Mackenzie Financial Corporation and IPC Investment Corporation
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s. 3.2.01 of NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to the Systematic DSC to Unbundled Switching Program.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2.01 and 6.1.
December 7, 2018
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 MACKENZIE FINANCIAL CORPORATION (Mackenzie) AND IPC INVESTMENT CORPORATION (the Representative Dealer, and together with Mackenzie, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from Mackenzie on behalf the Funds (as defined below) and the Representative Dealer for a decision under the securities legislation of the Jurisdiction (the Legislation):
Exempting each dealer who trades in securities of the Funds (a Dealer) from the requirement in subsection 3.2.01(1) of NI 81-101 to deliver or send the most recently filed fund facts document (the Fund Facts) to an investor before a dealer accepts an instruction from an investor for the purchase of a security of a mutual fund (the Fund Facts Delivery Requirement) where the Fund Facts Delivery Requirement arises in respect of purchases of securities of the Funds made pursuant to the Systematic DSC to Unbundled Series Switching Program (as defined below) (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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (the Other Jurisdictions).
Interpretation
Terms defined in NI 81-102, 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 Filer:
Mackenzie
1. Mackenzie is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
2. Mackenzie is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario. Mackenzie is also registered as a portfolio manager and exempt market dealer in the Other Jurisdictions and as an investment fund manager in Newfoundland and Labrador and Québec.
3. Mackenzie is the manager of mutual funds (the Existing Funds), each of which is subject to the requirements of National Instrument 81-102 Investment Funds (NI 81-102). Mackenzie may in the future become the manager of additional funds that are subject to the requirements of NI 81-102 (the Future Funds, and together with the Existing Funds, the Funds and, individually a Fund).
4. Mackenzie and the Existing Funds are not in default of the securities legislation of Ontario or the Other Jurisdictions.
The Representative Dealer
5. Securities of the Funds are, or will be, distributed through dealers that include the Representative Dealer (the Dealers, and each, a Dealer).
6. The Representative Dealer is registered as a mutual fund dealer in the Jurisdictions and registered as an exempt market dealer in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Ontario and Saskatchewan.
7. Each Dealer is, or will be, registered as a dealer in one or more of the provinces and territories of Canada. The Dealers are, or will be, members of either the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada.
8. The Representative Dealer is not in default of the securities legislation of Ontario or the Other Jurisdictions.
The Funds
9. Each Fund is, or will be, an open-end mutual fund trust created under the laws of Ontario or an open-end mutual fund that is a class of shares of a mutual fund corporation incorporated under the laws of Ontario.
10. Each Fund is, or will be, a reporting issuer under the laws of Ontario and the Other Jurisdictions and subject to NI 81-102. The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been, or will be, prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), except for certain series of the Funds that were previously offered under simplified prospectus and are currently closed to new investors or were created for implementing mergers but were never offered to the public by way of simplified prospectus, named Series B8, DZ, E, E5, E6, E8, J, J6, J8 and SA.
11. The Funds currently offer up to 39 series of securities -- Series A, AR, B, C, D, DA, F, F5, F6, F8, FB, FB5, G, GP, I, O, O6, PW, PWB, PWF, PWF5, PWF8, PWFB, PWFB5, PWT5, PWT6, PWT8, PWX, PWX5, PWX8, S5, S6, S8, SC, SP, T5, T6, T8 and Investor Series securities, under a simplified prospectus, annual information form and Fund Facts dated September 28, 2018. Mackenzie may also offer additional series of the Funds in the future.
12. Mackenzie offers four main purchase options: the sales charge purchase option (SCS option), the low-load 2 purchase option (LL2), the low-load 3 purchase option (LL3), and the redemption charge purchase option (RCS and, together with LL3 and LL2, the Deferred Sales Charge options or DSC options). Under the SCS option, investors may have to pay a negotiated commission to their dealer at the time they purchase securities, while under the Deferred Sale Charge options, no commission is paid by the investor at the time of purchase, but the investor will be required to pay a redemption fee if he or she redeems within a certain period of time from the date of purchase.
13. Once the redemption fee schedule expires for each of the DSC options, the securities will become matured units (Matured Units) and will no longer be subject to a redemption fee.
14. Securities purchased under the LL2 purchase option will become Matured Units two years from the date of purchase, securities purchased under the LL3 purchase option will become Matured Units three years from the date of purchase, and securities purchased under the RCS purchase option will become Matured Units seven years from the date of purchase.
15. When the redemption fee schedule expires for investors who hold securities purchased under any of the DSC options, those securities will be automatically switched to the SCS option of the same series (i.e. Series A, B, C, T5, T6 or T8), or if eligible, they will be automatically switched to the corresponding Private Wealth Series (i.e Series PW, PWT5, PWT6 or PWT8, as applicable) which have lower combined management and administration fees.
16. For series of certain Funds that do not offer both a DSC option and a SCS option, Series A, T6 or T8 Matured Units will be automatically switched to Series SC, S6 or S8. The Filers obtained exemptive relief dated September 27, 2016 from the Fund Facts Delivery requirement for these automatic switches. In all cases where Series SC, S6 or S8 is available, it has lower combined management and administration fees than Series A, T6 or T8.
17. The automatic switches referred to in paragraphs 15 and 16 above, are referred to as the Matured Unit Switches. The Matured Unit switches occur on the second Friday of the month following the expiry of the redemption fee schedule for each DSC unit.
18. Securities purchased under the SCS option or securities that were previously automatically switched from the DSC option to the SCS option, as described in paragraphs 16 and 17 above, will automatically be switched to the corresponding Private Wealth Series once the investor becomes eligible for Private Wealth Series. These switches are referred to as the Retail to Private Wealth Series Switches. Retail to Private Wealth Series Switches will occur the following business day after an investor meets the eligibility criteria for Private Wealth Series through a purchase or switch transaction. In addition, Retail to Private Wealth Series Switches will also occur on the second Friday of every month if positive market movement has allowed the investor to qualify for Private Wealth Series. The Filers obtained exemptive relief dated September 28, 2018 from the Fund Facts Delivery Requirement for Retail to private Wealth Series Switches.
19. The Existing Funds are not in default of securities legislation in any of the Jurisdictions.
Systematic DSC to Unbundled Series Switching Program
20. Mackenzie is starting an optional service after December 3, 2018 (the Implementation Date) which will allow investors to elect to automatically switch Matured Units originally purchased under a DSC option of Series A, Series B, Series C, Series T5, Series T6 or Series T8 to an Unbundled Series (defined below) of the same Fund.
21. This service will be called the Systematic DSC to Unbundled Switching Program (the Program). The choices available to an investor who participates in the Program are set out in Schedule A.
22. Unbundled Series consist of Series F, Series F5, Series F6, Series F8, Series FB, Series FB5, Series PWFB, Series PWFB5, Series PWX, Series PWX5 and Series PWX8 and any other Unbundled Series that may be launched by the Filer in the future. Each of the Unbundled Series has lower combined management and administration fees than the Bundled Series.
23. When an investor qualifies for Private Wealth Series, all of the investor's existing Retail Bundled Series (defined below) will automatically be switched to the chosen Unbundled Series, instead of the corresponding Private Wealth Bundled Series (defined below). These switches, together with the switches described in paragraph 21 above, are referred to as the Automatic Switches.
24. Bundled Series are series with an embedded management and administration fee and consist of Series A, Series B, Series C, Series T5, Series T6, Series T8, Series SC, Series S6, Series S8 (together the Retail Bundled Series) and Series PW, Series PWT5, Series PWT6 and Series PWT8 (together the Private Wealth Bundled Series).
25. The Program will allow an investor, in consultation with his or her Dealer, to automatically switch Matured Units to Unbundled Series as the Matured Units reach the expiry of their redemption schedule. Once the investor becomes eligible for Private Wealth Series, it will also allow that investor to automatically switch Matured Units and other Bundled Series purchased under an SCS option to the chosen Unbundled Series.
26. Each of the Unbundled Series has lower combined management and administration fees than the Bundled Series.
27. Unbundled Series do not charge an embedded trailing commission but instead the investor will pay a negotiated advisor service fee or asset-based fee to their Dealer.
28. Investors must negotiate an advisor service fee or an asset-based fee with their Dealer and sign an agreement in order to purchase Unbundled Series and be eligible to participate in the Program.
29. All investors are eligible to participate in the Program so long as they have entered into the required fee-for-service or asset-based fee agreement with their Dealer, filled out the applicable forms which indicate into which Unbundled Series they would like their Matured Units to be automatically switched, and the Dealer has submitted the required documentation to Mackenzie in good order (the Investor Instructions).
30. Dealers will provide the Fund Facts for each of the series invested in by investors under the Program as required by the Fund Facts Delivery Requirement when the investor first agrees to invest in the Unbundled Series and participate in the Program.
31. Mackenzie exercises no discretion in carrying out the Program and acts only according to the redemption schedule of the Matured Units and according to the terms of the Program.
32. The Investor Instructions are provided when the investor agrees with the Dealer to automatically switch their Matured Units to Unbundled Series on a systematic basis in accordance with the redemption schedule. An investor may terminate the instructions, or give amended instructions, at any time to his or her Dealer.
33. The Program is described in the Prospectus of the Funds dated September 28, 2018.
34. The Automatic Switches made pursuant to the Program entail a redemption of Matured Units immediately followed by a purchase of the chosen Unbundled Series of the same Fund, which triggers the Fund Facts Delivery Requirement.
Fund Facts Delivery Relief
35. Pursuant to the Fund Facts Delivery Requirement, a dealer is required to deliver the most recently filed Fund Facts of a series of a fund to an investor before the dealer accepts an instruction from the investor for the purchase of securities of that series of the Fund.
36. It is not possible for Dealers monitor the redemption schedule of every security purchased under a DSC purchase option to know when they will become Matured Units and deliver a new Fund Facts for the chosen Unbundled Series at each point in time so that the Fund Facts Delivery Requirement can be satisfied in advance of every Automatic Switch made pursuant to the Program.
37. In the absence of the Requested Relief, the Dealer would be required to deliver the most recently filed Fund Facts, in accordance with the Fund Facts Delivery Requirement in advance of each Automatic Switch that is made upon the expiry of the redemption schedule of the Matured Units to the Unbundled Series and in advance of each Automatic Switch that is made to the chosen Unbundled Series when the investor qualifies for Private Wealth Series.
38. The Automatic Switches made pursuant to the Program will have no adverse tax consequences on investors under current Canadian tax legislation.
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:
1. Each investor who participates in the Program has negotiated an advisor service fee or asset-based fee with their Dealer, has filled out the applicable Program forms and submitted their Investor Instructions to Mackenzie;
2. When the investor first agrees to participate in the Program and invest in the Unbundled Series, the Dealer will provide the investor with the applicable Fund Facts;
3. Each investor who participates in the Program will be advised by their Dealer the circumstances in which the Automatic Switches will be made and that they will not receive the Fund Facts for subsequent Automatic Switches that are made after the first Automatic Switch made pursuant to the Program;
4. Mackenzie incorporates disclosure in the simplified prospectus for each Fund that describes the Program and sets out the fees applicable to securities purchased under a DSC option, SCS option and Unbundled Series;
5. Each new investor who participates in the Program, receives written information that states,
a. subject to condition 6, the investor will not receive the Fund Facts after the date of the notice, unless the investor specifically requests it,
b. the investor is entitled to receive upon request, at no cost to the investor, the most recently filed Fund Facts for the relevant series by calling a specified toll-free number, or by sending a request by mail or e-mail to a specified address or e-mail address,
c. how to access the Fund Facts electronically;
d. the investor will not have a right of withdrawal under securities legislation for subsequent purchases of a security of any Funds under the Program, but will continue to have a right of action if there is a misrepresentation in the Prospectus or any document incorporated by reference into the Prospectus, and
e. the investor may terminate their participation in the Program at any time;
6. At least annually during the term of the Program, an applicable Dealer notifies the investor in writing of how the investor can request the most recently filed Fund Facts;
7. An applicable Dealer delivers or sends the most recently filed Fund Facts to the investor if the investor requests it;
8. The Filers provide to the principal regulator, on an annual basis, beginning 60 days after the date upon which the Fund Facts Delivery Relief is first relied upon by a Dealer, either:
a. a current list of all such Dealers that are relying on the Fund Facts Delivery Relief; or
b. an update to the list of such Dealers or confirmation that there has been no change to such list; and
9. Prior to a Dealer relying on the Fund Facts Delivery Relief, the Filers provide to the Dealer a disclosure statement informing the Dealer of the implications of this decision.
SCHEDULE A
|
From (Retail Bundled Series) |
To Unbundled Series (where investor has under $100,000) |
To Unbundled Series (where investor has over $100,000) |
|
A |
F or FB |
F or PWFB or PWX |
|
B |
F or FB |
F or PWFB or PWX |
|
T5 |
F5 or FB5 |
F5 or PWFB5 or PWX5 |
|
T6 |
F6 or FB5 |
F6 or PWFB5 or PWX5 |
|
T8 |
F8 or FB5 |
F8 or PWFB5 or PWX8 |
|
SC (SCS only) |
F or PWFB or PWX |
|
|
S5 (SCS only) |
F5 or PWFB5 or PWX5 |
|
|
S8 (SCS only) |
F8 or PWFB5 or PWX8 |
|