In Marrone (Re), a former mutual fund representative was fined and banned by Ontario’s Capital Markets Tribunal (the “Tribunal”) for failing to disclose conflicts of interest that arose when an elderly, financially unsophisticated and terminally ill client named him as the sole beneficiary of her estate, valued on her death at $2,000,000.00.
This case is important as it explores the nexus of professional responsibilities, conflicts of interest, and highlights some of the issues faced by financial advisors who provide services to older adults.
Facts
Aurelio Marrone (“Marrone”) was a registered mutual fund salesperson for 20 years.[1] One of his clients, “MU”, immigrated to Canada from Spain in the early 1970s. She had a grade school education and worked as a housekeeper.[2]
Marrone first met MU in 1986 and assisted her and her husband with their personal income tax preparation and continued to do so until both of their deaths. Marrone testified he had a close relationship with MU’s husband and both MU and her husband attended Marrone’s wedding in 2003.
Marrone submitted to the Tribunal that following the death of MU’s husband in 2004, he visited MU on a weekly basis and would assist with activities such as driving her to surgeries and arranging her travel. Marrone became MU’s financial advisor in April 2008 and by the time of Marrone’s termination in 2017, the aggregate value of MU’s accounts with him was $1.7m.[3]
In February 2017, MU was diagnosed with terminal pancreatic cancer. She was admitted to palliative care on May 1, 2017. In late March of 2017, MU asked Marrone to assist with her estate planning. Marrone provided names of three lawyers and MU picked one. Marrone arranged for the retainer and scheduled the meetings that enabled MU to prepare her will and powers of attorney for personal care and property.[4]
When first meeting MU, the drafting lawyer advised that they did not believe MU to be capable of giving instructions and that Marrone should obtain a capacity assessment. Marrone arranged for a doctor, albeit one who was not identified as a designated capacity assessor, to provide a certificate stating MU was capable of giving instructions, which he delivered to the drafting lawyer.[5]
MU’s will and power of attorney documents were executed on May 9, 2017 and MU passed away ten days later. The power of attorney documents appointed Marrone as her attorney and her will appointed Marrone as alternate executor and the sole beneficiary of her estate. Marrone failed to report these conflicts of interest to his employer[6].
An investigation was commenced by Marrone’s employer in September 2017 and Marrone was terminated from his position in December 2017.
Tribunal Decision
The Tribunal found Marrone guilty of misconduct in 2022[7], stating that he had acted unfairly, dishonestly and in bad faith towards his vulnerable client, MU. Specifically, Marrone had failed to follow the required procedures for dealing with conflicts or potential conflicts of interest which was in serious breach of the rules of the Mutual Fund Dealers Association of Canada (MFDA) and the policies and procedures of his employer. This included:
- Accepting his appointment as MU’s attorney for property;
- Failing to renounce his appointment as alternate executor of MU’s estate; and
- Not immediately reporting these conflicts of interest, as well as the conflict of MU naming Marrone as the sole beneficiary of her estate under her will when she was vulnerable.[8]
The Tribunal decision on sentencing and costs was released in February 2023. In their submissions, the Ontario Securities Commission sought the following orders for Marrone:
- to be permanently banned from market participation;
- pay an administrative penalty of $500,000;
- disgorge $1,800,00.00, being the value of MU’s estate; and
- pay costs.[9]
The Tribunal found it in the public interest to order that Marrone be permanently banned from capital markets participation, to pay an administrative penalty of $500,000 and pay costs of $85,000 but they did not order that Marrone disgorge any amount he might receive from MU’s Estate.[10]
They found no provision in the Securities Act[11] or MDFA rules that prohibited him as a dealer from accepting under his client’s will. As the Tribunal could not find that Marrone had obtained the beneficial entitlement in breach of securities law, they could not order a disgorgement.[12]
Comment
Wealth Professional, who reported on the decision, highlighted the issues financial advisors face with older clients. John Moakler, a senior executive financial planner at Moakler Wealth Management in Ontario, told Wealth Professional that the case highlights the risks of working with advisors who do not have fiduciary obligations to their clients. As a CFP[13] and CLU[14], Moakler is never asked at his annual designation renewals whether he is an executor of any of his client’s estates.
Since 2021, the Financial Industry Regulatory Authority (FINRA) in the United States has required all members to affirmatively permit or prohibit stockbrokers from acting as a trustee or executor to a client, or to receive a bequest from their estate. Under FINRA Rule 3241, brokerage firms must assess the risks involved when a customer appoints a registered person to a position of trust or is named as a beneficiary.[15]
In Canada, and as seen in Marrone (Re), MDFA rule 3.4.1(a) prohibits a dealer from accepting authority over a client under a Power of Attorney or Executor appointment[16]. However, no provision of the Securities Act or the MDFA Rules prohibit a dealer from accepting under a client’s will[17].
On issues of capacity, Moakler believes that at an industry level, advisors and dealers should have safeguards to automatically trigger a branch-level review when the client is 70 years old or older. “It comes down to a compliance issue,” Moakler says. “When you have a client who’s 70 years of age or older, then the compliance officer at your branch must make a separate phone call with that client to make sure everything’s ok.”[18]
The fact pattern of Marrone (Re) is a typical example of undue influence and capacity issues at play. Canada’s population is ageing rapidly, with reports that the number of people over 85 has more than doubled since the 2001 census[19]. As a result, estate plans are more frequently compromised due to the higher risk of vulnerability and later life illnesses. As such, we are sadly seeing both an increase in scenarios such as this and an increase in challenges based on testamentary capacity or undue influence.
As a final note, it is worth mentioning that this case highlights the importance for all professionals, not just financial advisors, to be aware of not only their duties and responsibilities where it concerns conflicts of interest and compliance but also, to ensure the testamentary capacity of their clients.
—
[1] Marrone (Re), 2022 ONCMT 12 (CanLII)
[2] Ibid at para 11
[3] Ibid at para 14
[4] Ibid at para 16
[5] Marrone (Re), 2023 ONCMT 9 (CanLII) at para 25
[6] (supra note 1) at para 17
[7] Ibid at para 198
[8] (supra note 5) at para 1
[9] Ibid at para 3
[10] Ibid at para 4
[11] RSO 1990, c S.5
[12] (supra note 5) at para 70
[13] Certified Financial Planner
[14] Chartered Life Underwriter – individuals who specialise in life insurance and estate planning
[15] Wealth Professional, “Advisor inheritance case a cautionary tale for Canadian wealth industry” March 20, 2023
[16] MDFA Rule 2.3.1(a): “No Member or Approved Person shall have full or partial control or authority over the financial affairs of a client, including: (i) accepting or acting upon a power of attorney from a client; (ii) accepting an appointment to act as a trustee or executor of a client; or (iii) acting as a trustee or executor in respect of the estate of a client.”
[17] (supra note 5) at para 67
[18] (supra note 15)
[19] Michael Ranger and The Canadian Press, “Canada faces rapidly aging population, record retirements: 2021 census” April 27, 2022, CityNews, online: https://toronto.citynews.ca/2022/04/27/statistics-canada-2021-census-data/”
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Written by: Oliver O'Brien
Posted on: April 10, 2023
Categories: Commentary, WEL Newsletter
In Marrone (Re), a former mutual fund representative was fined and banned by Ontario’s Capital Markets Tribunal (the “Tribunal”) for failing to disclose conflicts of interest that arose when an elderly, financially unsophisticated and terminally ill client named him as the sole beneficiary of her estate, valued on her death at $2,000,000.00.
This case is important as it explores the nexus of professional responsibilities, conflicts of interest, and highlights some of the issues faced by financial advisors who provide services to older adults.
Facts
Aurelio Marrone (“Marrone”) was a registered mutual fund salesperson for 20 years.[1] One of his clients, “MU”, immigrated to Canada from Spain in the early 1970s. She had a grade school education and worked as a housekeeper.[2]
Marrone first met MU in 1986 and assisted her and her husband with their personal income tax preparation and continued to do so until both of their deaths. Marrone testified he had a close relationship with MU’s husband and both MU and her husband attended Marrone’s wedding in 2003.
Marrone submitted to the Tribunal that following the death of MU’s husband in 2004, he visited MU on a weekly basis and would assist with activities such as driving her to surgeries and arranging her travel. Marrone became MU’s financial advisor in April 2008 and by the time of Marrone’s termination in 2017, the aggregate value of MU’s accounts with him was $1.7m.[3]
In February 2017, MU was diagnosed with terminal pancreatic cancer. She was admitted to palliative care on May 1, 2017. In late March of 2017, MU asked Marrone to assist with her estate planning. Marrone provided names of three lawyers and MU picked one. Marrone arranged for the retainer and scheduled the meetings that enabled MU to prepare her will and powers of attorney for personal care and property.[4]
When first meeting MU, the drafting lawyer advised that they did not believe MU to be capable of giving instructions and that Marrone should obtain a capacity assessment. Marrone arranged for a doctor, albeit one who was not identified as a designated capacity assessor, to provide a certificate stating MU was capable of giving instructions, which he delivered to the drafting lawyer.[5]
MU’s will and power of attorney documents were executed on May 9, 2017 and MU passed away ten days later. The power of attorney documents appointed Marrone as her attorney and her will appointed Marrone as alternate executor and the sole beneficiary of her estate. Marrone failed to report these conflicts of interest to his employer[6].
An investigation was commenced by Marrone’s employer in September 2017 and Marrone was terminated from his position in December 2017.
Tribunal Decision
The Tribunal found Marrone guilty of misconduct in 2022[7], stating that he had acted unfairly, dishonestly and in bad faith towards his vulnerable client, MU. Specifically, Marrone had failed to follow the required procedures for dealing with conflicts or potential conflicts of interest which was in serious breach of the rules of the Mutual Fund Dealers Association of Canada (MFDA) and the policies and procedures of his employer. This included:
The Tribunal decision on sentencing and costs was released in February 2023. In their submissions, the Ontario Securities Commission sought the following orders for Marrone:
The Tribunal found it in the public interest to order that Marrone be permanently banned from capital markets participation, to pay an administrative penalty of $500,000 and pay costs of $85,000 but they did not order that Marrone disgorge any amount he might receive from MU’s Estate.[10]
They found no provision in the Securities Act[11] or MDFA rules that prohibited him as a dealer from accepting under his client’s will. As the Tribunal could not find that Marrone had obtained the beneficial entitlement in breach of securities law, they could not order a disgorgement.[12]
Comment
Wealth Professional, who reported on the decision, highlighted the issues financial advisors face with older clients. John Moakler, a senior executive financial planner at Moakler Wealth Management in Ontario, told Wealth Professional that the case highlights the risks of working with advisors who do not have fiduciary obligations to their clients. As a CFP[13] and CLU[14], Moakler is never asked at his annual designation renewals whether he is an executor of any of his client’s estates.
Since 2021, the Financial Industry Regulatory Authority (FINRA) in the United States has required all members to affirmatively permit or prohibit stockbrokers from acting as a trustee or executor to a client, or to receive a bequest from their estate. Under FINRA Rule 3241, brokerage firms must assess the risks involved when a customer appoints a registered person to a position of trust or is named as a beneficiary.[15]
In Canada, and as seen in Marrone (Re), MDFA rule 3.4.1(a) prohibits a dealer from accepting authority over a client under a Power of Attorney or Executor appointment[16]. However, no provision of the Securities Act or the MDFA Rules prohibit a dealer from accepting under a client’s will[17].
On issues of capacity, Moakler believes that at an industry level, advisors and dealers should have safeguards to automatically trigger a branch-level review when the client is 70 years old or older. “It comes down to a compliance issue,” Moakler says. “When you have a client who’s 70 years of age or older, then the compliance officer at your branch must make a separate phone call with that client to make sure everything’s ok.”[18]
The fact pattern of Marrone (Re) is a typical example of undue influence and capacity issues at play. Canada’s population is ageing rapidly, with reports that the number of people over 85 has more than doubled since the 2001 census[19]. As a result, estate plans are more frequently compromised due to the higher risk of vulnerability and later life illnesses. As such, we are sadly seeing both an increase in scenarios such as this and an increase in challenges based on testamentary capacity or undue influence.
As a final note, it is worth mentioning that this case highlights the importance for all professionals, not just financial advisors, to be aware of not only their duties and responsibilities where it concerns conflicts of interest and compliance but also, to ensure the testamentary capacity of their clients.
—
[1] Marrone (Re), 2022 ONCMT 12 (CanLII)
[2] Ibid at para 11
[3] Ibid at para 14
[4] Ibid at para 16
[5] Marrone (Re), 2023 ONCMT 9 (CanLII) at para 25
[6] (supra note 1) at para 17
[7] Ibid at para 198
[8] (supra note 5) at para 1
[9] Ibid at para 3
[10] Ibid at para 4
[11] RSO 1990, c S.5
[12] (supra note 5) at para 70
[13] Certified Financial Planner
[14] Chartered Life Underwriter – individuals who specialise in life insurance and estate planning
[15] Wealth Professional, “Advisor inheritance case a cautionary tale for Canadian wealth industry” March 20, 2023
[16] MDFA Rule 2.3.1(a): “No Member or Approved Person shall have full or partial control or authority over the financial affairs of a client, including: (i) accepting or acting upon a power of attorney from a client; (ii) accepting an appointment to act as a trustee or executor of a client; or (iii) acting as a trustee or executor in respect of the estate of a client.”
[17] (supra note 5) at para 67
[18] (supra note 15)
[19] Michael Ranger and The Canadian Press, “Canada faces rapidly aging population, record retirements: 2021 census” April 27, 2022, CityNews, online: https://toronto.citynews.ca/2022/04/27/statistics-canada-2021-census-data/”
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