An audit by Canadas largest regulator, the Ontario Securities Commission (OSC), of eight randomly selected high-end investment adviser firms has yielded so many problems, the OSC is getting set to examine the business practices of that entire industry.
The OSC originally undertook the investigation at the request of the SEC, which wanted an examination of the business practices of larger advisers registered in both countries.
The OSCs report, which will be released in late October or early November, will show numerous compliance violations on the part of the advisers.
According to Paul Bourque, the OSC director of market operations, the advisers failed on numerous occasions to properly document all transactions and management fees. They also cherry-picked trades on behalf of some clients, allocating profitable trades to favored customers at the close of business rather than properly recording the trades when executed. Further, they frequently engaged in bunch trading, meaning a money manager traded large numbers of shares and allocated them at different prices to different clients, a method that runs afoul of the accepted system of averaging prices and distributing the trades equally to all clients. Additionally, many engaged in front-running by trading for their own accounts ahead of their clients.
Based on the findings, Bourque says the OSC has launched a broader, formal compliance review and will audit all investment advisers registered in its jurisdiction throughout 1999.
The Investment Counsel Association of Canada (ICAC), an adviser trade group, says it welcomes the scrutiny. Despite the initial findings, Im fully confident that our money management firms are solid and well run, and I believe a close examination of all of them--not just a select few--will prove that point, says William Rogan, president of the ICAC. The eight firms randomly selected by the OSC were out of a universe of almost 300 ICAC firms.
