Jones Collombin Investment Counsel Inc. - MRRS Decision
Headnote
Mutual reliance review systemfor exemptive relief applications - portfolio manager exemptedfrom the dealer registration requirements in the Legislationin respect of trades in shares or units of mutual funds managedby portfolio manager, made by portfolio manager through itsofficers and employees acting on its behalf, to managed accounts,subject to terms and conditions.
Statutes Cited
Securities Act, R.S.O. 1990,c. S.5, as amended s. 25, 74(1).
Rules Cited
National Instrument 81-102 MutualFunds.
Ontario Securities CommissionRule 31-506 - SRO Membership - Mutual Fund Dealers.
Ontario Securities CommissionRule 45-501 Exempt Distributions.
IN THE MATTER OF
THE CANADIAN SECURITIES LEGISLATIONOF
ALBERTA AND ONTARIO
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
JONES COLLOMBIN INVESTMENTCOUNSEL INC.
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (individually, a "DecisionMaker", and, collectively, the "Decision Makers")in each of the provinces of Alberta and Ontario (the "Jurisdictions")has received an application (the "Application") fromJones Collombin Investment Counsel Inc. ("JCIC"),for a decision that the requirement (the "Dealer RegistrationRequirement") in the Legislation that prohibits a personor company from trading in a security unless the person or companyis registered in the appropriate category of registration underthe Legislation should not apply in respect of any trades, inshares or units of a mutual fund (a "JCIC Fund") thatis managed by JCIC, made by JCIC to a client account of JCICthat is a Managed Account (as defined below):
AND WHEREAS under theMutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this Application;
AND WHEREAS JCIC hasrepresented to the Decision Makers that:
1. JCIC is a corporation incorporatedunder the Business Corporations Act (Ontario) and conductsan active portfolio management operations (the "PortfolioManagement Operations") offering services to a largeand diversified client base. JCIC currently has assets undermanagement of approximately $327 million.
2. JCIC's Portfolio ManagementOperations are designed to cater to the following distinctbusiness segments:
(a) Private Clients- high net worth individuals who access its portfolio managementservices by establishing and maintaining segregated individuallymanaged accounts.
(b) Institutional Clients- corporations, institutions, endowments and foundationswhich have their assets managed in segregated individuallymanaged accounts.
3. JCIC conducts its PortfolioManagement Operations in accordance with adviser registrationsunder the Legislation of each Jurisdiction.
4. JCIC has applied for registrationas a limited market dealer under the Legislation of Ontario.
5. As part of its PortfolioManagement Operations, JCIC provides discretionary portfoliomanagement services to investment portfolio accounts (a "ManagedAccount") of clients, under which JCIC, pursuant to awritten agreement made between JCIC and each client, makesinvestment decisions for the account and has full discretionaryauthority to trade in securities for the account without obtainingthe specific consent of the client to the trade.
6. Incidental to its principalbusiness of portfolio management, JCIC wishes to distributeshares or units of mutual funds to Managed Accounts. JCICwill not distributes shares or units of mutual funds to personsfor whom it does not have Managed Accounts.
7. JCIC would like to indirectlypool existing smaller segregated accounts and make its portfoliomanagement services available to a broader range of potentialcustomers, including individuals who would not generally beconsidered to have sufficient assets to warrant the establishmentof a segregated Managed Account due to related cost and assetdiversification considerations.
8. One way of making its portfoliomanagement services available to clients whose assets arenot sufficiently valued to warrant a Managed Account thatholds portfolio securities directly is to offer such clientsone or more mutual funds. In such a circumstance, an individualwould establish a Managed Account with JCIC and consent toallow JCIC to exercise its discretion to invest some, or all,of the individual's assets in a mutual fund managed by JCIC.The individual is thereby able to partake of JCIC's investmentmanagement expertise, as regards both asset allocation andindividual stock selection, as well as the lower costs andbroader asset diversification associated with mutual fundinvestments relative to direct holdings of individual securities.In order to accommodate the widest possible range of clientsin its private client business, JCIC will prospectus qualifythese mutual funds.
9. Once the Managed Accountsholding mutual fund securities grow to a sufficient size,these accounts would become eligible for JCIC's individualstock selection services.
10. The sale of mutual fundsecurities to its Managed Accounts in the Jurisdictions wouldnormally require JCIC to become registered as a mutual funddealer and become a member of the Mutual Fund Dealers Associationof Canada ("MFDA"). For the reasons discussed below,JCIC does not believe it to be desirable or appropriate tobecome a member of the MFDA.
11. As a mutual fund dealer,JCIC would be subject to the requirements of Ontario SecuritiesCommission Rule 31-506 SRO Membership - Mutual Fund Dealers(the "MFDA Rule") and its counterpart in Albertaand must become a member of the MFDA in accordance with theMFDA Rule.
12. Upon becoming a memberof the MFDA, JCIC would be required to comply with the By-lawand Rules of the MFDA including Section 2.3.1 of the MFDARules. Section 2.3.1 of the MFDA Rules provides that no membershall accept or act upon a general power of attorney or othersimilar authorization from a client in favour of the member.Section 2.3.1 is complemented by Section 2.3.4 which providesthat the form of limited trading authorization contemplatedby Section 2.3.2 may not in any way confer general discretionarytrading authority upon a member.
13. Accordingly, it wouldnot be possible for JCIC to conduct its Portfolio ManagementOperations while at the same time be a member of the MFDA.If JCIC were precluded from offering mutual funds to its ManagedAccounts, it would be deprived of a fundamentally importantmeans of delivering investment management advice to thoseManaged Accounts whose asset value is not sufficiently largeenough to hold portfolio securities directly.
AND WHEREAS pursuantto the System, this MRRS Decision Document evidences the decision(collectively, the "Decision") of each Decision Maker;
AND WHEREAS each of theDecision Makers is satisfied that the tests contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
IT IS THE DECISION ofthe Decision Makers under the Legislation of each Jurisdictionthat the Dealer Registration Requirement in the Legislationshall not apply to trades in shares or units of JCIC Funds madeby JCIC, through its officers and employees acting on its behalf(each, a "JCIC Representative"), to Managed Accounts,
PROVIDED THAT:
(A) JCIC is at the timeof the trade, registered under the Legislation as an adviserin the category of "portfolio manager" (or theequivalent);
(B) if the trade is madein a Jurisdiction other than Ontario, it is made by orat the direction of a JCIC Representative who is, at thetime of the trade, registered under the Legislation toact on behalf of JCIC as an adviser in the category of"portfolio manager" (or the equivalent);
(C) if the trade is madein the Jurisdiction of Ontario, JCIC is, at the time ofthe trade, registered under the Legislation of the Jurisdictionas a dealer in the category of "limited market dealer",and the trade is made on behalf of JCIC by a JCIC Representativewho is, at the time of the trade, either (i) registeredunder the Legislation to act on behalf of JCIC as an adviserin the category of "portfolio manager" (or theequivalent), or (ii) acting under the direction of sucha person and is himself or herself registered under theLegislation to trade on behalf of JCIC pursuant to itslimited market dealer registration; and
for each Jurisdiction, thisDecision shall terminate one year after the coming into force,subsequent to the date of this Decision, of a rule or otherregulation under the Legislation of the Jurisdiction that relates,in whole or part, to any trading by persons or companies thatare registered under the Legislation as portfolio managers (orthe equivalent), in securities of a mutual fund, to an accountof a client, in respect of which the person or company has fulldiscretionary authority to trade in securities for the account,without obtaining the specific consent of the client to thetrade, but does not include any rule or regulation that is specificallyidentified by the Decision Maker for the Jurisdiction as notapplicable for these purposes.
July 5, 2002.
"Robert W. Korthals" "HaroldP. Hands"