CCLS Education -- Calgary Breakfast Seminar June 13, 2019

Supervision: Advisor Compensation Conflicts Panel Speakers Richard Korble, Director, Prairie Region, IIROC Jamie Mihalicz, Director, Compliance & Supervision, ATB Securities Govind Achyuthan, CCO, Acumen Capital Partners Moderator Brian Pynn, Managing Director Compliance, ATB Wealth

Relevant Publications & Rules Guidance Notice 17-0093 - Compensation-related Conflicts Review Guidance Notice 19-0008 - IIROC Compliance Priorities 2018 Enforcement Report numerous 2018 actions directly related to compensation conflicts Rule 38 - Compliance & Supervision Rule 42 - Conflicts of Interest

Fee-Based Accounts Dealer Members must exercise reasonable diligence to monitor fee-based accounts Frequency of reviews? Data reviewed? New issues concerns/considerations Double-dipping = low hanging fruit...but other product reviews are much more subjective. Who decides how much an advisor should earn and on what products?

Product-Based Compensation KYC, KYP, KYCG?? (Know Your Compensation Grid) Are compliance departments or individual supervisors aware of how their advisors are compensated & bonused? Potential pitfalls to be aware of, red flags to monitor, when compensation grid is not product neutral? Examples of product compensation gone awry?

Gifts, Entertainment & Sales Incentives from 3rd Parties How much is too much? Should policies be based on bright line dollar-value, or be fluid and consider the likelihood of an individual’s behaviour to be influenced? Beyond self-reporting and disclosure requirements, how can firms monitor for undue or excess influence from gifts and incentives?

Internal Sales Target Campaigns Compliance teams should be aware of these campaigns but many occur without compliance oversight Are they product neutral? Bonus/reward programs that should be supervised? President’s League, Top Producer, etc. All-expenses paid annual trip for top asset gatherers Establish reporting/review as contest nears completion; monitor activity of those closest to cut-off?

Referral Arrangements NI 31-103 Section 13 provides specific regulatory requirements Disclose all formal referral arrangements (i.e. Relationship Disclosure Document) However, can’t simply disclose your way out of conflict that should be avoided Non-compensated informal referrals as part of COI; employee disclosure required? Reputational risk to firm?

Wrapping Up: Tips & Tactical Takeaways Compliance must establish relationship with Advisory, HR, Finance, etc. understand how reps are compensated, period, but also when special incentives are in play know advisors on performance management Automated daily account supervision plus manual monthly & quarterly reviews of fee-based accounts ensure sample size is realistic enough to capture a full picture Additional reviews to cross-reference 3rd party product transactions/holdings against advisor attendance at promotional events Additional reviews as internal sales bonus programs near close Assess potential behavioural impacts of gifts & incentives based on value and frequency Annual disclosure requirements for registrants (OBAs, referrals, etc.) E-mail supervision program - key words & phrases are your friend!

Questions! On behalf of the entire CCLS Education Sub-Committee, thank you very much for your attendance and attention today!