Iqon Financial Inc. a Toronto-based mutual fund dealer, will reimburse clients for their investments in Portus Alternative Asset Management Inc.

Just before Christmas, Iqon told its 350 advisers that clients would get refunds of their Portus investments at the end of March.

Iqon is owned by CI Financial Inc. one of Canada’s largest mutual fund firms. It’s run separately from CI’s other advisory firm, Assante Wealth Management.

Assante, which has 850 investment advisers, never sold any Portus products, such as hedge funds and principal-protected notes.

Portus was not on a list of products approved for sale by Assante advisers.

When pushed into receivership last March by the Ontario Securities Commission, Portus had about $800 million in investors’ assets.

Receiver KPMG Inc. has started proceedings in Israel to recover $8.8 million worth of diamonds bought by co-founder Boaz Manor with company funds.

It’s not clear how many Iqon advisers referred clients to Portus or how much money is involved. The firm did not respond to requests for an interview.

At this time, no one is available for comment, said Kavitha Karnaker, senior marketing manager for Assante Wealth Management (also owned by CI Financial).

But, she confirmed that Iqon clients who invested in Portus would get back the full amount of their capital investment.

Manulife Financial Corp. the biggest Portus creditor, offered a money-back guarantee to clients last March.

Unlike other Portus investors, Manulife and Iqon clients won’t have to wait until Portus is wound up and its assets are distributed to creditors.

That day could be far off in the future, as investigators work to trace and recover funds from a complex web of offshore companies.

In total, 64 dealers approved referrals that resulted in their clients investing in Portus. Most of them (59) were members of the Mutual Fund Dealers Association and five were members of the Investment Dealers Association.

The OSC announced yesterday that 57 investment and mutual fund dealers registered in Ontario have agreed to repay about $12 million in commissions they received for referring clients to Portus.

The payments, to be made by May 31, will be in addition to the money investors stand to recover from the insolvency proceedings.

How much will Portus investors get when the company is wound up? KPMG won’t say.

Informed observers estimate it will be about 70 to 80 cents on each dollar invested — plus a few extra cents with the recovery of fees paid to investment advisers.

But only Manulife and Iqon clients will get 100 cents on each dollar invested, plus the repayment of their advisers’ fees.

The Portus case has raised questions for regulators.

Why did so many advisers refer clients to a company that had been in business only since 2002, with no track record?

Why did advisers working for MFDA firms, who were licensed to sell only mutual funds, send clients to a company that offered complex and volatile hedge funds?

Portus also sold principal-protected notes, but did not specify which financial institution was guaranteeing the notes. Why didn’t anyone make sure there was a guarantee involved?

One thing is clear. The Portus principal-protected notes, linked to the performance of hedge funds, offered handsome fees to advisers.

They received initial commissions of 4 to 5 per cent and annual trailer fees. That’s far beyond the compensation they would have received for selling other low-risk investments, such as guaranteed investment certificates or government bonds.

As a result, risk-averse investors who wouldn’t buy other products — such as stocks or equity funds — ended up with something that proved to be far more hazardous to their financial health.

Portus’ success in collecting $800 million in just two years shows the conflicts that can arise between investors and advisers in a commission-paid system of compensation.

The MFDA has said it will continue to investigate the conduct of dealers in referring clients to Portus, and the sales practices of referring advisers.

That’s a good thing, because repayment of the commissions will not resolve all the questions arising from these referrals.

It’s important to remember that Sun Life Financial Inc. one of Canada’s biggest insurance firms, owns a one-third stake in CI Financial (which, in turn, owns Iqon).

There’s a lesson for investors: Look for investment dealers that have deep pockets and well-known brands.

When trouble arises with an investment they sell, these firms have a reputation to protect — and an incentive to make you whole again.