Industrial Alliance Investment Management Inc. and IA Investment Counsel Inc.

Decision

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 individuals to be registered with both firms. The individuals will have sufficient time to adequately serve 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.

March 5, 2019

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUEBEC AND ONTARIO
(THE JURISDICTIONS)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
INDUSTRIAL ALLIANCE INVESTMENT MANAGEMENT INC.
(IAIM)

AND

IA INVESTMENT COUNSEL INC.
(IAIC)
(IAIM and IAIC, collectively, the Filers)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from IAIM and IAIC for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement in paragraph 4.1(1)(b) 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 Gilbert Lamothe, an advising representative of IAIM, to also be registered as an advising representative of IAIC (the Relief Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a)           The Autorité des Marchés Financiers (AMF) is the principal regulator for this application;

(b)           The Filers are providing notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon; and

(c)           The decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

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.             IAIC is registered as: (i) a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan; (ii) an investment fund manager in Newfoundland and Labrador, Ontario and Québec; and (iii) an exempt market dealer in Ontario. Its head office is located in Ontario.

2.             The principal regulator of IAIC is the Ontario Securities Commission.

3.             IAIM is registered as: (i) a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan; (ii) a commodity trading Counsel in Ontario; (iii) a commodity trading manager in Ontario; and (iv) a derivative portfolio manager in Québec. Its head office is located in Québec.

4.             The principal regulator of IAIM is the AMF.

5.             The Filers are not in default of any requirement of securities legislation in any jurisdiction where they are operating.

6.             IAIC and IAIM are wholly-owned subsidiaries of the same ultimate parent, Industrial Alliance Insurance and Financial Services Inc. (IAIFS), a publicly-listed corporation on the Toronto Stock Exchange. Since each of IAIC and IAIM is under IAIFS’ common control, each is an affiliate of the other.

7.             IAIC acts primarily as a portfolio manager providing services to individuals and institutions. It also acts as the portfolio manager of investment funds managed by IAIC.

8.             IAIM acts primarily as portfolio manager to the assets of IAIFS and all of its subsidiaries, and as a portfolio manager to several investment funds managed by IA Clarington Investments Inc. (IACI), a subsidiary of IAIFS.

9.             Gilbert Lamothe is currently an advising representative of IAIM and acts as portfolio manager to several investment funds managed by IACI and segregated funds managed by IAIFS. Gilbert Lamothe is not in default of any requirement of securities legislation in any jurisdiction where he is operating.

10.          The Filers now wish that Gilbert Lamothe be dually registered as both an advising representative of IAIM and an advising representative of IAIC (Dual Registration).

11.          As an advising representative of IAIC, Gilbert Lamothe will be responsible for the management of certain investment funds offered by IAIC and to advise a small portion of its individual clients.

12.          The aim of this Dual Registration is principally to allow IAIC to benefit from Gilbert Lamothe’s expertise in investment management and allow IAIC’s high net worth clients to benefit from Gilbert Lamothe’s expertise and investment advice.

13.          This Dual Registration will help to optimize the Filers’ resources and will increase their operational efficiency.

14.          The risk of conflict of interest incurred by the Dual Registration is minimal as the investment mandates for IAIM and IAIC portfolios differ and they both strongly favor highly liquid securities. As such, the nature of the investments, which are highly liquid, makes the possibility of any potential conflict of interest very remote.

15.          Furthermore, as IAIC and IAIM are affiliated corporations, the Dual Registration will not give rise to the conflicts of interest present in a similar arrangement involving unrelated firms. The interest of IAIC and IAIM are aligned and therefore the potential for conflicts of interest is remote.

16.          The Filers are both subject to the requirements regarding conflicts of interest set out in the NI 31-103 which will be respected at all times.

17.          The Filers have in place policies and procedures to address any conflicts of interest that may arise as a result of the Dual Registration.

18.          The Filers also have compliance and supervisory policies and procedures in place to monitor the conduct of their representatives and to ensure that they can deal appropriately with any conflict of interest that may arise.

19.          Furthermore, the Filers have put in place a procedure on how the Dual Registration will be managed between them.

20.          The Dual Registration of Gilbert Lamothe will be disclosed to the Filers’ clients as set forth below, all in accordance with the requirements regarding conflicts of interest set out in the NI 31-103:

  • IAIM will send a letter to all Gilbert Lamothe’s existing clients to inform them about the Dual Registration. This letter will be sent once Gilbert Lamothe’s registration with IAIC is approved and to new clients within the initial documentation provided to them.
  • IAIC will disclose in writing the Dual Registration to all clients for whom Gilbert Lamothe will act as an advising representative. The disclosure will be done within the initial documentation provided to the client.

21.          The Filers will ensure that Gilbert Lamothe has sufficient time and resources to adequately meet his obligations and tasks towards each Filer. IAIM will reduce Gilbert Lamothe’s current workload and responsibilities, so that Gilbert Lamothe will be able to spend his time equally between both Filers.

22.          Each of the Filers will supervise the activities that Gilbert Lamothe will conduct on their behalf.

23.          In the absence of the Exemption Sought, Gilbert Lamothe would be prohibited under paragraph 4.1(1)(b) of NI 31-103 from acting as an advising representative of IAIC while also acting as an advising representative of IAIM.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision. The decision of the Decision Makers under the Legislation is that the Relief Sought is granted on the following conditions:

a.             Gilbert Lamothe is subject to supervision by, and the applicable compliance requirements of, both Filers;

b.             The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that Gilbert Lamothe has sufficient time and resources to adequately serve each Filer and its respective clients;

c.             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, and deal appropriately with any such conflicts; and

d.             The relationship between the Filers, and the fact that Gilbert Lamothe is dually registered with both Filers, is fully disclosed in writing to clients of both Filers.

“Frédéric Pérodeau”
Superintendent,
Client Services and Distribution Oversight