CSA Staff Notice 31-332
Relevant Investment Management Experience for Advising Representatives and Associate Advising Representatives of Portfolio Managers
January 17, 2013
Since September 28, 2009, when National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) came into effect, staff from the various provinces from the Canadian Securities Administrators (CSA staff or we) have reviewed over 2500 applications for registration as Advising Representatives (ARs) or Associate Advising Representatives (AARs).
Substance and Purpose
This notice provides applicants for AR and AAR registration with a summary of decisions about relevant investment management experience. We expect prospective applicants to consider the information in this notice when deciding whether to apply for AR or AAR registration, and when preparing an application.
Applicants need to meet both the educational and relevant investment management experience requirements in sections 3.11 and 3.12 of NI 31-103. Companion Policy 31-103CP – Registration Requirements, Exemptions and Ongoing Registrant Obligations (the CP) provides some guidance on relevant investment management experience.
In all cases in this notice, the applicant’s educational qualifications met NI 31-103 requirements and the only question was whether the applicant had relevant investment management experience.
Staff retains discretion to consider each application on its own facts
This notice does not constrain staff’s ability to assess each application on its facts. Nonetheless, staff strive to make consistent decisions.
AAR registration does not automatically qualify an applicant for AR registration
CSA staff consider whether experience gained while registered as an AAR is relevant investment management experience on a case-by-case basis. For example, many client relationship managers may not gain sufficient experience as an AAR to qualify as an AR.
Client relationship management experience unlikely to qualify an applicant for AR registration
We have often registered AR applicants who have client relationship management experience in a portfolio management context as AARs instead. Client relationship management experience, even when performed by AARs, may not provide sufficient experience performing securities research and analysis to qualify an individual for registration as an AR.
Client relationship management may not trigger the registration requirement
We recognize that many individuals who perform client relationship management services may not provide specific advice and therefore may not trigger the registration requirement.
For example, some client services representatives conduct activities such as marketing the services of the firm by providing general information about the registrant firm and its services that do not include a strategy tailored to any specific client. While some client service representatives may accompany an AR or AAR to meetings with clients and provide assistance with the completion of KYC forms, they might not themselves develop an investment policy statement for the client, provide specific information such as recommending a particular model portfolio for the client or explain the implications of discretionary portfolio decisions that were made by the client’s AR.
Corporate finance experience may not qualify an applicant for AR registration
We have declined to register a number of individuals who have corporate finance experience as ARs and instead registered them as AARs. While corporate finance experience may involve the valuation and analysis of companies and securities, the applicants’ experience did not demonstrate an ability in, and understanding of, portfolio analysis or portfolio securities selection nor were the applicants able to demonstrate alternative experience managing investments on a discretionary basis.
Experience at an IIROC dealer may not qualify an Applicant for AR registration
For example, some registered representatives sell mostly or exclusively a limited number of model portfolios or “portfolio solutions” to clients based on their investment objectives, risk profile or other factors unique to the individual client. In these instances, we have generally registered the individual as an AAR.
Other registered representatives may offer a much broader range of products involving significant security-specific research and analysis of their own. In some of these cases, depending on the specific facts provided, we registered the individuals as ARs.
Consulting experience with portfolio manager selection and monitoring may not qualify an applicant for AR registration
We have received applications from individuals who have experience as consultants, providing advice to individuals and corporations on asset allocation and the selection and ongoing performance of their investment portfolios or investment managers. We have found that the degree of specific advice and securities analysis, if any, performed by the individuals can vary extensively among firms and individuals and whether the individual has been approved as an AR, AAR or not approved at all is very case-specific.
In some situations, the activities submitted as relevant investment management experience involve or may involve providing specific advice to clients and therefore may require registration. We also recognize that many individuals who provide portfolio manager selection and monitoring do not provide specific advice and therefore may not trigger the registration requirement. Among the factors we have taken into account are:
- whether the client contracts with the portfolio manager(s) or the consultant
- whether the consultant manages the hiring and evaluation of the portfolio managers
- the degree of reliance by the client on the consultant
- the client’s expectations as set out in the contract with the consultant.
Mutual fund sales experience unlikely to qualify applicant as AAR or AR
We have received applications from individuals employed by IIROC firms or mutual fund dealer firms who have primarily or exclusively sold mutual funds to clients based on the investment objectives, risk profile and other factors unique to the individual client. We have not generally registered individuals whose experience has been limited to mutual fund sales as ARs or AARs because they were not able to demonstrate sufficient experience analysing individual securities or managing investments on a discretionary basis.
Please refer your questions to any of the following:
1. The application was withdrawn.