Mackenzie Financial Corporation and JVK Life & Wealth Advisory Group Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s.3.2.01, NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to model portfolios, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2.01, 6.1.
May 30, 2016
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 MACKENZIE FINANCIAL CORPORATION (the "Filer") AND IN THE MATTER OF JVK LIFE & WEALTH ADVISORY GROUP INC. (the "Representative Dealer")
DECISION
Background
The principal regulator ("Principal Regulator") in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the "Legislation") for an exemption (the "Exemption Sought") from the requirement (the "Fund Facts Delivery Requirement") in the Legislation to send or deliver the most recently filed fund facts document (the "Fund Facts") in the manner as required under the Legislation in respect of purchases of securities of the Funds that are made in connection with Asset Class Changes, Permitted Range Changes and Rebalancing Trades executed with respect to a Model Portfolio (the "Exemption Sought") (each of the capitalized terms as defined below).
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 has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon by the Filer in all the provinces and territories of Canada (together with Ontario, the "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.
Representations
This decision is based on the following facts represented by the Filer:
The Filer and the Representative Dealer
1. The Filer is a corporation amalgamated under the laws of the Province of Ontario. The Filer is registered under the Securities Act (Ontario) as a portfolio manager, exempt market dealer and investment fund manager, and is also registered as a portfolio manager and exempt market dealer in the other provinces and territories of Canada, and as an investment fund manager in each of Quebec and Newfoundland & Labrador. The Filer is also registered under the Commodity Futures Act (Ontario) as a commodity trading manager.
2. The head office of the Filer is located in Toronto, Ontario.
3. The Filer is the manager of mutual funds (the "Existing Funds"), each of which is subject to the requirements of National Instrument 81-102 Investment Funds ("NI 81-102"). The Filer may, in the future, become the manager of additional mutual funds (the "Future Funds") that are subject to the requirements of NI 81-102. The Existing Funds and Future Funds are referred to, collectively, as the "Funds" and, individually, as a "Fund".
4. The Funds are, or will be, reporting issuers in one or more of the Jurisdictions. Securities of the Funds are, or will be, qualified for sale pursuant to a simplified prospectus.
5. Securities of the Funds may be purchased through the Representative Dealer and may also be purchased from other dealers ("Dealers") that may or may not be affiliated with the Filer.
6. Each Dealer is, or will be, registered as:
(a) a dealer in the category of mutual fund dealer under the Legislation and, other than mutual fund dealers registered in Quebec, is also a member of the Mutual Fund Dealers Association of Canada; or
(b) a dealer in the category of investment dealer under the Legislation and a member of the Investment Industry Regulatory Organization of Canada.
7. The Representative Dealer is registered as a mutual fund dealer and exempt market dealer in the Province of Ontario.
8. The Filer, the Representative Dealer and the Existing Funds are not in default of securities legislation in any Jurisdiction.
The Model Portfolios
9. The Filer offers a service called The Portfolio Architecture Service (the "PAS") to investors in the Funds. To be eligible for this service, an investor (an "Investor") must:
(a) invest a minimum of $500,000 in the Funds, exclusive of any investments in Series AR securities of the Funds; and
(b) invest at least 51% of their portfolio in Series I, O, O6 and/or one or more of the Private Wealth Series of securities of the Funds.
The particular series to be invested in and the minimum investment amount may be changed from time to time at the discretion of the Filer.
10. For the PAS, the Filer has developed 45 model portfolios (the "Model Portfolios"), each of which is comprised exclusively of securities of a selection of the Funds ("Fund Selection"). There are Model Portfolios suitable for Investors with short, medium or long-term investment horizons and with different tolerances for risk.
11. Each Model Portfolio has its own unique allocation of equity and fixed income investments and some consist exclusively of either equity or fixed income investments (the "Asset Classes").
12. Exposure to the different Asset Classes in each Model Portfolio will be achieved using a recommended list of Funds, each with a specified minimum and maximum percentage permitted range (the "Permitted Range") to be invested in each Fund.
13. Under the PAS, an Investor meets with his or her financial Adviser (the "Adviser"), who is a registered representative of a Dealer. The Adviser will determine the Investor's financial circumstances, investment knowledge, investment objectives, investment time horizon and their level of risk tolerance. The Filer will then provide a Model Portfolio that the Filer considers to be suitable for the Investor based on the Investor's investment objectives, investment time horizon and risk tolerance. The Adviser reviews the proposed Model Portfolio with the Investor, and modifications may be made with respect to Fund Selection, Permitted Ranges and Asset Classes, with the Investor's approval.
14. If the Investor decides to invest in a Model Portfolio, an agreement (the "Agreement") is entered into between the Investor, the Dealer and the Filer that sets out, amongst other matters, the following:
(a) Model Portfolio -- The Investor will authorize the Filer to manage the Investor's investment on a discretionary basis with a view to ensuring that the Investor's account is managed in accordance with the agreed upon Model Portfolio based on the Fund Selection, Asset Classes and Permitted Ranges;
(b) Fund Selection -- (i) The Investor will authorize the Filer to use its discretion to replace a current Fund (a "Current Fund") in a Model Portfolio:
(i) due to it being terminated, or for any other similar reason that no longer allows the Current Fund to participate as part of a Model Portfolio, or
(ii) when another Fund (a "New Fund") is considered by the Filer to be more appropriate,
provided that the investment objectives and strategies of the New Fund are substantially consistent with the investment objectives and strategies of the Current Fund being replaced; and
(iii) the Investor will authorize the Filer to use its discretion to add a New Fund(s) to a Model Portfolio where there has been an Asset Class Fund Selection Change (as defined below), initiated either by the Filer or the Investor.
For changes to the Fund Selection (Fund Selection Changes) described in (i), (ii) and (iii) above, the Investor is provided with 5 days' prior written notice of the change together with the Fund Facts for the New Fund(s);
(c) Asset Classes -- The Investor will authorize the Filer to use its discretion to change the percentage allocations of the Asset Classes within the Model Portfolio provided that the Investor is given 60 days' prior written notice of the change, together with the Fund Facts for the New Fund(s), if any. Changes to the Asset Classes may result in:
(i) purchases and redemptions of securities of one or more Current Funds in the Model Portfolio ("Asset Class Changes") or
(ii) redemptions of securities of one or more Current Funds in the Model Portfolio and purchases of securities of one or more New Funds in the Model Portfolio ("Asset Class Fund Selection Changes");
(d) Permitted Ranges -- The Investor will authorize the Filer to use its discretion to change the Permitted Ranges ("Permitted Range Changes") of the Model Portfolio provided that the Investor is given 60 days' prior written notice of the change; and
(e) Rebalancing Trades -- The Investor will authorize the Filer to rebalance holdings in the Current Funds from time to time within the Permitted Ranges (the "Rebalancing Trades").
15. The terms of the Agreement are such that an Investor can terminate the Agreement at any time by providing written notice to the Filer.
16. At the time the Agreement is entered into, an investment policy statement is signed by the Investor which sets out the composition of the Model Portfolio selected by the Investor, the percentage allocation of the Asset Classes, the Permitted Range to be invested in each Current Fund, the fees payable to the Dealer and the Filer as well as the rules governing the investment and management of the Model Portfolio.
17. The Filer carries out the following monitoring and oversight procedures in connection with the Investor's account:
(a) an annual portfolio review is conducted in conjunction with the Adviser to determine whether there have been any changes in the Investor's circumstances that would warrant modifications to the Model Portfolio; and
(b) the Mackenzie Asset Allocation Team, consisting of portfolio managers, have ongoing oversight responsibilities on the composition of the Model Portfolios and make recommendations for changes where considered appropriate.
18. The Investor may make Fund Selection Changes, Asset Class Changes and Permitted Range Changes or initiate Rebalancing Trades at any time.
19. Fund Selection Changes, made by either the Filer or the Investor, will result in redemptions of securities of one or more Current Funds in the Model Portfolio and purchases of securities of one or more New Funds introduced into the Model Portfolio. Such purchases would trigger the Fund Facts Delivery Requirement for the New Fund(s) introduced into the Model Portfolio.
20. Asset Class Changes, Permitted Range Changes and Rebalancing Trades made by either the Filer or the Investor, will result in redemptions and purchases of securities of one or more Current Funds in the Model Portfolio. Such purchases would trigger the Fund Facts Delivery Requirement for the Current Fund(s) in the Model Portfolio.
The Fund Facts Delivery Requirement
21. The Fund Facts Delivery Requirement requires that a Dealer not acting as agent of the Investor, unless it has previously done so, deliver to the Investor the Fund Facts most recently filed before the Dealer accepts an instruction from the Investor for the purchase of securities of a Fund ("Pre-Sale Delivery").
22. For Fund Selection Changes or Asset Class Fund Selection Changes resulting in one or more New Funds being added to the Model Portfolio, Dealers will be required to provide Investors with the most recently filed Fund Facts for the New Fund(s) in accordance with the Fund Facts Delivery Requirement.
23. In the absence of the Exemption Sought, the Dealers will be required to deliver the most recently filed Fund Facts in accordance with the Fund Facts Delivery Requirement in respect of purchases of securities of the Current Funds that are made in connection with Asset Class Changes, Permitted Range Changes and Rebalancing Trades executed with respect to a Model Portfolio.
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 provided that:
(a) each Investor in a Model Portfolio is sent or delivered a notice that states:
(i) subject to paragraph (b), and except as provided for in representation 22 above, the Investor will not receive the Fund Facts for the Funds in the Model Portfolio after the date of the notice, unless the Investor specifically requests it,
(ii) the Investor is entitled to receive upon request, at no cost to the Investor, the most recently filed Fund Facts for the Funds in the Model Portfolio by calling a specified toll-free number, or by sending a request by mail or e-mail to a specified address or e-mail address,
(iii) how to access the Fund Facts for the Funds in the Model Portfolio electronically,
(iv) the Investor will not have a right of withdrawal under the Legislation for Asset Class Changes, Permitted Range Changes and Rebalancing Trades for the Funds in the Model Portfolio, 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) the Investor may terminate the Agreement at any time;
(b) at least annually, the Investor will be advised in writing of how they can request the most recently filed Fund Facts;
(c) the most recently filed Fund Facts is sent or delivered to the Investor if the Investor requests it;
(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;
(e) prior to a Dealer relying on this Decision, the Filer provides to the Dealer:
(i) a copy of this Decision,
(ii) a disclosure statement informing the Dealer of the implications of this Decision, and
(iii) a form of acknowledgement of the matters referred to in paragraph (f) below, to be signed and returned by the Dealer to the Filer; and
(f) a Dealer seeking to rely on this Decision will, prior to doing so:
(i) acknowledge receipt of a copy of this Decision providing the Exemption Sought,
(ii) consent to the Filer providing to the Principal Regulator on an annual basis the name of the Dealer so long as it relies on this Decision, and
(iii) deliver to the Filer a signed acknowledgement and agreement binding the Dealer to the foregoing.