RESP Dealers Association of Canada. Branch Manager Proficiency Course

Transcription

1 RESP Dealers Association of Canada Branch Manager Proficiency Course

2 Table of Contents 1. Overview...5 a. Who is this course for?...5 b. What will be covered by the material?...6 c. The RESP Dealers Association of Canada Regulatory Framework...8 a. Securities Legislation...8 b. Code of Sales Practices...10 c. Dealer s Internal Policies and Procedures...10 d. Role of the Branch Manager...11 e. Role of the Scholarship Plan Dealer...12 f. Proficiency Requirements Regulators and Regulations for RESPs and Scholarship Plans...14 a. Federal Regulation...14 b. Provincial Regulation...14 c. Self-Regulatory Organizations (SROs)...18 d. Mutual Fund Dealers Association (MFDA)...18 e. Investment Dealers Association of Canada (IDA)...19 f. Market Regulation Services Inc. (RS)...20 g. Advocis...20 h. Autorité des Marchés Financiers (AMF) Scholarship Plans within the Financial Services Industry...21 Review Questions Sections Branch Manager s Responsibilities...25 a. General Responsibilities...25 b. Specific Responsibilities...25 c. Ensuring Compliance...27 d. Required Skills of a Branch Manager...28 e. Time Management...28 Review Questions Section 5: Branch Staff...31 a. Recruitment and Selection...31 b. Non-registered Staff...31 c. Registration of Sales Representative...33 d. Significant Requirements of Registration...33 e. The National Registration Database...34 f. Residency...35 g. Rules for Part-Time Sales Representatives...36 h. Dual Licensing...36 December

3 i. Amending a Registration...36 j. Reporting Terminations...37 k. Renewal of Registration...38 l. Transfer of Registration...38 Review Questions Section 6: Branch Operations...42 a. Opening New Accounts (new business)...42 b. Know Your Client Information...42 c. Updating KYC Information...44 d. Confidentiality of Client Information...44 e. Transferring of Subscriber Accounts...45 f. Branch Office Supervision...45 g. Handling Complaints...47 h. Record Keeping Requirements...48 i. Training and Development...49 j. Reporting to Head Office...49 Review Questions Section 7: Advertising Regulations...54 a. Role of Advertising...54 b. Definition of Sales Communication and Advertising...54 c. Misleading Sales Communications and Advertising...54 d. Performance Data...55 e. Business Cards and Letterhead...56 Review Questions Section 8: Selling Practices...60 a. Code of Sales Practices...60 b. New Business Responsibilities...60 c. Commission Rebates...61 d. Disclosure...61 e. Cold Calling...62 f. Selling out of Province/Country...62 g. Confidentiality of Client Information...63 h. Corrective Action...63 Review Questions Section Scholarship Plan Dealer/Head Office Responsibilities...67 Review Questions Section APPENDICES...70 Appendix A Code of Sales Practices...70 Appendix B National Policy 15: Scholarship Plans...70 Appendix C Registration Information...70 December

4 Appendix D National Instrument Appendix E Plan Transfer Form...70 Appendix F National Instrument (Mutual Fund Rules)...70 Appendix G Sample Exam...70 December

5 1. Overview a. Who is this course for? The Branch Manager (often called an Agency Director or Enrolment Director) for a Scholarship Plan Dealer holds an important position that presents many challenges. Managing a Branch or Agency requires management and motivational skills, extensive knowledge of the industry and the ability to maximize profits while ensuring that the branch and its personnel comply with a wide range of ethical, regulatory and compliance requirements. People who invest in scholarship plans expect excellent service, professional expertise and absolute trustworthiness from the representatives and dealers with whom they do business. Branch Managers are front line administrators who see that these expectations are met. The securities regulatory environment is changing rapidly and regulators are scrutinizing the conduct of Branch Managers more closely than ever before. Now more than ever, Branch Managers must keep abreast of changes in the market, must supervise their Branches effectively, and must ensure that the regulations and the policies of the firm are followed. This course has been developed by the RESP Dealers Association of Canada and is designed to help in the development of effective Branch Managers. The Association s goal is to have this course accepted by the securities regulators in each province and territory as a prerequisite for appointment as a Branch Manager of a Scholarship Plan Dealer. It is expected that all potential Branch Manager candidates will already have completed the education programs required for registration as a Sales Representative and that they will have significant practical experience in the industry. This is a self-study course administered by the Association. Successful completion of the course will require that the registrant obtain a grade of at least 80% on a final 2-hour examination. Course registrants should expect to devote a significant amount of time to study and review of the materials. The final examination is to be completed within three months of registration in the course. Sample examination questions have been included in the materials to reinforce December

6 important concepts and to illustrate the scope of the knowledge required to successfully complete the course. Registration fees and details of the registration and examination procedures are set out in a document called Procedures for Registration and Adjudication available from the Association or from your firm s continuing education coordinator. b. What will be covered by the material? The most important goal of this course is to ensure that Branch Managers understand their regulatory responsibilities and the importance of effective supervision. To do this, the course will: i. Review the regulatory framework. ii. Define the responsibilities of a Branch Manager. iii. Discuss staffing and define the registration process. iv. Describe the operational procedures that must be in place. v. Review the regulations that govern advertising in the securities industry. vi. Provide instruction on good sales practices and discuss ways in which sales practices can be properly monitored. vii. Discuss the regulatory requirements that apply to the Scholarship Plan Dealer and its Head Office. December

7 c. The RESP Dealers Association of Canada In 2000, the RESP Dealers Association of Canada was formed with membership comprised of five institutions that specialize in the education savings business. The founding members of this Association are: o Heritage Education Funds, Inc. Distributing the Heritage Scholarship Trust Plans o C.S.T. Consultants Inc. Distributing the Canadian Scholarship Trust Plans o Children s Education Funds Inc. Distributing the Children s Education Trust of Canada Plans o USC Education Savings Plans Inc. Distributing the USC Education Savings Plans The RESP Dealers Association of Canada represents its members with provincial securities commissions and federal agencies that oversee the RESP and CESG legislation. Its aim is to establish rules and procedures for self-regulation and improve the understanding of scholarship plans among regulators, the public and the media. December

8 2. Regulatory Framework a. Securities Legislation The securities industry is one of the most highly regulated sectors of the economy. Each province and territory in Canada has its own legislation that regulates the underwriting and distribution of securities, including scholarship plans. The legislation is typically comprised of a Securities Act and Securities Regulations. These are accompanied by various rules, forms, orders, interpretation notes and policies, all of which are administered by a provincial securities commission or similar regulatory body. The fundamental purpose of securities legislation is investor protection. Securities laws are quite similar across Canada and are designed to achieve four broad objectives: i. To ensure that investors have access to the information they need to make informed investment decisions; ii. To provide rules of fair play for the markets; iii. To establish qualifications and standards of conduct for people registered to advise investors or to trade on their behalf; and iv. To protect the integrity of the capital market and the confidence of investors. Sales Representatives, Branch Managers and Dealers must meet the specific requirements of the securities legislation in each province or territory in which they operate. Among other things, the legislation: i. Requires that everyone who trades in, advises on or underwrites securities or exchange contracts be registered (licensed) by the securities commission(s) to engage in that activity, or that they be able to rely on an exemption from the registration requirement. The legislation defines trade very broadly to include, among other things, the sale of a security, the receipt by a registrant of an order to buy or sell a security, and any act, solicitation or negotiation in furtherance of a trade. December

9 ii. Requires that everyone who distributes securities give investors a detailed disclosure document a prospectus describing the investment, or be able to rely on a specific prospectus exemption. A distribution is the sale of any security that has not been previously issued or the sale of a security from the holdings of a control person. iii. Requires that all reporting issuers provide timely disclosure to the public of important financial and business information. An issuer can become a reporting issuer in several ways but the most common way is to file a prospectus. iv. Requires insiders of reporting issuers to report their trading activity on a regular basis. v. Requires that take-over bids and issuer bids be conducted according to specific rules. vi. Regulates the sales and business practices of dealers and registered salespersons in areas such as: Minimum capital requirements for dealers, Record keeping requirements, Supervisory obligations, Prohibited sales practices, Know your client duties, Conflict of interest provisions, and Client disclosure obligations. vii. Prohibits deceptive or unfair business practices, including misrepresentations in disclosure documents, insider trading and market manipulation. viii. Provides a number of specific exemptions from the registration, prospectus and take-over bid requirements. ix. Authorizes the securities commissions to grant discretionary exemptions from certain regulatory requirements. December

10 x. Provides the securities commissions with powers to investigate conduct in the markets and to hold hearings and impose sanctions. xi. Empowers the Courts to imprison and to fine those who commit offences under the legislation. Scholarship Plan Dealers, Sales Representatives and Branch Managers are also governed by various provincial and national rules and policy statements that apply to them and to the products they distribute. For example, National Policy 15 (Appendix B) deals with certain requirements for Scholarship and Educational Plan prospectuses. National Instrument (Appendix D) sets out specific requirements for registrants concerning leverage risk disclosure, client confidentiality, tied selling and the like. Branch Managers must review and understand the sections of the securities legislation that apply to them and to their dealers in the jurisdictions in which they do business. Branch Managers should also ensure that they have ready access to a current copy of the securities legislation and the related policies. In many jurisdictions the legislation and policies are available online through the securities commission s website. b. Code of Sales Practices In the spring of 2001, the RESP Dealers Association of Canada adopted a Code of Sales Practices (Appendix A). This Code sets out the uniform practices to be followed by all Sales Representatives of member companies when dealing with the public. It includes guidelines on ethical standards, know-your-client and suitability obligations, advertising, sales materials and contact with the public. Each member of the RESP Dealers Association of Canada has adopted the Code and all Dealer personnel are expected to understand and abide by it. c. Dealer s Internal Policies and Procedures All Scholarship Plan Dealers have developed internal policies and procedures that cover a wide range of operational and conduct standards everything from new business processing, to staff recruitment, to sales practices and supervisory duties. December

11 In part, these policies are designed to fulfill the Dealer s obligations under securities legislation to establish and apply prudent written business procedures for dealing with clients. Compliance with the internal policies and procedures of a Dealer is generally a term and condition of employment and it is important that all staff members understand and abide by the Dealer s policies. d. Role of the Branch Manager Securities legislation requires that Dealers appoint qualified Branch Managers to actively supervise the activity that occurs in each Branch and to ensure that the Branch and its personnel comply with regulatory requirements. In addition to this important compliance role, Branch Managers are appointed by the Dealer to manage, develop and build the business and profitability of the Branch. To be effective, a Branch Manager must: i. possess extensive industry knowledge and strong managerial skills to motivate and to earn the confidence and cooperation of those supervised. ii. have the skills to build the business and serve the needs of subscribers effectively. iii. understand and diligently apply the Code of Sales Practices, the Dealer s policies and the many laws and regulations that govern the conduct of the Dealer and its personnel. iv. have the capacity to diligently supervise Branch personnel and the business activity that is done on behalf of subscribers. v. maintain appropriate business records and records of compliance and supervisory activities. vi. be committed to maintaining the highest ethical standards and to serving the best interests of the Dealer and its subscribers. vii. work closely with the dealer s compliance staff to ensure effective supervision of the Branch. December

12 e. Role of the Scholarship Plan Dealer The Scholarship Plan Dealer s primary responsibility is to serve the best interests of subscribers and to ensure that each subscriber is dealt with fairly, honestly and in good faith. The Dealer is also responsible for ensuring that all of the business activities of the Dealer, its Sales Representatives and employees are conducted in accordance with the applicable laws and regulations. Among other things, Dealers must: i. ensure that all Sales Representatives are properly qualified and registered with the securities regulators at all times, ii. establish and apply prudent policies and procedures for dealing with clients, iii. diligently supervise their personnel and the transactions that are carried out for subscribers, iv. maintain complete and accurate records of all business transactions, and v. maintain adequate capital and prepare periodic financial statements for filing with the regulators. As part of its supervisory responsibilities, the Dealer will appoint a Head Office supervisor, often titled Compliance Officer, who is responsible for ensuring that the Dealer and its personnel comply with regulatory obligations. The Compliance Officer and his or her staff have similar responsibilities to the Branch Manager for account supervision. Head Office Compliance will typically rely heavily on the Branch Manager to conduct effective and timely reviews of account activity and to properly record details of that supervision. f. Proficiency Requirements To obtain registration to sell scholarship plans to the public, the Dealer and its Sales Representatives must meet certain proficiency requirements. These requirements are generally set out in the securities legislation. December

13 All prospective (new) Sales Representatives of member Dealers (of RESPDAC) must successfully complete the RESPDAC Sales Representative Proficiency Course in order to obtain registration to sell scholarship plans. In Alberta and New Brunswick, this requirement has been extended to all Scholarship Plan Dealers. Through the RESP Dealers Association of Canada, industry-endorsed education programs have been developed for use by all member firms. The goal is to have the programs and testing procedures recognized and accepted by each provincial and territorial securities regulator. The Branch Managers Proficiency Course (this course) was the first program developed and endorsed by the Association. Branch Managers must meet the education requirements for a Sales Representative and must also complete a further training program either the RESP Dealers Association of Canada Branch Manager Proficiency Course (this course), the Canadian Securities Institute Branch Managers Course or the IFIC Branch Manager Examination. Branch Managers must have continuous related experience of more than one year, or such other experience as prescribed by the regulator in the jurisdiction in which the Branch operates. December

14 3. Regulators and Regulations for RESPs and Scholarship Plans a. Federal Regulation Section of the Income Tax Act (ITA) contains the tax law with which Registered Education Savings Plans (RESPs) must comply. The Department of Human Resources Development Act and accompanying regulations contain the rules under which the Canada Education Savings Grant (CESG) program is administered. Canada Revenue Agency (CRA) administers the RESP and the CESG programs. In order for an education savings plan to be established as a registered education savings plan, the plan must be reviewed and approved by CRA. CRA s role is to review the terms and conditions of the plan to ensure that the appropriate trust arrangements are in place and that the Income Tax Act has been followed. Specimen plan documents are filed with CRA. When those are approved, the plan is given a registration number under which it is allowed to operate. The RESP and CESG programs were established and are administered by the federal government and all RESPs including those based on mutual funds, insurance products, bank deposits or scholarship plans are subject to federal regulations. From an income tax perspective, RESPs are regulated by the federal government through the CRA. b. Provincial Regulation Banking and tax laws are administered by the federal government, but securities and insurance laws are generally administered by the provinces. While RESPs are a specific type of tax shelter (in this case, an education tax shelter), the investments that can be made within RESPs and the distributions system for RESPs can vary. For instance, RESPs can be structured: December

15 As Scholarship Plans (or group plans) that are governed provincially under the securities legislation and National Policy 15 (Appendix B); As segregated funds that are sold by insurance companies and governed by provincial insurance regulators; As mutual funds, in which case they are regulated under securities legislation and National Policies and A detailed discussion of the regulation of mutual funds and insurance products is beyond the scope of this course, but additional information can be obtained from your provincial or territorial securities regulator. In the case of securities, including scholarship plans, each province and territory has adopted legislation (typically a Securities Act and accompanying Regulations) that governs virtually all aspects of trading and advising in securities. This legislation is supplemented with a range of policy statements, interpretation notes, blanket orders and forms. Within each province and territory a securities commission or securities administrator has been established to administer and enforce the legislation. These commissions and administrators have established an informal national association called the Canadian Securities Administrators (CSA). The CSA s goal is to enhance cooperation among the regulators and to foster market efficiency through greater harmonization of the rules and regulations. Over the past decade, the CSA has worked to develop a number of National Policy Statements (NPs) and National Instruments (NIs) that apply across Canada. The members of the CSA have also established a number of Multilateral Instruments (MIs) and Multilateral Policy Statements (MPs) that apply in some, but not all, Canadian jurisdictions. The addresses of the provincial and territorial securities regulators are as follows: British Columbia Securities Commission West Georgia Street Vancouver, B.C V7T 1L2 Telephone: (604) Fax: (604) December

16 Alberta Securities Commission 4 th Floor, th Avenue S.W. Calgary, AB T2P 3C4 Telephone: (403) Fax: (403) Saskatchewan Securities Commission Saskatchewan Drive Regina, SK S4P 4H2 Telephone: (306) Fax: (306) Manitoba Securities Commission St. Mary Avenue Winnipeg, MB R3C 4K5 Telephone: (204) Fax: (204) Northwest Territories Registrar of Securities Department of Justice Government of the Northwest Territories th Street 5 th Floor, Court House P.O. Box 1320 Yellowknife, NWT X1A 2L9 Telephone: (867) Fax: (867) Government of Nunavut Legal Registries Division P.O. Box 1000, Station st Floor, Brown Building Iqaluit, NU X0A 0H0 Telephone: (867) Fax: (867) December

17 Ontario Securities Commission Suite Queen Street West Toronto, ON M5H 3S8 Telephone: (416) Fax: (416) Quebec Securities Commission Autorité des marches financiers 800, square Victoria, 22e etage C.P. 246, Tour de la Bourse Montreal, QC H4Z 1G3 Telephone: (514) Fax: (514) New Brunswick Securities Commission 85 Charlotte Street Suite 300 Saint John, NB E2L 2J2 Telephone: (506) Fax: (506) Prince Edward Island Securities Office Consumer, Corporate and Insurance Services Division Office of the Attorney General P.O. Box 2000 Charlottetown, PE C1A 7N8 Telephone: (902) Fax: ( December

18 Newfoundland Securities Division Department of Government Services and Lands Government of Newfoundland and Labrador 2 nd Floor, West Block, Confederation Building P.O. Box 8700 St. John s, NF A1B 4J6 Telephone: (709) Fax: (709) Nova Scotia Securities Commission Joseph Howe Building 2 nd Floor, 1690 Hollis Street P.O. Box 458 Halifax, NS B3J 2P8 Telephone: (902) Fax: (902) Government of Yukon Registrar of Securities nd Avenue P.O. Box 2703 Whitehorse, YK Y1A 2C6 Telephone: (867) Fax: (867) c. Self-Regulatory Organizations (SROs) A number of self-regulatory organizations (SROs) and other industry groups have been formed to assist in the effective regulation of the securities industry. d. Mutual Fund Dealers Association (MFDA) The MFDA was formally recognized in 2000 as the SRO for the distribution side of the mutual fund industry. Membership in the MFDA is mandatory for all Canadian mutual fund dealers. The MFDA is responsible for regulating the business conduct of all member firms and employees regarding the sale and distribution of mutual funds. December

19 The MFDA believes that investors should have the same level of protection, regardless of where they buy their mutual funds. Its main goal is to establish a level playing field for dealers and investors through harmonizing regulation. Sales representatives licensed to sell mutual funds through MFDA members must complete one of the following courses: The Canadian Securities Course offered by the Canadian Securities Institute; The Canadian Investment Funds Course offered by the Investment Funds Institute of Canada; The Investment Funds in Canada Course offered by the Institute of Canadian Bankers; The Principles of Mutual Funds Course formerly offered by the Trust Companies Institute; or To the extent the sales representative trades or deals in securities in the Province of Quebec only, the courses entitled Placements des particuliers(cegep) and Cours sur les fonds distincts et fonds communs de placement offered by the Canadian Securities Institute. In addition, a further 90-day training course provided by the mutual fund dealer is required. e. Investment Dealers Association of Canada (IDA) The IDA is the SRO for Canadian investment dealers (dealers who are IDA members and licensed to trade in all securities, including stocks, bonds and mutual funds). The IDA is responsible for regulating almost all aspects of the business and conduct of investment dealers, from capital adequacy to sales practices. The IDA s goal is to foster fair, competitive and efficient capital markets by encouraging participation in the savings and investment process and by ensuring the integrity of the marketplace. For Sales Representatives licensed to sell securities through IDA members, the industry education requirements are significant. In addition to the successful completion of the Canadian Securities Course, representatives must successfully complete an examination based on the Canadian Securities Institute s Conduct and Practices Handbook, which focuses on rules and regulations, sales practices, business ethics and standards of conduct. Representatives must also complete an internal 90-day training program and, within 30 months of December

20 registration, one of two advanced courses the Professional Financial Planning Course (the PFPC) or the Investment Management Techniques Course. In addition, continuing education courses are required during a three-year cycle. f. Market Regulation Services Inc. (RS) RS is Canada s newest SRO. Established in 2002, RS was created to take over responsibility from the Toronto Stock Exchange and the TSX Venture Exchange for the day-to-day oversight of securities trading on Canada s stock exchanges. RS is also responsible for overseeing the trading that occurs on any other alternate or electronic securities trading systems that are established in years to come. g. Advocis Advocis is a leader in professional education for life insurance and financial advisors, offering courses that lead to the Certified Financial Planner (CFP) and Certified Life Underwriter (CLU) designations. In addition, Advocis provides seminars focused on enabling insurance and financial advisors to earn their insurance licenses (Level I, II, etc.) and required continuing education credits. The Branch Manager Proficiency Course (this course) and the Sales Representative Proficiency Course, offered by RESPDAC, are recognized for continuing education credits. h. Autorité des Marchés Financiers (AMF) In the province of Quebec, the Autorité des Marchés Financiers (AMF) is responsible for the regulation of the provinces markets and provides assistance to consumers of financial products and services. The AMF supervises the distribution of financial products and services. In addition to overseeing the proper operations of securities markets, the AMF governs the eligibility and practice of sales representatives, advisors and brokers and also manages the certification of representatives and the registration of firms in various financial sectors including scholarship plans. The AMF has established minimum training requirements in order to obtain a license to sell a financial product to the public. It has also established ongoing continuous education requirements. Educational requirements differ depending on whether the license is for the sale of insurance-related products, all securities, or specific types of securities such as mutual funds or scholarship plans. December

21 4. Scholarship Plans within the Financial Services Industry With the introduction of the CESG in 1998, the popularity of investments with the tax shelter advantages of RESPs has grown dramatically. The result has been the introduction of many financial products that provide for the RESP tax shelter and have access to the CESG. Many of the products are money accumulation plans and may take the form of mutual funds, insurance products or some type of savings or deposit vehicle. Mutual funds are pools of capital that are managed by professional money managers in accordance with specific investment objectives that are set out in each mutual fund s prospectus. Some mutual funds invest primarily in bonds while others invest in equities or a mix of bonds and equities. As a result, some mutual funds are low risk investments while others can be very high risk. An investor who sets up an RESP and invests in mutual funds will see the value of their RESP rise or fall over time, depending on the performance of the mutual funds. Scholarship plans are also a type of pooled investment fund and, like mutual funds, they are virtually always sold by prospectus. The prospectus will set out each scholarship plan s investment policy, but scholarship plans invest primarily or exclusively in senior government and corporate debt securities. In addition to receiving the benefit of investment income earned by the scholarship plan, contributors may be entitled to receive a portion of the funds invested by other contributors if those contributors are unable or choose not to utilize their contribution in one of the ways allowed by the plan. Scholarship Plans, often referred to as group or pooled plans, have been in existence for more than thirty-five years. These plans are sponsored by not-for-profit foundations and are typically focused solely on education savings. The product design and features of scholarship plans are similar, for the most part, and they are generally promoted as secure long-term savings vehicles. While mutual fund RESPs and scholarship plans may offer the same tax deferral advantages, the type of license required to sell them is different. A person licensed to sell only Scholarship Plans is not entitled to sell or advise on mutual funds. December

22 Review Questions Sections In Canada, securities laws are: a. developed by the federal government and administered by a single national regulatory agency. b. developed by the provinces and territories and administered by thirteen different regulatory agencies. c. neither of the above. 2. Among the basic objectives of securities legislation are: a. to ensure that registered salespersons can conduct business efficiently and free of interference. b. to protect the long-term profitability of the securities industry and the dealers who operate in it. c. to ensure that investors have access to the information they need to make informed decisions. d. to establish qualifications and standards of conduct for people who are registered to trade or advise in securities. 3. In order to trade securities on behalf of clients a person must: a. be registered with a securities commission somewhere in Canada. b. be registered to trade securities in each jurisdiction in which their clients reside. c. work closely with a person who is registered to trade. 4. The legal definition of trade includes: a. the sale of a security. b. the receipt by a registrant of an order to buy or sell a security. c. any act, solicitation or negotiation in furtherance of a trade. d. all of the above. 5. Whenever a security is being sold in the course of a distribution the law requires the seller of the security: a. to disclose that fact to the purchaser. b. to offer the purchaser 7 days to withdraw from the purchase. c. to give the purchaser a prospectus that has been receipted by the securities commission, or be able to rely on a specific prospectus exemption. 6. Violating the provisions of the securities legislation can expose a person to: a. regulatory sanctions imposed by the securities regulators after a hearing. b. civil liability to those who suffered damages. c. quasi-criminal prosecution in court. December

23 d. all of the above. 7. The Code of Sales Practices adopted by the RESP Dealers Association of Canada: a. includes training modules on prospecting, client development and marketing concepts. b. is a voluntary set of guidelines that representatives can choose to follow or not. c. is a uniform code of ethical standards and other practices that is to be followed by all Sales Representatives of member dealers. 8. The laws governing the Canada Education Savings Grant (CESG) are contained in the: a. Income Tax Act. b. the Securities Act. c. the Human Resources Development Act. d. the Canadian Post-Secondary Education Act. 9. In order for a Registered Education Savings Plan to be established lawfully, it must first: a. be reviewed and approved by the Canada Revenue Agency. b. file a prospectus with a securities commission. c. establish a marketing agreement with a registered dealer or other financial institution. d. demonstrate adequate capital reserves. 10. Which of the following self-regulatory agencies (SROs) has direct responsibility for scholarship plan dealers in Canada? a. Mutual Fund Dealers Association of Canada (MFDA). b. Investment Dealers Association of Canada (IDA). c. Market Regulation Services Inc. (RS). d. none of the above. 11. A person registered as a Salesperson of a Scholarship Plan dealer is entitled to advise clients and trade for clients in: a. scholarship plans only. b. all securities, as long as the trades are approved by the Branch Manager. c. mutual funds, segregated funds and scholarship plans. December

24 Review Questions Section Answers 1. (b) 2. (c) or (d) 3. (b) 4. (d) 5. (c) 6. (d) 7. (c) 8. (c) 9. (a) 10. (d) 11. (a) December

25 5. Branch Manager s Responsibilities a. General Responsibilities The Branch Manager has several responsibilities: i. To build and develop the Branch and manage its day-to-day operations. ii. To maintain a high level of knowledge of the product, of securities regulations and of the policies and procedures of the Dealer. iii. To diligently supervise and monitor the activities of Sales Representatives and staff and ensure the requirements of the securities regulations and the firm s policies are fully understood and followed. iv. To approve the opening of new subscriber accounts and to review and supervise the transactions undertaken for subscribers. v. To maintain good relations with subscribers. vi. To motivate staff and to lead by example, striving to establish the highest standards of ethics within the Branch. It is also essential that every Branch Manager strives to earn a reputation of integrity and trustworthiness; not only for themselves but also for their Dealer and for the Sales Representatives they supervise. In a business largely based on trust, the reputations of the Representatives, Branch Manager and the Dealer are invaluable assets. Internal policies will differ from Dealer to Dealer. As a result, this course focuses primarily on the responsibilities that Branch Managers have under securities regulations. b. Specific Responsibilities Specific responsibilities of the Branch Manager include: i. Reviewing and approving all new business applications to ensure compliance with securities regulations. This includes reviewing new applications for enrolment to ensure suitability based on the available Know Your Client information. See December

26 Section 7(b) for more detailed discussion of the Know Your Client requirements. ii. Reviewing client account activity on an ongoing basis. Daily and monthly review of activity is critical to ensure compliance with security regulations and Head Office policies. See Section 7(f) for more detailed discussion. iii. Reviewing applications for registration of all Sales Representatives and changes thereto. The Branch Manager must be satisfied that the best Sales Representatives are selected and that accurate information is supplied on applications for registration. Section 6(c) contains a detailed discussion of the registration process. iv. Maintaining supervisory logs that record notes of supervisory issues, training and development plans and other matters concerning the activities of Sales Representatives. Documentation ensures that there is no misunderstanding on the part of either party, and provides evidence to others, including Head Office and securities regulators, should questions arise later. See Section 7(f) for further discussion. v. Dealing with any client complaints or errors that are reported to the Branch. Each complaint must be investigated and documented in a complaint log. The complaint log should indicate who made the complaint, who received it, the nature of the issue, and how and when it was resolved. In some situations, the Branch Manager may require the involvement of Head Office in the resolution of the issue. See Section 7(g). vi. Reviewing (and obtaining Head Office approval if required) all internal and external communications. Advertising regulations are reviewed in detail under Section 8. vii. Providing product knowledge and compliance training to ensure that all Sales Representatives and staff fully understand the products being distributed and the regulations under which they are governed. See Section 7(i). viii. Monitoring and discussing sales practices with Sales Representatives to ensure compliance with the Code of Sales Practices, applicable securities regulations and Dealer December

27 policies. Branch Managers must take corrective action when appropriate and must maintain records of the action taken. The Code is included at Appendix A and the discussion of its principles appears in Section 9. ix. Conveying to Sales Representatives and staff the importance of professionalism and integrity. Leading by example. x. Furnishing regular reports to the Compliance Officer highlighting significant issues encountered in any of the areas described above. See Section 7(j). c. Ensuring Compliance Branch Managers are responsible for ensuring compliance in the Branch with all regulations and Dealer policies. Each member company of the RESP Dealers Association of Canada maintains a Compliance Manual. These Manuals deal with issues such as: i. Corporate organizational structure ii. Code of Conduct and Ethical Practices iii. Licensing Information iv. Training and Development Policies v. Sales Policies vi. Advertising and Marketing Policies vii. Compensation viii. Enrolment (New Business) Procedures and Policies ix. Complaint and Grievance Process x. Administrative Procedures and Policies The Branch Manager must fully understand the information provided in the Dealer s Compliance Manual and must ensure that staff and sales representatives have a sound working knowledge of it as well. Often, the Compliance Manual provides a very concise summary of the key policies and procedures that staff and sales representatives need to be aware of on a day-to-day basis. Ethical sales practices are critical to the success of the Branch and to the reputation of the industry as a whole, and the Branch Manager plays a key role in maintaining the ethical standards of the Branch. The Branch Manager should devote a significant amount of effort to ensure that the Sales Representatives fully understand the importance December

28 of providing full, true and plain disclosure while providing excellent service to subscribers and prospective subscribers. The Code of Sales Practices sets out the fundamental principles that should be applied at all times. The Code, along with other key policies and procedures, should be reviewed with Sales Representatives on a regular basis as part of a continuing professional development program. d. Required Skills of a Branch Manager Depending on the size, diversity, and the characteristics of the Sales Representatives and staff of the Branch, many critical skills are necessary at the Branch Manager level. To oversee the operation effectively, the Branch Manager must strive to: i. Demonstrate leadership skills. ii. Earn the trust and confidence of staff and clients. iii. Demonstrate a commitment to compliance, to ethics and to the well being of clients. iv. Show absolute trustworthiness, honesty and integrity. v. Command respect. vi. Motivate staff and representatives. vii. Contribute to the overall success of the organization. viii. Manage time effectively. e. Time Management Managing a Branch is time consuming. In some cases, it can be done on a part-time basis, allowing the Branch Manager to devote some time to maintaining existing subscribers and soliciting new business. Often, however, managing a Branch is a full time responsibility. This is especially true in the case of larger Branches with many staff and Sales Representatives to supervise and direct. Effective time management is necessary to ensure that responsibilities are fulfilled and priorities are set appropriately. December

29 Review Questions Section 5: 1. Every Branch Manager of a Scholarship Dealer is responsible for: a. diligently supervising the business conducted by the Branch and the activities of Branch staff. b. ensuring compliance in the Branch with all applicable laws and regulations. c. ensuring that all Branch personnel comply with the policies and procedures established by the Dealer. d. reviewing and approving new client accounts. e. all of the above. 2. Misconduct by a Sales Representative can lead to sanctions being imposed against: a. the Sales Representative. b. the Branch Manager was as responsible for supervising the Sales Representative. c. the Dealer. d. all of the above. 3. Branch Managers are required to maintain reasonably detailed records of all of their supervisory activities. a. True b. False 4. Branch Managers must maintain a sound working knowledge of: a. the securities laws and regulations that apply in their jurisdiction. b. the policies and procedures of the Dealer. c. the Code of Sales Practices. d. all of the above. December

30 Review Questions Section 5 Answers 1. e 2. d 3. a 4. d December

31 6. Branch Staff a. Recruitment and Selection A Branch requires skilled staff and Sales Representatives to operate successfully. Recruiting, selecting, training and supervising key individuals is critical to success. The Branch Manager must understand the Dealer s policies and procedures for recruiting both registered and non-registered personnel and should be familiar with government regulations dealing with employment standards and practices. There are several ways to seek out and recruit individuals. The Branch Manager should look to the Dealer and to past experience to determine the most effective method. The necessary qualifications and skills for the position (such as education, experience, interpersonal skills and technical knowledge) should be identified before initiating the recruiting activity. The selection process that follows should be designed to objectively evaluate each candidate s skills and qualifications as well as the likelihood that the candidate will, in fact, be able to succeed in the role proposed. When recruiting Sales Representatives, Branch Managers must bear in mind that potential candidates will have to be acceptable to both the Dealer and the securities regulator. Selection criteria must be designed to ensure that the candidates will be able to obtain registration. Branch Managers must also remember that candidates for sales positions cannot engage in any trading or advising activities until they have been properly registered in the jurisdiction. b. Non-registered Staff Non-registered staff members are often vital to the success of the Branch. They perform many duties required by the Branch Manager, primarily in administrative support functions such as: i. Secretarial and record-keeping support. ii. Receptionist duties. iii. Assistants to help Sales Representatives book client appointments. iv. Assistants to prepare and mail correspondence. December

32 v. Help in the follow up on applications and help generally in interacting with Head Office. It is important to remember that non-registered staff cannot trade or advise in securities, and those terms are defined (very broadly) in securities legislation. A trade includes not only the sale of a security, but also the receipt by a registrant of an order to buy or sell a security and any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of a trade. A person is advising in securities if they engage in or hold themselves out as engaging in the business of advising others with respect to investing in or buying or selling securities. With that in mind, non-registered staff may not: i. Make investment recommendations or give investment advice. ii. Discuss the specifics of a Plan, especially its performance or investment policies. iii. Distribute applications or assist a subscriber in the completion of an application form. iv. Solicit business from prospective subscribers. v. Receive commissions for their activities or other remuneration that is based on sales activity. vi. Participate in sales presentations, even if a licensed Sales Representative is present. The non-registered staff member may: i. Arrange appointments for sales representatives. ii. Distribute marketing materials. iii. Contact subscribers to advise of deficiencies on application and other forms. iv. Provide information on the status of the subscriber s agreements and give quotes on the value of the agreements. v. Refer prospects to Sales Representatives for further discussion. vi. Mail out prospectus, annual reports or marketing/sales materials to prospective clients. December

33 c. Registration of Sales Representative Securities legislation requires that all persons who trade or advise in securities be registered in each province in which they do business. That means that Sales Representatives must be registered in each province or territory in which their clients reside. The legislation provides certain exemptions from the general registration requirements but these registration exemptions are very limited and generally do not apply to Sales Representatives of Scholarship Plan Dealers. As a Branch Manager, you must ensure that your staff is appropriately registered in each province or territory in which they intend to do business. Once a sales trainee has been selected, the Branch Manager must ensure that suitable training is provided and that the trainee fully understands the product he or she will be selling, the policies of the Dealer, the Code of Sales Practices and the regulations that govern sales conduct. Once the training has been completed, the sales trainee is expected to successfully complete an approved proficiency examination that tests and confirms the trainee s knowledge level. All new Sales Representatives of Member companies must successfully complete the Sales Representative Proficiency Course, sponsored by RESPDAC, to sell scholarship Plans. In Alberta and New Brunswick, this requirement is extended to all Scholarship Plan Dealers. Sales Representatives are expected to maintain a copy of the Dealer s Policy and Procedure Manual and/or Compliance Manual. d. Significant Requirements of Registration The successful sales trainee whom the Branch Manager wishes to register as a Sales Representative must complete a registration application form. The form is Form F4 Registration Information for an Individual. This form is included in the materials at Appendix C. These application forms include questions about the identity of the applicant, as well as the applicant s education, employment and regulatory, civil and criminal history. Errors in the completion of an application inevitably result in processing delays. December

34 Failure to provide complete responses to the questions will generally result in the rejection of the application. Failure to respond truthfully to the questions is an offence that can result in prosecution. Branch Managers must review registration applications (and other statutory forms) to ensure that they know their potential Sales Representatives and satisfy themselves that the registration form has been completed thoroughly and accurately. Branch Managers should expect detailed reviews by securities regulators of any application that discloses such things as: i. Past refusals by any government body or SRO to grant registration or to license the applicant to deal in financial products or otherwise to deal with the public. ii. Disciplinary actions against the applicant by any securities commission, SRO or similar regulatory body. iii. Past criminal or quasi-criminal convictions. iv. Bankruptcies or proposals to creditors. v. Any civil judgments or garnishments. A person s registration is not effective until their application has been reviewed and approved by the relevant regulatory agencies. No trading activity can be undertaken until registration has been confirmed. Registration application forms are now submitted electronically through the National Registration Database System. e. The National Registration Database The securities regulators in each province and territory introduced a new electronic registration system for individuals. Multilateral Instrument made use of the National Registration Database ( NRD ) mandatory for all individual registration applications, changes to registration and terminations of registration after March 30, The NRD is a web-based system that permits dealers to file registration forms on-line. It replaced the paper-based application system that had been used in the past. NRD was designed to harmonize and improve the registration process across most of the December