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Portfolio cries foul in MFDA election

Fund dealer believes industry watchdog needs electoral overhauls, KEITH DAMSELL writes


The corporate governance practices of the mutual fund regulator are under fire from one of Western Canada's largest fund dealers.

Portfolio Strategies Corp. claims the process to elect directors to the board of the Mutual Fund Dealers Association of Canada is flawed and needs an overhaul. Mark Kent, president of Calgary-based Portfolio, has discussed the election issue with a series of regulators, including the Canadian Securities Administrators. The umbrella group of provincial securities commissions is reviewing Portfolio's complaint.

The MFDA will hold its general meeting in Toronto this Friday. Members are scheduled to elect three new directors to the board, and Mr. Kent plans to ask some hard questions.

The MFDA has a 13-member board. About 180 member firms are asked each year to submit the names of proposed directors.

Four directors serve on the governance committee and decide which candidates may stand for nomination. MFDA members may either vote in favour or abstain.

The catch is the MFDA "needs one friendly person in the crowd to elect a slate that maybe none of the members wants as directors," Mr. Kent complains.

"It's a bit like Castro saying, 'We had a proper election and what a surprise, I've been elected,' " he said. "It may sound a bit extreme but there is no difference whatsoever. We don't have a choice as members and that's the problem."

The board election process has been tinkered with twice and has the approval of independent legal counsel and the CSA, contends Larry Waite, the MFDA's president and chief executive officer.

Members "can clearly vote 'for' or withhold their vote," Mr. Waite said. "We are a self-regulatory organization. Trying to balance the conflict of self and regulatory is an issue."

The thorny issue speaks to the heart of the MFDA's mandate. The seven-year-old organization is a regulatory watchdog; nevertheless, some members argue the group must better represent and consult with the industry it protects.

CIAs leave winners speechless

The mutual fund industry's love-hate relationship with the Canadian Investment Awards continued last week: Winners are pleased to take home a trophy but many view the marathon awards ceremony as something to be endured rather than enjoyed.

Organizers of the 11th annual event had a daunting task. Fifty awards in a tight 90 minutes. To streamline the Wednesday night event, some recipients were discouraged from coming on stage to give an acceptance speech. Many winners balked at the rules and as a result, there were a handful of uncomfortable moments.

"Did I say you could give a speech?" presenter Gary Teelucksingh, vice-president of CGI Group Inc., asked of Bruce Harrop, co-manager of the Trimark Global Balanced Fund. The $691-million fund won the Global Balanced and Asset Allocation Fund of the Year award.

The interest of the 630 in attendance waned rapidly and, at times, the voices on the stage were in fierce competition with the audience. The low point was a ringing fire alarm that overshadowed a handful of awards. The presentation clocked in at about one hour and 45 minutes, down from more than two hours in 2004.

There was no shortage of suggestions from attendees.

Trim the number of awards.

Drop some categories -- the pooled funds category and fund marketing were cited often.

A non-starter, said Sabine Steinbrecher, awards founder and president. Each year, organizers fight off pleas to add more categories to the very full roster.

Cut the ticket price.

Single tickets cost up to $325 each; the top dollar for a table of 10 was $2,900, steep prices for an increasingly cost-conscious industry. Several people suggested charities take a more visible role.

The awards are an "incredibly expensive" event and the budget "very high," said Ms. Steinbrecher, adding that "we barely make a profit." There are no dollars available for charities but the awards raise the profile of sponsors YMCA and Imagine Canada, the lobby group for charities and volunteer organizations, she said.

But it wasn't all thumbs down from attendees. The Carlu, Toronto's Art Moderne jewel that hosted the event, received glowing reviews. There was much praise for the concert hall format that allowed easy access to the bar. A year ago at Roy Thomson Hall, many audience members felt trapped in their seats.

Congratulations to all of this year's winners, especially Dynamic Mutual Funds and AIM Funds Management Inc., who took home five trophies each. Kim Shannon of CI Financial Inc. won the night's most coveted trophy, Morningstar Fund Manager of the Year.

When worse comes to worst

And the winner of the 2005 Lump of Coal Award for Most Notorious Fund Company goes to . . . Norbourg Asset Management Inc.

As the fund industry celebrated its own last week, the Fund Observer took the opportunity to hand out a raspberry or two. The on-line publication dedicated to investor protection is a harsh critic of the fund industry.

Norbourg was the "hands-down choice" for the worst fund company of 2005, said president Ken Kivenko. In August, the Montreal company made headlines when the Quebec securities regulator alleged the firm embezzled $70-million from its clients. It's the first time a retail fund company has come under criminal investigation.

© 2007 The Globe and Mail. All rights reserved.

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