Former branch manager at Wellington West Capital fined $30K by regulator
Walter Silicz admits he failed to supervise effectively
A former manager of Wellington West Capital's Winnipeg branch has been fined $30,000 for not properly supervising a financial advisor who had some clients investing in "high-risk" investments.
Walter Nick Silicz has also been suspended from acting in a supervisory capacity for two years and asked to pay an additional $10,000 in costs in connection with the discipline.
Silicz agreed to the terms in a settlement agreement with the Investment Industry Regulatory Organization of Canada (IIROC) — the second time he's been fined for his work at Wellington West.
He is currently working in a non-supervisory position at National Bank Financial Ltd., according to the IIROC settlement. National Bank acquired Wellington West Capital in July 2011. Silicz declined to comment on the settlement.
The Dec. 5, 2016 settlement agreement said Silicz admitted that as branch manager he failed to adequately supervise 18 client accounts between December 2005 and October 2008.
"Silicz admitted he failed to effectively exercise supervisory responsibilities over certain client accounts of former registered representative Donald Earl Phillips," the agreement said.
Phillips was fined $100,000 by IIROC in 2015 for recommending unsuitable investments to 11 of his clients, eight of whom suffered losses, the 2015 settlement said.
IIROC is a national self-regulatory organization overseeing investment dealers and their trading activity in Canadian financial markets.
In this latest disciplinary action, IIROC said it began a formal investigation into Silicz's conduct in August 2013.
During the three-year time period between 2005 and 2008, Silicz was supervising Phillips who had been involved in promoting investments to groups of railway workers concerning their pension funds, the settlement said.
"Part of the strategy involved the railway workers purchasing, through Phillips, Flow-Through Limited partnership Units ("Flow-Through Units"), which are high risk securities," it said.
The settlement said the investment strategy had been devised by someone else at Wellington West, Ken Muzik — identified in the document by his initials "KM." Muzik "had been advising railway workers about the possible benefits of a tax-free rollover of their pension funds" and suggested clients invest a portion of their pension proceeds in flow-through units in order to reduce the tax burden.
Among 80 client accounts opened during the time Silicz was branch manager, he was found to have failed in his supervision of 18 of them.
The IIROC settlement said Silicz "knew Phillips and felt he had no reason to doubt that he was carrying out his responsibilities to the 18 clients."
The document said Phillips maintained that purchasing flow-through units "to mitigate a one-time tax liability can be an appropriate tax mitigation strategy, depending upon the circumstances of the investor. (Silicz) discussed with Phillips the investment strategy and understood it to be a legitimate strategy for the 18 clients."
It goes on to say Silicz "had received assurances from Phillips that he was fulfilling his duties, and that the 18 clients were aware of the risks of investing in flow-through units."
The settlement said Silicz was not aware of any complaints about the purchase of flow-through units during the period in question.
However, the settlement noted Silicz should have been prompted to take further supervisory action regarding the 18 clients given their personal and financial circumstances. Most were at or near retirement, the settlement said, and were investing a significant percentage of their overall net worth in flow-through units.
The units were "complicated investments which are tax driven and considered high risk", the decision said, and "there are no assurances of a positive, or any, return on an investment in the flow-through units."
The settlement concluded the investments were "more suitable for investors with high marginal tax rates who can afford a loss on their investment."
Although IIROC noted many of the 18 clients profited from their investment, "a number of them would have been in a better position had they simply paid taxes on the pension monies that they invested in flow-through units."
In response to the IIROC decision on Silicz, Marian Passmore, chief operating officer at the investors' rights group Fair Canada, said it's important that decisions about investing pension money be made in the best interest of the client.
"That's their pension, that's their retirement money. And the wrong decision can have a long lasting impact on the client," Passmore said.
Silicz previously had been fined $10,000 in 2000 during his time at Wellington West Capital for his role in failing to establish and oversee a compliance program. In that case there was no evidence clients were harmed, the current settlement agreement said.