[Editor's note: This order was inadvertently not published in the Bulletin at the time of issuance by the Director in November 2014. It should be cited as Re RP Investment Advisors et al. (2014), 38 OSCB 5943.]
Under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual acts as an officer, partner or director of another registered firm that is not an affiliate of the first-mentioned firm. The Filers require relief in order to permit a registered representative of one registered firm to also act as a director of another unaffiliated registered firm. The individual had a prior longstanding relationship with the unaffiliated firm as a member of its independent review committee. The individual will have sufficient time to adequately serve both firms. Conflicts of interest are mitigated by the firms having generally different client bases and products; neither firm managing, advising on or distributing any units of the funds of the other firm; the individual not being involved in or privy to any investment decision-making or investment strategy for, or involved in day-to-day operations of, the unaffiliated firm; the individual having no client contact at the unaffiliated firm; and the individual not acting as a "typical salesperson" although being registered as a dealing representative. The firms have policies in place to handle potential conflicts of interest. Disclosure of this relationship will be made in certain documentation provided to clients of each firm. The Filers are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1, 13.4, 15.1.
November 4, 2014
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 RP INVESTMENT ADVISORS (RPIA) AND IN THE MATTER OF FIDELITY INVESTMENTS CANADA ULC (Fidelity) AND ANDREW MCKINNON PRINGLE
The principal regulator in the Jurisdiction has received an application from RPIA and Fidelity (together, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the restriction under paragraph 4.1(1)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), pursuant to section 15.1 of NI 31-103, to permit Andrew McKinnon Pringle (the Representative) to be registered as a dealing representative of RPIA and to act as a director of Fidelity (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,
(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 by the Filers in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and Nova Scotia (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filers:
1. RPIA is a general partnership formed under the laws of Ontario with its head office in Toronto, Ontario.
2. RPIA is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario, as an investment fund manager, portfolio manager and exempt market dealer in Quebec and as an exempt market dealer in British Columbia, Alberta, Saskatchewan, Manitoba and Nova Scotia.
3. RPIA is an alternative fixed income asset manager specializing in active investment grade credit funds and interest rate management. RPIA provides investment management services and investment products to non-retail clients including high net worth investors, family offices and institutional clients. RPIA acts as fund manager and portfolio manager to four investment strategies offered to investors pursuant to exemptions from the prospectus requirements under Canadian securities legislation (the "RP Funds"). Pursuant to its exempt market dealer registration, RPIA also markets and distributes units of the RP Funds to high net worth investors, family offices and institutional clients. RPIA does not manage, advise, or distribute any units of, the Fidelity Funds (as defined below).
4. Fidelity is a corporation continued under the laws of Alberta as an unlimited liability company with its head office in Toronto, Ontario.
5. Fidelity is registered as an investment fund manager, portfolio manager, mutual fund dealer and commodity trading manager in Ontario, as an investment fund manager, portfolio manager and mutual fund dealer in Quebec and Newfoundland and Labrador, and as a portfolio manager and mutual fund dealer in the remaining provinces and territories of Canada.
6. Fidelity is the fund manager for a wide variety of mutual funds offered under a simplified prospectus and pooled funds (collectively, the "Fidelity Funds"). Fidelity acts as portfolio manager for a number of the Fidelity Funds in addition to providing discretionary portfolio management services for other institutional clients. Fidelity does not manage, advise, or distribute any units of, the RP Funds.
7. The Filers are not affiliates.
8. The Representative was a member of the Independent Review Committee of Fidelity (the "Fidelity IRC") for approximately 7 years until February 2014. This outside business activity was appropriately disclosed to the applicable regulators on the National Registration Database. The Representative has not acted as a director, officer, or employee of Fidelity prior to the date of this decision.
9. The Representative is currently registered as a dealing representative of RPIA in all Jurisdictions. The Representative is also approved as a partner and shareholder of RPIA in all Jurisdictions.
10. It is proposed that the Representative be appointed as a director of Fidelity. In such capacity, the Representative will be involved in both the fund governance and oversight of the business of Fidelity as manager and/or trustee of funds, pools and other products offered by Fidelity for both its retail mutual fund business and its institutional business. For clarity, the Representative will not be involved in day-to-day operations of Fidelity or the Fidelity Funds as such activities will continue to be the responsibility of the executive management and employees of Fidelity.
11. In addition to the Representative's knowledge and industry expertise, during his time on the Fidelity IRC, the Representative provided wise counsel on a number of issues and Fidelity wishes to continue to have access to such guidance on a going forward basis. RPIA is amenable to the appointment because it does not believe that there are any investor protection issues that would arise from the appointment.
12. The registered advising representatives of Fidelity's sub-advisers, and specifically not the Representative in his capacity as a director of Fidelity, will be responsible for making all portfolio management decisions for the Fidelity Funds. In addition, the mandate of the Board of Directors of Fidelity is solely fund governance as corporate governance is done at the parent company holding level pursuant to a unanimous shareholders agreement. The Fidelity IRC, which no longer includes the Representative, will continue to review any conflicts of interest that may arise between the fund manager's individual interests and the fund manager's duty to manage the Fidelity Funds in the best interests of the Fidelity Funds.
13. RPIA, Fidelity and the Representative are not in default of any requirement of securities, commodities or derivatives legislation in any of the Jurisdictions.
14. The Representative has had, and will continue to have, sufficient time and resources to meet his obligations to both RPIA and Fidelity.
15. The potential for conflicts of interest or client confusion due to the Representative acting as a dealing representative of RPIA and as a director of Fidelity are mitigated by the following:
a. the firms have generally different client bases and products;
b. RPIA offers only prospectus exempt funds primarily to high net worth clients;
c. Fidelity primarily offers prospectus qualified funds to retail investors and also offers prospectus exempt funds to institutional investors;
d. each firm does not manage, advise, or distribute any units of, the funds of the other firm;
e. the Representative is not involved in or privy to any investment decision-making or investment strategy for, or involved in day-to-day operations of, Fidelity;
f. the Representative will have no client contact in connection with his role at Fidelity;
g. the Representative is not employed as a typical dealing representative, he does not receive commissions, and his activities as a dealing representative are limited to the passive marketing of the RP Funds on an occasional basis to RPIA's clients (activities that would be typical of a founder of a firm); and
h. the Representative, as a former member of the Fidelity IRC, understands conflicts of interest issues and appropriate ways to resolve them.
16. The Filers have in place written policies and procedures to address any potential conflicts of interest that may arise as a result of the dual role of the Representative with RPIA and with Fidelity, and the Filers believe that they will be able to appropriately deal with these conflicts. These policies and procedures are expected to be similar to the policies and procedures that both RPIA and Fidelity already have in place to deal with any potential conflicts of interest that may have arisen as a result of the Representative acting as a dealing representative of RPIA and sitting on the Fidelity IRC. In addition, the Representative will be subject to Fidelity's Code of Ethics (which includes personal trading policies and procedures).
17. The Representative will be subject to supervision by, and the applicable compliance requirements of, both Filers.
18. RPIA has compliance and supervisory policies and procedures in place to monitor the conduct and outside business activities of its registered representatives (including the Representative) and to ensure that RPIA can deal appropriately with any conflict of interest that may arise.
19. The Representative's employment and registration status with RPIA and his position on the Board of Directors of Fidelity will be fully and clearly disclosed to investors in the applicable annual information form or offering memorandum, as applicable, for each of the RP Funds and the Fidelity Funds.
20. Each of RPIA and Fidelity are subject to the restrictions and requirements in Part 13 of NI 31-103 regarding conflict of interest matters, except as follows. Section 13.4 of NI 31-103 does not apply to Fidelity as the investment fund manager to certain Fidelity Funds that are subject to the requirements of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) because these funds must instead comply with the requirements in NI 81-107 relating to conflict of interest matters, inter-fund trades and transactions in securities of related issuers.
21. In the absence of the Exemption Sought, RPIA would be prohibited under paragraph 4.1(1)(a) of NI 31-103 from permitting the Representative to act as a dealing representative of RPIA and be a director of Fidelity.
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 (a) the circumstances described above remain in place, and (b) the Exemption Sought shall cease to be effective when:
(i) the Representative is no longer registered in any of the Jurisdictions as a dealing representative of RPIA; or
(ii) the Representative is no longer a director of Fidelity.