Conflicts Of Interest Disclosure
INTRODUCTION
The purpose of this document is to inform you on the nature and the extent of the conflicts of interest that may affect the service provided to you by Rothenberg Wealth Management (“RWM”) and how we have identified and responded to them in order to reduce their impact.
We consider a conflict of interest to be any circumstance where the interests of RWM are inconsistent or divergent from the interests of you, our client. Any situation where a Wealth Management Advisor may be influenced to put their own interests ahead of their client’s is also a conflict of interest. We take reasonable steps to identify all existing or potential conflicts of interest. We assess the level of risk associated with those conflicts, and then we ensure that appropriate measures are implemented to effectively control the conflict.
In keeping with expectations regarding ethical corporate conduct, our clients have a right to openness and honesty in all their dealings with RWM. We must avoid any activities or circumstances that create actual, potential, or perceived conflicts of interest. When avoidance is not possible, we must ensure those situations are resolved in the client’s favour.
Simply put, we must always put our client’s interests first.
CONFLICTS ARISING FROM COMPENSATION MODELS
We offer our clients the advisory fee-based compensation model. Some clients with accounts opened before April 2022 are under a commission-based model. In order to avoid a conflict of interest, we have ensured that our advisors are identically compensated regardless of the model used for your account.
We have ensured that our advisors do not receive greater compensation for the sale or recommendation of certain products over others.
CONFLICTS IN FEE-BASED ACCOUNTS
There is a potential conflict of interest when fee-based accounts hold securities with embedded commissions, leading to the client effectively paying for two types of compensation on the same product.
There are often situations where a product that pays embedded commissions is the most suitable recommendation for the portfolio, where an alternative product without embedded commissions is unavailable. We have controls in place to ensure that, when those products are added to a fee-based portfolio, they are exempt from the list of assets that advisory fees are applied to.
We ensure that we never earn both types of compensation on any product within a fee-based account.
CONFLICTS ARISING FROM THIRD-PARTY COMPENSATION
There is a material conflict of interest when a registrant receives greater third-party compensation for the sale or recommendation of certain securities relative to others, because the advisor may be tempted to take actions to increase their sales rather than look after what is in the best interest for the client.
The products offered to clients as recommendations are based on the quality of the security without influence from any third-party compensation associated with the security. We confirm that securities which provide lower levels or no third-party compensation are included in the evaluation process, and that such process is free from bias towards securities that provide higher third-party compensation.
We never tie an advisor’s compensation, either directly or indirectly, to commission revenues that are based on specific securities recommended or sold.
When multiple compensation types are available for the same product, we must recommend the version that offers the client the highest returns.
We must never recommend a product or service because it compensates us better than the alternatives.
CONFLICTS ARISING FROM INTERNAL INCENTIVE PRACTICES
There is a material conflict of interest to offer sales and revenue targets to our advisors because they may cause the registered individual to put their own interests ahead of their client’s interests.
Our incentive practices are controlled in the best interests of our clients. Sales target incentives cannot be controlled effectively, and therefore must be avoided.
We offer no other compensation arrangements for products sold, beyond the standard commission percentage paid on all revenues generated.
We have ensured that all bonus compensation paid to our advisors is based on achieving high levels of customer service, and not on sales or revenue targets.
CONFLICTS WITH MANAGED ACCOUNT COMPENSATION
There are two types of managed accounts; those where our portfolio managers offer discretionary trading, and those where RWM offers a 3rd party’s managed solution. There is a material conflict of interest where the compensation paid for either type is greater than other offerings, which can lead to unsuitable recommendations to clients.
The compensation paid on a managed account is the same as the compensation paid for all other accounts, so the portfolio manager is not persuaded to choose one type of account over the other.
We ensure that our clients are offered a managed account because it is the best solution for them.
CONFLICTS OF INTEREST RELATED TO MARGIN ACCOUNTS
There is a material conflict of interest when a firm makes margin accounts available to their clients. Advisors might push clients to open margin accounts to create more revenue where a margin account is unsuitable for the client.
RWM does not actively promote margin accounts to our clients. All margin accounts are carefully reviewed prior to approval to determine suitability for the client, and all are monitored for excessive trading activity.
We ensure that margin accounts are only opened in appropriate circumstances.
CONFLICTS RELATED TO REFERRAL ARRANGEMENTS WITH RELATED OR THIRD PARTIES
A referral arrangement is any situation where an advisor refers a client to another party, in exchange for a referral fee. Paid referral arrangements are material conflicts of interest because they can lead to the advisor putting their interests ahead of their client’s.
RWM currently engages in one referral arrangement with a related party. Our sister company, Rothenberg & Rothenberg Annuities, offers GICs to its clients. When a client is looking for different solutions than GICs, a referral will be made to RWM. Before accepting the referral, the advisor must determine that accepting the referral to offer non-GIC products is in the client’s best interest.
RWM currently engages in one referral arrangement with a third party, a firm that specializes in insurance products. Before making the referral, the advisor must determine that an insurance solution is in the client’s best interests, and that a full disclosure of all aspects of the referral is made to the client.
We ensure that a full disclosure of the referral arrangement is made to the client, allowing them to make an informed decision regarding the referral.
CONFLICTS WITH GIFTS AND ENTERTAINMENT FROM MUTUAL FUND COMPANIES AND 3RD PARTIES
There is a material conflict of interest when mutual fund companies and other 3rd parties provide gifts to RWM or an advisor to establish a business relationship. They provide an incentive to sell products that may not be suitable for clients.
RWM and advisors can not accept gifts unless they are of a nominal value. All gifts over a value of $100 must be refused.
We ensure that we offer products based on their merits, not because of our business relationships.
ADDRESSING CONFLICTS BETWEEN CLIENTS
We recognize that there can be competing interests between clients that have opened an account jointly. A corporate account with multiple partners or a joint account between siblings are two examples. In order to address any potential conflict of interest situations fairly and without bias towards one individual, we ensure that all instructions given for these accounts are approved by all of the individuals that own the account.
We require any transactions within a jointly held non-spousal account to be approved by all parties.
CONFLICTS WITH PERSONAL TRADING / FRONT RUNNING
A material conflict of interest can occur when an advisor trades equity securities in their personal accounts because the advisor can place their own trades ahead of a client’s trades to get a preferential price. A material conflict of interest can also occur when an advisor places a trade in their personal account based on the knowledge of a client trade about to be placed. This is known as front running. Both material conflicts of interest can lead to an advisor breaking the client priority rules.
All trades placed by an advisor in their personal accounts are monitored by the compliance department. Advisors are required to wait until the final 30 minutes of the day before placing their own trades, ensuring that client trades are placed first.
When an advisor places their own trades, the compliance department compares that trade to any client trades that occurred with the same security to ensure that no front-running has occurred.
We ensure that all client trades have priority over an advisor’s personal trades.
PURCHASING ASSETS FROM A CLIENT OUTSIDE THE NORMAL COURSE OF BUSINESS
Arranging to purchase assets, such as real estate or collectibles, from a client is an inherent conflict of interest because the advisor can take advantage of the trust their client extends to them. As such, those transactions are forbidden.
We do not permit personal transactions between clients and advisors.
CONTROL OR AUTHORITY OVER THE FINANCIAL AFFAIRS OF A CLIENT
Having complete control or authority over the financial affairs of a client, either through a power of attorney, or acting as executor for a client’s estate, is an inherent conflict of interest. As such, accepting any authority is strictly forbidden. Should a client name an advisor as their executor without the advisor’s knowledge, the advisor must immediately relinquish their position.
Under no circumstances can an advisor be granted control or authority over your financial affairs.
CONFLICTS OF INTEREST AT THE SUPERVISORY LEVEL
There is an inherent conflict of interest in situations where compliance or supervisory staff’s compensation is tied to the sales or revenue generation of the firm, as that can lead to insufficient oversight in order to further their personal interests. As such, we do not provide any bonuses or special forms of compensation to supervisory staff.
We do not compensate supervisory staff based on sales or revenue targets.
REGISTERED INDIVIDUALS SERVING ON A BOARD OF DIRECTORS
Regulations prohibit advisors and other registered individuals from holding a board position with any registered firm other than Rothenberg Wealth Management. Registered individuals are permitted to serve on the board of non-industry corporations; however, conflicts of interest can arise due to conflicting fiduciary duties towards RWM, its clients, and the outside corporation.
To avoid these conflicts, we ensure that no advisor acts on the board of a company whose shares are listed on the stock market. We also ensure that there are no conflicting demands on the advisor’s time because our clients come first.
We ensure that allowing an advisor to serve on a board of directors does not impact the service provided to their clients.
INDIVIDUALS WITH OUTSIDE BUSINESS ACTIVITIES
Conflicts can arise when registered individuals are involved in outside business activities, such as charitable organizations. Those advisors who hold a license to sell insurance products are also considered to be involved in an outside business activity.
Before approving these activities, we ensure the following:
The advisor has sufficient time to carry out their duties properly;
The advisor is able to service their clients properly;
The advisor does not solicit clients for their outside business activities (with the exception of insurance products, when appropriate);
The advisor is not placed in a position of power or authority over any clients due to the outside business activities;
The advisor does not use privileged, confidential or insider information for the benefit of their outside business activities.
We regularly monitor the outside business activities of our advisors to ensure that no unforeseen conflicts of interest arise.
We ensure that only approved outside business activities are permitted.
PROPRIETARY PRODUCTS
Conflicts can arise when dealing with proprietary products.
Rothenberg Wealth Management does not offer proprietary products.
ONGOING DISCLOSURE
A careful analysis of our business practices has allowed us to disclose all conflicts of interest that could potentially affect our clients. We continue to monitor and evaluate all of our business practices, and should we identify any previously undisclosed conflicts of interest, we will inform you in a timely manner.
It is important that our clients use this conflict of interest disclosure to better inform their decisions when evaluating Rothenberg Wealth Management’s business practices, conflict management, and overall performance.
