Goodman & Company, Investment Counsel Ltd. -- s. 74(1)
Headnote
Subsection 74(1) of the Securities Act (Ontario) -- relief from the dealer registration requirement of paragraph 25(1)(a) of the Act granted to portfolio manager applicant, its network of non-Ontario registered dealers and non-registered salespersons trading on behalf of an Ontario charitable foundation in connection with a charitable gift program.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1)(a), 74(1).
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)
AND
IN THE MATTER OF
GOODMAN & COMPANY,
INVESTMENT COUNSEL LTD.
ORDER
(Subsection 74(1))
UPON the application (the Application) of Goodman & Company, Investment Counsel Ltd. (the Applicant) to the Ontario Securities Commission (the Commission) for an order pursuant to subsection 74(1) of the Act that the registration requirements contained in paragraph 25(1)(a) of the Act (the Dealer Registration Requirements) shall not apply to:
(a) the Applicant, and its network of dealers (the Dealers) when engaged in registrable activities on behalf of a public foundation (the Foundation, as described below) as part of the Dynamic Charitable Giving Fund program (the Program, as described below); and
(b) the salespersons, investment representatives, consultants, or financial advisers (collectively, the Representatives) of the Dealers and the Ontario Dealers (as described below) in respect of trading on behalf of the Foundation and the Program;
AND UPON considering the Application and the recommendation of the Staff of the Commission;
AND UPON the Applicant having represented to the Commission as follows:
The Foundation
1. The Foundation is an independent non-profit charitable organization with registered charitable status as a public foundation under the Income Tax Act (Canada) (the Tax Act). The head office of the Foundation is in Ontario.
2. The purpose of the Foundation is to support charities and other permitted entities as defined under the Tax Act (Qualified Donees) through charitable gifts received from donors. The Foundation has entered into agreements with the Applicant in respect of the management and administration of the donor advised charitable gift funds and in connection with the Program.
The Applicant
3. The Applicant, the manager of the Dynamic Funds™ (the Dynamic Funds), is a corporation incorporated under the Business Corporations Act (Ontario) and is registered in the category of as Portfolio Manager in Ontario and in certain other provinces and territories in Canada.
4. The Applicant is not a registered mutual fund dealer or investment dealer in Ontario and does not have an internal team of Representatives to serve as its sales force. Instead the Applicant relies upon the Dealers and Ontario Dealers, a diversified network of Representatives and their sponsoring mutual fund dealer or investment dealer firms to distribute its products.
The Dealers and the Representatives
5. Each Dealer undertaking registrable activities on behalf of the Foundation will be registered in one or more provinces or territories in Canada (excluding Ontario) as a mutual fund dealer or investment dealer, as the case may be, and will be a member of either the Mutual Fund Dealers Association (MFDA) or the Investment Industry Regulatory Organization of Canada (IIROC).
6. Each Ontario Dealer undertaking registrable activities on behalf of the Foundation will be registered in Ontario and in one or more provinces or territories in Canada as a mutual fund dealer or investment dealer, as the case may be, and will be a member of either the MFDA or IIROC.
7. Each of the Representatives undertaking registrable activities on behalf of the Foundation will be registered as either an MFDA Approved Person or an IIROC Registered Representative.
8. Each Dealer, Ontario Dealer and Representative undertaking registrable activities on behalf of the Foundation is registered in the appropriate category in the jurisdiction of residence of the Donor (defined below) in respect of which the registrable activities are undertaken. Representatives of the Ontario Dealer are not registered in Ontario.
The Program
9. Prospective charitable donors to the Foundation will, prior to making a donation, receive a program guide (a Program Guide) which will outline the details of the operation of the Program and any fees or expenses associated with the Program.
10. Donors make an irrevocable charitable gift of cash, securities, insurance or segregated funds to the Foundation (a Donor) and receive a tax receipt generally equal to the cash amount or fair market value of the securities donated to the Foundation. Securities donated to the Foundation will be liquidated through an investment dealer affiliated with the Applicant.
11. The Foundation will deposit the proceeds of each Donor's gift into an individual account which it will open with an investment dealer (each, an Account). Donors may also make subsequent gifts to the Foundation under the Program from time to time.
12. Each Account will be opened in the name of the Foundation in a manner in which the Donor can be identified. The Donor, or his/her successor or designate, will be responsible for providing the Foundation with recommendations regarding the disbursements from the Account to Qualified Donees.
13. In order to comply with the Tax Act, the Program will require that all gifts to the Foundation held in the Account are disbursed to Qualified Donees in accordance with the disbursement quotas established under the Tax Act, or held as required under the Tax Act. In particular, any property held in the Account which is "enduring property" as defined in subparagraph (c) of section 149.1(1) of the Tax Act (also known as a "ten year gift"), will be held for the required ten year period or expended strictly in accordance with any applicable exemption permitted by the Tax Act.
14. Legislation applicable to the Foundation requires that all donated assets be invested in accordance with the "prudent investor" standard. In accordance with this requirement, the Foundation will pre-select a list of mutual funds and portfolio mandates for managed accounts offered by the Applicant under the Program (the Eligible Investment Vehicles). Every Account opened as a result of a donation under the Dynamic Charitable Giving Fund Program will be restricted to investments in one or more Eligible Investment Vehicles. Each of the Eligible Investment Vehicles is expected to be a well-diversified balanced portfolio. The Donor will be provided an opportunity to express to the Foundation his or her preference (if any) regarding which Eligible Investment Vehicles the Account should be invested in from time to time.
15. In the event that an Eligible Investment Vehicle is a mutual fund, the mutual fund will be qualified by way of a prospectus in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure and available for distribution in Ontario and the province or territory in which the Donor resides.
16. The Representative that solicits the Donor's gift to the Foundation will initially service the Account set up with the proceeds of that Donor's gift and may also have an ongoing relationship with the Donor. The Representative may make a recommendation to the Donor as to the initial choice of Eligible Investment Vehicle and may subsequently recommend changes to the choice of Eligible Investment Vehicle.
17. Donors are able to deal directly with the Foundation. Where the Foundation deals directly with a Donor with respect to the Donor's gift, the Foundation will initially set up the Account through an affiliate Dealer or Ontario Dealer of the Applicant.
18. The Foundation will have final authority over all investment decisions in each Account, except Accounts that are opened as managed accounts. In particular, after receiving the preferences of a Donor, the Foundation will make all final decisions on investments for the Account, and will send trading instructions to the Representative servicing that Account.
19. In the case where an Account is a managed account, investment decisions will be made by the Represntative responsible for the Account, in accordance with the investment objectives of the Account pursuant to the portfolio mandate(s) selected by the Donor as an Eligible Investment Vehicle. The Foundation has the ability to select another Representative to manage the managed account. Each Representative exercising discretionary authority over an Account that is a managed account will be appropriately qualified to provide portfolio management services.
20. The Applicant will deliver trade confirmations and account statements (Account Statements) to the Foundation with respect to each Account as required under the securities legislation in the jurisdiction where such Account is located. The Applicant will make a copy of any or all Account Statements available to the applicable Donor upon request. The Foundation will deliver a quarterly donor statement to each Donor.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS HEREBY ORDERED, pursuant to subsection 74(1) of the Act, that the Dealer Registration Requirements shall not apply to the Representatives, the Applicant or the Dealers in respect of registrable activities undertaken on behalf of the Foundation in connection with the Program, provided that:
(a) each Dealer, Ontario Dealer and Representative undertaking registrable activities on behalf of the Foundation is registered in the appropriate category in the jurisdiction of residence of the Donor in respect of which the registrable activities are undertaken;
(b) each Dealer and Ontario Dealer undertaking registrable activities on behalf of the Foundation is a member of either the MFDA or IIROC;
(c) each Representative undertaking registrable activities on behalf of the Foundation shall be either an MFDA Approved Person or an IIROC Registered Representative;
(d) each Representative exercising discretionary authority over a managed account in connection with the Program will be appropriately qualified to provide portfolio management services;
(e) all fees, expenses and commissions related to the Program will be fully disclosed in the Program Guide, or equivalent document, and the Program Guide, or equivalent document, shall be provided to every Donor by the Applicant or the applicable Representative prior to the Donor making a gift to the Foundation;
(f) the Donor making a gift to the Foundation receives a duplicate copy of any or all Account Statements delivered to the Foundation by the Applicant upon request; and
(g) the Foundation delivers a quarterly donor statement to each Donor.
February 9, 2010