The Smith Manoeuvre is complicated enough but a so-called “Smith-Snyder Manoeuvre” has landed one MFDA advisor in hot water for failing to explain how much leveraging is required.
The Smith Manoeuvre is complicated enough but a so-called “Smith-Snyder Manoeuvre” has landed one MFDA advisor in hot water for failing to explain how much leveraging is required.
The case before the MFDA Hearing Panel in PEI dealt with a situation that’s a whole lot more complicated, hence why Lloyd A. Snyder, a registered advisor for more than 24 years before being investigated, has agreed to a 10-year ban, a $50,000 fine and $50,000 in costs.
If he doesn’t pay the $100,000 in fines and costs, the ban becomes permanent.
What exactly was Snyder’s faux pas?
While registered as a mutual fund salesperson with Investia Financial Services Inc. he is alleged to have committed two acts contrary to MFDA rules. In simple terms he failed to fully explain the risks, benefits, costs and all other pertinent details about the Smith-Snyder Manoeuvre — Snyder’s own personalized leveraged investment strategy — to 15 clients. At the same time he failed to consider the KYC factors related to the leveraged investment strategy including the 15 clients’ ability to absorb losses, etc.
According to Hearing Panel’s Reasons for Decision, Snyder’s clients borrowed almost $1.4 million in investment loans from AGF Trust and B2B Trust, both owned by Laurentian Bank, to invest in return of capital mutual funds offered by Stone & Co. and IA Clarington Investments.
Snyder’s plan for those that don’t remember is a twist on the darling of the investment scene a decade ago – the Smith Manoeuvre. It’s a process that restructures non-tax-deductible mortgage debt into tax deductible investment debt over a number of years. It’s not a plan for those who have poor attention spans or serious commitment issues.
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We won’t get into the details, which you can read at the Canadian Finance blog, but if used effectively you’ll pay off your home mortgage much faster and at the same time have built a bigger equity portfolio than is possible without using the Smith Manoeuvre.
Most importantly, it’s completely legal.
In Snyder’s case some details weren’t flushed out in the Hearing Panel’s reasons and decisions. But if we’re talking about Series A funds, it would have involved an annual service fee of almost $14,000 plus whatever front-end fees the clients paid when first purchasing the funds. That’s a lot to pay each year for something most people and not just these 15 clients would have trouble understanding.
Go ahead and read the 23-page document paying particular attention to the section detailing the leveraged investment strategies of Lloyd Snyder. A forensic accountant might have to take a second read.
It seems on a weekly basis across the country the MFDA is reaching settlements with advisors who seek to push the envelope in the name of generating revenues forgetting the fiduciary standard’s best friend: the interests of the client above all else.
The strange thing in this instance was this was Snyder’s first run-in with the MFDA, a big reason why he wasn’t banned for life.
How does an advisor go off the rails after 20 years with a spotless record?
That’s one of life’s great mysteries.
