Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. Under paragraph 4.1(1)(b) 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 is registered as a dealing, advising or associate advising representative of another registered firm. The Filers are affiliated entities and have valid business reasons for the individual to be registered with both firms. The Filers have policies in place to handle potential conflicts of interest. 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, 15.1.

September 22, 2017

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
FIDUCIARY TRUST COMPANY OF CANADA
(FTCC)

AND

FRANKLIN TEMPLETON INVESTMENTS CORP.
(FTIC, and together with FTCC, Franklin Templeton Investments or the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from 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)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Dual-Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Mr. Ian M. Riach to be registered as an advising representative of each of FTCC and FTIC (the Relief 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; and

b)            the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each of the provinces of Canada outside of Ontario and in the Yukon Territory (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1.             FTCC is a federally-regulated trust company and registered as a portfolio manager in each of the Jurisdictions and as a commodity trading manager in Ontario. FTCC provides portfolio management services primarily to high net worth individuals and families through separately managed accounts, pooled funds and mutual funds.

2.             FTIC is registered as a portfolio manager, exempt market dealer and mutual fund dealer in each of the Jurisdictions. FTIC is also registered as an investment fund manager in each of Alberta, British Columbia, Manitoba, Newfoundland & Labrador, Nova Scotia, Ontario and Quebec and as a commodity trading manager in Ontario. FTIC is the investment fund manager of various Canadian proprietary mutual funds and pooled funds, and provides portfolio management services to those funds and certain institutional clients.

3.             FTIC is also registered as an investment adviser with the U.S. Securities and Exchange Commission (SEC).

4.             FTCC and FTIC are affiliates as FTCC is a wholly-owned subsidiary of FTIC.

5.             Mr. Riach is a Senior Vice-President and Portfolio Manager of FTIC and Director of Institutional Balanced Portfolio Management. Mr. Riach is also the Chair of the Franklin Templeton Institutional Asset Mix Committee in Canada. His primary responsibilities include portfolio management, portfolio monitoring and relationship management for institutional clients in Canada, including pension funds, foundations and endowments. He also supervises other registered portfolio managers and analytical staff. He manages portfolios in excess of CDN $1.5 billion in Canada.

6.             Mr. Riach has been registered as an advising officer since 1999 (due to the implementation of NI 31-103, his “advising officer” registration category was changed to “advising representative” effective September 28, 2009) in each of the Jurisdictions. Mr. Riach is a resident of Ontario.

7.             Franklin Templeton Investments wishes to appoint Mr. Riach as an advising representative of FTCC in respect of funds to which FTCC will act as portfolio manager (FTCC Funds), and as chief investment officer (CIO) of FTCC. However, Mr. Riach is presently only registered with FTIC and is unable to provide investment management services to FTCC clients or funds.

8.             Dual registration as an advising representative of both FTIC and FTCC would allow Mr. Riach to act as CIO of FTCC and to provide portfolio management services to clients and funds of FTCC (specifically, to advise FTCC Funds), while continuing his current roles and responsibilities at FTIC as set out above (including his portfolio management activities). Accordingly, dual registration is being requested.

9.             Mr. Riach will be subject to supervision by, and the applicable compliance requirements of, both Filers. Mr. Riach will not conduct assessment, supervision or oversight of investment management activities for FTIC-managed funds or client accounts, including by sub-advisers such as FTCC, where he has a personal role in providing those investment management services. Similarly, in the event FTCC hires FTIC to provide investment management services where Mr Riach is involved to provide those services, he will not be involved in assessment, supervision or oversight.

10.          The Filers’ Chief Compliance Officer will ensure that Mr. Riach has sufficient time and resources to adequately serve each Filer and its clients and funds.

11.          The Filers are not in default of any requirement of securities, commodity futures or derivatives legislation in any of the Jurisdictions. FTIC is in compliance in all material respects with U.S. securities laws.

12.          In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting Mr. Riach to be registered as an advising representative of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with Mr. Riach acting as an adviser for each Filer.

13.          FTCC and FTIC are affiliated and accordingly, the dual registration of Mr. Riach will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm’s length firms. The interests of the Filers are aligned as both Filers wish to leverage Mr. Riach’s knowledge, expertise and experience for the benefit of their clients and funds, therefore the potential for conflicts of interest is minimal.

14.          The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of Mr. Riach and will be able to deal appropriately with any such conflicts. Since the principal client bases of each of the Filers is different; the market segments (e.g., retail investors, high net worth individuals and families, etc.) primarily targeted by the funds of each of the Filers are different; and Mr. Riach (as FTCC’s CIO) will only manage the FTCC Funds on behalf of FTCC, the risks of conflicts of interest or client confusion are mitigated.

15.          All accounts managed by Franklin Templeton portfolio managers (i.e., the Filers and their affiliates that are also portfolio managers) adhere to a common Franklin Templeton trade allocation policy to ensure that investment opportunities suitable for funds and clients of all Franklin Templeton portfolio managers, including the Filers, are allocated between them fairly.

16.          Once registered as an advising representative of FTCC, Mr. Riach will be engaging in functionally similar types of activities as he currently carries on within the Franklin Templeton Investments group of companies. The Filers are confident that Mr. Riach will continue to have sufficient time to adequately serve both firms, their clients and funds.

17.          The relationship between FTCC and FTIC, and the fact that Mr. Riach is dually registered with both FTCC and FTIC, will be fully disclosed, in writing or verbally, to clients and funds of each of FTCC and FTIC that deal with Mr. Riach.

Decision

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 Relief Sought is granted provided that (a) the representations described above in paragraphs 9, 14, 15, 16 and 17 remain true, and (b) the Relief Sought shall cease to be effective when either for the following apply:

(i)            Mr. Riach is no longer registered in any of the Jurisdictions as an advising representative of FTCC;

(ii)           Mr. Riach is no longer registered in any of the Jurisdictions as an advising representative of FTIC.

“Elizabeth King”
Deputy Director,
Compliance and Registrant Regulation
Ontario Securities Commission