Respondent did not adequately ensure portfolio concentration was suitable for seven clients
A former advisor has been banned for three years by the MFDA after failing to adequately explain the risks, and ensure the suitability, of investing in precious metal sector mutual funds to a number of clients.
Vanessa Doreen Sjostrom admitted failing to ensure that investment recommendations she made to seven clients were suitable, in particular regarding the risks associated with concentrating their portfolio in this way. She also admitted failing to adequately explain the risks of investing in precious metals sector mutual funds to five clients.
Sjostrom was registered in the securities industry from 2004 until 2018 and, between November 2006 and May 2016, was registered in British Columbia as a dealing rep with FundEX Investments Inc. Between June 2016 and June 2018, she was also registered in British Columbia as a dealing rep with Portfolio Strategies Corporation.
In 2009, she shared a dealer representative code with another MFDA registered dealing representative, David Michael Gordon, and they jointly serviced approximately 290 FundEX clients. She had the primary advisor relationship with 29 of the 290 clients, while Gordon had the primary advisor relationship with the other 261. They assisted each other to service all 290.
In 2016, Gordon left the mutual fund industry and Sjostrom became the sole dealing rep responsible for servicing all 290, including the 261 clients with whom Gordon had the primary advisor relationship. In 2019, Gordon was permanently banned by the MFDA for failing to ensure investment recommendations with regards to precious metals sector funds were suitable for six clients and for failing to adequately explain the risks and benefits.
Between about January 2009 and May 2016, the pair recommended an investment strategy to clients, whereby the clients would purchase precious metals (predominantly, gold) sector mutual funds, which they called the “Gold Strategy”. They put forward that, among other things:
- the price of gold and other precious metals was poised to increase due to an imminent decline in the stock market; or
- investing in gold and precious metals sector mutual funds was a safer alternative to investing in the stock market generally.
Sjostrom told the MFDA that she was trained by Gordon, who was more experienced in the mutual fund industry, with respect to the strategy. She added that, at all material times, the advice she provided to clients with respect to the strategy was consistent with the training she received from Gordon.
Most or all of the assets held by the seven clients in investment accounts with FundEX were invested in a single precious metals sector mutual fund, namely the BMG Bullion Fund. The hearing found that each client was over-concentrated and that Sjostrom did not generally recommend that clients increase the diversification of their investment holdings until PSC directed her to take corrective action.
In May 2016, when she assumed responsibility for servicing all of Gordon’s former book of business, 207 clients that were jointly serviced held more than $11 million in gold and precious metals sector mutual funds.
As a result of the corrective action, as of March 23, 2018, the clients held only $625,077 and none maintained holdings in precious metals sector mutual funds that exceeded 25% of their net investable assets.
In 2018, the Respondent sold her book of business and ceased to be registered in the securities industry.
Sjostrom must also pay costs of $5,000.
