Guardian Capital LP and Worldsource Financial Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the requirement in subsection 3.2.01(1) of NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to a model portfolio program, subject to certain conditions -- relief granted from the requirement in subsection 3C.2(2) of NI 41-101 to deliver an ETF facts document to investors for subsequent purchases of mutual fund securities made pursuant to a model pursuant to a model portfolio program, subject to certain conditions -- National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 41-101 General Prospectus Requirements.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2.01(1) and 6.1.
National Instrument 41-101 General Prospectus Requirements, ss. 3C.2(2) and 19.1.
October 15, 2024
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GUARDIAN CAPITAL LP (the Filer) AND IN THE MATTER OF WORLDSOURCE FINANCIAL MANAGEMENT INC. (the Representative Dealer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer and the Representative Dealer for a decision under the securities legislation of the Jurisdiction (Legislation) exempting each Dealer (as defined below) from:
(a) the requirement in subsection 3.2.01(1) of NI 81-101 (as defined below) (the Fund Facts Delivery Requirement) that a Dealer send or deliver the most recently filed fund facts document (the Fund Facts) in the manner as required under NI 81-101 in respect of purchases of securities of the Funds (as defined below), other than with respect to initial allocation purchases as part of the initial set-up of a new Model Portfolio (as defined below) for a client or purchases when a new Fund is added to the applicable Model Portfolio, that are made in connection with Weighting Change Trades, Rebalancing Trades, or Additional Investment Trades (each, as defined below) executed in accordance with a Model Portfolio (the Fund Facts Delivery Exemption); and
(b) the requirement in subsection 3C.2(2) of NI 41-101 (as defined below) (the ETF Facts Delivery Requirement and, together with the Fund Facts Delivery Requirement, the Delivery Requirements) that a Dealer send or deliver the most recently filed ETF facts document (the ETF Facts) in the manner as required under NI 41-101 in respect of purchases of securities of the Funds, other than with respect to initial allocation purchases as part of the initial set-up of a new Model Portfolio for a client or purchases when a new Fund is added to the applicable Model Portfolio, that are made in connection with Weighting Change Trades, Rebalancing Trades, or Additional Investment Trades executed in accordance with a Model Portfolio (the ETF Facts Delivery Exemption and, together with the Fund Facts Delivery Exemption, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer and the Representative Dealer have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces of Canada (the Other Jurisdictions, and together with Ontario, the Canadian Jurisdictions) in respect of the Exemption Sought.
Interpretation
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
NI 41-101 means National Instrument 41-101 General Prospectus Requirements.
NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is an Ontario limited partnership, which is wholly-owned by Guardian Capital Group Limited. The general partner of the Filer is Guardian Capital Inc., an Ontario corporation wholly-owned by Guardian Capital Group Limited, with its head office in Toronto, Ontario.
2. The Filer is registered as: (i) a portfolio manager in all of the provinces of Canada; (ii) an exempt market dealer in all of the provinces of Canada; (iii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iv) commodity trading counsel in Ontario; and (v) a commodity trading manager in Ontario.
3. The Filer is not in default of securities legislation in any Canadian Jurisdiction.
4. As described in more detail below, the Filer, in its role as portfolio manager, will create and manage model portfolios (the Services), comprising investment funds managed by the Filer, an affiliate of the Filer or third-party unaffiliated investment fund managers (collectively, the Funds).
5. Each Fund will be an open-ended mutual fund, including an exchange-traded fund (ETF), established under the laws of Ontario or another Canadian Jurisdiction.
6. The securities of each Fund that is an ETF are, or will be, listed and traded on a recognized exchange.
7. Each Fund will be a reporting issuer in one or more of the Canadian Jurisdictions and will be subject to the provisions of National Instrument 81-102 Investment Funds.
The Representative Dealer and the Dealers
8. The Representative Dealer is a corporation continued under the Canada Business Corporations Act, with its head office located in Markham, Ontario.
9. The Representative Dealer is a member of the Canadian Investment Regulatory Organization (CIRO) and is registered as a mutual fund dealer and exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan and Yukon.
10. Each Dealer is, or will be: (a) registered in the applicable Canadian Jurisdiction(s) as a dealer in the category of mutual fund dealer, and a member of CIRO; or (b) registered in the applicable Canadian Jurisdiction(s) as a dealer in the category of investment dealer, and a member of CIRO.
11. The Representative Dealer is not in default of securities legislation in any Canadian Jurisdiction.
The Services
12. Pursuant to a written agreement (the Services Agreement) between the Filer and the applicable dealer, the Filer will provide the Services to be made available to clients of investment dealers and mutual fund dealers that are affiliated and/or unaffiliated with the Filer (the Dealers), including the Representative Dealer which is unaffiliated with the Filer and the principal distributor of certain investment funds managed by the Filer, that participate in the Dealers' model portfolio programs (each, a Program).
13. The Programs will allow Dealers to recommend to clients model portfolios of Funds (each, a Model Portfolio) that are created and maintained by the Filer pursuant to the Services.
14. As part of the Services, the Filer will manage each Model Portfolio to ensure it remains in compliance with its stated investment objective and investment guidelines at all times (the Investment Guidelines) and will determine from time to time whether any changes to the composition of the Model Portfolio would be appropriate.
15. The Filer will design the asset mix and select securities for the Model Portfolios, as well as direct trades that reflect changes in the Model Portfolios made from time to time and that will be effected by the Dealers in client accounts. Each Model Portfolio will comprise a selection of Funds and will have its own unique allocation of Funds that are exposed to different asset classes (the Asset Classes).
16. Exposure to the different Asset Classes in a Model Portfolio will be achieved using the Funds. Each Model Portfolio will have a percentage target weight within one or more Asset Classes (the Target Weight), which may, due to changes in the market value of the Funds within the Model Portfolio, increase or decrease within an upper and lower range (the Permitted Range). From time to time, the Filer may decide to change the Target Weight within the Permitted Range of a Model Portfolio or replace a Fund in the Model Portfolio with one or more alternative Funds (the Model Re-allocation). Subject to the notice requirements set out in paragraph 47 below, the Filer may also decide to change the Permitted Range of an Asset Class of a Model Portfolio (Weighting Changes).
17. The applicable Dealer will collect all of the required know-your-client (KYC) and trusted contact person (TCP) information (including information about the client's personal circumstances, financial circumstances, investment needs and objectives, investment knowledge, risk profile and investment time horizon required for a suitability determination) for each client who wishes to participate in the Program. Prospective clients of the Dealer will complete a questionnaire and meet with a registered dealing representative of the Dealer (an Advisor) in order to determine which Model Portfolio will be suitable for the client and put the client's interest first. Based on the Advisor's suitability determination, a Model Portfolio recommendation will be made to the prospective client by the Advisor.
18. The client will discuss the recommended Model Portfolio and the Funds within the Model Portfolio with their Advisor. The Advisor will communicate with the client in accordance with the Dealer's usual processes and in accordance with securities legislation, which may include face-to-face meetings (in person or on-line) and/or via telephone or email or other written correspondence. However, the client ultimately chooses the Model Portfolio. The client has no ability to select Funds within a Model Portfolio.
19. A detailed investment policy statement or similar document (the Investment Policy Statement) will be created for the client by the Dealer. The Investment Policy Statement or other similar document will reflect the Investment Guidelines of the Model Portfolio, the composition of the Model Portfolio and the Funds in the Model Portfolio, the Target Weights among the Asset Classes and the Permitted Range(s) of the Model Portfolio.
20. Once the client confirms the final Investment Policy Statement, the client will sign an acknowledgement form or similar document that describes the fees and provides for the payment of the fees to the Dealer, who will in turn pay fees to the Filer for the Services, and the terms of the Program (the Client Agreement), approving the final Investment Policy Statement and the Model Portfolio, and authorizing the Filer and the Dealer to implement and maintain the Model Portfolio.
21. The Dealer will make trades in the Funds to invest the client in accordance with their chosen Model Portfolio.
22. When, due to changes in the relative market value of the Funds included in a Model Portfolio, the Model Portfolio exceeds the Permitted Range, the Filer will update the Model Portfolio so that it is returned to a relative weight that is within the Permitted Range, and the Filer may also use its discretion from time to time to rebalance holdings in the Funds in the Model Portfolios within the Permitted Ranges (an Account Rebalance). As noted above, and subject to the applicable notice requirements, the Filer may also use its discretion to implement a Weighting Change in a Model Portfolio.
23. Where the Filer updates a Model Portfolio to reflect a Model Re-Allocation or an Account Rebalance, the Dealer will execute appropriate trades (a Rebalancing Trade) within a reasonable time to reflect such updates in client accounts. Where the Filer updates a Model Portfolio to reflect a Weighting Change, the Dealer will execute appropriate trades (Weighting Change Trades) within a reasonable time to reflect such updates in client accounts. In each case, the Dealer will confirm receipt of the Filer's instructions and will provide written confirmation to the Filer that the trades have been effected in accordance with the Filer's instructions in the applicable client accounts.
24. In the Client Agreement, the client will authorize the Dealer (or an affiliate of the Dealer or another dealer registered in a category that permits the trade) to undertake Rebalancing Trades and Weighting Change Trades in accordance with the Model Portfolios and as directed by the Filer.
25. Clients will have no direct contact with the Filer in connection with the Filer's management of the Model Portfolios. Clients will interact solely with the applicable Dealer and Advisor of the Dealer in connection with the Filer's management of the Model Portfolios and the Dealer's administration of the clients' accounts.
26. Each Dealer and their Advisors will not market the Programs as managed account programs to their clients -- their recommendation will be limited to recommending that a client participate in a Program, through which the client will invest in accordance with a Model Portfolio. Although the Filer develops the Model Portfolios, each Dealer and each Advisor must determine whether or not investing in the constituent Funds included in the Model Portfolio is suitable for that client and puts the client's interest first. The Filer is responsible for developing the Model Portfolios and managing them, but does not refer to any specific client's circumstances in doing so.
27. Where the Dealer determines that a Model Portfolio is no longer suitable for a client or no longer puts the client's interest first or that a different Model Portfolio would be more appropriate for the client, this will be communicated to the client by the Dealer, and the Dealer will take appropriate action. A change to a different Model Portfolio will not be made without the client entering into a new Client Agreement in respect of the new Model Portfolio.
28. Each Dealer has the option of imposing a minimum investment amount for clients to participate in the Program, and the minimum investment amounts for different Dealers may vary.
29. A client may terminate their participation in a Program at any time by contacting their Dealer.
Client Agreement and Client Reporting
30. If the prospective client decides to proceed with participating in a Program and investing in accordance with a Model Portfolio, the Client Agreement is entered into between the client and the Dealer, which will set out, among other matters, the following:
(i) Model Portfolio -- The client will acknowledge the Filer's role in managing the Model Portfolios on a discretionary basis with a view to ensuring that the Model Portfolios are managed in accordance with the Investment Guidelines and within the Permitted Ranges indicated in the Client Agreement, which may be adjusted in the discretion of the Filer subject to the notice requirement described below, and that the Filer is not responsible for taking into consideration the client's circumstances in the management of the Model Portfolios;
(ii) No changes to another Model Portfolio -- In the event that a Dealer determines that an investment in a particular Model Portfolio is no longer suitable for a client or no longer puts the client's interest first, and that a different Model Portfolio would be more appropriate for the client, this will be communicated to the client by the Dealer, and the Advisor of the Dealer will undertake the analysis described in paragraphs 17 and 18 above and enter into a new Client Agreement before the client's investments are changed to reflect the new Model Portfolio;
(iii) KYC, TCP and suitability -- The client will acknowledge that the KYC requirement, the TCP requirement, and the suitability requirement are not the responsibility of the Filer, but instead will be that of the Dealer who will gather and periodically update the KYC and TCP information concerning the client and determine, on at least an annual basis, that the selected Model Portfolio continues to be suitable for the client and put the client's interest first;
(iv) Weighting Change Trades -- Subject to the notice requirements set out in paragraph 47 below, the client will acknowledge that the Filer may use its discretion, from time to time, to make decisions regarding Weighting Changes for a Model Portfolio, and will authorize the Dealer to purchase and redeem securities of the Funds in the client's account to reflect such Weighting Changes to the Model Portfolio (the Weighting Change Trades);
(v) Rebalancing Trades -- The client will acknowledge that the Filer may from time to time use its discretion to direct an Account Rebalance or a Model Re-allocation, which will be effected through the Dealer as Rebalancing Trades;
(vi) Fee Redemption Trades -- The client will authorize the Dealer to redeem units of the Funds to pay fees owed by the client to the Dealer pursuant to the Client Agreement (the Fee Redemption Trades);
(vii) The Filer will agree, in its Services Agreement with each Dealer, to be responsible for ensuring that the Model Portfolios are managed in accordance with the Investment Guidelines agreed to with the Dealer and acknowledged by the client; and
(viii) No discretionary authority for the Dealers -- The client will acknowledge that the Dealer will not have discretionary authority to participate in the management of the Model Portfolio or to direct Weighting Change Trades or Rebalancing Trades.
31. In addition to the Client Agreement, the client will also be provided by the Dealer:
(a) with the final Investment Policy Statement prior to or concurrently with the execution of the Client Agreement which sets out the Investment Guidelines of the Model Portfolio, the composition of the Model Portfolio and the Funds in the Model Portfolio, the Target Weights, the Permitted Range(s), as well as the fees payable to the Dealer, who will in turn pay fees to the Filer; and
(b) within two days of trades being implemented for the Model Portfolio, with the Fund Facts and ETF Facts, as applicable, as may be required by applicable securities laws, subject to any applicable exemption available to the Dealer, in respect of the Funds included in the Model Portfolio for a client. In the event that, as part of the Rebalancing Trades, a new replacement Fund is incorporated as part of the Model Portfolio, the client will similarly be provided with the Fund Facts or ETF Facts, as applicable, for the replacement Fund, as may be required by applicable securities laws, subject to any applicable exemption available to the Dealer.
32. The Dealer is responsible for arranging for the execution of the Client Agreement and related materials by the client.
33. Account opening documents relating to the Program will explain the different responsibilities of the Dealer and the Filer with respect to the client and the Model Portfolio. This will include disclosure that the Filer is responsible for managing the Model Portfolio without reference to the client's circumstances and only in accordance with the Model Portfolio selected by the client, and that the Dealer alone will have the responsibility to determine that the selected Model Portfolio is and remains suitable for the client and puts the client's interest first.
34. The Funds that will comprise each Model Portfolio will be held directly by each client in their own account with the Dealer and if the client has not already opened an account with the Dealer, the client will complete an account application.
35. Each Dealer will reflect all Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades in the client's account.
36. Each Dealer will be responsible for providing clients in the Program with account statements in accordance with the requirements under the Legislation. Such statements of account will identify the assets participating in the Program and invested in accordance with the Model Portfolios.
37. Trade confirmations for every transaction in a client's account will be provided to the client by the Dealer in accordance with the requirements under the Legislation.
38. An investment performance report will be sent to each client in the Program by the applicable Dealer on an annual basis.
39. The Dealer will also provide the client with an annual tax reporting package, as applicable.
40. Clients will be able to access their accounts in the manner each Dealer makes its accounts available for its clients.
Fees and Expenses
41. Each client that participates in the Program will pay a fixed Dealer fee in return for the administration of the Program (the Program Fee).
42. The Program Fee will include the fee payable by the Dealer to the Filer in return for the Services and any Outside Management Fees (as defined below).
43. The Model Portfolios comprise institutional series units of Funds that are conventional mutual funds, and, if applicable, units of ETFs. Any applicable management fees for institutional series units of Funds (the Outside Management Fees) that are conventional mutual funds will be charged outside the Funds and negotiated by the Dealer with the applicable investment fund manager of the Fund. Certain institutional series of Funds that are conventional mutual funds have operating expenses, and may have a performance fee, that will be charged within the Funds. The management fees and operating expenses for ETFs will be charged within the ETFs.
44. There will be no duplication of any fees or charges for the same services as a result of a client's decision to participate in the Program. No sales charges, redemption fees, switch fees or early trading fees will be charged in connection with any of the trades effected by the Dealer in connection with the Service. For Model Portfolios comprised of ETFs, brokerage fees, if any, will be paid by the Dealer for each trade it effects in connection with the Service.
45. All fees and expenses charged in respect of the Program, including the Program Fee (which includes any Outside Management Fees), will be described in the Client Agreement. The fees and expenses related to the Funds, including those managed by the Filer, will be described in the Fund prospectus and Fund Facts or ETF Facts, as applicable.
Oversight and Monitoring
46. The following monitoring and oversight procedures will be carried out in connection with each client's account in the Program:
(a) An annual portfolio review will be conducted by the relevant Advisor to determine whether there have been any changes to the client's circumstances, including the client's personal and financial circumstances, investment needs and objectives, risk profile and investment time horizon, that would warrant the selection of another Model Portfolio; and
(b) There will be ongoing oversight of each Model Portfolio by the Filer's advising representatives to determine whether the composition of the Model Portfolio remains in compliance with its Investment Guidelines and the Filer's advising representatives will determine from time to time whether any changes to the composition of the Model Portfolio, such as changes to the Funds or Target Weights, would be appropriate.
47. Provided that the Dealer, except in exceptional market circumstances, is given at least 60 days' advance written notice (the Written Notice) and the Model Portfolio remains consistent with its Investment Guidelines at all times, the Filer may also, from time to time, use its discretion to make Weighting Changes.
48. The Written Notice will describe the proposed Weighting Change and will provide sufficient detail for the Dealer to determine whether the Model Portfolios, after the implementation of the proposed change, would continue to be appropriate for its clients. The Written Notice will specify that if the Dealer does not provide an objection to the proposed Weighting Change by a specified date, such non-objection will be deemed to be consent for the changes on the effective date.
The Delivery Requirements
49. The Services will result in redemptions and purchases of securities of one or more Funds in client accounts based on the Model Portfolio. Each such purchase is a "distribution" under applicable securities legislation, which triggers the Fund Facts Delivery Requirement or ETF Facts Delivery Requirement, as applicable.
50. The Fund Facts Delivery Requirement requires that a Dealer, unless it has previously done so, deliver or send to a purchaser of a security of a mutual fund the most recently filed Fund Facts for the applicable class or series of securities of the mutual fund before the dealer accepts an instruction from the purchaser for the purchase of the security.
51. The ETF Facts Delivery Requirement requires that a Dealer acting as agent for a purchaser who receives an order for the purchase of a security of an ETF, unless it has previously done so, deliver or send to the purchaser the most recently filed ETF Facts for the applicable class or series of securities of the ETF not later than midnight on the second business day after entering into the purchase of the security.
52. As part of the initial set-up of a new Model Portfolio for a client, the Dealer will send or deliver the Fund Facts or ETF Facts, as applicable, in respect of each Fund in the selected Model Portfolio to the client, in accordance with the Delivery Requirements.
53. The Dealer will also deliver or send to the client the most recently filed Fund Facts or ETF Facts, as applicable, for any new Funds that are added to the applicable Model Portfolio in accordance with the Delivery Requirements.
54. The Dealer will not otherwise deliver or send to the client the most recently filed Fund Facts or ETF Facts, as applicable, in connection with any purchases of securities of one or more Funds in client accounts based on the Model Portfolios, including where such purchases are a result of additional funds contributed by a client to their client account (Additional Investment Trades).
Exemption Sought
55. In the absence of the Exemption Sought:
(a) in the case of a Fund that is not an ETF, unless the Dealer has previously done so, the Dealer would be required to deliver or send the most recently filed Fund Facts for each affected Fund in a client's selected Model Portfolio prior to each Rebalancing Trade, Weighting Change Trade, or Additional Investment Trade; and
(b) in the case of a Fund that is an ETF, unless the Dealer has previously done so, the Dealer would be required to deliver or send the most recently filed ETF Facts for each affected Fund in a client's selected Model Portfolio not later than midnight on the second business day after effecting each Rebalancing Trade, Weighting Change Trade, or Additional Investment Trade.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted on the following conditions:
(a) the Dealer sends or delivers to each client in a Model Portfolio a notice that states:
(i) that except as provided for in paragraphs 52 and 53 above, the client will not receive the Fund Facts and ETF Facts, as applicable, for the Funds in the Model Portfolio after the date of the notice, unless the client specifically requests them;
(ii) that the client is entitled to receive upon request to the Dealer, at no cost to the client, the most recently filed Fund Facts and ETF Facts, as applicable, for the Funds in the Model Portfolio by calling a specified toll-free number, or by sending a request to the Dealer by mail or e-mail to a specified address or e-mail address;
(iii) how to access the Fund Facts and ETF Facts, as applicable, for the Funds in the Model Portfolio electronically from the Dealer;
(iv) that except with respect to initial allocation purchases as part of the initial set-up of a new Model Portfolio for a client or purchases when a new Fund is added to the applicable Model Portfolio, the client will not have a right of withdrawal under the Legislation for any trades, but will continue to have a right of action if there is a misrepresentation in the prospectus or any document incorporated by reference into the prospectus; and
(v) that the client may terminate the Client Agreement at any time;
(b) at least annually, the client will be advised in writing of how they can request the most recently filed Fund Facts and ETF Facts, as applicable, from the Dealer;
(c) the most recently filed Fund Facts and ETF Facts, as applicable, are sent or delivered to the client by the Dealer if the client so requests;
(d) the Filer will provide to the principal regulator, on an annual basis, beginning 60 days after the date upon which the Exemption Sought is first relied upon by a Dealer, either:
(i) a current list of all such Dealers that are relying on the Exemption Sought; or
(ii) an update to the list of such Dealers or confirmation that there has been no change to such list; and
(e) prior to a Dealer relying on the Exemption Sought, the Filer provides to the Dealer a disclosure statement informing the Dealer of the implications of this decision.
Application File #: 2023/0515
SEDAR+ File #: 6037303