any loans received in which the financial information on the WFGS KYC is not consistent with the information provided on the lender’s loan documentation.
see 5.4 Guidelines R e g a r d i n g suitability
see 18.0 sales Policies
see 20.0 Client accounts
see 22.0 suitability guidelines see 31.0 leveraging guidelines
30.15 AP Arrangements with Lenders APs are not permitted to enter into arrangements with unapproved lenders to arrange client investment loans. At the time of writing, WFGS had arrangements with B2B Bank and BMO for nonregistered plan and registered plan loans.
ADVERTISING & SALES COMMUNICATIONS
MFDA rules and policies concerning advertising and sales communications are described within Rule 2.7, Rule 2.8, MSN-0032, MSN-0033, MSN-0070.
31.1 Communication’s with the Public
31.1.1 Overview
All communication with the public must comply with the requirements of WFGS, the Code of Ethics, applicable securities commissions, the MFDA, and be based upon fair dealing, good faith, and provide a sound basis for evaluating the facts at issue. Truthfulness and good taste are the basic criteria to be applied in any communication with the public. There should be a balance between describing the risks and the potential rewards of an investment or investment-related product. Omission of material facts is just as misleading as exaggerations or inaccuracies. The level of risk must always be disclosed in any investment proposed to a client, and APs must refrain from making unrealistic or exaggerated presentations of the potential of an investment or
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strategy. APs must ensure that sales communications are approved prior to usage. APs can submit material for review by completing the appropriate form on MyWFG. All submissions are reviewed by RBMs. Only after receiving approval should APs use materials with clients, prospects or the general public. If APs have questions, they can contact their RBM.
APs that have a dual license (Licensed to securities and insurance products), must also follow the insurance guidelines detailed within the World Financial Group Insurance Agency of Canada Inc. Insurance Guide. WFGS is to be only used in the context of mutual fund related activities, such as mutual funds (World Financial Insurance Agency of Canada Inc. is only to be utilized in the context of insurance products).
31.1.2 Proper Personal Identification to the Public
In all public communications, APs must ensure that the communication reflects in a clear and concise manner that they are acting in the capacity of a WFGS mutual fund sales representative. This should minimally include: AP name, approved title(s), approved designation(s), branch information and approved contact information.
Note: APs should consult MyWFG for WFGS brand/style guide, samples of logos, pre-approved sample presentations & more. The WFG distribution center can provide additional information regarding the ordering of business cards, and printed materials.
All communications with clients and prospects must accurately describe the products and/or services APs provide. Only approved WFGS products and/or services are permitted.
see 32.10 Designations
see 32.9 titles
see 32.7 Business Cards & stationery
see 43.0 Branch manager responsibilities
Note: In Québec, only L’ Agence D’assurance Groupe Financier Mondial du Canada Inc. & WFG Valeurs Mobilières Inc. may be used. For approved titles available in Québec, please contact WFG distribution centre.
31.1.3 Office Identification
All WFGS APs are required to conduct their business activities from a WFGS approved branch location under the supervision of a designated RBM (APs must sign a supervision agreement that ackowledges this supervision). This is the site at which the AP will primarily conduct business, maintain records/files, meet with clients, and is the location identified as to where the AP conducts business with the public.
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Only the approved branch location may be used on business cards, stationary, sales communications, marketing materials, or any other type of communication with the general public, clients or prospective clients (This includes addresses used in email signatures, faxes and other forms of electronic communication).
All approved branch locations are identified within the National Registrations Database (NRD) and are assigned a unique number. WFGS internally also assigns branch numbers, but these are independent of the NRD location number. NRD information is entered and updated by Registrations.
Only locations that have received formal written approval from WFGS Head Office are considered to be approved WFGS locations.
Unapproved branch locations are a serious breach of WFGS policies & will result in disciplinary action being taken that may include, fines, suspension &/or termination. Individuals interested in additional information on opening a branch, changing a location, or other questions relating to a branch location, should contact Licensing or Registrations.
31.2 Business Cards & Letterhead When interacting or corresponding with clients or prospects, AP must only use official and approved WFGS letterhead and business cards. Representatives may choose how they have their business cards printed. Representatives will be able to access the pre-approved generic WFGS template (complete their required information as per the guidelines) via MyWFG and take the electronic file to the printer of their choice. Only business cards that are in accordance with the provided templates will be considered valid. Note, representatives may still order cards directly through the Distribution Center if they so choose to do so.
WFGS representatives that are dually licensed are permitted to use a dual sided business card where one-side references WFGS and the other side references World Financial Group Insurance Agency of Canada Inc. (WFGIA). If a WFGS representative is not dually licensed, they are only permitted to use the single-sided card.
31.3 Phone Listings Only formally recognized branches may be identified within public telephone listings (including electronic listings). Listed branch telephone numbers must abide by the following requirements:
The address and phone number identified must be the address and the phone number of the registered location (The information must be the same as that within NRD). Example of Listing: WFG Securities Inc. 5000 Yonge Street, Suite 800 Toronto, ON, M2N 7E9
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416.225.2121 If an AP wants to be identified in the listing, only approved WFGS titles may be used (APs may also include an approved and earned designation (e.g. Joe Smith, CFP) as long as it is permissible by the standards applicable to the designation). For example:
WFG Securities Inc. Joe Smith, CFP 5000 Yonge Street, Suite 800 Toronto, ON M2N7E9 416.225.2121
31.4 Telephone Voice Mail Voice mail messages that a caller hears when calling a branch office must include the proper identification of WFG Securities Inc.
Note: Branches that contain dually licensed individuals must also reference World Financial Group Insurance Agency of Canada Inc. For policies concerning insurance requirements, see World Financial Group Insurance Agency of Canada Inc. Insurance Guide
Messages should also include a statement that client trading instructions left on voicemail cannot be acted upon.
31.5 Business Cards & Stationery APs that are dually licensed are permitted to use a dual sided business will be able to access the pre-approved generic WFGS template (complete their required information as per the guidelines) via MyWFG and take the electronic file to the printer of their choice. Only business cards that are in accordance with the provided templates will be considered valid. Note, representatives may still order cards directly through the Distribution Center if they so choose to do so.
WFGS representatives that are dually licensed are permitted to use a dual sided business card where one-side references WFGS and the other side references World Financial Group Insurance Agency of Canada Inc. (WFGIA). If a WFGS representative is not dually licensed, they are only permitted to use the single-sided card.
Business cards must contain the following information:
• Full legal name of AP (exceptions such as Rob for Robert, etc. can be made if reasonable)
• Title [see 32.9]
• Appropriate WFGS logo
• Office address
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• Office telephone number
• Office Fax number (if applicable)
• AP telephone number (optional)
• AP Email Address (WFGS email account only)
• Appropriate disclaimers Any exceptions to the above guidelines must be approved in writing from Head Office. Failure to use only properly approved business cards and/or stationary will lead to disciplinary measures.
Note: During branch reviews, Compliance will look at AP business cards & marketing materials. Additionally, RBMs may request a copy of a business card at any time. WFGS representatives using unapproved business cards will face disciplinary actions that may include suspension and/or termination.
31.6 Usage of Trade Names
WFGS has arranged to use WFG Securities of Canada Inc. and Transamerica Securities Inc. as trade names. No other trade names are permitted.
31.7 Business Titles The following are the only titles approved for use by APs of WFGS:
• Mutual Fund Representative
Approved Persons must reference themselves as “Mutual Fund Representative,” “Mutual Fund Advisor” or similar wording that is clear to the general public in regards to the Approved Persons capacity, or where another title is used, the advertisement or marketing piece must contain sufficient disclosure to inform the public of the Approved Person’s capacity and clearly note titles that are used for internal Member purposes or used with affiliated Non-Member entities.
MFDA Rule 1.2.1 prescribes requirements with respect to the use of business titles.
31.8 Designations You may use designations on business cards and other marketing materials if you have met (and continue to meet) all requirements for the designation(s) and a copy of the applicable designation has been received and acknowledged by Registrations.
Examples of designations that you can use include the following:
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• CFA CFA Institute
• RFP Canadian Association of Financial Planners
• CLU Canadian Institute of Chartered Life Underwriters & Chartered Financial Consultants
• CFP Financial Planners Standards Council (FPSC)
• CIM Canadian Securities Institute
• Accounting designations such as CA, CGA, CMA, CPA are permissible.
• As well as degrees/diplomas earned such as P. eng, Ph. D, etc. APs must notify Registrations and provide supporting documentation to use a designation. APs must not use any title or designation without the appropriate proficiency and registration.
Questions in regards to approved titles/designations or the process of obtaining an approval for a title/designation that is not on the above list should be directed to Licensing & Contracting.
SALES MATERIAL
APs must submit material for review and approval by RBMs. APs can submit items for review via MyWFG. Social media (such as Facebook, LinkedIn, Twitter) have separate guidelines that APs must follow. see 33.8 social media & internet Communications
32.1 Advertising Advertising includes television or radio commercials or commentaries, billboards, internet websites, newspapers and magazine advertisements or commentaries and any published material promoting the business of WFGS and any other sales literature disseminated through the communication media.
32.2 Client Communication Client Communication means any written communication by WFGS and/or a WFGS AP to a client or prospect of WFGS (Including the general public) including mass mailing, trade confirmations and account statements, other than an advertisement or sales communication.
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33.3 Sales Communication Sales Communication includes records, video tapes and similar material, market letters, research reports, and all other published material, except preliminary prospectuses and prospectuses, designed for or use in presentation to a client or a prospective client whether such material is given or shown to them and which includes a recommendation in respect of a security.
Sales material includes advertising, sales communication and/or outgoing correspondence which is produced by WFGS, a product provider, or any other source.
32.4 Approval of Sales Material Sales material must be approved prior to use by RBM or Compliance if:
• mentions WFG Securities Inc. (or affiliated trade name)
• mentions a securities product or service
• the material can be used in the solicitation &/or sale of a securities product or service
APs wishing to engage in mrketing/sales communications, must complete a marketing submission via MyWFG for RBM review. RBMs must review the materials for the following:
• Proper use of WFGS logo
• Proper identification of AP
• The material is not detrimental to the mutual fund industry, capital markets, of an illegal nature, detrimental to WFGS, or contains information that may be considered prejudiced, racist, sexist or otherwise in non-conformance with WFGS see 2.0 Code of ethics
• The material is not making exaggerated, false or misleading claims
• Pre-approved WFGS material
• The content does not reference services or products for which the AP is not licensed or WFGS is not licensed
• The medium to be used is appropriate
• Is it a co-operative Marketing Request
• Letters to clients are written upon the APs WFGS letterhead
• Business cards are approved WFGS business cards
• Does the material involve rates of return, product guarantees
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• Particular attention must be paid to any material that directly or indirectly references leveraging as there are specific guidelines concerning communications regarding leverage
Once the RBM is satisfied with the material and approves the material, notice is sent to the AP that they can use the items. Head Office maintains a list of submitted and approved items.
Compliance will perform a review of the material to ensure that it meets regulatory requirements and stated WFGS policies. Materials will receive the following status:
• Approved as is – material is approved for use in its current form
• Denied, revise/resubmit – material may not be used until recommended revisions are incorporated & final approval is obtained
Compliance approval of sales material is valid for 2 years (unless otherwise stipulated), after which the material must be resubmitted for approval. Additionally, any changes to previously approved material require that the material be resubmitted for review and approval.
Note: WFGS may, at its discretion, prohibit APs from creating their own sales material RBMs must retain a copy of the sales material and submitted Field Advertising Request Form. Note: Materials should be submitted at least 2 weeks prior to the required date. More complex reviews may take longer.
32.5 Advertising Library Marketing maintains an online library of sales materials produced by WFGS, product sponsors with whom WFGS has selling agreements, and marketing affiliates. These materials may include, among other items, media advertisements, audiotapes, videotapes, media broadcasts, client prospecting letters, seminar texts and materials, article reprints, and brochures. These materials have been approved for use with the public. When using sales materials in the Advertising Library, APs must accompany or precede the material with a prospectus and/or quarterly performance update if required, and use approved WFGS letterhead for all transmittal and prospecting letters that are modeled on a prototype provided by these sponsors. Additionally, APs must ensure that WFGS is identified on every piece of vendor-supplied sales material (such as postcards, etc.).
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32.6 Materials for Limited Distribution or “Internal Only” Internal memoranda/bulletins or other materials received from issuers, product providers, wholesalers or disseminated by WFGS that are labeled “for internal use only,” “for producer use only,” “for internal dealer use only” or having similar language, is of a confidential nature and must not be distributed or shared with the general public, clients or prospects.
Such materials are provided for educational purposes, instruction, or to assist APs in making appropriate recommendations or guidance while servicing clients or prospects. These materials must not be given, shown, read, distributed or referenced with clients/prospects, nor copied, retyped or recreated in any form and disseminated to clients or prospects or other individuals. Only appropriate individuals listed on internal only distribution lists should see or be provided with such information.
32.7 Correspondence Correspondence is any written or electronic communication prepared for delivery to a single current or prospective client, and not for dissemination to multiple clients or the general public.
Outgoing hard copy correspondence must be reviewed by an RBM prior to mailing. RBMs and APs will maintain a record of the approved correspondence. Correspondence that has been declined or rejected by the RBM should not be sent to clients or prospects.
Incoming correspondence to the branch must have a secured limited access area where all incoming mail is received, opened, date-stamped and screened by a Branch Administrator or the AP.
Cheques, applications and orders are sent to the RBM for review in accordance with standard order processing procedures, while client complaints and other mail evidencing questionable practices are also sent to the RBM for handling in accordance with WFGS policies. All other mail should be initialed (to evidence review) and forwarded to the individual to whom it was addressed. RBMs must follow up and question the AP on any correspondence that may indicate an undisclosed outside business activity or other undisclosed activities.
Note: Sub-branch locations have a similar process and requirement to ensure the review of materials.
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32.8 Social Media & Internet Communications Social Media (such as Facebook, Linkedin) are permitted for use by WFGS APs and are treated differently than other forms of sales communications. Given the nature of these forms of social media communication, WFGS does require APs to seek prior approval to disclose WFG Securities Inc. or any products/services offered through WFG Securities Inc. on their profiles. Requests can be sent by completing a marketing submission via MyWFG for RBM review. However, WFGS does not require APs to seek prior approval of each message prior to posting. However, at all times APs must abide by the following guidelines, No advertisement or sales communication shall:
• Contain any untrue statement or omission of a material fact or is otherwise false or misleading, including the use of a visual image such as a photograph, sketch, drawing, logo or graph which conveys a misleading impressing
• Contain an unjustified promise or specific result • Use unrepresentative statistics to suggest unwarranted or exaggerated conclusions, or fails
to identify the material assumptions made in arriving at these conclusions • Contain any opinion or forecast of future events which is not clearly labeled as such • Fails to fairly present the potential risks to the client • Direct or indirect references to the use of leverage or borrowing to invest are not to be made • Is detrimental to the interests of the public, the Corporation [MFDA] or its Member [WFGS] • Does not comply with any applicable legislation or the guidelines, policies or directives of
any regulatory authority having jurisdiction over WFGS
32.9 Web Sites WFGS offers an approved website for APs. Please note that APs are prohibited from constructing webpages or operating websites related to WFGS that have not been expressly approved by Compliance.
On all websites, APs must provide the address and phone number of their registered location (i.e. branch address). The address of any non-registered location or any outside business activities is strictly prohibited. APs may include an additional phone number (such as a mobile number), provided that the phone number of the registered branch office is also listed. Please be advised that although the websites are offered through WFGS, compliance review and approval is required prior to any sites “going-live” or any changes being made. APs are required to be able to produce evidence of review and approval (including date of approval) for all marketing pieces being used.
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32.10 Email All WFGS APs have a WFGS email address. This email address must be used for all WFGS related activities (including communications with Head Office in regards to client related matters). Email communication is subject to the same requirements as Sales Communications and Advertising. WFGS does not permit the acceptance of trade instructions via email or text (a client sending an attached, properly signed letter or form is excluded from this definition).
WFGS permits APs to use email in communicating with clients and prospects. WFGS AP email may be monitored and may be routinely sampled by Head Office.
Note: WFGS may, from time to time, use email services that reference how to unsubscribe to emails when communicating with APs. WFGS communications sent to WFGS email addresses are not considered to be external solicitations & any WFGS APs that unsubscribe via this method will be re-added to the WFGS distribution list
32.11 Chat Rooms APs are prohibited from discussing or disseminating any securities-related information in chat rooms, bulletin boards, blogs, and/or other electronic/internet methods.
32.12 Telephone Solicitations A telephone solicitation is a telephone call or message made for the purpose of soliciting the purchase of securities products or related services. WFGSs policy regarding telephone solicitation is as follows:
• Before engaging in any telephone solicitation, APs must confirm that they have the appropriate provincial licenses in the jurisdiction to which they are calling
• APs may not engage in telephone solicitations before 8:00 a.m. or after 9:00 p.m. local time
• Telemarketing scripts are considered “sales literature,” & must meet the prior approval requirements outlined in 33.0 sales material
• Under no circumstances should APs misstate their identity or the purpose of the call
• If the recipient of the telephone solicitation asks the AP to refrain from future calls, the AP must honor the request
• APs must identify themselves
• APs must disclose that they are calling as a representative of WFGS
• APs must provide a telephone number or address at which they can be reached
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• APs must disclose that the purpose of the call is to solicit the purchase of securities or related services
32.13 Additional Telephone Considerations
• APs must conduct all conversations in a professional, accurate & courteous manner
• APs are prohibited from engaging in telephone solicitations or in any communications with clients that contain threats, intimidation, or the use of profane or obscene language, & from calling a person repeatedly on the telephone to annoy, abuse or harass the called party
• Autodialed calls are prohibited
• Use of any method to block or circumvent a caller identification service is prohibited
• Unsolicited advertisements sent via fax or email are prohibited
• APs must comply with any special Provincial or Federal restrictions on telephone solicitation [Do Not Call List]
The time restrictions and no-solicitation requirements of WFGS telephone solicitation policy do not apply to calls made to existing clients for the sole purpose of servicing or maintaining their accounts. Existing clients are clients who have, within the past 12 months, effected transactions or earned interest or dividends in securities accounts for which WFGS was the Dealer of record at the time of the transaction or interest payment.
32.14 Do Not Call List For information relating to the Canadian Do Not Call List please visit: www.innte-dncl.gc.ca
32.15 Other Public Communications Public appearances, which include securities-related scripted speeches, extemporaneous discussions and unrehearsed remarks in response to a question, are subject to all content standards established in 33.0 sales materials. When making public appearances, advisors must be particularly careful to:
• limit the message to one appropriate for a broad general audience
• avoid overly complex messages
• make sure that all required disclosure is clear and understandable
• avoid technical terminology that may obscure the audience’s understanding
• Scripted presentations are sales literature, & are subject to the approval requirement in 33.0 sales materials
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• Extemporaneous discussions & interviews require the prior written approval of RBMs and Compliance
• Approval may be contingent upon the submission of outlines, guest lists, or other information
32.16 Recorded/Broadcast Communications Recorded television, radio, podcasts and satellite broadcasts require that APs obtain the prior written approval of the RBM, who may require that a Compliance Officer attend the presentation and approve the final recording before it is broadcast. APs must also submit a record/transcript of the presentation.
Note: APs must not charge any fees for speaking engagements, even if the purpose of the charge is solely to defray expenses
32.17 Testimonials and Endorsements APs may use 3rd party endorsements and testimonials as long as they are genuine, represent the current opinion of the author, are applicable to the product advertised (if any), are produced with sufficient completeness to avoid misleading readers, and disclose any financial interest, incentive or business relationship to the endorser. As with all advertising and sales literature, materials containing testimonials and endorsements must be approved by the RBM and Compliance prior to use. Compliance may require a signed release from the endorsing party. This also includes APs that wish to use client endorsements in sales materials.
32.18 Expert Testimony WFGS prohibits APs from acting as experts in judicial or administrative proceedings involving securities related matters. There may be exceptions made regarding scenarios involving regulators where an AP may be compelled to testify. APs should contact Compliance if they believe that this situation may apply to them.
32.19 Content Standards for Public Communications In all communications with the public, the following standards apply:
• Consider the sophistication of the intended audience
• take care in developing communication for elderly & 1st-time investors (ensure content is understandable)
• Clearly identify the product
• Be truthful, complete & clear. Do not omit material facts
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• Balance the discussion of risks & potential benefits
• Never guarantee results [exception, CDIC]
• Never predict or project investment results or imply that past performance will be repeated in the future
• Avoid exaggerated, unwarranted or misleading statements or claims
• Make sure that the purpose of any comparison is clear, disclose any material differences between the subject of the comparison, & provide a fair & balanced presentation
• Never relegate material disclosure to legends or footnotes
• Identify all sources of statistics, charts, graphs & illustrations
• Limit discussion of any securities products to facts contained in the prospectus & approved sales material
• Avoid terms that imply some benefit is not available to other people of the same class by using terms such as “special,” “special relationship with the sponsor,” etc.
32.20 Misleading Statements in the Marketing of Leveraged
Strategies MFDA MSN-0070 provides specific requirements and prohibitions concerning the reference of leverage within sales communications or advertisements. Additionally, APs should be mindful of the 2.0 Code of ethics and general requirements of 33.0 sales material and 31.5 leveraging: advertising and sales Communications.
Specifically, MSN-0070 states that, “MFDA staff continues to note issues with respect to misleading statements made by Members, APs and loan providers or intermediary entities involved in the marketing of leveraged strategies.”
MFDA provided examples of misleading communications concerning leverage include:
• suggestions that leverage is appropriate for all clients
• promises to clients to “make your mortgage tax deductible”
• recommendations for the use of borrowed funds with “no additional risk”
• projections that presume unrealistic returns or feature overly optimistic examples statements that promise returns but provide no disclosure or inadequate disclosure of downside risk or potential negative returns
WFGS APs are cautioned against making or including misleading statements such as these in their
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own sales communications or other materials provided to clients. Further, where an AP becomes aware that a client has received misleading information regarding leverage through some other source, the AP should take steps to make the client aware of the risks involved in borrowing to invest. As part of the Sales Communication, Advertising and Marketing approval process, WFGS has instructed all RBMs, Marketing and Compliance staff that review materials to be vigilant for any direct or indirect references to leveraging that could be construed as being misleading. Any material that contains such a reference will not be approved.
Note: APs must ensure that they refrain from producing materials or making comments that may be deemed misleading & which do not accurately or adequately provide a balanced discussion all of the potential risks associated with a strategy, investment or product.
32.21 Rates of Return MFDA policy 2.8.3 outlines the following requirements for client rates of returns:
(a) In addition to complying with the requirements in Rule 2.8.2, any client communication containing or referring to a rate of return regarding a specific account or group of accounts must be based on an annualized rate of return and explain the methodology used to calculate such rate of return in sufficient detail and clarity to reasonably permit the client to understand the basis for the rate of return.
(b) Notwithstanding the provisions of paragraph (a), where an account has been open for less than 12 months, the rate of return shown must be the total rate of return since account opening.
32.22 Signage Sufficient and appropriate identification of WFGS branches is an important requirement for all branch locations. Only duly approved and registered locations (whether full or sub-branch) may identify themselves as a WFGS branch. Any location/office that refers to itself as being a WFGS branch that has not been explicitly approved in writing by WFGS Head Office will be in violation, will be closed and the individuals operating the location may be reprimanded, fined and or face other disciplinary measures (e.g. termination).
Signage must be approved by Marketing and Compliance and meet current guidelines as stated in the “World Financial Group Canadian Signage Guidelines.” Information on how branches can apply for signage is also included in the guidelines. Approvals must be kept on record in the branch Advertising file (or related branch file).
As stated within the guidelines, WFGS signage must consist of the full name, WFG Securities Inc. Abbreviations or alterations from this are not permitted. Branch locations that are duly recognized for insurance sales, must also conform to the stated guidelines and include signage indicating World Financial Group Insurance Agency of Canada Inc.
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While there may be a variety of locations that signage may be placed or displayed, including: billboards, building exteriors, building exterior marquees, building interior marquees (directory), main office doors and/or interior branch offices. Individuals should always bear in mind that the branch needs to be properly (and easily) identifiable to the general public, should not be misleading, should be professional and should generally conform to signage guidelines. Inadequate or inappropriate signage may result in requests to replace signage and/or reprimands.
Only approved locations may promote, advertise and/or have a telephone listing (e.g. white/yellow pages) their location that identifies the address as being affiliated with WFGS. Such listings should be approved by Registrations/Compliance prior to usage and would indicate WFG Securities Inc. For locations engaged solely in life business, please contact Licensing for requirements.
Note: For signage requirements in Québec, please contact Marketing
32.23 Co-operative Marketing Requests/Reimbursements Co-operative Marketing requirements are detailed within NI 81-105. As per NI 81-105: a member of the organization of a mutual fund may pay, to a dealer (WFGS), direct costs incurred by the participating dealer relating to a sales communication, investor conference or investor seminar prepared or presented by the participating dealer, if:
(a) the primary purpose of the sales communication, investor conference or
investor seminar is to promote, or provide educational information concerning, the mutual fund, the mutual fund family of which the mutual fund is a member or mutual funds generally;
(b) in the case of an investor conference or investor seminar, the conference or seminar is presented by the participating dealer to investors or potential investors of the mutual fund, another mutual fund in the same mutual fund family, or of mutual funds generally;
(c) the participating dealer provides invoices for, or receipts evidencing payment of, the direct costs to be paid by a member of the organization of the mutual fund;
(d) the aggregate direct costs of the sales communication, investor conference or investor seminar paid by all members of organizations of mutual funds
do not exceed 50 percent of the total direct costs incurred by the participating dealer; and (e) the sales communication discloses, or persons attending the investor
conference or investor seminar are informed in writing of, the identity of all parties paying for a portion of the costs of the sales communication, investor conference or investor seminar.
Requests by APs for co-operative marketing reimbursement must be submitted to Marketing for review after having obtained Marketing approval. Marketing will review and forward to Compliance for approval.
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The Re-imbursement/Cheque Request Form is signed after approval has been received by the fund company and the event has taken place. Only the AP that signed the Co-op Marketing Request Form must sign the Reimbursement Request Form (These forms are available on MyWFG).. Once the reimbursement is received by WFGS, Accounting will issue a cheque to the AP (The co-operative reimbursement is not considered to be a commission payment).
32.24 RBM Advertising Supervision The RBM should perform but not limit their review to the following, which are designed to monitor advertising-related activities of APs reporting to the branch office location.
• Check local yellow and white pages advertising periodically to see if APs are advertising
• At least every 6 months, ask APs in the branch to provide you with a copy of the business cards & stationery currently being used
• Maintain and continually review all prospectuses, sales literature & marketing materials obtained from mutual fund companies kept at the branch or sub-branch
• Monitor the internet for any unapproved websites that may exist for APs assigned to your branch
• Collect a current prospectus for every product being marketed by the APs reporting to the branch office
• Conduct client telephone/in-person surveys to determine if their AP has contacted them recently & determined how that communication was transacted
• Check to see if APs in the branch are using social media
• Conduct other supervision as required
OTHER SALES POLICIES
33.1 Mobility Exemptions Currently WFGS does not grant mobility exemptions.
33.2 Out of Jurisdiction Accounts Client accounts for which the AP (or WFGS) is not licensed will be restricted for new purchase transactions. The client will be sent a letter indicating that their account has been restricted and provide steps that the client may take, including seeking a new AP that is licensed for the jurisdiction or having their account permanently placed on “liquidating transactions only” to be processed on an unsolicited basis at the client’s sole authority and discretion.
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33.3 AP Proficiency RBMs are required to check APs proficiencies to ensure that they are dully qualified to sell the product/service proposed for the client. WFG DC when processing transactions is also required to verify proficiencies through W.connect and proficiencies are verified during tier-two trade reviews.
Note: APs selling products for which they do not expressly have proficiencies will face
disciplinary actions see 9.0 registration & licensing see 11.0 AP registration
33.4 Pre-Signed/Blank/Partially Completed Forms/DocuSign Pre-signed documents, altered or removed signatures used to create photocopied signatures and electronic signatures such as DocuSign or similar programs are all methods which degrade the integrity of the audit trail for activity in the clients account. There are no scenarios where this is accepted. Practices of this nature are considered a significant violation of industry rules and as such will be investigated by regulators accordingly. Generally, where these types of forms are discovered, WFGS will:
• Report the incident to the MFDA/regulators • Conduct an internal investigation reviewing (at a minimum) the APs client files, written
communications with clients(to establish any potential financial or other harm) and notification of any affected third parties
• During the course of the review and pending its outcome, APs may be subject to disciplinary notices, suspension, or termination in cases considered egregious
Members and AP’s may only use forms that are properly executed by the client after information on the form has been properly completed. Examples of signature falsification include, but are not limited to:
• having a client sign a form which is blank or only partially completed (“pre-signed form”); • signing a client’s name to a document; • cutting and pasting, photocopying or using correction fluid on a document to “re-use” a
previous signature; • altering any information on a signed document, without the client initialing the document to
show the change was approved. Any falsification is unacceptable whether or not: it is done for the purposes of client convenience; the client instructs or otherwise consents to the AP falsifying the document;
• the client complains or there is financial harm to the client;
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• it was the AP’s intention to deceive a client or other person; • the document is used to commit a further breach of the rules.
The improper use of forms can:
• adversely affect the integrity and reliability of documents; • destroy the audit trail; • impact the ability of AP’s to produce valid documentation to support transactions that come
into question; • prejudice a client by making it appear that they have executed a particular document when
they have not; • mislead Member supervisory personnel; • negatively affect the credibility of the AP; • negatively affect Member complaint handling; • be used to facilitate other misconduct such as unauthorized trading, fraud and
misappropriation of funds. APs should consult MFDA MSN-0066 “Prohibition on use of pre-signed forms” for additional information, or contact Compliance if they are uncertain as to what a pre-signed blank or partially completed form is.
see 8.0 Branch review requirements
see 43.0 Branch manager responsibilities
33.5 Disclosure of Commission Rebates to Clients As per section 7.1 of National Instrument 81-105 all APs must provide adequate disclosure to clients whenever a commission rebate is being contemplated. WFGS APs must utilize the WFGS Commission Rebate Disclosure Form whenever processing a client commission rebate.
Note: RBMs must review Commission Rebate Forms 33.6 Minors As a general policy, WFGS will not open accounts, accept monies or execute transactions directed by minors. A minor is any person below the age of majority APs should consult with their provincial definition of age of majority. At the time of publication, these were:
• Alberta - 18
• British Columbia - 19
• Manitoba - 18
• New Brunswick - 19 • Newfoundland and Labrador - 19
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• Northwest Territories - 19
• Nova Scotia - 19
• Nunavut - 19
• Ontario - 18
• Prince Edward Island - 18
• Québec - 18
• Saskatchewan - 18
• Yukon Territory – 19
Accounts may be opened for the benefit of a minor (such as an ITF, RDSP, RESP, or joint account with a minor). However, these must be opened by a parent, guardian, court appointed custodian, trustee or direct family member (e.g. aunt/uncle, grandparent). The minor should have a Social Insurance Number (SIN) at the time of account opening.
Clients should be made aware that tax considerations for accounts for minors may be complex and they may want to consult a tax expert as to the tax implications of such accounts.
33.7 Foreign Investors All accounts opened at WFGS must be accompanied by proper documentation and follow required anti-money laundering procedures and the Proceeds of Crime and Money-laundering Terrorist Financing Act (PCMLTFA).
Foreign nationals wishing to open an account with WFGS must meet the following requirements:
• Be living/present in Canada at the time of account opening/transaction
• Possess a valid Canadian Social Insurance Number (SIN)
• Have a valid Canadian address (P.O. Boxes are generally not acceptable)
• Have a Canadian bank account
• Meet ID verification requirements Dealing with clients that are out of Canada or outside of your province of registration can be extremely complicated. The Securities and Exchange Commission (SEC) in the United States takes a very strong stance in regards to anyone that acts in their jurisdiction that is not appropriately licensed. The Foreign Account Tax Compliance Act (FATCA) in the U.S. and similar rules and guidelines, make dealing with foreign nationals very complicated.
APs should consult with Compliance. APs should never engage in a trade or an act in furtherance
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of a trade with any client that is outside of their licensed jurisdiction(s). APs should refrain from directing client communications and advertisements in jurisdictions that they are not appropriately licensed.
Note: If a client is a Canadian resident, but vacationing or visiting another country or jurisdiction, APs should consult with Compliance in regards to what may or may not be permitted
See 9.0 registrations & licensing
See 34.2 out of Jurisdiction accounts see 36.1 Client frozen accounts
See 39.0 money laundering
See 39.10 Client identification records
33.8 WFG EI Anti-Money Laundering Course All WFGS APs are required to complete the WFG EI AML Course within 30 days of obtaining license and thereafter every 2 years. The course is available in 2 versions (one of which is free to APs without CE credits and another that has a small fee but also provides CE credits). Failure to complete this requirement on may result in the withholding of commissions, suspension and/or other disciplinary measures.
33.9 Fraudulent Activity WFGS takes any fraudulent act very seriously and prohibits all such conduct. The MFDA, Canadian Securities Association (CSA), federal and provincial laws prohibit fraudulent conduct and any such conduct will result in dismissal and may involve criminal charges. Securities fraud includes, but is not limited to:
1) the establishment of fictitious accounts in order to execute prohibited transactions 2) forgery, or signing a client’s name to any document even pursuant to the client’s
request 3) nondisclosure or misstatement of material facts 4) manipulations and various deceptions 5) theft
All APs and WFGS personnel should refrain from fraudulent conduct and if an individual becomes aware of, or suspects such conduct by another they should inform Compliance immediately. All reported incidents will be investigated.
33.10 Bank Accounts While APs may establish a bank account for their business needs, APs are prohibited from: opening any bank or other account in the name of WFG Securities Inc. (or any variation thereon),
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AEGON or any affiliated company. This includes the usage of names, logos, trademarks, registered marks or images associated with the above on any account, cheque, statement or other such related materials. The usage of any of the above materials may be considered to be fraud and will result in dismissal, potential criminal and/or civil charges.
All client cheques for products must be made payable to WFG Securities Inc. in Trust.
33.11 Commission Refunds WFGS APs must never give directly or indirectly a gratuity (cash or equivalent to cash) to a client that could be considered to be a full or partial refund of a commission or other compensation received from WFGS in connection with your securities business. Furthermore, APs should never give a client (or prospect) a gift except a token item of nominal value. As a general policy all compensation, remuneration or other such payments must be directed via WFGS Head Office.
33.12 Payment of Commissions to Others Commissions or other compensation which are based, directly or indirectly, on the sales of securities products (collectively “commissions”) may not be paid to anyone other than a properly licensed and recognized AP, or WFGS (as a registered Dealer).
33.13 Charging Clients Additional Fees WFGS APs are compensated through commissions (including trailer commissions/fees) on products they sell and overrides on commissions from other APs. APs are prohibited from charging any additional fees to clients in connection with their WFGS activities.
WFGS does not permit fee for planning and APs are not permitted to charge clients fees for planning services.
33.14 Referral Fees WFGS APs are strictly prohibited from giving to, or receiving from, any individual referral fees. This includes, but is not limited to, gifts, preferential treatment, finder’s fees, payments or other compensation in connection with the introduction and/or referral of prospective clients, or the recruiting of prospective AP. WFGS APs can only receive referral fees or referral compensation that has been expressly approved by WFGS and is first received by WFGS as the Dealer.
See section 16 Referrals
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33.15 Client Funds and Securities APs must not under any circumstances:
1) commingle a client’s funds with their own or those of another client or individual 2) exercise control over a client’s assets (either through Power of Attorney, Limited
Trading Authorization or Discretionary Account) 3) deposit personal funds in a client’s insurance policy, securities account or other
similar account or arrangement 4) deposit client funds into APs own personal accounts 5) maintain custody or possession of securities, monies, financial instruments or
other property of a client
6) All redemptions, dividends and other distributions from securities products will be mailed directly from issuers to clients (address on file) or directly deposited to a client’s personal savings account if the client so directs. APs cannot have such proceeds sent to the AP, the branch office or any person or entity with which the AP is associated. APs are prohibited from requesting that a client’s mail be held or not mailed out to the client. All client address changes or banking changes, must be appropriately documented, made at the behest of the client and be made for the interests of the client only.
see Hold Mail
CLIENT REPORTING
Client reporting is discussed in MFDA Rule 2.8.3, Rule 5.3.1, Rule 5.3.3, Rule 5.4, MSN-0024, and MSN-0032.
34.1 Account Statements For all client transactions placed through WFGS, clients will receive transaction confirmations from the respective mutual fund product providers. Clients will receive a WFGS client statement on a quarterly basis.
APs cannot, under any circumstances, have a client’s confirmations or account statements sent to (or directed to) the AP, the APs branch or any person or entity with whom the AP is associated. If you believe there is a situation in which a client statement must be redirected, please contact Compliance.
Note: This would include e-statements. Client statements cannot be directed to an AP email address
see 35.4 estatement guidelines see hold mail
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34.2 Content of Account Statement WFGS does not act as an agent for the trustee for the purposes of administering a self-directed registered retirement savings or similar plan (i.e. WFGS does not offer nominee name accounts). Each WFGS account statement must contain the following information:
• all debits & credits • the quantity & description of each security purchased, sold or transferred & the dates
of each transaction • & for automatic payment plan transactions, the date the plan was initiated, a
description of the security & the initial payment amount made under the plan • the type of account • the account number • the period covered by the statement • the name of the AP(s) servicing the account, if applicable • the name, address & telephone number of WFGS
Furthermore, only transactions executed by WFGS may appear on the statement of account required pursuant to Rule 5.3.3.
Note: Under the provisions of CRM2, additional information will be required on client statements.
Under the requirements of CRM2, Members will need to include the following information in account statements:
• Position Cost- the cost information for each investment position held in the account and a definition of the cost basis used
• Market Value- the account statement must contain the market value of each position in the account
• Which securities may be subject to a deferred sales charge if they are sold • The MFDA IPC coverage disclosure; and • The name of the party that holds or controls each investment and a description of
the way it’s held 34.3 Electronic Statements All mutual fund clients are required to receive an official WFGS statement every quarter. This statement performs an important function in helping to ensure that clients receive statements/transaction information on a regular basis that is independent of the AP. While WFGS offers clients access to eStatements via W.access these must still be treated in a similar manner to paper-based traditional statements. As with Hold Mail requests, RBMs should check to see whether client mail is being inappropriately placed on “Hold” or being directed to the branch or an AP.
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see Hold Mail
34.4 eStatement Guidelines
• eStatements cannot be directed to an AP email address (professional or personal), general branch email address, an email address specifically created by the AP &/or branch for statements. Head office will monitor the eStatement process to ensure this is not occurring. eStatements cannot be directed to any email address that could not reasonably be considered the personal & confidential address of the client
• APs cannot directly set up clients on eStatements
• Clients must set themselves up for eStatement delivery
34.5 Annual Letter to WFGS Clients On an annual basis WFGS sends all clients a letter including a copy of their current KYC information
with instructions to report any discrepancies to Compliance.
Note:As part of CRM2 requirements, additional requirements may be coming in which clients will need to be informed of how they can obtain Fund Facts if the client is using a pre-authorized purchase plan [PAC/PAD]
34.6 Rates of Return In addition to Rule 2.8.2, any client communication containing or referring to a rate of return regarding a specific account or group of accounts at WFGS must:
• disclose an annualized rate of return calculated using the Annual Modified Dietz
• each WFGS statement will explain the methodology of the Annual Modified Dietz method used to calculate such rate of return (in sufficient detail and clarity to reasonably permit the client to understand the basis for the rate of return)
• In addition to complying with the requirements in Rule 2.8.2 & Rule 2.8.3(a), any WFGS client communication containing or referring to a rate of return regarding a specific account or group of accounts must receive approval from Compliance before it can be provided to a client & must be supervised by the RBM and WFGS Compliance.
• Notwithstanding the provisions above, where an account has been open for less than 12 months or does not include a stated period, the rate of return shown must be the total rate of return since inception.
• For information concerning the annual modified dietz formula and how it is calculated, please see
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W.connect. A brief over of the general calculation is also available on such websites as Wikipedia.
34.7 Production, Distribution & Frequency
MFDA Rule 5.3.1 references the delivery requirements of client account statements (WFGS does not currently have any client nominee accounts). (a) WFGS shall, in a timely manner send an account statement to each client in accordance with the following minimum standards:
(i) every 3 months for a client name account (ii) once a month for nominee name account of clients where there is an entry
during the month & a cash balance or security position (iii) quarterly for nominee name accounts where no entry has occurred in the
account & there is a cash balance or security position at the end of the quarter (b) WFGS does not rely on any other person (including an AP) to send account statements as
required by this Rule (c) Notwithstanding the provisions above, WFGS may rely on the trustee administering a self-directed registered plan to send the account statement required by paragraph (a)(i) where the following conditions are met:
(i) WFGS does not act as agent for the trustee for the registered plans (ii) he trustee meets the definition of “Acceptable Institution” as defined in Form 1 (iii) here is a services agreement in place between WFGS & the trustee which
complies with the requirements of MFDA Rule 1.1.3 & provides that the trustee is responsible for sending account statements to clients of WFGS that comply with the requirements of MFDA Rule 5
(iv) here is clear disclosure about which trades are placed by WFGS (v) Clear disclosure must be provided on the account statement regarding
which securities positions referred to on the statement are eligible for coverage by the MFDA Investor Protection Corporation & which are not
(vi) WFG Securities Inc. full legal name must appear on the account statement together with the name of the trustee
(vii) WFGS must receive copies of the statements, or have other systems in place, to ensure that the information contained on the statements matches its own information regarding the transactions it executes
(viii) Notwithstanding the provisions above, where WFGS is affiliated with a fund manager and in connection with a specific client account is selling only the mutual fund securities of an issuer managed by such affiliated fund manager for that client account, WFGS may rely on the affiliated fund manager to send the account statement required by paragraph (a) (i) for that specific account.
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34.8 Automatic Payment Plans Notwithstanding the provisions of (a) (ii), where WFGS holds client assets in nominee name (WFGS currently does not have any nominee accounts) and the only entry in the client’s account in a month relates to the client’s participation in:
(a) any automatic payment plan that provides for systematic trading in the securities of a mutual fund on a monthly or more frequent basis, or (b) other automatic entries such as dividends and reinvested distributions, WFGS
shall send an account statement to the client quarterly.
Note: As part of CRM2 requirements, additional requirements may be coming in which clients will need to be informed of how they can obtain Fund Facts if the client is using a pre-authorized purchase plan [PAC/PAD]
34.8 Review & Sampling of Client Statements WFGS has processes and procedures in place to sample and review client statements. Prior to statements being sent to clients, WFGS will produce electronic copies of the client statements. These are reviewed by an internal committee that will sample and review the statements for accuracy, completeness and general conformity with required policies. Any deficiencies are to be immediately reported to the CCO and the UDP to ensure that WFGS statements meet the highest standards. Any deficiencies noted will be corrected/amended by WFGS. A record is maintained to document that the statements have been posted to clients.
Aps and RBMs that notice any issues with the statements should report these to Head Office.
34.9 Trade Confirmations The MFDA has established rules concerning client trade confirmations where a Member acts as an agent or principal. WFGS does not act in either of these capacities. Individuals seeking additional information regarding confirmations should see MFDA Rule 5.4. WFGS does not issue trade confirmations relating to mutual fund transactions.
34.11 Portfolio Summaries Prepared by APs MFDA MSN-0024 permits MFDA Members (WFGS) and APs to produce consolidated information or portfolio summaries to clients in addition to the official client account statement required by MFDA Rule 5.3. WFGS only permits summaries with Client Rates of Return to be generated or produced from W.connect or from an approved product provider AP website. There are very strict guidelines concerning the generation of client summaries and client Rates of Return. APs must not create, generate, or produce client summaries or client rates of return via Excel or similar programs. The consolidated information or portfolio summaries produced by WFGS must meet the following standards:
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1. They must include a prominently displayed disclaimer that they are not official
account statements & that they are supplemental to the WFGS statements delivered to the client for each account with WFGS or by other entities where the transaction occurred or the positions are held.
2. They must clearly identify the legal entity at which each transaction occurred or which is holding each asset or money balance.
3. Once it is operational, there must be a statement explaining that the MFDA’s Investor Protection Corporation does not necessarily apply to all of the positions disclosed & that the client should refer to the WFGS official account statement to determine which client assets are eligible for coverage.
4. There must be a statement to the effect that WFGS cannot verify that the
information relating to other financial service products that are not offered through or held by WFGS or a related company of WFGS is accurate.
MFDA MSN-0076 introduced new reporting requirements that came into effect June 2012.
34.12 Account Performance Reporting The MFDA introduced Rule 5.3.5 which came into effect June 3, 2012.
34.13 Financial Interest APs must not have an ownership interest in or be named a beneficiary of a client’s insurance policies/contracts, securities holdings, financial interests, trusts, wills or other such legal structures.
This prohibition does not apply to immediate family of an AP. Immediate family includes, grandparents, parents, spouse, sibling, children, mother/father-in-law sister/brother-in-law.
34.14 Repurchasing APs must never:
35.7.1Guarantee the future value (or performance) of a security 35.7.2Offer to purchase or repurchase a security/financial instrument from a client at the
time of sale or any date in the future 35.7.3Offer to reimburse a client for a loss
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34.15 Tax or Legal Advice WFGS APs must know the limits of their expertise, knowledge and experience. APs must not give tax or legal advice (or opinions) unless legally qualified to do so. If an AP is not qualified to provide such advice, they should direct clients to confer with their attorney, accountant, bookkeeper or tax preparer.
WFGS APs that have disclosed and approved OBAs in which they function as qualified tax or legal experts may provide such advice to clients, however full disclosure must be made to the client and all such advice is provided in the capacity of the OBA and not in the capacity as a WFGS AP. Individuals must ensure that their clients fully understand and appreciate the distinction.
see 10.0 outside Business activity (OBA)
SERVICING CLIENTS
Clients are integral to the overall success of APs and WFGS. It is paramount that all APs understand and fully appreciate the need to deliver exceptional client service at all times. If an AP is going to be unavailable to service clients due to illness, conference, vacation or other short-term absence, APs must ensure that they have made appropriate arrangements. Minimally, this should involve informing the RBM of the absence, arranging for another sufficiently licensed AP to provide servicing for the period of absence and providing clients with reasonable contact information.
Where possible, APs should inform clients of their absence, provide out of office email/voicemail notifications informing whom the clients should contact and the expected period for which the AP will be absent or unavailable. see 2.0 Code of ethics
35.1 Client Frozen Accounts Client accounts may be frozen for several different reasons, including lack of sufficient documentation on file, returned mail, client transactions that deviate from the client’s stated risk tolerance or KYC, or other reasons (e.g. terrorist financing) as determined by Compliance. APs should understand the significance of a client account being frozen and the impact that this has upon their ability to perform ongoing servicing of the client’s account(s).
APs have a responsibility to meet with clients on a regular basis, maintain regular communication with clients, maintain updated KYC information and generally, ensure a reasonable level of client servicing. Aps and RBMs are able to generate listings of any client accounts that are frozen via W.connect.
Frozen accounts may indicate that an AP is not providing adequate service, maintaining sufficient
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communication with the client, or staying current with the clients’ needs and the broader requirements of WFGS. APs are required to make every effort to minimize the number of clients with frozen accounts in a timely manner.
Where an account has been frozen for 1 month, the AP will be notified of the outstanding requirements and given up to 2 weeks to correct the outstanding items. If the issues cannot be resolved in that time period, WFGS will issue the client a letter that will present the client with available options that may include confirming/updating their KYC information, providing opportunity to send missing documents, transferring to another Dealer, or other. The response of the client will be documented.
In situations where accounts are frozen for extended periods of time, commissions relating to the frozen account may be forfeit by the AP.
If there is a client situation that the AP feels involves unique client circumstances or special consideration, the AP should discuss this with their RBM and contact Registrations.
see 19.3 account opening Documentation list see 34.2 out of Jurisdiction accounts
35.2 Competition WFGS APs should always act in a professional manner. Individuals should refrain from making negative comments about other companies, services or products. Comparisons between products, companies and services should always be fair, accurate, honest and complete. APs must also refrain from providing information and advice on products/services for which they are not licensed or for which they do not possess sufficient knowledge, education and/or experience.
Information provided to existing or prospective clients regarding products or services must be strictly objective and based on the highest standards of business and professional integrity. The usage of performance data should comply with all applicable WFGS and MFDA guidelines.
35.3 Private Securities Transactions (Selling Away) APs are strictly prohibited from participating, in any manner, with a private securities transaction without prior written approval from the CCO of WFGS.
A private securities transaction is any securities transaction that is executed outside of, or away from, WFGS. The definition of a security is very broad and may include, among many other items:
• limited partnerships • pooled investments • undivided interest in land • unregistered offerings • promissory notes • certificates of deposit
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• investment contracts • any investment product (or service) which is not distributed through WFGS
Likewise, the definition of “participating” is also very broad, and may include, among many other activities:
• solicitation &/or the distribution of marketing materials or contracts • issuing promissory notes • providing a list of clients to a third party interested in recruiting investors • advising others about securities products not offered through WFGS • contacting other Dealers (whether MFDA or IIROC) for a client • assisting a client with applications for investments not available through WFGS • Bringing clients together as an intermediary for the purposes of buying or selling an
investment product/service • Acting as an intermediary between a client & an investment sponsor with whom
WFGS does not have a selling agreement • If you have any questions in regards to whether a particular product or service or
activity constitutes selling away, contact Compliance
35.4 Confidentiality All information received by APs relating to a client or the business and affairs of a client must be maintained in strict confidence by APs, RBMs, WFGS and other affiliated employees. APs must not disclose any nonpublic personal information about clients, prospects or former clients without a client’s express consent, except as permitted by law or regulation. Under no circumstances may you disclose an account or similar form of access number or access code for a client’s transaction account for use in telemarketing, direct mail marketing or other marketing or through electronic mail to the client. Client Information may be required to be provided to a government agency, law enforcement or regulator. WFGS Head Office will make this determination. APs, RBMs and head office employees must familiarize themselves with WFGSs privacy policies and requirements to protect and maintain client information.
Note: If client information is compromised by theft, error or other means, contact Compliance immediately for guidance
35.5 Personal Financial Dealings with Associates & Clients APs are prohibited from borrowing (or lending) money and/or securities from (to) other WFGS APs, prospects or clients, unless that individual is an immediate family member.
APs are prohibited from lending money or securities to prospects, clients or advancing funds for the advance of funds, repayment, reimbursement or purchase of any product or service. This would include a prohibition against APs reimbursing clients for account annual fees or transfer fees.
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35.6 Branch Attendance APs are assigned to branches from which they conduct business. Being available to service clients and keeping informed of policies and procedures is important. It is the responsibility of all WFGS APs to stay informed and current in regards to WFGS Policies and Procedures and regulatory requirements. To assist APs in meeting this requirement, RBMs provide resources (such as webinars, meetings, bulletins, etc.) that discuss compliance, supervision and other related matters on a regular basis.
APs that are still within the 1st 90 days or 180 days (subsequent 90) licensing period also have additional requirements in regards to meetings and interviews with RBMs. APs that are on Close Supervision may also be required to have monthly interviews with the RBM. APs should always attempt to attend training sessions, read bulletins, emails and other materials that provide important compliance information for APs. Failing to stay current and informed will likely cause issues with AP business, increase the likelihood of receiving client complaints, may lead to close supervision, suspension, termination or regulatory issues. If APs in a branch believe that there is conduct unbecoming or that an AP is not acting in a professional manner or in accordance with the above, they should contact Compliance.
see 43.0 Branch manager responsibilities see 43.12 Close supervision
see 43.14 Compliance meetings & training see 43.18 AP interview: AP estrangement
35.7 Standards of Conduct All APs, RBMs, and Head Office personnel are responsible for maintaining and enhancing the reputation and integrity of WFGS and the securities industry. WFGS’s Code of Conduct is an integral component of ensuring honesty, fairness, integrity, professionalism and ensuring that clients receive exceptional client service. The values and policies set forth in this manual should govern all of an APs conduct. see 2.0 Code of ethics
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PROCESSING BUSINESS
36.1 Suitability In recommending to a client the purchase, sale, or exchange of any security, APs must have a reasonable basis for believing that the recommendation is suitable for the client, consistent with the facts disclosed by the client’s KYC information, including: investment knowledge, time horizon, risk tolerance, other securities holdings, previous investment experience, financial situation needs and objectives. It is important for the AP to consider both the client’s willingness and capacity to assume risk.
The AP must review a client’s suitability information in light of each proposed investment recommendation to be sure that each investment is suitable for the client. It is imperative that APs document this and maintain good notes/records of client interactions.
APs should only accept information/documents directly from the client or from their authorized representative (e.g. accountant or lawyer). Information gathered should be current and to the best of the APs knowledge accurate. If APs become aware or have reason to believe that client information is no longer accurate,APs should obtain current and accurate information and update client KYC accordingly. The presence of a security on the WFGS product list does not mean that it is a suitable investment for all clients and is not a basis, in itself, to recommend the product to a particular client. The needs of the client and their KYC information must be the first consideration given before any product or strategy recommendation is given. In determining the suitability of a particular mutual fund, the AP must consider a variety of factors, including:
• Investment objectives & strategies
• Portfolio
• Historical income or capital appreciation of the fund
• Expense ratio, sales charges & any other fees
• Risks of investing in the fund relative to other investments
• Potential currency issues
• Fund Manager(s)
• Management Board
• Client constraints (e.g. client’s desire to refrain from investing in certain companies or industries)
Note: Most mutual funds are medium to long-term investments and therefore they are
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generally unsuitable for clients seeking short or intermediate-term gains. An exception would be Money Market mutual funds
APS are ultimately responsible for “Know Your Product” (KYP), and ensuring that they have the required qualifications and experience to sufficiently understand a product or strategy before recommending it to a client.
see 22.0 suitability guidelines see 29.0 Know your Product see l e v e r a g e
see DSC see fund facts
36.2 Payment Client payments are acceptable only if they are personal cheques or certified cheques. Payment for mutual funds must be made payable to “WFG Securities Inc In Trust”. Client cheques made payable to APs will not be accepted. AP personal cheques will only be accepted in connection with an APs personal accounts or transactions.
Counter cheques or cheques that are not printed with client name will only be accepted under extraordinary circumstances. Where a client transaction involves proceeds coming from another Dealer (transfer) or directly from a product company (such as during a conversion or switch) wire-orders from these sources will be accepted.
Client cheques over $250,000 must be certified unless approval is granted by Compliance
Note: WFGS does not accept cash payments under any circumstances
Client funds must never be deposited into an APs personal bank account for any reason. Under no circumstances should an AP ever accept cash or cash equivalents (e.g. bearer bonds) from a client. APs must strictly adhere to WFGS Anti-Money-Laundering procedures at all times.
see m o n e y l a u n d e r i n g Client Cheques
36.3 Non-Sufficient Funds (NSF) Cheques When a client’s cheque is returned for NSF, funds will be immediately transferred from WFGS operating account to the trust account to fund the transaction in question and an email will be sent to WFG DC with the details of the NSF cheque. WFG DC will contact the writing agent. It is the Representative’s responsibility to ensure that the client is informed of these circumstances and that a replacement cheque is obtained and submitted within 5 days of receiving the NSF notification. If a cheque hasn’t been submitted within 5 days, WFGS will cancel the trade on the 6th day and the AP will be responsible for any applicable losses.
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36.4 Signature Guarantee Depending upon the transaction, fund companies may require documents to be signature guaranteed. The signature guarantee provides another layer of assurance to the fund company that the client signature is genuine. WFGS head office maintains a list of individuals that have been granted authority to use a signature guarantee stamp. Generally, a client signature should be verified with an existing signature on file (i.e. NAAF) and should be compared to client copies of official identification kept on file (such as a valid Driver’s license).
A WFGS signature guarantee stamp is to be used only by WFGS individuals that have received express written permission from WFGS for the purpose of verifying a client signature for documents such as Trade Tickets (This includes all forms of client transactions including, switches, purchases and redemptions), client service requests, any other correspondence from the client giving direction pertaining to their account (e.g. address change) to verify that the signature is genuinely that of the client’s. Only current versions of the signature guarantee stamp are permitted for use.
Branches/locations that meet certain conditions may be eligible to have permission granted to a named administrative individual to be authorized to signature guarantee documents. WFGS reserves the right to grant (or retract) this permission at its sole discretion. RBMs and select WFGS personnel are granted permission to use signature guarantee stamps.
Branches/Locations interested in learning more about how they can obtain such permission for a named individual should contact Registrations for additional information.
Note: Individuals will be required to sign a document acknowledging their obligations concerning proper usage of signature guarantee stamp
36.5 Supervisory Review of Orders APs must transmit completed applications to WFG DC. WFG DC will upload electronically all transaction documents for review. These documents must be transmitted promptly, i.e. no later than noon of the next business day after receipt from the client. It is the intent of WFGS that all trades will be processed within National Instrument 81-102 guidelines.
If an RBM determines that the transaction is acceptable, he/she will approve the trade documentation evidencing RBM approval and will forward all documents to WFG DC. These must be forwarded to WFG DC within one business day of receipt at the branch. Note: Failure to submit trades in a timely manner is a serious issue that may lead to disciplinary measures Client payment should be payable to “WFG Securities Inc. In Trust.” Where an RBM determines that a transaction is unacceptable for any reason, such as: suitability, licensing issue, improper payment, missing required information, or other reason, the RBM should attempt to address or correct the deficiency with the AP or in some cases with the client directly. RBMs must only approve trades and documents that they know to be in good order for
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processing. If the RBM is unable, by the close of the 2nd business day after receipt, to correct the deficiency and the transaction remains unacceptable, the RBM must ensure that the documents are promptly returned to the client.
RBMs work jointly with WFGS Compliance on how to resolve a client situation, how to complete forms, WFGS policies and procedures, MFDA rules and other regulatory matters, they should contact Compliance.
DESIGNATED PROCESSING CENTER
All transactions, account openings, Trade Tickets, AP Change/Dealer Change materials must be sent to WFG DC. WFG DC is the official repository for WFGS books and records. APs should maintain copies of client documents (and notes) within their client files as well. Original product provider documents (such as a fund company application form) must be sent to WFG DC. APs must not send documents directly to fund companies; all documents must be sent to WFG DC.
Note: Sending trade orders directly to fund companies is strictly prohibited & will lead to disciplinary measures
37.1 Client Transaction Records: Designated Processing Center As per MFDA rules, WFGS is required to keep an adequate record of each order, and any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted. This record is maintained by WFG DC and must include at a minimum:
• The account to which the order or instruction relates • The time & date the instructions were given • The time of entry of the order • The price at which the order or instruction was executed • To the extent feasible, the time of execution or cancellation • Where the order or instruction is placed by an individual other than the person in
whose name the account is opened, or an individual duly authorized to place orders or instructions on behalf of a client that is a company, the name, sales number or designation of the individual placing the order
• Where the trade was unsolicited & was determined to be unsuitable, evidence that: the transaction was unsolicited, a suitability review was performed & the client was advised that the proposed transaction was unsuitable
• Where the trade was leveraged, identify the trade as leveraged and evidence that a summary of the trade was sent to designated compliance officer & the compliance review was performed at head office level
• The terms & conditions of the order or instruction & of any modification or cancellation of the order or instructions
• In the case of redemptions, instructions as to where the proceeds of the redemption are to be sent or whether they are to be reinvested
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37.2 Trading-Nominee Name Accounts WFGS does not hold or permit Nominee Name Accounts.
MONEY LAUNDERING
38.1 Introduction Money Laundering is generally defined as "any act or attempted act to disguise the source of money or assets derived from criminal activity. “Essentially, money laundering is the process of transforming money, produced through criminal activity, into “clean money” whose criminal origin is difficult to trace. WFGS views anti-money-laundering as an important and significant consideration for the way it does business.
Money Laundering may be thought of as incorporating 3 distinctive phases:
• Placement: This is the stage at which illegal funds are placed into a legitimate investment or account
• Layering: This involves the obscuring of the identity of the original funds through a series of complex financial transactions
• Integration: The process of reintroducing monies that appear to be “clean”
Note: All APs must complete the WFGEI AML Course once every 24 months. Failure to complete the course may result in the withholding of commissions, suspension &/or other disciplinary measures
see WFGEI AML Course for additional information.
38.2Money Laundering: PCMLTFA
38.3 FINTRAC For additional information concerning FINTRAC and the PCMLTF please visit: www.fintrac-canafe.gc.ca .
It is the responsibility of all individuals at WFGS to take measures to detect and deter money laundering and terrorist financing. 38.3.1 Compliance
An AML compliance regime has been implemented at WFGS. The Chief Compliance Officer has been identified as the officer responsible for overseeing the AML procedures and practices of the company. A review of the compliance regime and AML/ATF policies, procedures and
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training will be conducted every 2 years or sooner if required by regulatory changes. Policies, procedures and training will be approved by Senior Management or external auditors if deemed necessary.
38.3.2 Process for Reportable Transactions
Each transaction or attempted transaction provides a potential risk for money laundering or the possession of terrorist property. WFGS is required to report the following transactions:
• Transactions identified as suspicious of money laundering &/or terrorist financing
• The existence of terrorist assets
• Large Cash Transactions
• An attempted transaction that is deemed suspicious
38.3.3 Process for Identifying Suspicious Transaction
Generally items identified that may raise suspicion or warrant further investigation include (but are not limited to):
• Frequent deposits &/or withdrawals from the same account or same client
• Frequent deposits &/or withdrawals from accounts being serviced by the same AP
• Frequent deposits &/or withdrawals from accounts that seem to held by related people
• Surrenders that suffer large DSC
• Surrenders of large amounts shortly after deposits, specific to one clients' accounts, or a few clients belonging to the same AP
• Suspicious trends that re-occur over a period of a few months either with the same account, or AP
• Staff have been made aware of a large wire transfer into the trust account • Staff have been made aware of a large money order purchase
The following are examples of situations that may be deemed suspicious. The existence of one or more of these behaviors from a client may not confirm money laundering activities. However, these are suspicious indicators that raise concern regarding the integrity of the business being placed.
• Client shows no concern for redemption charges
• Accounts are surrendered shortly after opening, with no reasonable explanation
• Client wishes to purchase a number of investments with money orders,
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traveler's, cheques, cashier’s cheques, bank drafts or other bank instruments, where the transaction is inconsistent with the normal investment practice of the client or their financial ability
• Transfers of funds or securities between accounts not known to be related to the client
• All principals of client are located outside of Canada
• Proposed transactions are to be funded by international wire payments,
• Staff is made aware that the client is associated with or working on behalf of individuals believed or suspected to be related to terrorist financing activities.
• Normal attempts to verify the background of a new or prospective client are difficult
• Accounts that have been inactive suddenly experience large investments that are inconsistent with the normal investment practice of the client or their financial ability
• Any dealing with a third party when the identity of the beneficiary or counter-party is undisclosed
• Client attempts to purchase investments with instruments in the name of a 3rd party
• Unusual transactions at product companies or AP requests where the same or similar transactions occur for several accounts belonging to seemingly unrelated clients.
38.3.4 Process for Reporting Suspicious Transactions In accordance with FINTRAC procedures and the Proceeds of Crime (Money Laundering) and Terrorist Finance Act (PCMLTFA), any employee or entity that makes a report in good faith is protected from criminal and civil proceedings. FINTRAC applies a high standard of privacy protection to the personal information under its control. To promote privacy, PCMLTFA contains a number of provisions relating to the protection of information and privacy. It specifies the particular circumstances under which designated information may be disclosed by FINTRAC. In any other case, the Centre is prohibited, as are its employees, from disclosing any report received or any information.
Step 1 - Identification of a Suspicious or Attempted Suspicious Transaction
The following steps must be followed if you deem a transaction to be suspicious:
• Bring the suspected situation to the attention of your RBM (if AP), or Manager (if Head Office staff), or AML Officer
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• Notify AML Officer
• Complete a copy of the Suspicious Transactions Alert Form
• Document the details of the case, include time & date & the factors that you have decided may be suspicious
• Create a file, which must include copies of all applicable documents & the Suspicious Transactions Alert Form
• Provide the file for review to the AML Officer
Step 2 – Review
A review of the file will be conducted to ensure all applicable documents are included and that the Suspicious Transactions Alert Form has been completed with all information available.
Step 3 – Compliance Reporting to FINTRAC
If deemed necessary compliance reports the transaction to FINTRAC as per the online reporting system. All files will be retained in Compliance.
38.4 Process for Identifying & Monitoring PEFPs Effective June 23, 2008 Dealers must include a risk assessment to identify high risk situations for money laundering and terrorist financing, where account holders might be Politically Exposed Foreign Persons (PEFP). At the time of account opening all APs will be required to ask their clients specific questions to determine if the client is a PEFP. A PEFP is:
• a head of state or government
• a member of the executive council of government or member of a legislature
• a deputy minister (or equivalent)
• an ambassador or an ambassador’s attaché or counsellor
• a military general (or higher rank)
• a president of a state-owned company or bank
• a head of a government agency
• a judge
• a leader or president of a political party in a legislature
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A person would also be considered PEFP if any of the above apply to a family member such as:
• mother or father
• child
• spouse or common-law partner
• spouse’s or common-law partner’s mother or father
• brother, sister, half-brother or half-sister (that is, any other child of the individual’s mother or father).
If a client is identified as a PEFP, APs should contact their RBM or compliance department for additional guidance. Additional questions will be asked in regards to anyone identified as a PEFP and the account must be approved by Compliance prior to any transactions taking place. PEFP files are maintained in Compliance.
Note: The WFGS NAAF/KYC has a section relating to PEFP
38.5 Identifying Potential High Risk Clients It is the expectation of FINTRAC that a risk assessment is completed with each client in relation to the client’s business activities. Knowing clients is not limited to the identification requirements. The expectation is that there is an understanding of the activities, transaction patterns and how he/she operates. A client assessment (such as the one contained within the NAAF) should be completed where there is an ongoing relationship with the account holders.
Client notes that include details on the client, and include any AML concerns should be completed by the AP after the initial client meeting and maintained in the branch client file. Notes should be updated as the client relationship develops and more information is known about the client. Should there be a concern with a specific client, this must be brought the attention to Compliance. A client should not be notified if they are deemed as a potential risk. If a client is identified as a potential risk, the AP must notify Compliance. Compliance will review and assess the risk. The requirement for further account monitoring will be considered.
38.6 Processes for Record Keeping 38.6.1 A Client Identification Records
Effective June 23, 2008 accounts are prohibited from being opened for any account for which client identity cannot be ascertained or confirmed. Client identification must be verified on the NAAF/KYC. Sufficient records must be maintained in the client file by the AP and submitted to WFG DC as part of account opening, transaction processing, etc. For the purposes of client
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identification, account opening requirement would also apply to clients that are new to an AP (ie. Roll-up/transferred clients).
Note: It’s recommended that client I.D. records be up-to-date & reviewed every 2 years.
See 18.4 Ascertaining Identity of Individual Clients
38.7 Business or Company Name Accounts When opening an account for a corporation, in addition to the NAAF, confirmation of the officers who are duly authorized to act on behalf of the company must be obtained and maintained in the client file and submitted to WFG DC. This can be any one of the following: the certificate of incumbency, the articles of incorporation or the bylaws of the corporation.
APs also have to determine the names of the corporation's directors. To do this, you may need to see the list submitted at the time of their application for incorporation. The record you use to confirm a corporation's existence can be paper or an electronic version. An electronic version of a record has to be from a public source. For example, you can get information about a corporation's name and address and the names of its directors from Industry Canada's Strategies federal corporation’s database on the Corporations Canada page of the Strategies Web site (http://strategis.ic.gc.ca).
If the account is for an entity that is not a corporation in addition to the NAAF, the name address and principal business or occupation of the entity must be recorded. To confirm the existence of an entity other than a corporation, refer to a partnership agreement, articles of association or any other similar record that confirms the entity's existence.
Copies of all documents or internet searches must be maintained with the client file with additional copies submitted with the account opening documents for processing. In both cases the Directors/Beneficial Owners of Corporations and Non-Corporate Entities Form, must be completed. The beneficial owners must be identified. These are any individuals that own or control 25% or more of the shares of the corporation or entity.
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TRAINING & EDUCATION
39.1 Mutual Fund 90-Day Training Course All newly licensed APs are required to complete the IFIC 90-Day Training Course in accordance with MFDA Rule 1.2.1. This is a self-study course that must be completed within 90 days of obtaining a mutual fund registration. WFGS has arranged for an industry discount with IFSE. Information concerning this discount is available on MyWFG.
Note: In addition to the IFIC 90-Day Training Course, APs must also complete the WFGS Companion Course to the 90-Day Training Course.
(This course is available on MyWFG). see 9 .0 registration & licensing
see 13.5 AP 90-Day training Program
Note: The 90-Day Training course is not a requirement in Québec.
39.2 Leveraging Course Requirement All APs are required to successfully complete the WFG EI Leverage Course prior to utilizing a leverage strategy or borrowed monies with any clients or prospects (unless they were grandfathered).
While WFGS strongly encourages all APs to take the Leverage Course, APs that do not intend to engage in leveraged transactions, do not have leveraged clients, or are grandfathered will not be required to take the course.
Note: Compliance reserves the right to have APs retake (or take) the WFG EI Leverage Course.
Compliance will check APs course completion before approving investment loans. Submitting leveraged transactions without having successfully completed the WFG EI Leverage Course may lead to disciplinary action including, a cautionary letter, fines, suspension &/or termination.
see 31.0 leveraging guidelines
see 31.5 leveraging: advertising and sales Communications
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39.3 WFG EI AML Training WFGS takes the risks presented by money laundering and terrorist financing as significant risks for the financial industry and has processes in place to conform with regulations concerning the PCMLTFA. As part of WFGSs steps in maintaining vigilance in regards to AML, WFGS requires all APs to complete an AML course once every 2 years. The AML course is offered free of charge to APs via WFG EI.
see 39.0 money laundering
39.4 Continuing Education Currently, the securities commissions have not yet implemented a credit system, but they have stressed the importance of continuing education. Several times a year, WFGS provides training materials to APs to ensure they remain current with changes in the industry. WFGS also conducts training/information sessions via webinar/email. RBMs conduct regular training for their APs and are available to answer any questions that APs may have.
39.5 Branches vs. Sub-branches A sub-branch means a branch office registered with the Securities Commission as an office of WFGS and in total there are only 3 or less APs registered to the office. Locations with 4 or more APs are referred to as full branches.
The address of the sub-branch location may be identified on business cards, stationary or correspondence with the public.
Note: WFGS has adopted a regional branch manager structure. Under this arrangement, supervision will be conducted remotely & BMs will no longer be located on-site at branches.
see 12.1 Definition of Branch and sub-Branch locations
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REGISTRATION OF BRANCH & SUB-BRANCH LOCATIONS
Individuals that wish to seek permission and approval to open a new branch location must submit the request (using the Branch Opening form on MyWFG) to Registrations. As part of the review by Registrations, the number of APs, AUA (including AUA leveraged), proficiencies/licenses, OBAs, supervision forms, any known issues and potential risks to WFGS will be reviewed. Registrations may contact individuals to conduct an interview and may request additional information and supporting documentation (such as building leases).
Once approval has been granted, Registrations will make the submission via NRD and will follow up with any requests for information or other matters. Once formal approval has been received via NRD, the applicant(s) that applied for the branch permission will be notified via email. Internal systems such as W.connect will be updated accordingly and product providers will be notified. see 12.0 Branch registration
40.1 Reconciling Branch Information to NRD
WFGS requires that all branch changes, whether it is a proposal to move locations, substantially modifying existing branch space, telephone numbers, fax numbers, addition of APs or other similar changes are sent to Compliance for approval and review prior to implementation (when feasible). At such times, Registrations will seek to verify existing NRD information and compare to the current information provided by the branch and the proposed branch changes and will update NRD and internal systems accordingly. If situations should arise in which there is a discrepancy between internal system information and NRD, this must be immediately resolved. Additionally, at least on an annual basis (via the annual questionnaire) the NRD branch information is scrutinized and compared to the information in NRD for completeness.
BRANCH OPERATIONS
41.1 Licensed Assistants As per MFDA MSN-0014, WFGS has established policies and procedures concerning the requirements for licensed assistants at branch offices. WFGS currently does not have any individuals operating in the capacity of a “licensed assistant” (For additional information concerning Licensed Assistants, APs should contact Compliance-registrations).
41.2 General Operation of Branch Locations The contents of this PPM (in their entirety) should be consulted for the general operation of a branch location. In general, branches should devote particular attention to the upholding and safety of client information, record retention, maintaining current prospectuses, forms and other required items as outlined in this PPM.
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REGIONAL BRANCH MANAGER RESPONSIBILITIES
Note: WFGS has adopted a regional branch manager structure. Under this arrangement, supervision will be conducted remotely & will no longer be located on-site at branches.
42.1 Supervision One of the key responsibilities of the RBM involves the supervision of transactions. When performing a review of a transaction not only is the transaction to be considered, but also the account or plan should be assessed by the RBM. The following sections discuss the general principle of suitability review and are not intended to cover all possible situations. An RBM must exercise discretion, caution and common-sense when they review transactions.
42.2 Suitability Review The RBM has the responsibility and the obligation to ensure compliance and suitability of new applications, new accounts and existing accounts. While the review of applications and accounts is subjective, certain general guidelines and generally accepted practices provide a framework for the diligent supervision of accounts. The RBM must make every reasonable effort to ascertain the suitability of the client.
see query resolution. Suitability responsibilities do not end once the account is opened. The RBM has ongoing responsibilities to ensure that the account and subsequent investments remain suitable for the client. This is accomplished by communicating with the client to ensure that the account meets the client’s current objectives and goals. The RBM must continually and routinely review existing accounts to ensure that they remain suitable for the client based on any changes that may have occurred with the client.
Note: While the AP has the primary responsibility for determining suitability and compliance, as well as “Know Your Client” rule, the RBM has the ultimate supervisory responsibility at the branch level.
see query resolution
see 31.6 leveraging: the role of the Supervisor see 35.11 Portfolio summaries Prepared By APs see 36.7 Branch attendance
see 50.7 Branch office trade Blotter
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42.3 WFGS Trade Ticket When reviewing the transaction, the RBM must make reference to the PPM, WFGS Trade Ticket and WFGS NAAF, WFGS Leverage Guide that contain specific definitions of Risk Tolerance, Objectives and Time Horizon that need to be taken into consideration when reviewing the transaction. W.connect provides fund risk information for the fund, as well as plan KYC for the client. As the RBM is reviewing the WFGS Trade Ticket, they should also be mindful of how the proposed transaction would affect the client’s existing plan. RBMs must remember that they are ultimately responsible for anything that crosses their desk that they have signed and/or approved.
RBMs must also utilize the Trade Inquiry Log to document receipt, review, submissions, resubmissions and any issues as they arise. RBMs not only review transition paperwork before it is processed/submitted to WFG DC, they must also review transactions after the fact reviewing the Daily Trade Blotter. RBMs must familiarize themselves with the sections that follow in regards to the process of reviewing and things to look for and pay attention to.
Note: If an RBM identifies a major issue during review of a transaction or encounters difficulty in receiving a prompt response from an AP they should escalate the matter immediately to Compliance.
42.4 Account Opening & Consistency of Information When reviewing the documentation provided at the time of account opening, RBMs should review the initial trade documentation, any notes, and other materials such as 3rd party questionnaires. The RBM should review all sources available and see if the information is reasonable. In situations where an existing client is opening up an additional plan or amending an existing plan, the RBM should review the information on W.connect and within the client file and ensure the accuracy of the information on file. Inconsistencies or inaccurate information should be escalated to WFG DC. RBMs should also review and assess any KYC changes for reasonableness and should question situations in which a material change has been conducted in attempt to justify an unsuitable trade or leveraging strategy.
In situations where a client is opening a new account and transferring in assets (whether in- cash or in-kind) from another institution, the RBM should review the transaction and suitability of the plan and investments. Just because a client held ABC at another company does not mean that ABC is automatically suitable for a plan that the client opens with WFGS. APs working with clients that are transferring in assets (cash or in-kind) should remember that these accounts still require new account approval (if a new account) and that RBMs must review and approve these types of transactions. When reviewing their trade blotters, RBMs should review the transactions and the plan, making sure that any new plans have also been reviewed and approved by the RBM. If the RBM encounters a plan that has been opened but has not been approved they should escalate to Compliance.
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see 22.3 3rD Party suitability questionnaires
see 43.5 reconciling KYC information on w.Connect
42.5 Reconciling KYC Information on W.connect APs are responsible for knowing their clients and for making sure that the information on file and in W.connect is accurate. By having accurate information in W. connect, APs help ensure data integrity and help avoid any potential confusion or delays in processing. RBMs should check information in W.connect when they are reviewing transactions, account opening, etc. RBMs and APs that notice errors or discrepancies should report these to WFG DC to be corrected.
42.6 DSC/Fees/Withholding Tax Disclosure: WFGS Trade Ticket Clients must be advised of any costs (immediate or deferred) that may come with any sale or purchase of a mutual fund. This is in keeping with the Client Relationship Model (CRM2) that has been prescribed by the Canadian Securities Administrators (CSA).
On Purchase/Sale:
• The client must be informed of the dollar amount [$] of any charges (or a reasonable
estimate if not known at time of disclosure)
• Details of any deferred charges that the client might be required to pay including fee schedule that applies
• Any trailing commissions that will be received
• A general description of benchmarks Section 8 of the WFGS Trade Ticket is where APs must indicate the dollar amount of any charges (including any fees or withholding taxes).
• On purchase, the Deferred Sales Charges (DSC) schedule should be included [Ex. 1st year 7%, 2nd yr. 6%...]
• On a sale, the DSC amount must be indicated in dollars [$]
• APs may also want to indicate any trailing commissions received in this section Fund Facts is an important part of the pre-trade disclosure. CSA has recommended that APs explain the following terms with clients (all of these can be found in Fund Facts):
• Management Fee
• Sales charge or deferred sales charge option available
• Any redemption or short-term trading fees
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• Trailing commission or other embedded fees
• Options regarding front end loads
• Fees related to the client changing or switching investments The WFGS NAAF and WFGS Trade Ticket contain a general description of benchmarks. APs should make sure that clients are aware of the important information contained in these areas.
Writing “client is aware of fees/charges” (or something similar) in Section 8 of the Trade Ticket is not acceptable. APs must ensure that they provide proper disclosure as outlined above.
WFGS Trade Tickets submitted without Section 8 fee disclosure completed will be declined or delayed
APs should take client notes in which the AP makes note of topics discussed. APs may want to include reference to specific Fund Facts sections with their clients (and include these in their notes) such as “How much does it cost” which contains information on sales charges, fund expenses (including trailing commissions) and other fees. APs may also want to direct clients to the section “A word about tax.”
see 30.3.B questionable trades (DSC to DSC)
see 27.2 fund facts
42.7 Application Review & Suitability The following 5 steps should be considered both individually and collectively when performing a suitability review. While the five steps are quite comprehensive, RBMs should not limit their review to only the items discussed.
1) Confirm that the AP holds appropriate license/qualifications for the product and jurisdiction. APs must hold active licenses in:
• Province of sale (where presentation took place & application completed & signed), AND
• Client’s province of residency. If the client lives in more than one place, then the deciding factor will be where the client holds a valid driver’s license (or similar document)
If the sale is split between 2 or more APs, all the APs must be able to service the client (i.e. all APs must be licensed/qualified as per above). Contact Commissions for additional information regarding split sales. 2) Confirm that the information contained on the application is complete and accurate.
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RBMs rely upon the information provided by APs. When reviewing NAAFs, Trade Tickets or other supplementary materials RBMs should be mindful of the following (not exhaustive):
• Client’s name & address
• Client’s age
• Client’s annual income
• Client’s net worth
• Client’s investment objectives
• Client’s investment knowledge
• Client’s investment time horizon
• Client’s occupation & employer
• Number of dependents
• Previous investment experience
• Is the client borrowing to invest
• Disclosure of fees/charges to client
• Client’s signature on the acknowledgement 3) Confirm the investment and strategy is suitable for the client. Client’s age should be consistent
with the investment program. The assumption of the regulatory agencies is that, accounts for estates, seniors, widows, minors and/or trusts should be more conservative in nature. While there may be a situation in which an aggressive or moderate account is suitable for a client, it is the responsibility of the RBM to understand the goals and objectives of the client within the context of the investment.
Note: When reviewing leveraging & high-risk investments, pay particular attention to client age
RBMs must confirm that the client’s investment objectives and constraints (such as time horizon) are consistent with the proposed transaction. Products that are sold on a low-load or DSC basis should be appropriate for the client given the client’s stated time horizon and objectives. Examples of potential issues:
• 7 year DSC schedule for a client with a 2 year investment horizon.
• 7 year DSC schedule for a client that is a senior and may need income in excess of yearly free amounts
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A 7 year DSC schedule would be considered to be generally appropriate where the client has a time horizon of at least 7 years. The WFGS NAAF has 6 categories for time horizon. These are: <1 year, 1 to <3 years, 3 to <5 years, 5 to <10 years, 10 to <20 years or 20+ years. To avoid possible confusion, if the 5 to <10 years category is selected and DSC funds are used, the AP should be clear in their client notes (submit with trade ticket) that the client has expressed a time horizon of 7-10 years and that the selection of DSC funds is in keeping with the client’s time horizon.
Note: The Canadian Securities Administrator (CSA) recommends that APs explain sales charge or deferred sales charge options to clients & options regarding front end loads
see 30.3.B questionable trades (DSC to DSC)
see 27.2 fund facts
see 43.6 DSC/fees/withholding tax Disclosure: WFGs trade ticket
4) Confirm that the payment for the investment program is correct [source of funds]:
• RBMs must be sure that the mode of client payment is consistent with WFGS policies
• Cheques must be payable to “WFG Securities Inc. In Trust”
• Any cheque payable to any other payee will be returned & will not be processed • Review to ensure that the information on the cheque is complete
• 3rd party cheques will only be accepted if accompanied by a 3rd Party Determination Form
• At all times individuals must be mindful of their AML obligations A personal cheque usually includes the client name, address, telephone number printed or etched directly onto the cheque. In contrast, a “counter” cheque is a cheque that has a blank space where the name or other personal details can be written in. Counter cheques are sometimes used when a client opens a new bank account, or when the client asks the bank to remove the funds from the client account and issue a cheque on behalf of the client. While it is easy to determine the source of funds with a personal cheque, it may be harder to do so with a counter cheque. Similarly, bank drafts [bank cheque, cashier’s cheque] do not necessarily disclose the original source of funds, only that money is coming from the bank to a payee (person/company receiving money). A certified cheque uses the client’s personal cheque with a guarantee [stamp] from the financial institution that the amount of money is available and the cheque is not likely to bounce.
WFGS is concerned both with source of funds and also with client payment being declined. Any costs associated with a client transaction being declined to due payment being refused [cheque
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bounced] will be charged to the AP. WFGS prefers to receive personal cheques. For dollar amounts in excess of $250,000 APs should ask client’s to provide certified cheques (where the account holder information is clearly indicated). Bank drafts and/or other forms of transaction where the source of funds is not clear may be declined.
see 39.0 money laundering
5) Timely processing. All applications must be submitted to WFG DC for RBM review within 24
hours of the client signing. If an application is received at the branch after more than 1 day from the date of the client signing, the RBM must contact the AP and obtain a written explanation for the delay. The written explanation of the delay and the RBMs comments as to steps that will be taken to avoid a recurrence of the delay must be maintained within the Client File and must be submitted with the client’s documents to WFG DC.
Where an RBM is supervising the APs business, the AP must ensure that the application/documents are submitted to WFG DC or to RBM (electronically) within 24 hours of client signing.
Please contact Compliance if you have any questions concerning this.
42.8 Daily Trade Review In addition to reviewing Account Openings and all AP/client trades, RBMs must also perform a T+1 Trade Review (Trade Date + 1 additional day). This review is conducted to ensure that all activity conducted at the branch (this includes off-book transactions) is reviewed.
Note: Trade Date (T) & Settlement Date (usually T+3 for equity funds, T+1 Money Market funds) are the 2 most commonly referenced transaction dates. Depending upon the time of day a trade is received by WFG DC (the Processing Date), the Trade is either processed the same Date (T = Process Date) or the next day (whereby T ≠ Process Date).
There are 2 distinct blotters that must be generated, the wired & the non-wired.
see appendix l - Branch trade Processing
see 43.9 Producing Branch trade Blotter
RBM Trade Reviews should include (at a minimum) all:
• Initial trades
• Trades in exempt securities
• Leveraged trades in open accounts
• Orders with a value of $2,500+
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• Trades in accounts operating under a Power of Attorney for family members of APs The trades must be reviewed for the following:
• Suitability of the Trade
• Concentration
• Unauthorized Trading
• Churning
• Quality Downgrading • Any other unsuitable trade &/or trading pattern
• Fees charged (i.e. DSC fees charged as a result of a sell order)
• Excessive switches (DSC to DSC, DSC to FE, DSC to NL, FE to DSC, etc.)
42.9 Documenting Branch Trade Review RBMs must document their queries, maintain notes and keep records of any and all, queries, responses, resolutions and AP issues such as failure to respond to a query. The trade blotters and the master query log must be stored in such a manner that they are readily accessible and should be stored by date.
Note: APs failing to respond to a query in a timely manner should be reported to Compliance. APs failing to cooperate may be reprimanded, fined, suspended &/or terminated.
42.10 Trade Blotter & Suitability Reviews RBMs must produce and review daily trade blotters. After producing the blotter, the RBM must review the blotter for suitability and/or other issues that might be present. While reviewing the blotter the RBM should consult 43.8 Daily trade review and other sections of the PPM that reference suitability. RBMs should take care to note information and details on the blotter that require additional follow-up. These issues should also be recorded on the Trade Query log. When the RBM sends a query to the AP, the email being sent and the response should be saved (either electronically or printed), the Daily Trade Blotter (from which the query arose) should be updated to reflect the additional information, and the Query Log updated accordingly. To adequately review the client KYC suitability information the RBM will have to check the client records on W.connect while reviewing the printed trade blotter. This is an important step as the branch trade blotters do not print with the client KYC information. KYC information such as: Client Income, Net Worth, Investment Knowledge is maintained at the client level, and information such as Risk Tolerance, Time Horizon and Investment Objective reside at the plan level. RBMs should review the client account holdings to ensure that the trade appearing on the
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blotter is suitable considering its impact to the client’s existing account/plan and other holdings. RBMs should ensure that the trade/account holdings are suitable based upon the client’s Risk Tolerance, Investment Objectives and Time Horizon as recorded on W.connect. If there is an inconsistency, the RBM should seek to have this addressed. This can be done by either having the trade amended to be in-line with the client’s suitability, having the AP revise the client NAAF/KYC if the NAAF/KYC is incorrect or contacting Head Office to have the error on W.connect corrected. When RBMs are reviewing transactions they should ensure that the plan risk rating and objectives meet the client’s allocations as indicated. W.connect includes this information in the client’s plan information.
see 43.9 Producing Branch trade Blotter see 43.8 Daily trade review
42.11 Monthly Reporting Procedures see 10.0 outside Business activity (OBA)
Note: RBMs complete monthly reports that summarize issues and potential problem areas.
42.12 Close Supervision APs may be subject to additional required supervision (“close supervision”). This condition may exist for several reasons, including Outside Business Activities (OBAs). It must be noted that these additional or heightened supervision requirements are in addition to the high-level of supervision that a RBM is already providing for the APs in their branch.
While under Close Supervision, Monthly Close Supervision reports by RBMs must be completed and submitted to Compliance-Registrations to attest to the ongoing supervision conducted during the course of the month for the AP.
see 10.0 outside Business activity (OBA)
42.13 Supervision of New APs According to MFDA Policy No.1, all newly registered APs should be subject to concurrent supervision by his/her RBM for a period of 6 months, starting on the date of initial registration. The 6 month period (1st 90 days, subsequent 90 days) of supervision is intended to identify any potential issues with a newly licensed AP, identify areas of concern, areas that require additional training and to ensure that the AP is operating in accord with industry practices and WFGS policies. Such supervision should include at a minimum:
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42.13.1 The first 90 day period:
• all new accounts must be pre-approved by the RBM prior to any trading activity in the account
• all trading activity must be reviewed & signed off by the RBM within 1 business of the trade date
• all leveraged trades where leveraging was recommended by the AP must be reviewed in detail by the RBM prior to trade execution
42.13.2 The subsequent 90 day period:
All new accounts must be pre-approved by the RBM prior to or shortly after (within 1 business day) any trading activity in the account. This includes the following requirements:
• Each month, the RBM must review the greater of:
• 5 of the client files that were handled by the AP in the preceding 1 month, &
• 10% of such client files
• provided that if the number of such client files is less than 5, then the RBM must review the actual number of such client files
• On a daily basis, the RBM must review the greater of:
• 5 of the trades conducted by the AP, &
• 10% of such trades
• provided that if the number of such trades is less than 5, then the RBM must review the actual number of such trades, (high risk trades, are to be given particular attention) &
• all leveraged trades must be reviewed by the RBM prior to trade execution The RBM should complete the Confirmation of Completion of New Registrant Training and Supervision Program report at the end of the training and supervision program. The Confirmation of Completion of New Registrant Training and Supervision Program are available from Registrations.
When an AP is unsuccessful in meeting the expectations according to WFGS policies and procedures, the AP may be terminated, or the supervision and training period may be extended. All supervisory activities with regard to newly-registered APs should be documented by the RBM. Any issues that RBMs have with new APs in regards to the completion of these requirements should be forwarded to Registrations.
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42.14 Compliance Meetings & Training APs have an obligation to comply with the rules and regulations of WFGS and all appropriate regulatory authorities. APs are required to complete a Supervisory Agreement that outlines the supervisory relationship of the RBM and the obligations of the AP. RBMs must conduct regular (typically monthly) training sessions with APs to help ensure that APs are kept up to date with regulatory rules, WFGS policies, procedures and best practices. Training can take the form of in-branch meetings, webinars, conference calls/telephone calls, and email or by other means that effectively delivers relevant information from the PPM, Compliance Memorandums/Bulletins, or other distributed Compliance materials. The content, dates, and attendees should be documented where possible. It is the APs responsibility to ensure that they are familiar with policies, procedures and requirements. Failure to keep up to date by not regularly attending training sessions or ignoring materials provided can be grounds for disciplinary action that could include termination.
see 49.0 Books & records
see 50.0 record Keeping: Branch requirements
see 3.6 AP obligation to report Contravention to head office
42.15 Contact with APs RBMs are required to maintain regular contact with APs that they supervise. Generally, there is regular on-going communication between APs and RBMs. In a more formal manner, RBMs should conduct a meeting with the APs being supervised.
The RBM should discuss (but not be limited to) the following during the quarterly interview:
• Compliance bulletins that have been recently issued
• OBAs/employment or changes in OBAs, if permitted
• Changes in address, phone number, or financial situation
• Changes in WFGS procedures or policies
• Trends in the business being produced by AP
• Marketing
• Any switches
• Incomplete applications being submitted to branch office
• Delays in receipt of applications by branch office
• Increase in production
• Decrease in production/inactivity
• Quality of business by the AP
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• 90/180 day training [if applicable]
• Status of any client complaints
• Other supervision issues RBMs should document the meeting, indicate if by phone or in-person, any topics discussed and/or issues raised. The RBM can utilize a standard form or make notes of the meeting, but these should be kept in such a manner that they are readily available to Head Office. RBMs must direct any issues discovered to Compliance. see 10.0 outside Business activity (OBA)
42.16 AP Interview: AP Estrangement If an AP refuses to participate in required meetings and training sessions, the RBM should notify Registrations and send a letter to the AP by certified or over-night mail requesting that they contact the RBM to schedule a meeting. If the AP does not respond, the RBM must notify Compliance-Registrations who will contact the AP and provide them with an opportunity to attend a meeting. If the AP does not cooperate, the AP may be terminated.
42.17 RBM Monthly Report RBMs are required to complete an RBM Monthly Report that is submitted to Compliance on a monthly basis. This is due by the 5th of the month for the previous period (i.e. June 5th is the due date of the month of May report). The RBM Monthly Report is currently an online form that RBMs can complete electronically and submit. The report should include copies of the RBMs Trade Query log, copies of any supervision reporting (1st 90 days, close supervision, monthly interviews, etc.), indicate any training done at the branch, any issues experienced by the RBM and other items such as delays in processing or complaints,
DELEGATION OF DUTIES
43.1 Qualifications RBMs have ultimate supervisory responsibility for all branch office operations.
Confidentiality
In the course of performing supervisory responsibilities, RBMs will have access to confidential information concerning the finances, health, business, and activities of clients and APs. RBMs must make sure that any supervisory delegates understand that all personal information is confidential and should not be disclosed to others, except as provided in this PPM. RBMs must
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familiarize themselves with WFGS privacy policies.
Ultimate Responsibility
WFGS has vested the RBM with ultimate supervisory responsibility for APs.
CLIENT COMPLAINTS
46.1 Complaint Definition A complaint is any written or verbal statement (including email and audio recordings) made or submitted by a client or any person acting on behalf of a client alleging a grievance in connection with the conduct, business or affairs of WFGS, an AP, Director or Officer of WFGS.
Individuals should consult MSN-0073 “Complaint Handling” and MFDA Rule 2.11 “Complaints” for additional information pertaining to complaint reporting requirements.
46.2 Reporting Complaints to Compliance If a complaint is received by an AP or an RBM, Compliance must be notified within 2 days.
46.3 New Clients All new clients must receive a Client Complaint Information Form (CCIF) at the time of account opening. The CCIF is contained within the NAAF, and the latest CCIF is also sent to clients when WFGS sends an acknowledgment letter to a client when they file a complaint.
46.4 Acknowledgement Letter for Mutual Fund Complaints Upon receipt of a complaint and no later than the next business day, Compliance staff must acknowledge the complaint. The acknowledgement letter must include:
• The name, job title & full contact information of the individual at WFGS handling the complaint
• A statement indicating that the client should contact the individual at WFGS handling the complaint if he/she would like to inquire about the status of the complaint
• An explanation of WFGSs internal complaint handling process, including general timelines for providing WFGSs response to complaints
• A request to the client for any additional reasonable information required to resolve the complaint
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• A reference to & inclusion of the most recent MFDA Client Complaint Information Form (CCIF) for the client’s review.
46.5 Verbal Complaints: Additional The subject of the verbal complaint and the severity of the allegations will dictate how the complaint should be handled. In all cases, APs should ensure that they document the complaint, notify their RBM and consult Compliance for additional guidance concerning the handling of the verbal complaint.
46.6 Complaint Handling Responsibility Compliance is responsible for logging, investigating, and recommending resolutions to complaints involving WFGS and/or its APs. RBMs and Senior Officers are responsible for monitoring the activities of personnel under their supervision to ensure that all complaints are promptly forwarded to Compliance for handling within 2 business days.
Note: APs are not authorized to attempt to resolve any complaint unless under the specific direction of Compliance
APs must never attempt to resolve a complaint on their own, offer to make any payment to a client, or generally attempt to resolve a complaint without the explicit written approval of Compliance.
46.7 Complaint Handling Process APs that receive a complaint (written or verbal) must notify their RBM immediately. If the RBM is unavailable, APs must promptly notify Compliance of the complaint. RBMs are required to forward all complaints and any relevant information concerning the complaint to Compliance.
Within 5 business days of receiving a complaint, Compliance will send the client an Initial Response Letter, a CCIF (see Appendix B) and will begin investigating the client’s complaint and take appropriate actions to resolve the complaint. Upon receipt of a complaint, Compliance may notify E&O. The insurance provider may request additional information or materials from the AP (see 9.9 errors and omissions insurance (E&O). Additionally, Compliance may complete an MFDA event report on METS.
In connection with its investigation, Compliance may ask the AP to provide a written statement concerning the allegation(s) or complaint, as well as additional documents, client notes, copies of the client file and other relevant materials. APs should prepare their statement as objectively as possible and submit all requested information promptly. APs should ensure that their RBM is duly informed of any ongoing investigation (i.e. copied on emails, etc.). Records and documents relating to a complaint should be maintained for 7 years. Failure to cooperate in an ongoing investigation may result in a reprimand, or other disciplinary action (including termination).
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Compliance will pursue a balanced fact gathering approach that will objectively consider the interests of the client, the AP and WFGS. Compliance personnel will conduct the analysis in a reasonable and fair manner.
The investigation and analysis should be completed on a timely basis (in most cases within 3 months), upon which time a Substantive Response Letter (i.e. letter of conclusion of analysis) will be provided to the client by Compliance. Typically, in situations in which an investigation will exceed the 3 month period, a letter will be sent to the client informing them that the investigation is still active and ongoing.
If the client fails to co-operate during the complaint resolution process or if the matter requires an extensive amount of fact-finding or complex legal analysis, time frames for response may need to be extended. Where a settlement is required it is prohibited to reach resolutions which impose confidentiality restrictions on the client with respect to regulators.
An Initial Response Letter may include the following information:
• A written acknowledgment of the complaint
• The name, job title & full contact information of the CO handling the complaint
• A statement indicating that the client should contact the individual handling the complaint if the client would like to inquire about the status of the complaint
• A request to the client for any additional reasonable information required to resolve the complaint
• A reference to the CCIF, a copy of which should be included for the client see appendix - Client Complaint information form
A Substantive Response Letter should:
• Address every aspect of the client’s complaint
• Objectively consider the complaint, e.g. conduct independent review
• Provide a thorough analysis
• Provide the rationale for the decision
• Address client requests for reimbursement
• Provide guidance to the client as to their options on how to fix their problem, e.g. how to unwind an unsuitable investment loan, or how to address an unsuitable mutual fund holding in an account.
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46.8 Complaint Investigation The CO handling the complaint will perform the following tasks:
• When the complaint relates to an AP, Compliance staff will request written
comments from the AP to address the allegation in the complaint
• Contact the AP to advise of the complaint & the concerns
• Send a written request to the AP stating specifically the questions the AP must address
• Request a copy of the entire client file
• Provide a due date that the AP must reply to the request by (usually 2 to 5 business days)
• In some instances, it may be prudent to start calling any or all clients to determine the seriousness or scope of the complaint
In the event that evidence of a very serious breach has been identified in relation to an investigation (i.e. a fraud, theft, forgery, physical abuse) COs must inform the Manager, Compliance and/or the ACCO.
46.9 Additional Investigation for Complaints & AP Conduct reviews Should a complaint be of a more serious nature, the Compliance staff must consider if any of the following actions are required:
• Advise senior management of the situation immediately
• Impose immediate close supervision on an account or AP • Request a Suspension of the AP
• Ensure that all disciplinary recommendations are communicated to Senior Management in a timely manner
Compliance must review all information that it receives regarding potential breaches of regulatory requirements or internal policy and procedures on the part of WFGS and its current and former APs. This applies to information received from both internal and external sources. For example, such information may come from client complaints, be identified during WFGSs routine supervisory activity, or come from other APs or individuals outside WFGS who are not clients. WFGS will track such information and note trends in risk, including those related to:
• specific APs or branches
• subject matter
• product types
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• procedures and cases WFGS will take necessary action in response to those trends as appropriate. In some cases, it will be necessary to conduct a reasonable active supervisory investigation in relation to the information received.
46.10 Steps of an active supervisory investigation could include Reviewing AP client base. Generate AUA report and redemption reports and review to ensure client money has not been redeemed under suspicious circumstances. Interviews or reviews of documents/communications with the individuals of concern, related supervisory personnel, other branch staff, head office personnel, the client or other external individuals who brought the information to WFGSs attention, and/or other clients who may have been affected by the activity.
46.11 Conducting a Review at the Branch or Sub-branch Reviewing documentation such as: reviewing files of the AP relating to WFGS business, or files and other documents in the APs custody or control that relates an outside business where there is a reasonable possibility that such information is relevant to the investigation.
46.12 Complaint Response Letter Each response letter will be unique to the complaint, however, as per MFDA Notice 0059 all response letters should contain:
• An outline of the complaint
• WFGS’s decision on the complaint, including reasons for the decision
• If it is a mutual fund complaint: a reminder to the client that they have the right to consider:
(i) presenting the complaint to the Ombudsman which will consider complaints brought to it within 6 months of the substantive response letter, or (ii) making a complaint to the MFDA.
The general structure of the complaint letter should include:
• Introductory paragraph that indicates the date of the original complaint letter, & what WFGS understands the allegations to be
• 2nd paragraph which summarizes the action that WFGS has taken to resolve the issue (i.e. review of client file, interview with the AP)
• The body of the letter should address each of the concerns, or allegations as they are listed in the Introduction
• The conclusion, stating whether or not WFGS has found merit to the allegations &
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what if any settlement is being offered
Note: If a settlement offer is being made, the final release document &/or letter of direction should be included with the response letter. All settlement offers, including any that include completing a Letter of Indemnity (“LOI”), must be reviewed and approved by the Manager, Compliance &/or CCO before being presented to the complainant.
It is the objective of Compliance to ensure that all complaints are resolved in a timely manner. Therefore, should a complaint not be responded to within 90 days, continued communication with the complainant is required. Any obstacles or delays should be communicated to the complainant and senior Compliance.
46.13 Confidentiality Restrictions WFGS and APs must not impose confidentiality restrictions with respect to the MFDA, securities regulator, or other regulatory/law enforcement organizations as part of the resolution of a complaint. This includes restricting a client from making a complaint, continuing with an existing complaint, cooperating with an investigation or testifying at a hearing. It applies to any resolution of a complaint, including a settlement agreement, or to any other resolution or agreement with a client.
46.14 Insurance Carrier Complaints [Dually Licensed APs] WFGS does not sell insurance products. APs may sell insurance products outside the Member with World Financial Group Insurance Agency of Canada Inc., with is an affiliated company. There may be some situations in which an insurance complaint may involve the APs WFGIA business or vice versa.
46.15 Complaints Received at Head Office from Regulators In some cases a regulator may become involved in a client complaint. If the complaint was not previously dealt with by WFGS Head Office, the complaint must be recorded on the Compliance Complaint Log. If the complaint was previously reviewed, then the complaint must be re-opened, the log updated to indicate that a regulatory investigation was initiated. The following steps should then be taken:
• Notify the AP & RBM of the investigation
• Request required items from the AP and the RBM
• Compose response & provide to senior Compliance for review
• If requested by the regulator, draft a reply to the client & submit for senior Compliance review
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• Copy all attachments & ensure reply is sent to regulators within their requested timeline.
Note: Complaints initially received by the MFDA & sent to WFGS for review are not required to be logged onto the METS System.
46.16 Complaints Closed & Resolved A complaint is considered “closed” when Compliance has provided a response to the Complainant, regulator or other party and no further action is required by WFGS. Files may be re-opened should further correspondence or materials be received by WFGS or a regulator. A file is resolved when a settlement is made or a regulatory review is concluded and the file will not be re-opened. 46.17 Complaints from Quebec Clients Complaints received from clients who live in Québec are investigated as per the above procedures. However, there are some differences in the process that must be noted:
• QC complaints do not get logged onto METS, (Member Event Tracking System).
• The MFDA CCIF is not sent to the client. Instead, the Autorité des Marchés Financiers (AMF) Complaint Information Form is used.
.... Transferring a Complaint to the AMF: If the client is not satisfied with the investigation results, the client may ask the firm to send the complaint file to the AMF using the form to Request the Transfer of a File to the AMF.
After examining the complaint file, the AMF will determine whether it is appropriate to offer its dispute resolution services and may then recommend mediation. It should be noted that the parties must agree to participate in the process and that the AMF has no power to compel or force a settlement.
Compensation: Fonds d’indemnisation des services financiers: The fund may compensate victims of fraud, fraudulent tactics (dishonest practices) and embezzlement who conduct business with individuals and companies authorized to operate under An Act respecting the distribution of financial products and services, or in connection with mutual funds or scholarship plans.
The AMF conducts an assessment of the claims, renders a decision on the eligibility to receive an indemnity through the fund and determines the amount of the indemnity to be paid to the victim. The maximum compensation payable to consumers is $200,000 per claim through funds
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accumulated in the fund. The latter is financed through compulsory annual contributions paid by firms and representatives registered with the AMF.
AMF does not pay monetary compensation associated with consumer claims, except in cases covered by the Fonds d’indemnisation des services financiers.
Québec complaints are reported to the AMF semi-annually for both insurance and securities products (mutual funds) on their online reporting system. This also includes all complaints that are initiated with the AMF.
46.18 Cooperation APs, RBMs and all other WFGS personnel are expected to fully cooperate with WFGS in regards to any investigation. APs, RBMs, and other individuals are expected to provide all information, records, documents in possession or in control, to the extent required for WFGS (its attorneys, accountants, auditors, Compliance, outside counsel, or others working on behalf of WFGS) to meet their assigned obligations. Such information may include, but is not limited to, providing records of personal and business bank accounts, tax returns, client files, client notes, supporting documentation, and other financial records upon request.
46.19 Regulatory Contacts Compliance is responsible for handling all discussions, negotiations and other contacts with regulatory authorities pertaining to any matter involving WFGS. APs, RBMs and other WFGS staff should not contact any provincial securities department, the MFDA or any other regulatory authority on behalf of WFGS without the express prior consent of the ACCO/CCO.
APs must notify their RBM and Compliance immediately if:
• a provincial securities department, the MFDA or any other regulatory authority
contacts them about any securities-related matter
• they are contacted by an attorney, received or are served with, a securities-related complaint, subpoena or other legal document
• the AP becomes aware that a client is in contact with, or has been contacted by, a regulatory agency regarding their relationship to WFGS
• 46.20 Reporting to the MFDA Compliance is required to report to the MFDA whenever:
• WFGS or its partner, director, officer, AP or employee is the subject of any
client complaint involving allegations of theft or misappropriation of funds,
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securities, fraud or forgery
• WFGS has entered into a private settlement or has disposed of any claim in securities-related litigation or arbitration by judgment, award or settlement where the amount of the judgment, award or settlement exceeds $25,000
• WFGS or a partner, director, officer, AP or employee of WFGS, has entered into a private settlement or has disposed of any claim in securities-related litigation or arbitration by judgment, award or settlement where the amount of the judgment, award or settlement exceeds $15,000
46.21 Record of Complaints An orderly, up-to-date record of complaints together with follow-up documentation is required to be maintained at the branch for regular internal/external compliance reviews. Records must also be maintained at Head Office. For each complaint, the record should include the following information:
• the date of the complaint
• the complainant’s name
• the name of the person who is the subject of the complaint
• the securities or services which are the subject of the complaint
• the date & conclusions of the decision rendered in connection with the complaint
This record must be retained for a period of 7 years from the date of receipt of the complaint.
46.22 Complaint Log & File Maintenance Once a complaint has been acknowledged it must be recorded and tracked on the Complaint Log maintained in Compliance. A separate file must be created for each client complaint. Each complaint file must be identified with a file ID number and the client’s name (last name(s), first name(s) and the AP(s) names. The file should contain at a minimum:
• initial client complaint letter
• copy the acknowledgement
• Account statement including all transactions of the account (if the complaint is with regards to an investment account)
• Any supporting documentation provided by the client
• Any correspondence with Compliance & the AP obtained during the course of the
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investigation
• The final response letter detailing the finding All new complaints should also be provided to the Manager, Compliance for initial review.
46.23 METS Requirements Mutual Fund Client Complaints With regards to client complaints, as per MFDA Policy 6, WFGS shall report to the MFDA: all client complaints in writing, against WFGS or a current or former AP, relating to WFGS business, except service complaints.
Whenever WFGS is aware, through a written or verbal complaint or otherwise, that WFGS or any current or former AP has or may have contravened any provision of any law or has contravened any regulatory requirement, relating to:
(i) ) theft, fraud, misappropriation of funds or securities, forgery, money laundering, market manipulation, insider trading, misrepresentation, or unauthorized trading; or (ii) engaging in securities related business outside of WFGS.
The initial METS filing will be completed by a Compliance that sets up the complaint file. The initial allegations will be recorded on METS by the CO, unsubstantiated allegations should not be included. Once the file is passed to the CO for investigation, the CO must maintain and update METS accordingly. This includes developments in the investigation, any conclusions or replies made to the client, and any disciplinary actions taken against the AP.
46.24 Review Internal Procedures & Business Practices The red flags raised from the complaint handling process may trigger the review of the internal policies and procedures by the CCO/ACCO. The purpose of the review is to identify deficiencies and minimize repeat occurrence of the issues addressed by the complaints.
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MEMBER REPORTING REQUIREMENTS
47.1 Designated Person As per MFDA Rule 6 Section 3.6 WFGS must designate “a compliance officer at its head office (or another person at head office) to whom reports made by APs, as required by section 4, shall be submitted.” WFGS has designated the Manager of Registrations as this person.
47.2 Introduction This Policy establishes minimum requirements concerning events that APs are required to report to WFGS and events that WFGS is required to report to the MFDA pursuant to Policy 6.
Part A of Policy 6, “Approved Person Reporting Requirements”, sets out details regarding the reporting of information by APs. Part B of this Policy, “Electronic Reporting Requirements for Members”, sets out details regarding reporting of information by MFDA Members (WFGS). All reporting under Part B must be submitted through the electronic reporting system provided by the MFDA. The reporting of events that are required to be submitted electronically by any other means is a failure to report the event and a failure to comply with this Policy.
Part C of this Policy, “Other Reporting Requirements for Members”, sets out details regarding reporting of information by Members. that must be submitted to the MFDA in writing. In addition to these reporting requirements, WFGS is required to comply with other reporting requirements which may change from time to time, and which include but are not limited to: MFDA reporting requirements, some of which may also require MFDA approval: By-law No.1 section 13.7 – Reorganizations, mergers & amalgamations By-law No. 1 section 13.9 – Changes in ownership & control Rule 1.1.6 – Introducing/Carrying dealer arrangements Rule 3.1.1 – Change in dealer level Rule 3.1.2 – Risk adjusted capital less than zero Rule 3.2.5 – Accelerated payment of long term debt Rule 3.5 – Financial filing requirements
(a) reporting requirements under applicable provincial securities laws in connection with a Member’s mutual fund dealer registration.
47.3 General Reporting Requirements Events regarding WFGS that must be reported shall not be limited solely to securities related business, but shall include all WFGS business. Events regarding APs that are reported by APs to WFGS shall not be limited solely to securities related business and WFGS business, but shall include all business conducted by the AP. The obligation to report an event under this Policy is limited to events of which WFGS or AP has become aware regardless of the means by which
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WFGS or AP became aware of the event. If the reporting timeframes have expired before WFGS or AP has become aware of the event, the event shall be reported immediately after WFGS or AP has become aware of such event.
WFGS is expected to be aware of events relating to APs by the receipt of reports from APs and by carrying out WFGS’s supervisory, monitoring and review obligations over the conduct of its business. All requirements to report events regarding former APs are limited to events which occurred while the AP was an AP of WFGS.
WFGS shall designate a CO at its head office (or another person at head office) to whom reports made by APs, shall be submitted. Documentation associated with each event required to be reported under this Policy shall be maintained for a minimum of 7 years from the resolution of the matter and made available to the MFDA upon request.
General Member Electronic Reporting Requirements
WFGS shall report the following events to the MFDA, through an electronic reporting system provided by the MFDA, within 5 business days of the occurrence of the event, except for events reported under section 6.1(a) of this Policy, which must be reported to the MFDA within 20 business days.
47.4 General Events to be Reported WFGS shall report to the MFDA:
(a) all client complaints in writing, against WFGS or a current or former AP, relating to member business, except service complaints;
(b) whenever WFGS is aware, through a written or verbal complaint or otherwise, that WFGS or any current or former AP has or may have contravened any law or regulatory requirement, relating to:
• theft, fraud, misappropriation, forgery, money laundering, market manipulation, insider trading, misrepresentation, or unauthorized trading
• a breach of client confidentiality • engaging in securities related business outside of WFGS • engaging in an undeclared occupation outside the Member • personal financial dealings with a client.
(c) whenever WFGS, or a current or former AP, is: • charged with, convicted of, pleads guilty or no contest to, any criminal
offence, in any jurisdiction • named as a defendant or respondent in, or is subject of, any proceeding or
disciplinary action, in any jurisdiction, alleging contravention of any securities law
• named as a defendant or respondent in, or is the subject of, any proceeding or disciplinary action, in any jurisdiction, alleging contravention of regulatory requirements
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• denied registration or a license that allows a person to deal with the public in any capacity by any regulatory body, or has such registration or license cancelled, suspended or terminated, or made subject to terms and conditions
• named as a defendant in a civil claim, in any jurisdiction, relating to handling of client accounts or trading or advising in securities
(d) whenever an AP becomes bankrupt or suspends payment of debts generally or makes an arrangement with creditors or makes an assignment or is deemed insolvent;
(e) there are garnishments outstanding or rendered against WFGS or an AP.
47.5 Reporting of Updates & Resolution of Events Members shall update event reports previously reported to reflect updates to, or the resolution of, any event that has been reported pursuant to section 6.1 of MFDA Member reporting requirements within 5 business days of the occurrence of the update or resolution and such update or resolution shall include but not be limited to:
• any judgments, awards, arbitration awards or orders & settlements in any compensation paid to clients directly or indirectly, or any benefit received by clients from a Member or AP directly or indirectly
• any internal disciplinary action or sanction against an AP by WFGS • the termination of an AP • the results of any internal investigation conducted •
47.6 Other Events to be Reported For matters that are not the subject of an event report in section 6.1 of this Policy, WFGS shall report to the MFDA:
• whenever WFGS has initiated disciplinary action that involves suspension, demotion or the imposition of increased supervision on an AP
• whenever WFGS has initiated disciplinary action that involves the withholding of commissions or the imposition of a financial penalty in excess of $1000
• whenever an employment or agency relationship with an AP is terminated and the Notice of Termination filed with the applicable securities commission discloses that the AP was terminated for cause, or discloses information regarding internal discipline matters or restrictions for violations of regulatory requirements
• whenever WFGS or AP has paid compensation to a client either directly or indirectly in an amount exceeding $15,000
47.7 Part C - Other Reporting Requirements for Members WFGS shall report the events under Part C of this Policy to the MFDA, in writing, within 5 business days of the occurrence of the event, except for events reported under section 10 of this Policy, which must be reported to the MFDA immediately.
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47.8 Bankruptcy, Insolvency & Related Events WFGS must immediately report to the MFDA whenever:
• WFGS is declared bankrupt • WFGS makes a voluntary assignment in bankruptcy • WFGS makes a proposal under any legislation relating to bankruptcy or insolvency • WFGS is subject to, or instituting any proceedings, arrangement or compromise with
creditors • a receiver and/or manager assumes control of WFGS’s assets
47.9 Change of Name WFGS must report to the MFDA in writing within 5 business days if there are any changes with respect to:
• the legal name of the Member; • the names under which WFGS carries on business (trade or style names) • trade, business or style names, other than that of the Member, used by APs.
The name of the AP, the trade or business name the AP is using, & the APs branch location must be provided.
47.10 Change of Contact Information WFGS must notify the MFDA in writing within 5 business days of any change in address for service or main telephone or fax number.
47.11 Change in Member Registration or Licensing WFGS must notify the MFDA in writing within 5 business days of any changes in the following:
• type of registration or licensing with the relevant securities commission • jurisdictions in which any dealer business of WFGS is conducted • investment products traded or dealt in
47.12 Changes in Organizational Structure WFGS must notify the MFDA in writing within 5 business days of any changes in WFGS directors, partners (in the case of a partnership), officers & C.Os.
47.13 Other Business Activities WFGS must notify the MFDA in writing within 5 business days of any business, other than the sale of investment products, which WFGS engages in or proposes to engage in.
47.14 Change of Auditor WFGS must notify the MFDA in writing within 5 business days of any change in WFGS’s auditor
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and/or audit engagement partner. A new Letter of Acknowledgement (Schedule H.1 of the MFDA Membership Application Package) must be submitted to the MFDA.
47.15 Capital Requirements WFGS will at all times maintain adequate capital and resources to meet all of its financial obligations and to avoid insolvency or bankruptcy. To ensure that this is achieved, WFGS adheres to its own strict internal capital requirement policies and those policies as stated by regulators such as MFDA Rule 3 and MFDA Form 1 and regulatory updates and amendments as introduced. By ensuring that WFGS maintains adequate capital at all times, WFGS protects its own business interests and those of stakeholders and clients.
The formula for calculating regulatory capital utilizes a conservative risk-adjusted capital approach that incorporates WFGS status as a Level 3 Introducing Broker. WFGS shall have and maintain at all times a Risk-Adjusted Capital (RAC) greater than zero and general working capital greater than $75,000.
47.16 Risk-Adjusted Capital (RAC) Formula Risk-Adjusted Capital (RAC) shall be calculated by using a formula stated in the Statement B of Form 1 of MFDA Financial Questionnaire and Report. Generally, RAC is a method or process by which a Member (i.e. WFGS) ensures that it maintains adequate liquid capital at all times to meet all of its business needs. RAC also functions as an early warning system for Members (i.e. WFGS) and regulators to determine which firms may be at higher risk for insolvency or bankruptcy.
Simplified calculations for RAC can briefly be summarized as follows: (for a detailed description of RAC calculations see MFDA Questionnaire and Report Statement B):
STEP 1 Calculate Net Allowable Assets:
Total Financial Statement Capital – Non Allowable Assets = Net Allowable Assets STEP 2 Calculate Risk-Adjusted Capital:
Net Allowable Assets Less: Current Liabilities Less: Minimum Capital & Insurance Less: Applicable Long-Term Liabilities & Contingent Liabilities Less: Margin Requirements & Unresolved Discrepancies Equals: Risk-Adjusted Capital
47.17 Communication The Assistant Controller shall monitor the amount of capital and risk adjusted capital. If at any time, to the knowledge of the Assistant Controller, the risk adjusted capital is less than zero or close to zero, and/or WFGS is operating close to early warning levels according to the early
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warning designation categories listed in MFDA rule 3.4.2 (a), the Assistant Controller shall immediately report to the CCO and the UDP of WFGS. If at any time the risk adjusted capital is less than zero the CCO or the UDP shall immediately notify the issue to MFDA and provincial regulators.
47.18 Filing Requirements The Assistant Controller shall also:
• file monthly with MFDA within 20 business days of the month’s end a copy of a financial report of WFGS as at the end of each fiscal month or at such other date as may be agreed with MFDA. Such monthly financial reports shall contain or be accompanied by such information as may be prescribed by MFDA from time to time
• file annually with MFDA 2 copies of the audited financial statements of WFGS as at the end of WFGS fiscal year or as at such other fixed date as may be agreed with MFDA. Such statement shall be in such form, shall contain such information and shall be supplemented by such additional schedules as MFDA from time to time prescribe, & shall be filed through WFGS auditor within 90 days of the date as of which such statements are required to be prepared
47.19 Bond & Insurance 47.19.1 Financial Institution Bond
WFGS shall, by means of a Financial Institution Bond or Bonds (with Discovery Rider attached or Discovery Provisions incorporated in the Bond) and/or mail insurance, effect and keep in force insurance against losses arising as the circumstances that listed in MFDA rule 4.1 of Fidelity, On Premises, In Transit and Mail, Forgery or Alterations, and Securities. Each Financial Institution Bond maintained by WFGS shall contain a rider requiring the underwriter to notify the MFDA at least 30 days prior to the termination or cancellation of the Bond unless the exceptions stated in MFDA Rule 4.2 apply.
47.19.2 Amount Required
The minimum amount of insurance to be maintained for each circumstance stated under 16.1 shall be greater of:
• $50,000 for each AP up to a maximum of $200,000 • 1% of the base amount (as defined herein) • provided that for each circumstance
such minimum amount need not exceed $25,000,000 The term “base amount” shall mean the greater of:
• the net value of cash and securities held by WFGS on behalf of clients; & • the total allowable assets of WFGS determined in accordance with Statement A of
Form 1
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47.19.3 Provisions
The amount of insurance required to be maintained by WFGS shall as a minimum be by way of a Financial Institution Bond with a double aggregate limit or a provision for full reinstatement. Should there be insufficient coverage, WFGS shall be deemed to be complying with MFDA Rule 4 provided that any such deficiency does not exceed 10% of the insurance requirement and that evidence is furnished within 2 months of the dates of completion of the monthly operations questionnaires and the annual audit that the deficiency has been corrected. If the deficiency is 10% or more of the insurance requirement, action must be taken by WFGS to correct the deficiency within 10 days of its determination and WFGS shall immediately notify the MFDA Investor Protection Corporation. A Financial Institution Bond maintained may contain a clause or rider stating that all claims made under the bond are subject to a deductible
47.20 Notification of Claims to MFDA Pursuant to MFDA Form 1, Schedule 4, WFGS shall list all losses reported to the insurers including those losses that are less than the amount of the deductible on Schedule 4. Losses should continue to be reported on Schedule 4 Part D until resolved. In the reporting period where a claim has been settled or a decision has been made not to pursue a claim, the loss should be listed along with the amount of the settlement, if any. At the annual audit date, all unsettled claim shall be listed on Schedule 4, whether or not the claims were initialed in the period under audit. In addition, all losses and claims identified in the current or previous periods that have been settled during the period under audit shall be listed.
47.21 Business Continuity Planning (BCP) As per MSN-056 and MFDA Rule 2.9, WFGS maintains a plan that outlines the steps and measures that WFGS will undertake during an emergency or significant business disruption. Specifically, the BCP outlines procedures and processes that address the following:
• Defined triggers for invoking business continuity arrangements • Identification of critical operations and services to be maintained in a crisis situation
• Defined management/staff responsibilities for managing operational disruptions • Procedures to be followed to maintain all core business functions and, if
interruption is inevitable, to resume service within acceptable time frames • Allocation of adequate resources for business continuity • Back-up systems for the protection & recovery of data & client records (electronic
or physical) • Procedures to be followed to communicate information of an event to all
relevant parties, to maintain contact in crisis situations, to provide clear guidance regarding key personnel functions & to coordinate all activities during the execution of the recovery plan; and • Information about service providers’ business continuity arrangements, if relevant.
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As part of WFGS due diligence process, WFGS reviews and ensures that core 3rd party service providers have BCP arrangements in place. WFGS maintains its BCP in writing and reviews and tests it on an annual basis. The BCP is submitted for annual approval by senior WFGS management. All WFGS Head Office employees are informed of the existence of the BCP and its details and are accessible in an emergency. Individuals with questions concerning the BCP can direct all such questions to IT.
BOOKS & RECORDS
48.1 AP Record Keeping 48.2 AP Client File: General APs must maintain up to date and accurate records for each of their clients. This would include: copies of any required WFGS client documents (NAAF/KYC, Trade Ticket), information regarding the client’s financial situation, fund company applications completed by the client, cheques submitted by the client, documents required for leveraging (if client has a leveraged account), required corporate documents (if corporate account), correspondence, meeting notes, NAAF/KYC, Trade Tickets, confirmations and any additional document that is required to adequately demonstrate the client’s KYC.
WFG DC maintains copies of documents submitted for processing. These documents are archived electronically and are available to WFGS via recall and are considered to be WFGS books and records. see 12.0 Branch registration
see 50.0 record Keeping: Branch requirements
49.3 Access & Maintenance Generally, all records must be maintained in hard copy, on microfilm or microfiche, or on electronic storage media which meet the requirements of MFDA Rule 5.2. APs should contact Compliance if they have specific record retention questions.
Access to WFGS books and records is limited to WFGS individuals who have been designated by WFGS to perform functions which require such access. In some situations, third parties may be granted access to perform specific tasks as required through contract with WFGS. An example of this is WFG DC.
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48.4 Retention Period While retention periods depend on the type of record, during the first 2 years, AP client records must be maintained at the Branch Office location. After the 2 year period, records may be stored off-site. Approval in writing must be obtained from WFGS Head Office to store records off-site. Client records must be maintained for at least 7 years.
Note: In Québec, client records must be maintained for a period of 5 years from the last of the following events; the final closing of the client record & the date the last service was rendered to the client.
48.5 Client Records All books, documents, prospectuses, application forms, client files or other materials or supplies in the possession of APs that pertain to the business of WFGS, and all marketing, training and/or recruitment materials furnished by WFGS to its APs, are the property, of WFGS and must be returned promptly to WFGS upon demand.
Note: If an AP leaves WFGS, the AP must abide by their WFGS Field Agreement & return all items & materials as outlined within the WFGS termination letter
48.6 Corporate Records Under provincial securities regulation and MFDA Rules 5.1, 5.2 and 5.6 , WFGS is required to make and maintain certain books and records related to its business.
WFGS shall keep such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs and the transactions that it executes on behalf of others and shall keep such other books, records and documents as may be otherwise required by the Corporation. Such books and records shall contain as a minimum the following:
(a) blotters, or other records, containing an itemized daily record of: (i) all purchases & sales of securities (ii) all receipts & deliveries of securities, including certificate numbers (iii) all receipts & disbursements of cash (iv) all other debits & credits, the account for which each transaction was
effected (v) ) the name of the securities (vi) he class or designation of the securities (vii) he number or value of the securities (viii) he unit and aggregate purchase or sale price (ix) he trade date & the name or other designation of the person from whom
the securities were purchased or received or to whom they were sold or delivered
(b) an adequate record of each order, & of any other instruction, given or
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received for the purchase or sale of securities, whether executed or unexecuted. Such record shall show:
(i) ) the terms & conditions of the order or instructions & of any modification or cancellation thereof
(ii) he account for which entered or received (iii) he time of entry or receipt, the price at which executed & to the extent
feasible, the time of execution or cancellation (iv) evidence that the client was informed of all fees and charges in accordance
with Rule 2.4.4 (c) ) where the order or instruction is placed by an individual other than the
person in whose name the account is operated, or an individual duly authorized to place orders or instructions on behalf of a client that is a company, the name, sales number or designation or the individual placing the order or instruction shall be recorded
(d) copies of confirmations of all purchases & sales of securities & copies of all other debits & credits for securities, cash & other items for the account of clients
(e) ) a record of the proof of cash balances of all ledger accounts in the form of trial balances & a record of calculation of minimum capital, adjusted liabilities & RAC required
(f) all cheque books, bank statements, cancelled cheques & cash reconciliations (g) all bills receivable or payable (or copies thereof), paid or unpaid, relating to
the business of WFGS (h) all limited trading authorizations in respect of any account, & copies of resolutions empowering an agent to act on behalf of a corporation (i) all written agreements (or copies thereof) entered into by WFGS relating to
their business as such, including leveraging documentation, disclosure materials & agreements relating to any account
(j) all documentation relating to an advance of funds or extension of credit to or on behalf of a client, directly or indirectly, in connection with the receipt of funds on the redemption of mutual fund securities, including the prior written confirmation referred to in Rule3.2.3.
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RECORD KEEPING: AP ACTIVITIES
49.1 AP Approved Advertising AP advertising is reviewed and approved by RBMs. The RBMs maintain electronic records of all approved marketing requests. Including, but not limited to the following: newsletters, postcards, mass mailings, “For Internal Use Only” materials, outside speaking arrangements, advertising for newspapers, magazines, periodicals, etc., press releases, media broadcasts/interviews, telemarketing scripts, seminars. These are maintained for a minimum of 7 years, the first 2 years on site and the remaining 5 years readily accessible.
APs must also keep copies of the approval.
Note: WFGS marketing/advertising/sales literature approvals are valid for a period of 2 years unless otherwise expressly stated
see 33.0 sales material
see 43.0 Branch manager responsibilities
see 50.0 record Keeping: Branch requirements
49.2 Sales Literature Sales literature is anything that is used to sell or solicit securities and does not fall in the category of advertising. Required content includes a copy of the most recent material including, but not limited to: WFGS Communications, WFGS Audio/Video, All Product Company Flipcharts, Mutual Fund Produced Materials any material produced by WFGS
These are reviewed and approved by RBMs and are maintained for a minimum of 7 years, the first 2 years on site and the remaining 5 years readily accessible.
Note: WFGS marketing/advertising/sales literature approvals are valid for a period of 2 years unless otherwise expressly stated
49.3 Client Complaints: Files If a client files a complaint, APs must cooperate with any investigation and provide any requested documents, including the client file to WFGS.
Note: APs should always take detailed client notes & keep them in the client file
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49.4 Branch Office File The content required for the Branch Office File includes the following documentation:
• Routine branch office compliance meetings rosters & agendas
• Branch office audit reports, responses & resolutions
• Branch office correspondence
• Branch Location approval
• Daily transaction review
49.5 Branch Office Audit BRP File The RBM must retain a copy of all completed on-site branch reviews conducted as part of the Compliance BRP. The file should contain records of all previous branch audits, and any sub-branch reviews conducted. The RBM must maintain the Audit Report for the branch location and any correspondence and documentation related to the audit for 7 years, the first 2 years on-site and the remaining 5 years must be readily accessible (WFGS Head Office approval must be obtained to storing off-site).
see 8.0 Branch review requirements
49.6 WFGS Policies & Procedures The current PPM provided by WFGS is to be maintained in an accessible manner. This can take the form of a printed binder or in electronic format at the branch location. WFGS Compliance will inform all APs where they can find the PPM and of any updates or amendments that have been implemented.
RECORD STORAGE
All records and documents required to be maintained in writing or otherwise may be kept by means of mechanical, electrical, electronic or other devices provided:
• such method of record keeping is not prohibited under any applicable legislation
• there are appropriate internal controls in place, to guard against the risk of falsification of the information recorded
• such method provides a means to furnish promptly to MFDA upon request legible, true & complete copies of those records which are required to be preserved
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• there are suitable back-up & disaster recovery programs in place
Note: For electronic documents, these generally means, controlled access, high degree of fidelity & robust audit trail
50.1 Record Retention All copies of the records and documentation referred to in this section and MFDA Rule 5 shall be retained for 7 years or such other time as may be prescribed by MFDA.
Note: Records identified as Corporate Records shall not be destroyed without express written consent of the CCO.
see 49.5 Corporate records
OUTSOURCED SERVICES
WFGS should ensure to meet the following requirements when engaging 3rd party service providers or entering into introducing/carrying arrangements:
• Due diligence investigations have been performed prior to entering into
arrangements for any outsourced services
• Services provided by 3rd party will be expected to meet all applicable regulatory expectations
• Services provided by 3rd party will allow for WFGS to comply with MFDA bylaws & rules
In the event that WFGS discovers that any existing outsourced services do not comply with regulatory requirements, any such deficiencies should be immediately rectified. In the event that any significant period of non-compliance is likely to occur before the problem can be remedied, WFGS should notify the MFDA of the concerns and advise as to WFGS’s proposed solution.
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MFDA INTERNAL CONTROL POLICY STATEMENT
52.1 Insurance This Policy Statement is one in a series that prescribes requirements for and provides guidance on compliance with MFDA Rule 2.9 that states “every Member shall establish and maintain adequate internal controls as prescribed by the Corporation form time to time.” It should be read in the context of Internal Control Policy Statement 1 dealing with General Matters.
52.2 Control Objective To ensure that:
• WFGS is in compliance with regulatory requirements for insurance
• Other insurance coverage is in accordance with business needs
• Insurable losses are identified and claimed on a timely basis 52.3 Minimum Firm Policies & Procedures Insurance requirements and levels of coverage are reviewed and approved at least annually by WFGS Executive Committee and/or Board of Directors and senior management. A senior officer of the firm is designed by WFGS Executive Committee or Board of Directors as responsible for insurance matters.
The senior officer or designated person assigned the task, reviews the terms of the insurance policies regularly and ensures that WFGS operating procedures are designed to result in compliance with policy terms and regulations. The senior officer or designated person assigned the task monitors business changes to evaluate the need for changes in coverage or operating procedures.
The senior office or designated person assigned the task monitors business operations to ensure that insured losses are identified, the insurer is notified and losses are claimed on a timely basis and their effect on aggregate limits are taken into account. Senior management takes prompt action to avert or remedy any projected or actual insurance deficiency and reports and deficiencies, when required, immediately to the appropriate regulators.
52.4 Indications that Internal Control is Not Adequate Staff responsible for insurance matters is ill-informed of their duties or insufficiently trained. Material breaches of insurance policies which could result in denial of coverage are not detected on a timely basis. No steps are taken to establish the reliability of reports utilized for the monitoring of variables that may affect insurance coverage. Failure to report claims or to recover claims thought to be covered. Deficiencies in coverage are indicated on regulatory capital filings.
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52.5 Cash & Securities This Policy Statement is one in a series that prescribes requirements for and provides guidance on compliance with MFDA Rule 2.9 that states “every Member shall establish and maintain adequate internal controls as prescribed by the Corporation from time to time.” It should be read in the context of Internal Control Policy Statement 1 dealing with General Matters.
52.6 Control Objective To safeguard both WFGS and clients securities and cash so that:
• Securities & cash are protected against material loss; &
• Potential losses are detected & reported (for regulatory & insurance purposes) on a timely basis
52.7 Minimum Required Firm Policies & Procedures
52.7.1 Trading: General
Trade confirmations or confirmation reports containing evidence of settlement activity (“confirmation records”) are reconciled with WFGS (i.e. WFG DC) trading blotters at least weekly. The reconciliation is performed by WFG DC9 who does not have the ability to enter transactional data. Discrepancies between WFGS trading blotters and confirmation records is investigated and resolved immediately.
52.7.2 Trading: Nominee Name Accounts
Please note that WFGS does not hold Nominee Name Accounts (i.e. accounts where WFGS is the owner of securities held on behalf of the client). WFGS accounts are in Client Name only (i.e. client property is held under client name with the respective companies).
Therefore, this policy will only apply in the event WFGS applies for and receives approval from the MFDA to operate in Nominee name. If, this were to occur, WFGS agrees to maintain or perform the following: Proper written agreements with each acceptable securities location used to hold securities.
At least monthly, the information system produces a report (e.g. client positions) of securities owned by clients but registered in the name of or held by the Member (i.e. WFGS) that require segregation and a reconciliation with third party information (e.g. monthly statements from the fund company) is performed to identify deficiencies. Where a deficiency exists, a designated senior manager in charge of monitoring the capital position of the firm should be advised of the deficiency in order to determine if it impacts the Member’s (i.e. WFGS) capital position.
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There is supervisory review or other procedures in place to ensure the completeness and accuracy of the report of client holdings produced by WFGS informational systems. Journal entries made to WFGSs or clients’ securities holdings are properly reviewed and approved before processing. WFGS has a system in place to record and allocate the total amounts of dividends and interest payable and receivable at the due date. Non-resident tax is withheld where applicable by law. A system is in place to ensure appropriate reporting of client income for tax purposes, as required by law.
52.7.3 Cash: General
Accounting is responsible for reviewing and approving all bank reconciliations. Bank accounts (including trust accounts) are reconciled, in writing, at least monthly with identification and dating of all reconciling items. Journal entries to clear reconciling items are made on a timely basis and approved by management.
The reconciliation of bank accounts (including trust accounts), where practical, is not performed by someone with incompatible functions or potential conflicts of interest, including access to funds (both receipts and disbursements), access to record keeping responsibilities, including the authority to write or approve journal entries. At a minimum, the individual responsible for the reconciliation should be independent from the individual having access to funds. Approval levels required to requisition a cheque are established by senior management. Controls for cheque requisition include:
• Cheques are pre-numbered & numerical continuity is accounted for
• Blank cheques are properly safeguarded
• Cheques are signed by 2 authorized WFGS signing individuals
• Cheques are only signed when appropriate supporting documentation provided. The supporting documentation is cancelled after the cheque is signed
• Where facsimile signature is used, access to fax machine is controlled & properly supervised
• A limited number of authorized personnel are permitted to withdraw monies from bank accounts, including methods of electronic transfer or access to funds.
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52.7.4 Trust Accounts for Client Funds
All client cheques are recorded upon receipt by WFGS and deposited by WFG DC to the trust account on the day of receipt. If a cheque is received after normal business hours, the cheque will be deposited the following business day.
Under no circumstances should client funds be deposited to trust accounts at the branch level or sub-branch level. Trust account transactions are performed by the designated processing center only. Deposits to the trust account are balanced daily against deposit records, receivable records, and mutual fund settlement records. Trust accounts are established to bear interest at rates equivalent to comparable accounts of the financial institution.
Money received from clients for investment in mutual funds is not used to finance WFGS operations. This would include offsetting bank charges with interest earned on monies held in trust. WFGS distributes interest earned on the mutual fund trust account on a cash basis to either the mutual fund companies or mutual fund investors (i.e. clients).
Indication that internal controls are inadequate:
• There is a significant number & dollar value of unreconciled positions & balances
• Significant differences in reconciliations are not resolved on a timely basis
• A large number of staff is involved in reconciling positions
• Material losses have occurred
WFGS BRANCH REVIEW PROGRAM (BRP)
53.1 Purpose of the WFGS Audit Program The WFGS Audit Program is an essential component in maintaining internal checks and controls to monitor the business conducted by WFG Advisors (Audit), to detect any real or potential breaches of policy or regulation, to ensure that WFGS policies & procedures are tested for adequacy, and to generally facilitate a mechanism/process to detect any risks or potential risks that may exist in our Regional Branch Manager System.
53.2 Structure of the Audit Function: Audit Supervisory Structure At least on an annual basis, the Chief Compliance Officer (CCO) presents the Board of Directors (Board) with a report on the state of WFGS Compliance. As part of this report, the CCO may include results of audits, deficiencies or potential issues exposed through the process of audits and generally present material that describes potential areas that may require additional investment, changes in process/procedures, and any other items that the CCO believes are relevant.
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The CCO (WFGS) reports directly to the UDP (Ultimate Designated Person) on an ongoing basis and may use the findings presented through the audit process to report or describe ay areas of concern. The Compliance Manager reports directly to the Assistant Chief Compliance Officer (ACCO). The WFGS Field Auditors report directly to the Manager, Compliance. The Regional Branch Managers report directly to the Manager, Regional Branch Managers (RBMs).
53.3 Internal/Desk Audit Internal/Desk Audits are designed to test the efficiency and efficacy of stated WFGS internal process and procedures. By checking that functions are being performed as outlined within various policy manuals/statements (ex. PPM) and guidelines, WFGS can test to see whether there are deficiencies or gaps in its internal risk management/operating processes. While this may be a process of ensuring adherence to stated steps of procedures, these steps ensure the overall adherence to the overall policies and procedures of the firm. This is also an opportunity to foster positive procedural change, strengthen training and continue to foster and promote a culture of compliance.
Note: These reviews will be conducted at least on a semi-annual basis. 53.4 WFGS Branch or Field Audit Compliance generally has two options available: prevent and/or detect. Field audits are essential in detection and serve as the link between activities at the field level with the stated policies and procedures of WFGS. Field auditors are responsible for ensuring that the WFGS audit program is current and should be continually striving to see where efficiencies can be made (such as through technological innovations and procedural changes). The auditors must be individuals with experience and broad industry knowledge. They must be able to work independently and also within a team environment as the auditor must rely upon information provided by many different sources (such as registrations, licensing, marketing departments, as well as conducting their own external searches via internet).
The auditors must be sufficiently acquainted with MFDA Policy 5, AMF rules, the WFGS Policies & Procedures Manual (PPM), and the changing landscape of compliance so that they can keep abreast of developments and changes and incorporate the changes on an ongoing basis into the audit program.
53.5 Responsibilities/Expectations of the Field Auditor The following is not an exhaustive listing of all of a Field Auditor, but should be seen as an attempt to describe some of the aspects for a role that requires considerable skills and depth.
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53.6 Maintaining Knowledge and Proficiency Maintaining a high degree of personal knowledge and proficiency is essential. The financial industry is continually changing and the auditor must maintain a current and up to knowledge base.
53.7 Branch Risk Ratings WFGS has a risk-based approach to conducting field audit reviews. This is an important component of WFGS risk management procedures. The Auditors must work to develop and maintain a current listing of branch risk ratings at all times. This list should be readily accessible by relevant persons. As audit findings and results arise, these must be inputted into the branch risk ratings to ensure current and accurate branch ratings.
53.8 Scheduling Auditors are responsible for developing the audit schedule based upon WFGS policies (3 year audit cycle maximum), keeping the schedule up to date (including adding newly added branches), managing their own travel arrangements, conducting pre-visit research and data gathering and sending pre-visit notices to the branches.
Note: WFGS is transitioning to a remote supervisory structure. Under this structure, branch locations must be visited at least annually. This visit can either be conducted by a regional branch manager (RBM) or by an Auditor
53.8.1 Pre-Branch Visit The Field Auditors must gather sufficient data to reflect all of the key points as presented within the WFGS audit program. Although not exhaustive, the procedures listed below are to be followed prior to conducting a field audit review. It is important to note that each step serves a purpose and as such should be documented regardless of findings. Additional steps can be taken dependent on the nature of the review and any existing concerns that may be evident.
53.9 General Branch Information Prior to conducting the onsite review the Field Auditor is required to make use of internal resources to obtain the following:
• Confirm that the branch address corresponds to the information contained on the National Registration Database (NRD). Auditors have access to the NRD system and have the ability to print the information required. Notations should be evident within the Branch Review file to indicate that this check has been completed.
• Generate the list of Approved Persons (APs) assigned to the Branch in question. This can be generated from the NRD by completing the following steps:
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o Obtain the Branch Location # from NRD o Complete a search using the Location # under Admin Tools/Reports/List
Registrants with the search criteria being Registration Status = Active and Select Categories = All
• Identify Potential Address Issues that may be associated with the Branch through W. Compliance. The report identifies instances where a client’s address corresponds to the address of the Branch or APs. The report should be reviewed and any noted issues addressed through the course of the Branch Review. The report can be generated through the following steps:
o Generate the Address Issues Report via W. Compliance/Ad Hoc/Address Issues with the appropriate Branch selected.
• A review will be conducted of the marketing approval requests spreadsheet to check if any advertising and sales communication item(s) have been submitted for review. Findings will be noted on the pre-audit checklist.
• Search the internet to check for any unapproved websites, sales communication and advertisements that are not compliant. In addition a review of any social media websites wil also be reviewed to ensure that there is no concerns. Findings will be noted on the pre-audit checklist.
• Identify Outside Business Activities (OBA’s) associated with APs of the branch. The existence of OBA’s for registered individuals is a primary concern of regulators throughout our industry and as such WFGS must have and be able to demonstrate strict controls over this area. Prior to visiting a Branch you should complete a search of OBA’s currently registered with the location. OBA information can be found on the internal Sharepoint site. Your findings should be documented with the Branch Review file for this location.
• Obtain a list of APs associated with the Branch who have terms and conditions on their registration and/or have been placed under close and/or strict supervision (i.e. OBA, regulatory supervision, internal close supervision). During the Branch Review, the Field Auditor should be ensuring that any and all requirements are being met. This information can be located on the internal sharepoint site. Evidence of this review should be maintained within the Branch Review file.
• The WFG Client Complaint Log should be reviewed to check for APs that currently have any complaints against them. APs interviewed will be asked about client complaints and when reviewing client files. If there is any undisclosed client complaints found, the Field Auditor will forward the complaint to the Manager, Compliance for further escalation and review.
• A check will also be conducted to ensure all complaints received have been reported to the Compliance Department in a timely manner.
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53.10 Selection of Approved Persons Interview When conducting a Branch Review, a minimum of 10% of the APs registered to the location in question need to be interviewed following the interview template.
53.11 Client File Selection When conducting a Branch Review, the subsequent applicable guidelines are used when selecting the client file sample size:
53.12 AP Branch: • When selecting a sample size from a Branch with one AP, WFGS Field Auditors, will
select a minimum sample size of 10 transactions. The transactions will be selected based on the General File Review Guidelines outlined below
• Should any significant irregularity* appear during the testing of an AP, the sample size will be increased to 15 transactions for that AP.
• If the AP is under regulatory close supervision and has a complaint filed against them since the last audit or who on a previous audit had found to be a high risk advisor, the Field Auditor will complete a minimum sample size of 15 trade types for that AP.
53.13 Branches Containing More than 1 AP For Branches containing more than 1 AP the following methodology should be applied when determining sample size:
• For each AP 3% of client base will be selected for review. If 3% would be less than 10 client files, 10 files will be examined or all if total number of clients is less than 10
• Should any significant irregularity appear during the testing of an AP, the Sample Size will be increased to 15 transactions for that AP
• If the AP is under Regulatory Close Supervision and has a complaint filed against them since the last audit or who on a previous audit had found to be a high risk advisor, the Auditor will complete a minimum sample size of 12 trade types for that AP(s)
53.14 General File Review Guidelines The file review process of the WFGS Branch Audit program is transaction based, meaning a minimum of 1 transaction per client must be reviewed to ensure that specific criteria is met. The specific transaction reviewed should sufficiently address a cross section of transaction types with an emphasis placed on those which have a higher inherent risk. For example: a transaction within a leveraged account would be considered to have a higher inherent risk than a switch which involved DSC units to FE units. The transactions selected for review should include a minimum of one transaction from the following categories:
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o Purchase – Large dollar purchases, DSC purchases, and purchases where a previous redemption is the source of funds should be specifically targeted.
o Redemption – Large dollar redemptions, redemptions which incur DSC fees and redemptions from RRSP accounts should be specifically targeted.
o Leveraged Transactions – Initial purchases and all other types of transactions should be specifically targeted to ensure proper disclosure and suitability requirements have been met.
o Alternative Product – Appropriate disclosure and suitability should be reviewed and noted.
o Initial Trade – Should be reviewed for documentation, suitability and disclosure. o High Risk – Should be reviewed for suitability and disclosure. o Trades involving a POA – Should review for proper documentation and suitability. o Trades involving family member of the Approved Person – Should be reviewed
for personal financial dealings and disclosure.
If Transactions cannot be located that fall within each of the above referenced categories, transactions falling in the “inherently higher risk” categories should be selected until the minimum selection size has been met. Should significant irregularities be noted during the file review of a particular AP, the minimum number of files reviewed will be increased by 5 additional files. Significant irregularities would include, but not be limited to, items such as:
o Discrepancy of information between the loan document and the KYC document. o Missing client file and signature. o Missing RBM signature approval and date. o Pre-signed forms in client file. o Un-reported client complaint found in client file. o Detect unlicensed/out-of province trading.
Evidence of referral fees paid to someone when no existing compliance approval referral program exists.
o Undisclosed Outside Business Activities. o Advertisement being done without Compliance approval.
The KYC form will also be reviewed for the client account selected. The KYC will be reviewed for the following:
o Completeness of KYC. o Review and Approval of KYC Amendments.
Any deficiencies found will be addressed in the AP Audit Report.
The File review will be completed using Synergize prior to conducting the on-site audit. All
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deficiencies noted should be supported with scanned documentation.
In conjunction with the completion of the AP Database, a trade blotter should be produced from W. Compliance for each transaction being reviewed. The trade blotter will enable the auditor to review the transaction and portfolio for suitability prior to conducting the onsite audit and provide a physical reference to ensure the information located with the client file corresponds to the information contained within the Winfund platform. Evidence of review should be maintained and any deficiencies noted within the report. The trade blotter can be produced via the following steps:
o Identify Transaction in Winfund Back Office. o Log on to W. Compliance. o Choose Isolated Trades from header selections. o Change type from Current to Historical o Enter the selection criteria for the transaction in question and choose the search icon. o Once the transaction report has been generated, it can be printed or saved to
PDF. Please keep in mind evidence of review is required in both cases independent of whether or not a deficiency has been noted.
It is important to note that the file review should not be restricted to documentation surrounding the selected transaction. Each file should be reviewed in its entirety to ensure general compliance with policy and procedures and ensure that there is no evidence of breaches of WFGS or industry regulation. Specific attention should be paid to instances that may be indications that the following breaches have occurred all of which are considered significant violations:
o A breach of client confidentiality. o Unsuitable investments or leveraging. o Theft, fraud, misappropriation, forgery, misrepresentation, unauthorized trading. o Engaging in securities related business outside of the member. o Undisclosed Client Complaints. o Outside Business Activities. o Personal financial dealings with clients.
In addition to the above, general best practice items should be noted with respect to each file which will require the Field Auditor to review files for items such as the following:
o Adequacy of client notes. o Appropriate client signature and dates. o Undisclosed Client Complaints. o Undisclosed Outside Business Activities.
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o Completion of required documentation.
NOTE: For any items that need to be escalated immediately (i.e. blank signed forms, undisclosed client complaints, undisclosed outside business activities, etc), the Compliance Manager will be notified immediately for further action.
53.15 BRANCH VISIT The purpose of the onsite portion of the Branch Review is to review the AP’s ability to adhere to WFGS policy and procedures in conjunction with general good business practices to assess the potential liability/risk of the individual AP’s and that may be present at the location.
During the branch review the following actions must be completed and documented. Any deficiencies noted must be referenced within the Audit Report.
• Check for exterior signage – To be noted and included as part of marketing review. • Interviewing Approved Persons. The purpose of the interview is to assess the general
knowledge and familiarity of the individual being interviewed. Any deficiency noted should relate to areas where the individual has not been able to demonstrate a clear understanding. The interview templates to be used are attached to this program as Appendix C.
• Where are the AP Files retained? • Conduct the review of “Client Account Files”.
53.16 POST BRANCH VISIT Upon completing their onsite review, Auditors complete a final audit report that outlines the noted deficiencies observed during their onsite review, and provide required actions to take corrective actions. Upon the completion of the Final Branch Audit Report accompanied by Client File and AP Review Spreadsheets, these Report(s) are submitted to Manager, Compliance for final review before submission to RBMs. The Manager, Compliance and/or CCO for approval to disseminate the report to the branch.
Note: Under the remote supervision structure, Auditors will send individualized reports to APs (while making sure RBMs remain informed) of items requiring corrective action.
Upon approval from the Manager, Compliance/CCO, the Auditor emails the Audit Report(s) to the respective RBM, and bcc’s the Manager, Compliance and CCO.
Note: Depending on the scope of the branch review, a report should be created & sent out to the branch within a 1 – 2 week period
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53.17 The Branch Audit Report The purpose of the pre-audit and onsite Audit of the Branch is to produce a summary to the applicable Regional Branch Manager and provide compliance management with a detailed summary of the review. Should deficiencies of a significant nature be noted, they should be immediately reported to Senior Compliance Management. Every report will follow the same template and provide the following general information:
• A detailed summary of the deficiencies noted. • The policy and regulation relating to each noted deficiency. • Specific corrective action required to address each noted deficiency and prevent
further occurrence. • Recommendations for Best Practice where applicable.
53.18 REPORT FOLLOW UP APs generally have 2 weeks to provide a written response to the deficiencies outlined in the audit report. The Field Auditor must follow up on any outstanding responses within a reasonable time period.
A tracking list/file must be maintained within the WFGS shared drive, confirming the status of each Branch Audit activities listed below but not limited to:.
Date of the Branch Audit,
Branch Code/Location;
Date the Branch Report was forwarded to the applicable Regional Branch
Manager; Date the AP Audit Report(s) were forwarded to the APs;
AP Audit Response Report(s) and the date the report (s) were
received; Notes that further address concerns that may require
escalation; Individual APs Risk Ratings/Overall Branch Risk
Rating.
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53.19 BRANCH AUDIT CLOSURE REPORT Once the Field Auditor has reviewed all of the response report(s) submitted by the APs, the Field Auditor must provide a summary confirming the closure of the report. The summary should include the Field Auditors recommendations to the deficiencies addressed and their recommendation of the overall performance of the branches. The closure report will detail the following:
• Adherence to all requirements stated in the Branch Review Report. • Actions to be taken with respect to outstanding items that could not be fully addressed. • Overall Risk rating for the Branch. •
53.20 Risk Ratings WFGS has a risk-based approach to conducting field audit reviews. This is an important component of WFGS risk management procedures. The Field Auditors must work to develop and maintain a current listing of risk ratings at all times. This list should be readily accessible by relevant persons. As audit findings and results arise, these must be inputted into the risk ratings tracking sheet to ensure current and accurate ratings. WFGS provides individual risk ratings per AP and an overall branch risk rating.
53.20 Branch Risk Ratings WFGS will determine an overall risk rating for each branch location based on the following considerations:
• Total Assets under Administration at the Branch • Total Leveraged Assets Under Administration at the Branch • Nature of Outside Business Activities carried on at the Branch • Client Complaints (last 24 months) • Individual AP Risk Ratings at the Branch
Branch Risk Ratings will not be communicated to the APs. The rating in question will be used during internal risk assessments of locations, audit scheduling and other considerations as needed.
53.21 Definition of Risk Ratings
Low: No to a relatively small rate of occurrence and/or the deficiency noted does not pose a significant compliance risk. Overall, the branch has indicated they have implemented and can demonstrate adequate controls are in place which would make the possibility of reoccurrence unlikely. As such, and in accordance with MFDA Policy No. 5, the location will be reviewed within 3 years of the date of the report.
Moderate: Deficiencies which pose a significant compliance risk have been noted and/or there is a high rate of occurrence for deficiencies of a less severe nature. The Branch has been able to demonstrate a certain level of compliance with WFGS policy however a significant
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improvement is required to demonstrate adequate controls and systems are in place to mitigate potential compliance risk. As such, and in accordance with MFDA Policy No. 5, the location will be reviewed within 3 years of the date of the report.
High: Deficiencies which pose a significant risk to clients and/or WFGS have been noted within the report. The Branch has not been able to demonstrate that reasonable controls or procedures are in place to ensure compliance with WFGS policy or to mitigate compliance risk of a serious nature. As such, and in accordance with MFDA Policy No. 5, the location will be reviewed within 6 months to 1 year of the date of the report. *Auditors are required to be cognizant of and use sound judgment when assessing the risk of a deficiency as certain deficiencies will pose inherently greater risk (regulatory, legal, business) then others. For example the discovery of cash being accepted from clients or the use of blank signed forms will most likely result in a High risk rating being assigned to the branch.
53.22 Branch Audit Reporting Dealer Connect – KYC deficiency reporting
As part of the Branch Review, the Field Auditor will test the accuracy of KYC information located within the Winfund system via file sampling. The results of this test will be communicated via the Branch Review Report. Once this data has been collected the following steps should be taken:
• Synergize system should be reviewed to ensure required documentation is on file. • The Field Auditor(s) will submit a report to Dealer Connect request appropriate
corrections be made to the Winfund System. The Field Auditor will be responsible for the follow up on these items and ensure proper tracking of said items is completed.
• Results will be documented and reviewed on a quarterly basis. The results of the quarterly review will be discussed with Dealer Connect.
• Results will be maintained on the sharepoint site.
Monthly Status Reporting
On a monthly basis the Field Auditor(s) will provide a report on the status of the branch review program. The report will be sent to the Manager, Compliance and the CCO. The monthly report will include the following (at a minimum):
• Status of scheduled on-site reviews. • Items planned for the upcoming month. • Status of Report Closures including expectations and current issues to the closing
of said reports. • General comments.
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A reconciliation will be conducted by the Manager, Compliance on a monthly basis to ensure that all locations (as per our audit schedule) are being audited in a timely manner and that there are no locations missed.
The monthly reports will be maintained in the following location P:\Audits\Branch Audits\Branch Review Monthly Status Update.
Audit of Regional Branch Manager System
The Regional Branch Manager System will be audited annually and will be based on a risk based approach and will include an assessment of the supervisory procedures and processes at the firm.
• Review Period will be from January 1, 2015 – January 31, 2016 • Audit will be conducted from February 1st to February 19th. • Final Audit Reports will be sent by February 26.
54.1 General File Review Guidelines The specific transactions reviewed should sufficiently address a cross-section of transaction types with an emphasis placed on those which have a higher inherent risk. The transactions selected for review will be from the following categories: • Purchase – Large dollar purchases ($10,000 +), DSC purchases and purchases where a previous redemption is the source of funds should be specifically targeted. The review will be 10 transactions or if less than 10 transactions, all will be reviewed per RBM Code (i.e. RBM001). • Redemption – Large dollar redemptions ($10,000 +), redemptions which incur DSC fees and redemptions from RRSP accounts should be specifically targeted. The review will be 10 transactions or if less than 10 transactions, all will be reviewed per RBM Code (i.e. RBM001). • Leveraged Transactions – Initial purchases and all other types of transactions should be specifically targeted to ensure proper disclosure and suitability requirements have been met. The review will be 10 transactions or if less than 10 transactions, all will be reviewed per RBM Code (i.e. RBM001). • High Risk (Investments in High Risk Rated Funds) – should be reviewed for suitability and disclosure. The review will be 10 transactions or if less than 10 transactions, all will be reviewed per RBM Code (i.e. RBM001). • Trades involving a POA – should review for proper documentation and suitability. The review will be 10 transactions or if less than 10 transactions, all will be reviewed per RBM Code (i.e. RBM001).
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Transactions will be reviewed for the following: o Verify proper account opening documentation on file; o Suitability of the transaction; o Leveraged Accounts – review of RBM’s approval of the leveraging strategy; o Timeliness approval including new accounts. Follow-up on incomplete or unsuitable transactions
54.2 Review of Trade Blotters Selected Transactions, as per the above categories will include a review of the trade blotter and trade inquiry log. This will confirm that trade reviews have been performed adequately and in a timely manner covering the minimum requirements of MFDA Policy 2. Trade Blotters will be reviewed for the following:
• Timeliness of Review; • Evidence of Supervision; • Trade Inquiry Log Notes.
54.3 Supervision of Representatives under Increased Supervision Close Supervision & Strict Supervision A quality check of all supervision reports will be reviewed to confirm that increased supervision has been conducted and evidence of required supervision (i.e. monthly reporting) has been completed and is on file. The Registrations Department is responsible for the record keeping and tracking of all supervision reports. The Field Auditors will review 30 completed reports. New Registered APs o According to MFDA Policy 1, all newly registered APs should be subject to concurrent supervision by his/her RBM for a period of 6 months, starting on the date of initial registration. 54.4 The Field Auditors will review 15 completed 180 day training
reports. Internal Close Supervision All APs on internal close supervision will be subject to increased supervision by his/her RBM as per the terms and conditions of the supervision. o The review will be for any APs currently on internal close supervision and will consist of a transaction review of 3 transactions or if less than 3 transactions, all will be reviewed within the supervision period.
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54.5 RBM Interviews All RBM’s will be interviewed by a member of the Compliance Management team. Detailed Audit Report with the completed details of review and findings will be completed for each RBM code and will be forwarded to the Manager, RBM’s for response. Copies of the reports will also be forwarded to CCO, ACCO and Manager, Compliance for information purposes
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