Re: “Small dealers struggle under regulatory burden,” by Olivia Glauberzon (IE, April 2009).

I read, with great interest, your interview with Mutual Fund Dealers Association of Canada president Larry Waite in your last publication. I noticed that Waite mentioned, in two different interviews, that MFDA fees for small dealers were very reasonable. As a small dealer, with about $100 million in book, we asked the MFDA for an explanation of Waite’s comments. The minimum book for the minimum fee is $30 million, not $500 million.

I really enjoyed your article, as the MFDA is a sore point with many small dealers. Some small dealer issues are probably more misunderstandings than reality, but some are very valid. I think the MFDA does good work and I am convinced that its staff are very dedicated. I applaud both attributes and I recognize the value in this regulatory body.

My issue is that the MFDA, whose membership is primarily smaller dealers, seems to cater to larger members in its fee structure, representation and enforcement. One size does not fit all.

With respect to fees, why are Level 2 MFDA dealers (most small dealers), required to show profitability each month when we do not hold any client money? This puts a strain on smaller operations, and I am sure many small dealers are feeling the heat from the MFDA on this issue. Not every business is profitable at all times, especially during these times.

This rule just exacerbates a stressful situation and tends to discourage infrastructure improvements when they are required the most, for fear of not being profitable. Regarding representation, we need more smaller dealers on the MFDA board to reflect small dealer issues.

Regarding enforcement, economies of scale do not seem to be considered and small dealers with small compliance departments (and smaller books) are treated the same as much larger members who have ample resources.

Larry Hachey
President, Gateway Retirement
& Estate Planners
Quispamsis, N.B.



Editor’s note: As you have pointed out, the amounts we quoted were incorrect. Annual MFDA fees for member firms are based on assets under administration. Firms with less than $500 million in total AUA pay $100 per $1 million in AUA. Firms with more than $500 million in total AUA pay $100 per $1 million on the first $500 million in AUA, then the rate gradually declines: it is $94 per $1 million on the next $500 million in AUA, up to $4 billion; $86 per $1 million on the AUA between $4 billion and $5 billion; $80 per $1 million on the AUA from $5 billion to $10 billion; and then $76 per million on the AUA in excess of $10 billion. The minimum fee for a Level 1, 2 or 3 dealer is $3,000. The minimum fee for a Level 4 dealer is $10,000.



Re: “Oversight in a post-crisis world,” by James Langton (IE, April 2009).

I find it troubling that free markets are continually blamed for the perverse market distortions that have been allowed to flourish to the point at which they defy natural laws. A truly free market would never allow distortions to approach those that have unleashed the fury we have recently experienced. Only markets that are manipulated and controlled according to the dictates of centrally planned monetary authority can behave in such a manner as we have witnessed in this “bubble economy.”

When the price of money (interest rates) and the supply of money are manipulated by a centralized authority, this creates artificial and inaccurate signals in the marketplace, causing the entrepreneur to make incorrect judgments as to the true nature of supply and demand. This leads to overcapacity in certain areas and undercapacity in other areas.

If centralized intervention did not exist and markets were free to function according to the forces of all the individual market participants, the entrepreneur would receive accurate signals on which to base business decisions, such as how much capital to allocate and where. Those businesses that read free market forces correctly and manage their business efficiently will be the most profitable; likewise, those that misread free market signals and poorly manage their business will incur losses and be forced to close their doors.

The problem is not lack of regulation, but too much regulation. But even that is not the root of the matter. The blame for the perverse level of market excess that provided the catalyst for the global “meltdown” can be largely placed at the doorstep of the U.S. Federal Reserve Board.

@page_break@In its self-proclaimed capacity as “lender of last resort,” the Fed represents the ultimate “moral hazard,” effectively encouraging institutional market participants to exploit the system grossly under the premise that they may become too big to fail and the Fed will come to the rescue!

There are numerous examples of this: the S&L crisis, Freddie Mac and Fannie Mae, or such bank backstops as CDIC in Canada and FDIC in the U.S. — the last two are hugely unfunded schemes based on the same fractional reserve system upon which banks themselves are based. A free market would never allow such gross manipulations and violation of principles because with a free market comes free choice to patronize those businesses that operate according to high standards, not the lowest common denominator.

David M. Morisette
Director, Portfolio Strategies
WMS Wealth Management Solutions Inc.
Vancouver