Securities Law & Instruments


Headnote

Application for an order pursuant to section 74 of the Securities Act (Ontario) that a registered U.S. investment adviser, affiliated with an Ontario registered investment dealer, be exempted, subject to certain conditions, from requirements of subsection 25(3) of the Act in respect of advice provided by its representatives in respect of the tax-advantaged retirement savings, education savings or disability savings plans of ex-U.S. clients.

Applicable Legislative Provisions

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., s. 25(3).

December 2, 2016

IN THE MATTER OF
THE SECURITIES ACT,
RSO 1990, c S.5, AS AMENDED
(THE ACT)

AND

IN THE MATTER OF
RICHARDSON GMP LIMITED AND
RICHARDSON GMP (USA) LIMITED

ORDER
(SUBSECTION 74(1) OF THE ACT)

                WHEREAS the Ontario Securities Commission (the Commission) has received an application from Richardson GMP Limited (RGMP Canada) and Richardson GMP (USA) Limited (RGMP USA) (collectively, the Filers) for a decision pursuant to subsection 74(1) of the Act for the Requested Exemptive Relief, as defined below.

                AND WHEREAS the Filers seek a decision exempting RGMP USA and those of its individual representatives who are also registered under the Act as dealing representatives, in the approval category of portfolio management, of RGMP Canada (the Dual Representatives) from the adviser registration requirement of subsection 25(3) of the Act in respect of advice provided by the Dual Representatives, acting on behalf of RGMP USA, to an individual (the Ex-U.S. Client) if the advice is in respect of the Ex-U.S. Client’s tax-advantaged retirement savings, education savings or disability savings plan (the U.S. Plan), and (i) the U.S. Plan is located in the United States of America (the U.S.), (ii) the Ex-U.S. Client is a holder of or contributor to the U.S. Plan, and (iii) the Ex-U.S. Client was previously resident in the U.S. (the Requested Exemptive Relief).

                AND WHEREAS terms defined in National Instrument 14-101 Definitions have the same meaning if used in this order, unless otherwise defined.

                AND WHEREAS the Filers having represented to the Commission that:

1.             RGMP Canada is a privately-held corporation incorporated under the federal laws of Canada. Its head office is located in Toronto, Ontario.

2.             RGMP Canada carries on business in Ontario (the Jurisdiction) and British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Other Jurisdictions), with offices located in the Jurisdiction and each of the Other Jurisdictions (other than New Brunswick, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut).

3.             RGMP Canada provides a broad array of wealth management services to residents of Canada, including financial planning, wills and estates planning, tax planning, insurance planning, and brokerage services.

4.             RGMP Canada is registered as an investment dealer in the Jurisdiction and each of the Other Jurisdictions and as a derivatives dealer in Quebec. It is a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).

5.             RGMP Canada is not in default of securities legislation in any jurisdiction of Canada.

6.             RGMP Canada does not trade (or provide advice with respect to the trading) in securities to, with, or on behalf of clients resident in the U.S. (U.S. Clients) (other than in respect of tax-advantaged retirement savings, education savings or disability savings plans (RSPs) held by U.S. Clients who were formerly resident in Canada and who have moved to the U.S. with RSPs).

7.             RGMP Canada is not registered under U.S. federal securities law or any other applicable U.S. securities law to (and does not) carry on the business of a registered broker-dealer or registered investment adviser in the U.S.

8.             RGMP USA is a wholly-owned subsidiary of RGMP Canada incorporated under the federal laws of Canada. Its head office is located in Toronto, Ontario.

9.             At this time, RGMP USA has no physical presence in the U.S., but carries on business in the Jurisdiction and each of the Other Jurisdictions (other than Saskatchewan, New Brunswick, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut), with offices located in the Jurisdiction and each of the Other Jurisdictions in which RGMP Canada has offices.

10.          The Filers operate their businesses out of the same premises in the Jurisdiction and each of the Other Jurisdictions (other than New Brunswick, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (where neither Filer maintains an office) and (in the case of RGMP USA) Saskatchewan).

11.          RGMP USA provides a broad array of wealth management services to U.S. Clients in reliance upon Ontario Securities Commission Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisors Servicing U.S. Clients from Ontario, including financial planning, wills and estates planning, tax planning, insurance planning and brokerage services.

12.          RGMP USA is registered as an investment adviser under the Investment Advisers Act of 1940 (United States) (the 1940 Act).

13.          RGMP USA is not in default of securities legislation of any jurisdiction of Canada, U.S. federal securities law or any other applicable U.S. securities law.

14.          RGMP USA is not registered under the securities laws of any jurisdiction of Canada.

15.          RGMP USA has engaged Pershing Advisor Solutions LLC (Pershing Advisor Solutions) for trading, custody, clearing and settlement services pursuant to the terms of an investment advisor agreement dated March 19, 2013, as amended from time to time (the Investment Advisor Agreement).

16.          In accordance with the provisions of the Investment Advisor Agreement, Pershing LLC (Pershing), an affiliate of Pershing Advisor Solutions, carries RGMP USA’s client accounts and provides prime brokerage services to the clients of RGMP USA.

17.          Pershing Advisor Solutions is an introducing broker-dealer, a Delaware limited liability company and a member of the Financial Industry Regulatory Authority (FINRA). Pershing is a broker-dealer and securities clearing firm, a Delaware limited liability company, and a member of FINRA and the New York Stock Exchange.

18.          Each of the Dual Representatives acts on behalf of both Filers in one of the Filers’ offices located in the Jurisdiction or one of the Other Jurisdictions in which the Filers maintain offices. Each Dual Representative is registered as a dealing representative of RGMP Canada in one or more of the Jurisdiction and the Other Jurisdictions.

19.          None of the Dual Representatives is in default of securities legislation of any jurisdiction of Canada, U.S. federal securities law, or any other applicable U.S. securities law.

20.          Each Dual Representative, when acting on behalf of RGMP Canada, advises only clients of RGMP Canada resident in the jurisdiction(s) of his or her registration as a dealer and U.S. Clients formerly resident in Canada in respect of their RSPs.

21.          When acting on behalf of RGMP USA, each Dual Representative currently advises only U.S. Clients.

22.          RGMP USA and the Dual Representatives, acting on behalf of RGMP USA, desire to advise Ex-U.S. Clients with respect to the trading of securities in their U.S. Plans despite their residency in the Jurisdiction. A Dual Representative, acting on behalf of RGMP USA, would only advise Ex-U.S. Clients resident in the Jurisdiction if he or she is registered as a dealing representative of RGMP Canada in the Jurisdiction.

23.          The advice that RGMP USA provides to Ex-U.S. Clients will be ancillary to RGMP USA’s principal business which is advising U.S. Clients.

24.          RGMP USA expects that the amount of revenue derived from Ex-U.S. Clients will represent approximately 8% of its total revenue. If the revenue derived from Ex-U.S. Clients exceeds 10% of its total revenue, RGMP USA will file forthwith a letter to the Commission advising of the same. The letter will refer to this order and this requirement, the percentage of the revenue derived from Ex-U.S. Clients, and the date on which the revenue exceeded 10% of its total revenue. The letter will also refer to the date on which the exceeded threshold was discovered.

25.          The Dual Representatives have the proficiency, education and experience to provide advice to Ex-U.S. Clients with respect to the trading of securities in their U.S. Plans.

26.          Pershing Advisor Solutions will provide trading, custody, clearing and settlement services for all Ex-U.S. Clients of RGMP USA (in respect of their U.S. Plans) pursuant to the Investment Advisor Agreement.

27.          Pershing Advisor Solutions relies upon the exemption from the dealer registration requirement of the securities laws of each Jurisdiction under section 8.18 of National Instrument 31-103 (NI 31-103) Registration Requirements, Exemptions and Ongoing Registrant Obligations in connection with inter alia trades in “foreign securities” with a “permitted client” (each as defined in NI 31-103). Accordingly, RGMP USA and the Dual Representatives will only advise Ex-U.S. Clients who are “permitted clients” with respect to the trading of “foreign securities” (each as defined in NI 31-103) in their U.S. Plans while Pershing carries, and provides prime brokerage services to, those accounts (unless Pershing registers as an investment dealer in the Jurisdiction or seeks exemptive relief sufficient to permit it to trade in Canadian securities and/or to permit it to trade with or for residents of Canada who are not “permitted clients” (as defined in NI 31-103)).

28.          When providing advice to Ex-U.S. Clients with respect to the trading of securities in their U.S. Plans, RGMP USA and the Dual Representatives will comply with U.S. federal securities law and any other applicable U.S. securities law.

29.          For purposes of the Act, and as a market participant, each of the Filers is required by subsection 19(1) of the Act to: (i) keep such books, records and other documents as are necessary for the proper recording of its business transactions and financial affairs, and the transactions that it executes on behalf of others; and (ii) keep such books, records and documents as may otherwise be required under the Act.

30.          All Ex-U.S. Clients of RGMP USA will enter into a customer agreement and associated account opening documentation with RGMP USA. All communications with Ex-U.S. Clients will be through RGMP USA and the Dual Representatives, and will be under RGMP USA branding.

31.          To avoid client confusion, all Ex-U.S. Clients of RGMP USA will receive disclosure that explains the relationship between RGMP USA and RGMP Canada.

32.          RGMP USA confirms that there are currently no regulatory actions of the type contemplated by the Notice of Regulatory Action attached as Appendix “B” hereto in respect of RGMP USA or any predecessors or specified affiliates of RGMP USA.

                AND WHEREAS upon being satisfied that it would not be prejudicial to the public interest for the Commission to grant the Requested Exemptive Relief on the basis of the terms and conditions proposed,

                IT IS ORDERED that pursuant to subsection 74(1) of the Act, the Requested Exemptive Relief is granted, provided that:

(a)           the advice is for an individual’s U.S. Plan, and

i.              the U.S. Plan is located in the U.S.,

ii.             the individual is a holder of or contributor to the U.S. Plan, and

iii.            the individual was previously resident in the U.S.;

(b)           RGMP USA does not advertise for or solicit new clients in the Jurisdiction;

(c)           RGMP USA remains registered as an investment adviser under the 1940 Act;

(d)           RGMP USA and each of the Dual Representatives are in compliance with and remain in compliance with any applicable adviser licensing or registration requirements under applicable securities legislation of the U.S.;

(e)           RGMP Canada remains registered under the Act as an investment dealer and is a dealer member of IIROC;

(f)            each Dual Representative providing the advice on behalf of RGMP USA is registered under the Act as a dealing representative in a category that would permit it to advise Ex-U.S. Clients with respect to the trading of securities in their U.S. Plans in compliance with the Act, if the U.S. Plans were instead tax-advantaged retirement savings plan located in Canada;

(g)           each Filer notifies the Commission of any regulatory action after the date of this order in respect of the Filer, or any predecessors or specified affiliates of the Filer by completing and filing Appendix B hereto with the Commission within 10 days of the commencement of such action;

(h)           RGMP USA discloses to the Ex-U.S. Clients that it (and the Dual Representatives providing advice on its behalf) are not subject to full regulatory requirements otherwise applicable under the Act;

(i)            RGMP USA and the Dual Representatives, in the course of their dealings with Ex-U.S. Clients, act fairly, honestly and in good faith;

(j)            RGMP USA:

i.              enters into customer agreements and associated account opening documentation with all Ex-U.S. Clients, such that all communications with Ex-U.S. Clients will be through RGMP USA and the Dual Representatives, and will be under RGMP USA branding;

ii.             provides all Ex-U.S. Clients with disclosure that explains the relationship between RGMP USA and RGMP Canada;

(k)           the execution of each trade identified or recommended by RGMP USA (and each Dual Representative providing the advice on its behalf) for an Ex-U.S. Client resident in the Jurisdiction will be conducted by a person registered as a dealer under the Act in a category that would permit them to execute the trade or otherwise exempt them from the dealer registration requirement of the Act for purposes of the trade; and

(l)            this Order will terminate on the earlier of:

(i)            five years after the date of this Order; and

(ii)           the coming into force of a change in Ontario securities law (as defined in the Act) that exempts RGMP USA from the registration requirement in the Act in connection with the advice it provides to an Ex-U.S. Client with respect to the U.S. Plan on terms and conditions other than those set out in this Order.

                DATED at Toronto this 2nd day of December, 2016.

“Monica Kowal”
Commissioner
Ontario Securities Commission

“Edward P. Kerwin”
Commissioner
Ontario Securities Commission

 


APPENDIX “B”

NOTICE OF REGULATORY ACTION

1.             Has the firm, or any predecessors or specified affiliates of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____             No _____

If yes, provide the following information for each settlement agreement:

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

2.             Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

 

Yes

No

(a)           Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

____

____

(b)           Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

____

____

(c)           Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

____

____

(d)           Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

____

____

(e)           Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

____

____

(f)            Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

____

____

(g)           Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

____

____

If yes, provide the following information for each action:

Name of Entity

Type of Action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

Jurisdiction

3.             Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?

Yes _____             No _____

If yes, provide the following information for each investigation:

Name of entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

 

Name of firm

Name of firm’s authorized signing officer or partner

Title of firm’s authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings