Fiduciary Trust Company of Canada and Franklin Templeton Investments Corp.
Headnote
Under paragraph 4.1(1)(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 is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individuals to be registered with both firms. The Filers have agreed that up to a maximum of ten individuals will be dually registered under the exemption at any point in time. The Filers have policies in place to handle potential conflicts of interest. The Filers are exempted from the prohibition.
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.
November 22, 2022
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 FIDUCIARY TRUST COMPANY OF CANADA (FTCC) AND FRANKLIN TEMPLETON INVESTMENTS CORP. (FTIC, and together with FTCC, Franklin Templeton or the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
a) for a decision pursuant to section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) for relief from paragraph 4.1(1)(b) of NI 31-103 (the Dual-Registration Restriction) to permit the Representatives (as defined below) to be registered as dealing representatives, advising representatives or associate advising representatives, as the case may be, of each of FTCC and FTIC (the Relief Sought); and
b) to revoke and replace previous exemptive relief decisions from the Dual Registration Restriction granted to the Filers on December 9, 2019, October 23, 2018, September 22, 2017, and October 22, 2015 (collectively, the Prior Orders) to permit the certain individuals to be registered as dealing representatives, advising representatives or associate advising representatives, as the case may be, of each of FTCC and FTIC.
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 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 by the Filers in each of the other provinces of Canada and the Yukon (collectively with the Jurisdiction, the Canadian Jurisdictions).
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 Filers:
1. FTCC is a federally-regulated trust company and registered as a portfolio manager in each province and territory of Canada (other than Northwest Territories and Nunavut) and as a commodity trading manager in Ontario. The head office of FTCC is located in Toronto, Ontario. FTCC provides portfolio management services primarily to high net worth individuals and families through separately managed accounts, pooled funds and mutual funds and, in addition, provides portfolio management services to certain investment funds.
2. FTIC is registered as a portfolio manager, exempt market dealer and mutual fund dealer in each province and territory of Canada (other than Northwest Territories and Nunavut). FTIC is also registered as an investment fund manager in each of Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario and Quebec and as a commodity trading manager in Ontario. The head office of FTIC is located in Toronto, Ontario. FTIC is the investment fund manager of various Canadian proprietary mutual funds, exchange-traded funds, pooled funds and non-redeemable investment funds and provides portfolio management services to those funds and institutional clients.
3. FTIC is also registered as an investment adviser with the U.S. Securities and Exchange Commission (SEC).
4. FTCC and FTIC are affiliates as FTCC is a wholly-owned subsidiary of FTIC.
5. Pursuant to the Prior Orders, the Filers appointed eight individuals to be registered as dealing representatives, advising representatives or associate advising representatives, as the case may be, of each of FTCC and FTIC. Currently, of the eight individuals, six individuals listed in Appendix A (the Existing Representatives) are registered as dealing representatives, advising representatives or associate advising representatives, as the case may be, of each of FTCC and FTIC.
6. In addition to the Existing Representatives, the Filers wish to appoint Michael Greenberg, an advising representative of FTCC, as a portfolio manager for certain of the FTIC funds and clients. Mr. Greenberg is registered as an advising representative of FTCC in each province and territory of Canada (other than Northwest Territories and Nunavut) and as an advising representative (CTM) in Ontario. However, Mr. Greenberg is presently only registered with FTCC and is unable to provide investment management services to FTIC clients. Dual registration as an advising representative of both FTCC and FTIC would allow the Filers to leverage Mr. Greenberg's knowledge, expertise and experience in helping both FTCC and FTIC clients reach their investment objectives with increased consistency between FTCC's portfolios and FTIC's institutional portfolios.
7. In the future, the Filers may also wish to appoint additional individuals (the Future Representatives) as dual representatives of the Filers to similarly leverage their knowledge, expertise and experience in helping both FTCC and FTIC clients reach their investment objectives with increased consistency between FTCC's portfolios and FTIC's institutional portfolios.
8. The dual registration of Mr. Greenberg, the Existing Representatives and the Future Representatives (collectively, the Representatives) will help optimize the Filers' resources and will increase their operational efficiency.
9. The Representatives will be subject to supervision by, and the applicable compliance requirements of, both Filers.
10. The Filers' Chief Compliance Officer and Ultimate Designated Person will ensure that each Representative has sufficient time and resources to adequately serve each Filer and its clients and funds.
11. The Filers are not in default of any requirement of securities, commodity futures or derivatives legislation in any of the Canadian Jurisdictions. FTIC is in compliance in all material respects with U.S. securities laws.
12. FTCC and FTIC are affiliated and accordingly, the dual registration of the Representatives will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm's length firms. The interests of the Filers are aligned as both Filers wish to leverage the Representatives' knowledge, expertise and experience for the benefit of their clients and funds. Therefore, the potential for conflicts of interest is minimal.
13. The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of the Representatives and will be able to deal appropriately with any such conflicts.
14. It is not expected that the dual registration of the Representatives will lead to any client confusion since the principal client bases of each of the Filers are different: FTCC typically advises individual high net worth clients, including the investment funds used in the portfolios of high net worth clients, and FTIC advises institutional investors.
15. All accounts managed by Franklin Templeton portfolio managers (i.e., the Filers and their affiliates that are also portfolio managers) adhere to a common Franklin Templeton trade allocation policy to ensure that investment opportunities suitable for funds and clients of all Franklin Templeton portfolio managers, including the Filers, are allocated between them fairly. The Filers also have policies and procedures to address any potential conflicts of interest including trade allocation where there is overlap in portfolio holdings between accounts managed by these affiliated entities.
16. As the Representatives will be engaging in functionally similar types of activities at each Filer, the Filers are confident that the Representatives will continue to have sufficient time to adequately serve both firms, their clients and funds.
17. The relationship between FTCC and FTIC, and the fact that a Representative is dually registered with both FTCC and FTIC, will be fully disclosed, in writing or verbally, to clients and funds of each of FTCC and FTIC that deal with the Representative.
18. In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting a Representative to be registered as a dealing representative, advising representative or associate advising representative, as the case may be, of both Filers, even though the Filers are affiliates and have controls and compliance procedures in place to deal with the Representative's activities.
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 as follows:
a) the Prior Orders are revoked; and
b) the Relief Sought is granted provided that:
i. at any point in time, no more than ten (10) Representatives are dually registered with both Filers;
ii. the Representatives are subject to supervision by both Filers and applicable compliance requirements of both Filers;
iii. the Chief Compliance Officer and Ultimate Designated Person of each Filer ensure that the Representatives have sufficient time and resources to adequately serve each Filer and its respective clients;
iv. each Filer has adequate policies and procedures in place to address any potential conflicts of interest that may arise from the dual registration of the Representatives, and deal appropriately with any such conflicts; and
v. the relationship between the Filers and the fact that a Representative is dually registered with both of the Filers is fully disclosed in writing to the Filer's clients that deal with the Representative.
Appendix A
List of Existing Representatives
1. Ian M. Riach
2. Vincent Tonietto
3. Scott Guitard
4. Giles Marshall
5. David Cieslowski
6. Manmeet Bhatia