Manulife settles with MFDA over Portus referral fees

Date: Wednesday, December 24, 2008
Author: Advisor.ca

Manulife Securities has agreed to pay a $200,000 fine, plus $50,000 in costs, for the referral arrangements it had in place with defunct Portus Alternative Asset Management, according to a settlement agreement released by the Mutual Fund Dealers Association.

The fines stem from Manulife's failure to disclose syndication fees it received from Portus, which were one component of a broader referral arrangement disclosed to Manulife clients.

According to the settlement agreement, Manulife reps referred their clients to several different series of principal-protected investment products promoted by Portus, resulting in approximately $246 million in sales.

Under its referral agreement with Portus, Manulife's compensation was composed of referral fees of 4%–5% (depending on the series) of the total amount invested by clients; trailer fees of 1% of the total assets invested by clients; and 25%–50% of the performance fees (depending on the series) earned by Portus, which were payable each calendar quarter during which a client’s investment in Portus securities was maintained.

All of those fees were disclosed to clients. The MFDA highlights that what was not disclosed were the syndication fees of 0.5% of the total amount invested by clients of the Manulife dealership in each series of Portus securities. In not disclosing these fees, the MFDA says, Manulife behaved contrary to MFDA Rules 2.4.2(b)(iv) and 2.1.1(c).