A Quebec self-regulatory organization has come out against a stiff fee hike for Quebec advisors aimed at replenishing a compensation fund for victims of fraud.
The Chambre de la securité financière — the organization that oversees Quebec mutual fund advisors, insurance agents and financial planners — says the fee hike is unfair to advisors. It has called on the provincial government to overhaul the management and financing of the compensation fund. That calls into question the role of Quebec’s main financial watchdog, the Autorité des marchés financiers.
The AMF is responsible for administering the fund and has proposed the fee increase to soak up a deficit left from a huge payout to victims of alleged fraud in the Norbourg Group case. The AMF has recommended that the provincial government boost annual fees for mutual fund reps to $260 a year from $80; insurance advisors would see their fees go to $160 from $80.
In a letter to members, the CSF argues that advisors are unfairly being made to shoulder the burden of a fraud that allegedly occurred principally at a fund manager, namely Norbourg Asset Management Inc.
“It wasn’t representatives who made Norbourg’s money disappear,” says Luc Labelle, the CSF’s executive vice president. “The [alleged] fraud was at the level of the fund management company. And fund management companies don’t contribute to the indemnity fund. So, there’s a fundamental unfairness there.
“This is a sensitive issue for our members, as well as for institutions that pay fees on behalf of their representatives,” Labelle adds. “The Norbourg case highlights an issue of whether the fund is viable. If we have another Norbourg in a year, there comes a point at which the representatives will no longer be able to meet the fees and the public will not be covered by a viable compensation fund.” The CSF represents and regulates 31,000 advisors.
The increases, proposed for Jan. 1, 2008, come after the AMF decided this past January that $31 million should be distributed from the fund to 925 Norbourg investors, who represent only about 10% of the inves-tors who lost money in mutual funds offered by Norbourg. The compensation fund compensates only those who have lost money as a result of misappropriation by representatives.
All the investors receiving a payout in the Norbourg case had dealt with one of 20 representatives at two companies controlled by Norbourg CEO Vincent Lacroix — Groupe Futur Inc. and Norbourg Capital Inc. These representatives were found by the AMF to have received improper financial incentives for the sale of funds offered by Norbourg.
The disbursement left the compensation fund with a large deficit.
After the AMF shut Norbourg down in 2005, a $130-million discrepancy was found between the amount of money that was supposed to be under its management according to records and what was actually found. The AMF has alleged that Lacroix, who is on trial on 51 Quebec Securities Act charges, diverted $115 million from his firm’s mutual funds to finance other business ventures and his lifestyle.
The CSF has questioned whether the AMF should continue as sole administrator of the fund and has called for an industry task force to study the issue. Labelle acknowledges the AMF has acted on the basis of requirements in the law governing the fund. But, he says, a problem is created by the fact the AMF decides both who benefits from the fund and how much representatives should pay in fees to finance that compensation.
CSF officials will meet with provincial Finance Minister Monique Jérôme-Forget in the coming weeks to ask her both to hold the line on advi-sor fees and to set up the task force to examine the fund’s administration and financing.
Labelle says the task force should bring together representatives of government, the asset-management industry and advisors.
“One thing that’s clear is that the current model is no longer acceptable,” he says. “It has worked up to this point. But when we are faced with a fraud of this size, committed at the level of a fund management firm for which representatives alone are called upon to pay, we have a major problem.”
AMF spokesman Fédéric Alberro has declined to comment on Labelle’s comments, but defends the AMF’s decisions, noting that the agency is mandated by law to cover any deficit in the compensation fund within five years. He adds that both the decision to award compensation to the Norbourg investors and the increases in fees were studied at length by experts. The industry was consulted over the summer on the new fees and will be again before they are adopted, Alberro says.
@page_break@“This has been done seriously,” Alberro adds. “We have the responsibility to ensure that the indemnity fund is properly administered.” IE
Quebec advisors upset about huge fee increase
The AMF says the hike is necessary to replenish the compensation fund after a big payout to Norbourg Group investors
- By: Don Macdonald
- October 2, 2007 October 2, 2007
- 13:17