Polaris Financial Inc. and Quintessence Wealth
Headnote
Under paragraph 4.1(1) (a) and (b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate or is registered as a dealing, advising or associate advising representative of another registered firm. One registered firm is acquiring certain client accounts of another registered firm prior to the latter's surrender of its registration as a portfolio manager. The Filers have valid business reasons for the individual to be registered with both firms; the individual will have sufficient time to adequately serve both firms; and there are policies and procedures in place to handle any potential conflicts of interest. The firms are exempted from the prohibition in paragraphs 4.1(1)(a) and (b) for a limited time period.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
April 16, 2024
IN THE MATTER OF THE SECURITIES LEGISLATION OF THE PROVINCE OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF POLARIS FINANCIAL INC. (Polaris) AND QUINTESSENCE WEALTH (QWealth) (the Filers)
DECISION
Background
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation), pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), for an exemption from the restrictions in paragraphs 4.1(1)(a) and (b) of NI 31-103 to permit James Steel (the Representative) to be registered as an advising representative of QWealth while being an advising representative, director and officer of Polaris for a limited period of time following the acquisition of all segregated managed account clients of Polaris by QWealth (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) is the principal regulator of the Filers for this application, and
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Québec, Saskatchewan.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
Polaris
1. Polaris is a corporation existing under the laws of the Province of Ontario with its head office in Ontario. Polaris is registered as a portfolio manager in the provinces of Alberta, British Columbia, Nova Scotia, Ontario, and Quebec. Its principal regulator is the OSC.
2. Polaris uses its portfolio manager category of registration to advise segregated managed accounts.
3. Polaris is not in default of any requirement of securities legislation in any jurisdiction of Canada.
4. The Representative is the president and a director of Polaris. He is also registered as its ultimate designated person (UDP), chief compliance officer (CCO) and is an advising representative of Polaris.
Quintessence Wealth
5. QWealth is a partnership existing under the laws of the Province of Ontario with its head office in Ontario. QWealth is registered as a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan, as an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan, and as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador. Its principal regulator is the OSC.
6. QWealth uses its investment fund manager category of registration to manage the day-to-day operations of proprietary funds, uses its exempt market dealer category of registration to engage in acts in furtherance of trades for business purposes and uses its portfolio manager category of registration to provide investment advice to clients, including segregated managed accounts and investment funds. QWealth has ongoing business model terms and conditions imposed on its registration since 2023.
7. QWealth is not in default of any requirement of securities legislation in any jurisdiction of Canada.
The Transaction
8. The Filers are each independently owned and are not affiliates of one another.
9. The application for the Exemption Sought is made in relation to the transfer of client accounts of two advising representatives and an associate advising representative of Polaris to QWealth (the Transaction). In connection with the Transaction, the Representative is seeking registration as an advising representative of QWealth under the securities legislation of each of the jurisdictions where QWealth is registered.
10. The OSC provided its non-objection to the Transaction on March 27, 2024 thus allowing Polaris to initiate the transfer of client accounts in relation to the Transaction to QWealth (the Account Transfer Date). Polaris will transfer client accounts to QWealth in a timely manner.
11. Upon the completion of the transfer or closure of all client accounts, Polaris will apply to surrender its registration as a portfolio manager.
Dual Registration
12. During the period from the Account Transfer Date to the date that the firm surrender of Polaris is accepted by the OSC, Polaris and QWealth require the Representative to be:
(a) an officer, director and advising representative of Polaris to facilitate the orderly wind-up of Polaris' registerable business and operations and ensure appropriate client accounts transfers; and
(b) an advising representative of QWealth, to provide advisory services in relation to former clients of Polaris who will become clients of QWealth that are similar to the advisory services he performed on behalf of Polaris.
13. After the Account Transfer Date, the Representative, as Polaris' director, officer, UDP and CCO, will act in such capacity only to comply with regulatory requirements, including working to transfer Polaris' client accounts to QWealth or to another registered firm.
14. The Filers are aware that not all client accounts will be able to move from Polaris to QWealth at the same time and as such, some client accounts would be reassigned to the Representative on a temporary basis. In respect of each client account reassigned to the Representative on a temporary basis, the Representative will comply with all obligations set out in NI 31-103, including know your client, know your product and suitability determination requirements.
15. The Representative will have sufficient time and resources to adequately meet his obligations to each of Polaris and QWealth. Each Filers' respective CCO and UDP will ensure that the Representative has sufficient time and resources to adequately serve each Filer and its clients.
16. The Filers have in place policies and procedures to address any material conflicts of interest that may arise as a result of the dual registration of the Representative in the best interest of clients.
17. The Representative will be subject to supervision by, and the applicable compliance requirements of, both Filers.
18. QWealth has compliance and supervisory policies and procedures in place to monitor the conduct of its representatives, including the Representative, and to ensure QWealth addresses any material conflicts of interest in the best interest of clients.
19. QWealth will supervise the activities that the Representative will conduct on behalf of Polaris in the same way that it does other outside activities of its registered individuals, including by holding meetings regularly with him and obtaining regular status reports from him.
20. The relationship between the Filers and the fact that the Representative is dually registered with both Filers will be fully disclosed in writing to clients and prospective clients of each Filer that deal with the Representative.
21. In the absence of the Exemption Sought, the Filers would be prohibited under paragraphs 4.1(1)(a) and 4.1(1)(b) of NI 31-103 from permitting the Representative to be registered as an advising representative, director and officer of Polaris and an advising representative of QWealth.
22. The Representative will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with clients of each Filer.
Decision
The Decision Maker in respect of the Exemption Sought is satisfied that the decision meets the test set out in the Legislation.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:
i) The Representative is subject to supervision by, and the applicable compliance requirements of, both Filers;
ii) The CCO and UDP of each Filer ensures that the Representative has sufficient time and resources to adequately service each Filer and its respective clients;
iii) The Filers each have adequate policies and procedures in place to address material conflicts of interest that may arise as a result of the dual registration of the Representative in the best interest of clients;
iv) The relationship between the Filers and the fact that the Representative is dually registered with both of them is fully disclosed in writing to clients and prospective clients of each of them that deal with the Representative; and
v) The Exemption Sought expires on the date on which the registration of Polaris is revoked.
OSC File #: 2023/0554