NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the Dealer Registration Requirement to permit trades in units of prospectus-qualified funds managed by affiliate entities to clients under a discretionary managed account agreement.
Applicable Legislative Provisions
Securities Act (Ontario), ss. 25 and 74(1).
September 28, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CIBC PRIVATE INVESTMENT COUNSEL INC.
THE IMPERIAL POOLS LISTED IN SCHEDULE A
THE RENAISSANCE FUNDS LISTED IN SCHEDULE B
THE CIBC POOLED FUNDS LISTED IN SCHEDULE C
The securities regulatory authority or regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) granting an exemption to the Filer from the dealer registration requirements in respect of trades in units of the mutual funds set out in Schedule A hereto (the Existing Imperial Pools) and any mutual funds established in the future as part of the group of Imperial Pools (the Future Imperial Pools and together with the Existing Imperial Pools, the Imperial Pools), Class O units of the mutual funds set out in Schedule B hereto (the Existing Renaissance Funds) and any mutual funds established in the future as part of the group of Renaissance Funds (the Future Renaissance Funds and together with the Existing Renaissance Funds, the Renaissance Funds) and the mutual funds set out in Schedule C hereto (the Existing CIBC Pooled Funds) and any mutual funds established in the future as part of the group of CIBC Pooled Funds (the Future CIBC Pooled Funds and together with the Existing CIBC Pooled Funds, the CIBC Pooled Funds),(the Imperial Pools, the CIBC Pooled Funds and the Renaissance Funds together, the Funds) to the clients of the Filer (the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Ontario Securities Commission is the principal regulator for the application for the CPIC Requested Dealer Relief;
(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 respect of the Requested Dealer Relief in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Canada and has its head office in Toronto, Ontario. The Filer is registered as an adviser and is a portfolio manager under the securities legislation of each jurisdiction of Canada. It was also registered as a limited market dealer in Ontario and Newfoundland and Labrador and automatically became an exempt market dealer (EMD) when National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) came into effect. In the jurisdictions other than Ontario and Newfoundland and Labrador, it has relied, under the transition provision in section 16.7 of NI 31-103, on the temporary exemption from the dealer registration requirement when acting in the exempt market. This temporary exemption expires on September 28, 2010.
2. If the Requested Relief is granted, the Filer will drop its EMD registration in Ontario and Newfoundland and Labrador, making its registration status consistent across all jurisdictions.
3. The Filer is not in default of the securities legislation of any jurisdiction of Canada.
4. Each of the Funds is or will be an open-ended mutual fund trust established under the laws of the Province of Ontario.
5. The Funds are used as tools to provide the investment management services to the clients of the Filer.
6. None of the Imperial Pools or CIBC Pooled Funds pay investment management fees nor do the Renaissance Funds pay management fees in respect of their Class O units. Investment management fees of the Filer's clients are paid under the managed account agreements (Managed Account Agreements).
7. Trades in units of the Funds on behalf of the Filer's clients, are effected through the Filer acting as the dealer, in reliance on its exempt market dealer registration in Ontario and Newfoundland and Labrador, or the temporary exemption from the dealer registration requirement in the other jurisdictions, as described above.
8. None of the Imperial Pools or CIBC Pooled Funds charge, nor do the clients pay, a sales commission or other fees in respect of trades in units of the Funds nor do the Renaissance Funds pay sales commissions in respect of their Class O units.
9. The Imperial Pools are reporting issuers in each of the jurisdictions of Canada.
10. The Imperial Pools are currently purchased on behalf of clients under Managed Account Agreements with the Filer and are also purchased on behalf of managed account clients of CIBC Trust Corporation (CIBC Trust) and in certain cases on behalf of clients of CIBC Global Asset Management Inc. (CGAM).
11. CIBC is the investment fund manager of the Imperial Pools and in that capacity provides, or arranges to provide for, the administration of each Imperial Pool. CIBC Asset Management Inc. (CAMI), an affiliate of CIBC and of the Filer, is the portfolio manager of the Imperial Pools. CAMI may retain portfolio sub-advisers, including CGAM, to provide portfolio management services to the Imperial Pools. CIBC Trust is the trustee and CIBC Mellon Trust Company is the custodian.
12. Clients of the Filer pay fees to the Filer, the Filer is responsible for paying the fees to CAMI for its services, and CAMI in turn is responsible for the fees of any sub-adviser.
13. The Renaissance Funds are reporting issuers in each of the jurisdictions of Canada. The Class O units of the Renaissance Funds are offered to certain investors, including institutional investors or segregated funds, fund of funds and investors where dealers or discretionary managers such as the Filer offer separately managed accounts or similar programs. Some of these investors may not qualify for any applicable private placement exemptions.
14. Although currently there are more than 40 Renaissance Funds which may offer Class O units, not all of these Funds are used for the accounts of CPIC Clients.
15. The Renaissance Funds are purchased by the Filer on behalf of clients with a Managed Account Agreement with the Filer.
16. CAMI is the manager of the Renaissance Funds and in that capacity provides, or arranges to provide for, the administration of each Renaissance Fund. CAMI is also the portfolio adviser of the Renaissance Funds. CAMI may retain portfolio sub-advisers, including CGAM, to provide portfolio management services to the Renaissance Funds. CAMI is the trustee and CIBC is the custodian.
17. No management fees or operating expenses are charged in respect of the Class O units of the Renaissance Funds; instead a negotiated management fee is charged by CAMI directly to, or as directed by, the Class O unitholders or the Filer on behalf of the Class O unitholders.
18. The Filer is responsible for paying the negotiated management fees to CAMI for its services and CAMI in turn is responsible for the fees of any sub-adviser.
CIBC Pooled Funds
19. The CIBC Pooled Funds are not reporting issuers in the Jurisdictions.
20. The CIBC Pooled Funds are purchased on behalf of clients with a Managed Account Agreement with the Filer and on behalf of clients of CGAM.
21. CGAM is both the investment fund manager and portfolio manager of each CIBC Pooled Fund and in that capacity is responsible for the administration of each CIBC Pooled Fund and the investment decisions made on behalf of each CIBC Pooled Fund. CIBC Mellon Trust Company is the trustee and custodian.
22. Each of the CIBC Pooled Funds either pay all administration fees and expenses relating to its operation or CGAM waives and/or absorbs such fees and expenses.
Investment Management Services
23. CIBC is in the business of offering investment management services to both individual and institutional clients. It uses different affiliates to do so, including the Filer, in order to focus its services appropriately for the relevant client groups.
24. The principal components of the investment management services include:
(i) advisory services specific to clients, including discussing their investment needs and goals and reflecting those in a statement of investment policy (SIP) ;
(ii) selection of portfolio securities;
(iii) if funds are used to carry out the client's SIP, the establishment and operation of such funds.
25. CPIC Clients (as defined below) may be referred to the Filer from within the CIBC group of companies. Referral fees are paid to firms within the CIBC group of companies for the referral of a client in relation to the value of the assets that the client transfers to the Filer. The Filer currently does not pursue external referrals to any extent.
26. When potential clients approach the Filer or are approached by the Filer through client service representatives, it is to seek or solicit investment management services including understanding how portfolios are managed generally. When the client has determined to proceed with investment management services, discussions of how the clients' own assets will be managed occur, including the ability to carry out the SIP through relevant Funds. The client understands and is looking for more than what the client would receive if the client simply purchases Funds.
27. While the various segments of the investment management services are carried out in different entities, the investment management business for each client category is one integrated business of CIBC.
28. When a client selects investment management services from the Filer, the Filer is responsible not only for know-your-client and suitability reviews like a dealer but also takes on the responsibility of selection. There is also advice rendered to the client but, in the case of discretionary portfolio management services, the decision is clearly made by the portfolio manager and not the client. The Funds are a tool to deliver the investment management services required by the Filer, as portfolio manager, for its clients. They are not sold to investment management clients.
29. The Filer offers fully discretionary investment management services pursuant to a Managed Account Agreement and such Managed Account Agreement authorizes the use of funds to carry out the SIP of the client.
30. If a CIBC client is seeking investment management services and generally has at least one million dollars to place as assets under management, the client may be referred to the Filer (CPIC Clients).
31. As the client base of the Filer is clients whose investment assets can differ significantly, the Filer may use the Imperial Pools, the CIBC Pooled Funds and the Class O units of the Renaissance Funds.
32. As a best practice, the prospectus of the Imperial Pools and Renaissance Funds is provided to clients when they enter into a Managed Account Agreement as part of the client welcome package. While the clients receive the Imperial Pools and Renaissance Funds prospectuses, they are not asked to participate in the selection of the Imperial Pools and Renaissance Funds - that is what the Filer does as part of the discretionary investment mandate given to it.
Requested Dealer Relief
33. The Filer is seeking the Requested Relief for the same fundamental reasons behind the relief available pursuant to section 8.6 of NI 31-103, namely that the Filer is in the business of providing discretionary investment management services and not in the business of trading funds. No commissions or fees (other than its investment management fees payable to the Filer by its clients) are payable to the Filer on the purchase of units of the Funds, and no commissions or other fees are payable by the Filer's clients in connection with the Filer's investments in the Funds on its clients' behalf.
34. The Filer does not qualify for the relief under section 8.6 of NI 31-103 for the following reasons:
(i) the Imperial Pools, the CIBC Pooled Funds and the Renaissance Funds are not managed nor advised by the Filer, but by affiliates of the Filer;
(ii) the Imperial Pools and the Class O units of the Renaissance Funds are offered by prospectus.
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Requested Relief is granted provided that the Filer is, at the time of trade, registered under the Legislation as an adviser in the category of portfolio manager.