Subsection 74(1) of the Securities Act (Ontario) -- Foreign registered broker-dealer and adviser and its representatives exempted, subject to certain conditions, from the dealer and adviser registration requirements in connection with the establishment of a Products and Services Department in Toronto for the benefit of clients who are either residents of the United States or individuals referred to in section 2.1(c) of National Instrument 35-101 -- Conditional Exemption from Registration for United States Broker-Dealers and Agents.
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Foreign registered broker-dealer and adviser and its representatives exempted, subject to certain conditions, from the dealer and adviser registration requirements and the prospectus requirements that permits continuing to deal with individuals referred to in section 2.1 of NI 35-101, notwithstanding the establishment of a Products and Services Department in Toronto.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 25(3), 53, 74(1).
National Instrument 35-101 Conditional Exemption from Registration for United States Broker-Dealers and Agents, s. 2.1.
January 29, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
TD WEALTH MANAGEMENT SERVICES INC.
RULING & DECISION
The Ontario Securities Commission (the OSC) has received an application from the Filer for:
(a) a ruling (the OSC Ruling) pursuant to section 74(1) of the securities legislation of the Jurisdiction (the Legislation) exempting the Filer, and representatives of the Filer (the Representatives) who either act solely on behalf of the Filer or are also registered as dealing representatives, advising representatives or associate advising representatives of a Registered Affiliate (as defined below), from the dealer and adviser registration requirements of sections 25(1) and 25(3) of the Legislation in respect of certain activities that involve trading in or advising in respect of securities for the benefit of persons or companies (U.S. Clients) who are residents of the United States of America (the USA) or NI 35-101 Clients (as defined below); and
(b) a decision (the Passport Decision) under the Legislation that the requirement to be registered as a dealer or adviser pursuant to sections 25(1) or 25(3) of the Legislation, and the requirement to prepare and file a prospectus pursuant to section 53 of the Legislation, shall not apply to the Filer and the Representatives when trading in or advising in respect of foreign securities in accordance with each of the terms and conditions of National Instrument 35-101 Conditional Exemption from Registration for United States Broker Dealers and Agents (NI 35-101) except for the requirement that the Filer have no office or physical presence in any jurisdiction of Canada.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the OSC is the principal regulator in respect of the Passport Decision; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all provinces and territories of Canada for purposes of the Passport Decision.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this OSC Ruling and Passport Decision, unless otherwise defined.
The OSC Ruling and Passport Decision are based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of the State of Pennsylvania. It is an indirect wholly-owned subsidiary of The Toronto-Dominion Bank (TD Bank). The Filer's head office is located in Philadelphia, Pennsylvania.
2. The Filer is registered as both a broker-dealer and an adviser with the U.S. Securities and Exchange Commission (the SEC) and is a member of the Financial Industry Regulatory Authority (FINRA). The Filer is not registered in any capacity with the securities regulatory authority or regulator of any province or territory of Canada.
3. The Filer carries on the business of a full service broker-dealer and an adviser in the USA.
Registered Affiliates of the Filer
4. Each of TD Waterhouse Canada Inc. (TDWCI), TD Asset Management Inc. (TDAM), TD Investment Services Inc. (TDIS) or TD Waterhouse Private Investment Counsel Inc. (TDW PIC) (each, a Registered Affiliate) is a direct or indirect wholly-owned subsidiary of TD Bank that has its head office located in Toronto, Ontario. TD Bank is a Canadian chartered bank listed in Schedule 1 of the Bank Act (Canada). TD Bank's head office is also located in Toronto, Ontario.
5. TDWCI is a corporation incorporated under the Business Corporations Act (Ontario) (the OBCA).
6. TDWCI is registered as an investment dealer in all provinces and territories of Canada. It is also a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC) and it is an approved participant of the Montreal Exchange.
7. TDWCI conducts its business as an investment dealer through four distinct divisions. TD Waterhouse Discount Brokerage provides self-directed trade execution services only, without the benefit of any investment advice or suitability review. TD Waterhouse Financial Planning offers a range of customized long-term financial planning services to individuals. TD Waterhouse Institutional Services provides comprehensive outsourcing solutions for financial services organizations in Canada. TD Waterhouse Private Advice is TDWCI's full service brokerage and managed account channel that provides brokerage services, advice and access to discretionary advice, on a full range of investment products to high net worth individuals.
8. TDAM is a corporation amalgamated under the OBCA.
9. TDAM is registered as a portfolio manager under the securities legislation of all provinces and territories of Canada, as an exempt market dealer in Ontario and Newfoundland, and as a commodity trading manager under the Commodity Futures Act (Ontario) in Ontario.
10. TDAM conducts an investment management business offering passive, quantitative, enhanced and active portfolio management services to a large and diversified client base. It provides discretionary portfolio management services both directly, by means of separately managed accounts, and indirectly, as the manager and/or investment adviser to a variety of different investment funds.
11. TDIS is a corporation incorporated under the OBCA.
12. TDIS is registered as a mutual fund dealer under the securities legislation of all provisions and territories of Canada and as a exempt market dealer in Ontario and Newfoundland. TDIS is a member of the Mutual Fund Dealers Association of Canada.
13. TDIS is engaged primarily in the distribution of securities of mutual funds that are managed by TDAM.
14. TDW PIC is a corporation incorporated under the Canada Business Corporations Act.
15. TDW PIC is registered as a portfolio manager under the securities legislation of all provinces and territories of Canada and as a exempt market dealer in Ontario and Newfoundland.
16. TDW PIC utilizes investment funds managed by TDAM to provide high net worth individuals with customized investment strategies through the exercise of discretionary investment authority that is granted to TDW PIC by such individuals.
The Filer's Products and Services Department
17. The Filer is currently engaged in the process of establishing a Products and Services Department (the PS Department) in Toronto to provide support for its brokerage and advisory operations in the USA. The PS Department will have three divisions: Managed Investments and Wealth Planning (the MWIP Division), Manager Research and Portfolio Strategy (the MRPS Division) and Portfolio Advice and Investment Research (the PAIR Division).
18. The MWIP Division will have two mandates. The first mandate is to utilize its expertise in relation to traditional and fee-based products to assist the Filer's salespersons with the development and recommendation of optimal investment solutions for their clients. Related and incidental services will include assisting salespersons with risk profiling, asset allocation and the use of statements of investment selection/investment policy. The first mandate will also include the provision of market and economic commentaries to salespersons and serving as a liaison between salespersons and the PAIR Division.
19. The MWIP Division's second wealth planning mandate is to assist salespersons of the Filer with the development of retirement plans for their clients by providing them with advice respecting the use of retirement income evaluator software and providing them with telephone and email access to persons having expertise in relation to, among other things, wills, estate planning, tax planning and philanthropic planning. As part of this second mandate, the Filer also reviews retirement plans when required or requested to do so to ensure the delivery of quality advice for clients and it provides the Filer's salespersons with articles and presentations on a range of wealth planning topics.
20. The MRPS Division also has two mandates. The first mandate is to provide the Filer with investment manager research and selection services. These services include the conduct of investment manager searches, the identification of investment manager candidates for both separately managed accounts and mutual funds, the conduct of due diligence on short lists of investment manager candidates to facilitate completion of the selection process, ongoing performance oversight of selected investment managers and the replacement of selected investment managers from time to time.
21. The second mandate is to provide the Filer with investment portfolio construction services using industry leading asset allocation design techniques that employ both qualitative and quantitative analysis tools to offer diversification by complementary manager and investment style combinations. The MRPS Division's services are used to construct both individual and model portfolios that are tailored to investor profiles and asset levels.
22. The PAIR Division consists of experienced investment professionals who hold their Chartered Financial Analyst designations. They assist the MRPS Division with the construction of model portfolios and they also prepare monthly and quarterly research reports and ad hoc market commentaries that provide the Filer's salespersons with a perspective on both short-term and long-term market trends.
23. Each Representative will be a representative of the Filer who either acts solely on behalf of the Filer or is also registered as a dealing representative, advising representative or associate advising representative of a Registered Affiliate.
24. Representatives will be members of the Filer's PS Department and they will therefore be engaged in providing the support services that each of the MIWP Division, the MRPS Division and the PAIR Division will provide to salespersons of the Filer only (the Support Services). The Support Services that Representatives registered with a TD Registered Affiliate (Registered Representatives) will provide when acting on behalf of the Filer will be comparable to the services that the Registered Representatives provide when acting on behalf of a TD Registered Affiliate.
25. When acting on behalf of the Filer, the Support Services that are provided by the Representatives to the Filer and salespersons of the Filer will be for the benefit of only U.S. Clients or individuals (NI 35-101 Clients) referred to in section 2.1(c) of NI 35-101. The Representatives will therefore be subject to, and required to comply with, all registration and other applicable requirements of U.S. securities laws. Each Representative will be registered as a representative of the Filer with FINRA. Representatives will also be required to comply with all terms and conditions of NI 35-101 when providing Support Services for the benefit of NI 35-101 Clients except for the requirement that the Filer have no office or physical presence in any jurisdiction of Canada.
26. Representatives will not provide any services, including Support Services, directly to either U.S. Clients or NI 35-101 Clients and they will not otherwise have any contact with U.S. Clients or NI 35-101 Clients unless such contact is requested by a salesperson and supervised by an individual who is registered as a Registered Principal of the Filer with FINRA and has been designated as responsible for supervision of the Representative.
Necessity of the OSC Ruling and Passport Decision
27. The Filer and the Representatives seek the OSC Ruling because the Support Services that the Representatives will provide on behalf of the Filer will include trading and advisory activities that would otherwise require them to be registered as a dealing representative of a registered dealer or an advising representative or associate advising representative of a registered adviser under the Legislation even though the Support Services will be provided for the benefit of only U.S. Clients or NI 35-101 Clients in accordance with applicable U.S. securities laws.
28. Each of the Registered Representatives seeks the OSC Ruling because a Registered Representative's registration as a dealing representative, advising representative or associate advising representative of a TD Registered Affiliate is only valid to the extent that the Registered Representative is acting on behalf of the TD Registered Affiliate.
29. In the absence of the Passport Decision, the Filer will be unable to continue dealing with NI 35-101 Clients following the establishment of its PS Department in Toronto because section 2.1 of NI 35-101 requires the Filer to have no office or physical presence in any jurisdiction of Canada.
The OSC is satisfied that the OSC Ruling and the Passport Decision meet the tests set out in the Legislation for the OSC to make the OSC Ruling and the Passport Decision.
The decision of the OSC under the Legislation is that the OSC Ruling and the Passport Decision are granted provided that:
(a) the Representatives working in the PS Department act on behalf of the Filer when providing the Support Services;
(b) all Support Services that are provided by the Filer and the Representatives will be provided for the benefit of only U.S. Clients or NI 35-101 Clients;
(c) all Support Services that are provided by Representatives will be provided to only the Filer and salespersons of the Filer and the Representatives will not provide any services, including Support Services, directly to either U.S. Clients or NI 35-101 Clients and, except as described in paragraph 26, they will not otherwise have any contact with U.S. Clients or NI 35-101 Clients;
(d) when providing Support Services, the Filer and the Representatives will be subject to, and will comply with, all registration and other applicable requirements of U.S. securities laws;
(e) the Filer will be registered as both a broker-dealer and an adviser with the SEC and as a member of FINRA;
(f) the Representatives will be registered as representatives of the Filer with FINRA;
(g) the Filer will have no office or physical presence in any jurisdiction of Canada other than the PS Department; and
(h) when providing Support Services for the benefit of NI 35-101 Clients, the Filer and the Representatives will comply with all terms and conditions of NI 35-101 except for the requirement that the Filer have no office or physical presence in any jurisdiction of Canada.