Canada Life Investment Management Ltd., Canada Life Pathways Funds

Headnote

Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the dealer registration requirement, the know your client and suitability requirements, and the requirements to deliver account statements and investment performance reports granted to a portfolio manager in respect of investors in a model portfolio service offered through affiliated mutual fund dealers.

Applicable Legislative Provisions

• Multilateral Instrument 11-102 Passport System, s. 4.7(1).
• Securities Act, Ontario, ss. 25, 74(1).
• National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.2, 13.3, 14.14, 14.14.1, 14.18 and 15.1(2).

September 23, 2021

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 CANADA LIFE INVESTMENT MANAGEMENT LTD. (the Filer)

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 (Legislation) exempting the Filer from:

(a) the requirement (Dealer Registration Requirement) in the Legislation that the Filer be registered as a dealer in order to effect Rebalancing Trades (as defined below),Weighting Change Trades (as defined below) and Fee Redemption Trades (as defined below) executed with respect to a Model Portfolio (as defined below) (Dealer Registration Exemption);

(b) with respect to clients in the Model Portfolios (as defined below), the requirement (the Know Your Client Requirement) in the Legislation that the Filer must take reasonable steps to:

(i) establish the identity of a client and, if the Filer has cause for concern, make reasonable inquiries as to the reputation of the client;

(ii) establish whether the client is an insider of a reporting issuer or any other issuer whose securities are publicly traded;

(iii) ensure that the Filer has sufficient information regarding the client's investment needs, objectives, financial circumstances and risk tolerance, amongst other information, to enable the Filer to meet its obligations under the Legislation to make a determination with respect to the Suitability Requirement (as defined below); and

(iv) keep the information described above current (collectively, the Know Your Client Exemption);

(c) with respect to clients invested in the Model Portfolios, the requirement (Suitability Requirement) in the Legislation that the Filer must take reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a client to buy or sell a security, or makes a purchase or sale of a security for a client's account, or upon the occurrence of any other required suitability assessment event, such action is suitable for the client (the Suitability Exemption); and

(d) with respect to clients invested in the Model Portfolios, the requirement (the Statement Delivery Requirement) in the Legislation that the Filer deliver account statements and investment performance reports to clients who have invested in the Model Portfolios (the Statement Delivery Exemption) and together with the Dealer Registration Exemption, Know Your Client Exemption and Suitability 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 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 each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon Territory and Nunavut (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.

NI 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation incorporated under and governed by the laws of Canada with its head office located in London, Ontario.

2. The Filer is registered as a portfolio manager in each province and territory of Canada and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. The Filer is registered as a commodity trading manager in Ontario

3. The Filer is the investment fund manager of certain mutual funds (Existing Funds) which will form part of the Canada Life Managed Program model portfolio service described below (the Service) and may, in the future, be the manager of other mutual funds used in the Service (collectively with the Existing Funds, the Funds).

4. The Filer is an affiliate of Mackenzie Financial Corporation (Mackenzie). The Filer and Mackenzie entered into a Purchase and Sale Agreement dated August 4, 2020 (the PSA) pursuant to which Mackenzie agreed to transfer, and the Filer agreed to acquire, Mackenzie's rights to act as a trustee and/or manager and/or portfolio manager of each of the Funds.

5. Mackenzie managed the Service pursuant to exemptive relief granted on December 11, 2018, and has assigned responsibility for such program to the Filer in connection with the transactions contemplated by the PSA.

6. Quadrus Investment Services Ltd. (Quadrus) is a corporation incorporated under the laws of Canada with its head office located in London, Ontario.

7. Quadrus is registered as a mutual fund dealer in each of the jurisdictions of Canada and is a member of the Mutual Fund Dealers Association of Canada (MFDA).

8. Quadrus acts as the principal distributor of securities of the Funds offered under the Service.

9. Each Fund is or will be an open-ended mutual fund established under the laws of Ontario or another Jurisdiction.

10. Each Fund is or will be a reporting issuer in one or more of the Jurisdictions and is or will be subject to the provisions of National Instrument 81-102 Investment Funds (NI 81-102).

11. The Filer, Quadrus and the Existing Funds are not in default of securities legislation in any Jurisdiction.

The Service

12. The Filer offers the Service to investors in the Funds who typically have a minimum of $25,000 to invest (either alone or part of a household). The Service allows investors to match their risk profile and investment objectives to a model portfolio of Funds (each, a Model Portfolio) and then allocate their investment into I Series securities of such Funds and rebalance such investments on a pre-determined periodic basis.

13. Each Model Portfolio is comprised entirely of Funds for which the Filer acts as investment fund manager. Only I Series securities of the Funds are used in the Service. The Funds do not pay any fees to the Filer in respect of I Series securities; instead, I Series investors pay a management and administration fee directly to the Filer.

14. Under the Service, the Filer offers a number of Model Portfolios, each of which corresponds to a different investment objective, investment horizon and risk profile.

15. Each Model Portfolio is comprised of a selection of Funds and has its own unique allocation of mutual funds that are exposed to different asset classes (theAsset Classes).

16. The Filer constructs Model Portfolios which provide exposure to the different Asset Classes. In the case of certain Asset Classes, the Filer identifies a short list of Funds that are all suitable for the particular Model Portfolio. Each Fund within each Asset Class has a specified minimum and maximum percentage permitted range (the Permitted Range) that is identified by the Filer.

17. Quadrus collects all of the relevant know-your-client and suitability information (including the client's financial circumstances, investment knowledge, investment objectives, investment time horizon and risk tolerance) for each client in the Service.

18. If a potential client is interested in the Service, the potential client will meet with a Quadrus dealing representative and, through the use of a digital tool (Tool), complete a series of questions in order to establish their risk profile, investment objectives, time horizon, liquidity needs and income requirements. Based on the potential client's responses in the Tool, a Model Portfolio will be recommended by the Quadrus dealing representative as most suitable for the potential client. Where there is a choice of Funds within a particular Asset Class for the Model Portfolio, the Quadrus dealing representative will provide a recommendation for the specific Fund to be used in the particular Asset Class.

19. The client will discuss the recommended Model Portfolio and the recommended specific Funds with their Quadrus dealing representative in face-to-face meetings (in person or on-line) and/or via the telephone or email or other written correspondence. However, the client ultimately chooses the Model Portfolio and, where there is a choice available, also selects which Funds are to be used in the desired Model Portfolio.

20. The Tool generates:

(a) an investment policy statement which reflects the composition of the Model Portfolio and the Funds in the Model Portfolio, the percentage allocation among the Asset Classes and the Permitted Range to be invested in for each Fund; and

(b) a client acknowledgement letter which describes the fees and provides for the payment of the fees to Quadrus and the Filer and the terms of the Service, as well as the rules governing the investment and management of the Model Portfolio (the I Series Account Agreement).

21. Clients have no direct contact with the Filer in connection with the Filer's management of the Model Portfolios and interact solely with Quadrus and approved persons of Quadrus in connection with the Filer's management of the Model Portfolios and Quadrus' administration of its client accounts.

22. The fees and expenses charged in respect of the Service are disclosed in the simplified prospectus and Fund Facts of the Funds and in the I Series Account Agreement.

23. There is no duplication of any fees or charges as a result of a client's decision to use the Service:

(a) The Filer receives management and administration fees directly from each client in respect of the client's holding of I Series securities of the Funds. These management and administration fees are charged on a tiered basis depending upon the amount of assets held by each client and their household across all mutual funds, segregated funds and annuities offered by Canada Life and Quadrus and includes the cost to the Filer of offering and managing the Service.

(b) Quadrus and its dealing representatives do not receive any trailing commissions from the Funds and instead receive advisor service fees from each client in the Service, which reflects the costs associated with performing its dealer responsibilities for the Service.

(c) No sales charges, redemption fees, switch fees or early trading fees are charged in connection with any trades effected under the Service.

24. The I Series Account Agreement with Quadrus and the Filer sets out, amongst other matters, the following:

(a) Model Portfolio -- The client will authorize the Filer to manage the client's investments on a discretionary basis with a view to ensuring that the client's account(s) are managed in accordance with the agreed upon Model Portfolio, according to the Permitted Range indicated in the I Series Account Agreement, but provides that the Filer is not responsible for taking into consideration the client's financial circumstances or risk profile in the management of the account(s);

(b) No Changes to another Model Portfolio -- In the event that changes in the client's financial circumstances or risk profile are communicated by the client to Quadrus, which results in a different Model Portfolio being more suitable for the client, the client will be required to enter into a new I Series Account Agreement before the client's investments are changed to reflect the new Model Portfolio;

(c) No Changes to Funds in Model Portfolio -- None of Quadrus, the Filer or the client can make any changes to the Funds that make up the chosen Model Portfolio, or to the weighting established for each Fund within an Asset Class in the Model Portfolio. If the client desires to change the Funds or invest in a different Model Portfolio, the client must terminate the I Series Account Agreement and enter into a new I Series Account Agreement that specifies the new Funds to be used in the Model Portfolio and/or new Model Portfolio. To the extent the Filer determines it will no longer offer a Fund within a Model Portfolio (e.g. upon termination of the Fund), it will identify a new Fund to be included in the Model Portfolio and 60 days' advance written notice will be sent to the affected clients, delivering a copy of the Fund Facts for the new Fund and specifying that, if the client does not provide his or her objection to the proposed change within a specified date, then the Filer will take this non-objection as consent to make the Fund substitution in the client's Model Portfolio on the effective date;

(d) Know Your Client and Suitability -- The client will acknowledge that the Know Your Client Requirement and Suitability Requirement is not the responsibility of the Filer and instead, Quadrus will be responsible for gathering and periodically updating the Know Your Client information concerning the client and confirming the suitability of the client's Model Portfolio;

(e) Initial Allocation -- To commence the Service, the client will invest his/her assets in I Series units of a money market fund managed by the Filer and then will instruct Quadrus to switch all investments made by the client in the money market fund into I Series securities of the Funds that make up the chosen Model Portfolio across all accounts for which the client is the beneficial owner according to the target allocation indicated in the I Series Account Agreement;

(f) Asset Classes -- The client will authorize the Filer to use its discretion to change and update the percentage allocations of the Funds invested in the Asset Classes within the Model Portfolio by purchasing and redeeming I Series securities of the Funds in the Model Portfolio (a Weighting Change Trade), provided the client is given at least 60 days' advance written notice of the change, but will not authorize Quadrus or the Filer to add a new Fund into an Asset Class;

(g) Rebalancing Trades -- The client will authorize the Filer to rebalance holdings in the Funds from time to time within the Permitted Ranges in a manner that seeks to reduce the tax impact of holding such Funds across all account types for which the client is the beneficial owner, which may include rebalancing of additional funds invested in I Series units of a money market fund managed by the Filer which are to be switched into additional I Series securities of the Funds that make up the chosen Model Portfolio in accordance with the Permitted Ranges (the Rebalancing Trades);

(h) Fee Redemption Trades -- The client will authorize the Filer to redeem units of the Funds to pay fees owed by the client pursuant to the I Series Account Agreement (the Fee Redemption Trades); and

(i) No Discretionary Authority for Quadrus -- The client will acknowledge that Quadrus will not have discretionary authority to participate in the management of the Model Portfolio or to effect Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades.

25. The I Series Account Agreement explains the different responsibilities of Quadrus and the Filer with respect to the client and the client's Model Portfolio. This includes 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 Quadrus alone will have the responsibility to determine that the selected Model Portfolio is and remains suitable for the client.

26. A client may terminate the Service at any time by instructing Quadrus to redeem or switch the client's investment out of I Series securities of the Funds.

On-going Monitoring and Oversight

27. The following monitoring and oversight procedures will be carried out in connection with each client's account in the Service:

(a) An annual portfolio review will be conducted by the relevant Quadrus dealing representative to determine whether there have been any changes to the client's circumstances that would warrant the selection of another Model Portfolio; and

(b) Ongoing oversight of each Model Portfolio by the Filer's advising representatives, including the selection of recommended Funds within each Asset Class, to determine whether the composition of the Model Portfolio remains suitable for the risk profile of the model or whether any changes to the Asset Classes or selection of Funds within the model would be appropriate.

28. If the Filer determines it is appropriate to make a Weighting Change Trade to the Asset Classes within a Model Portfolio, each affected client will receive a notice describing the proposed change and specifying that if the client does not provide his or her objection to the proposed change within a specified date, then the Filer will take this non-objection as consent to make the appropriate changes to the client's Model Portfolio of Funds on the effective date.

Account Reporting

29. The I Series securities of the Funds that comprise each Model Portfolio are held by each client in his/her own account(s) established with Quadrus. These accounts may be established in nominee name or client name. For nominee name accounts, the I Series securities of the Funds that comprise each Model Portfolio are registered in the name of Quadrus as agent for the client's account on the books and records of the Funds. For client name accounts, the I Series securities of the Funds that comprise each Model Portfolio are registered directly in the name of the client on the books and records of the Funds.

30. Clients will be able to access their accounts via the internet on a daily basis.

31. Trade confirmations for the initial allocation trades will be provided by Quadrus. Quadrus will not act on behalf of the client when the Filer effects a Weighting Change Trade, Rebalancing Trade or Redemption Trade for the client. Accordingly, Quadrus will not be required by the Legislation to deliver trade confirmations to the client for Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades. The documentation executed by the client in connection with establishing the Service will disclose that the client will not receive trade confirmations for Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades.

32. All Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades will be reflected in the client's account on the business day following the Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades, and also will be reflected in the trade blotter to be shared by the Filer and Quadrus in connection with the Service. Quadrus will reflect all Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades in the client's account in accordance with the Legislation.

33. Quadrus will send the client a statement of account in accordance with the requirements of the MFDA. Such statements of account will be sent monthly if any transactions have occurred in the Service during the month, otherwise the statement of account will be sent quarterly. Such statements of account will identify the assets being managed on behalf of the client through the Service and will include, for each Weighting Change Trade, Rebalancing Trade or Fee Redemption Trade made during the period, the information that Quadrus would otherwise have been required to include in a trade confirmation in accordance with the Legislation. Such statements of account also will reconfirm that the client will not receive trade confirmations for Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades. Quadrus will send statements of account to each client in the Service on a monthly basis if transactions have occurred in the account(s) during the month, otherwise it will send account statements on a quarterly basis or more frequently if the client has requested to receive monthly statements.

34. An investment performance report will be sent to each client in the Service by Quadrus on an annual basis.

35. The Filer will provide each client in the Service with an annual tax reporting package.

Exemption Sought

36. In the absence of the Exemption Sought, the Filer would be required:

(a) to register as a mutual fund dealer under the Legislation and become a member of the MFDA in order to effect the Weighting Change Trades, Rebalancing Trades and Fee Redemption Trades;

(b) to gather and update the information contemplated by the Know Your Client Requirement in subsection 13.2 of NI 31-103 for each client in the Service in order to fulfil its obligations as a registered adviser;

(c) by the Suitability Requirement in subsection 13.3 of NI 31-103, to ensure that each Weighting Change Trade, Rebalancing Trade and Fee Redemption Trade is suitable for each client in the Service, rather than invested in accordance with the terms of the client's I Series Account Agreement, in order to fulfil its obligations as a registered adviser; and

(d) by the Statement Delivery Requirement in subsections 14.14 or 14.14.1 and 14.18 of NI 31-103, to deliver a quarterly account statement and annual investment performance report to each client in the Service.

37. Quadrus does not require an exemption from the adviser registration requirement under the Legislation as a result of its involvement with the Model Portfolio as it will not be engaged in providing discretionary management advice to clients in connection with the management of the Model Portfolios and nor will it be participating in the Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades.

38. Quadrus does not require an exemption from the trade confirmation requirement under the Legislation as it will send trade confirmations after the initial allocation trades and thereafter, it will not act on behalf of a client in the Service to effect any Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades.

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) the Filer is, at the time of each Weighting Change Trade, Rebalancing Trade and Fee Redemption Trade, registered under the Legislation as an adviser in the category of portfolio manager;

(b) each Weighting Change Trade, Rebalancing Trade, and Fee Redemption Trade is made in accordance with the terms of the selected Model Portfolio;

(c) each client in the Service is informed in writing in the Agreement or otherwise:

(i) of the roles, duties and responsibilities of the Filer and Quadrus, including that:

a. the Filer will manage the Model Portfolios without reference to the client's circumstances and only in accordance with the terms of the Model Portfolio selected by the client;

b. Quadrus will be solely responsible for gathering and periodically updating KYC information concerning the client and reviewing, on at least an annual basis, the suitability of the selected Model Portfolio for the client;

(ii) that the client will receive account statements and performance reports from Quadrus, and will not receive account statements and performance reports from the Filer;

(d) the Filer will adopt and maintain oversight policies and procedures designed to provide reasonable assurance that Quadrus complies with its KYC and suitability obligations with respect to each client in the Service, including requiring that:

(i) Quadrus not market and sell the Model Portfolios through an order-execution-only, suitability-exempt channel;

(ii) Quadrus notify the Filer of each instance where a Model Portfolio is sold to a client on the basis of a client-directed trade as contemplated in section 13.3 of NI 31-103 and similar provisions under MFDA rules;

(iii) Quadrus be responsible for gathering and periodically updating KYC information concerning the client and confirming, on at least an annual basis, the suitability of the selected Model Portfolio for each client, and

(iv) Quadrus, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that Quadrus has complied with its KYC and suitability obligations with respect to each client in the Service.

(e) the Filer will adopt and maintain oversight policies and procedures designed to provide reasonable assurance that Quadrus complies with the client reporting obligations under the rules of NI 31-103, the MFDA, as applicable, in respect of clients in the Service, including requiring that Quadrus, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that:

(i) Quadrus has complied with its client reporting obligations under the rules of NI 31-103, the MFDA, as applicable, and

(ii) Quadrus has undertaken steps in accordance with its policies and procedures to provide reasonable assurance that account statements and investment performance reports delivered to clients are complete, accurate and delivered on a timely basis in a format that is compliant with the rules of NI 31-103, the MFDA, as applicable.

(f) the Filer will adopt and maintain oversight policies and procedures designed to provide reasonable assurance that Quadrus complies with its obligations in respect of all trading for clients in connection with the Service, including requiring that Quadrus, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that Quadrus has effected all trades for clients in connection with the Service, but not including Weighting Change Trades, Rebalancing Trades, and Fee Redemption Trades, in accordance with the selected Model Portfolios.

In respect of the Dealer Registration Exemption

In respect of the Know Your Client Exemption, Suitability Exemption and Statement Delivery Exemption