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. A maximum of 10 individuals may be dually registered at any point in time pursuant to the exemption. 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.

November 23, 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

MD FINANCIAL MANAGEMENT INC.

(MD FINANCIAL)

AND

MD MANAGEMENT LIMITED

(MD MANAGEMENT, and together with

MD FINANCIAL, 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 Richard Switzer (the Representative), who is currently an advising representative of MD Financial, and future individuals registered as advising representatives or associate advising representatives of MD Financial to each be registered as dealing representatives of MD Manage-ment. Conversely, the Filers also seek relief from the Dual-Registration Restriction for the future individuals registered as dealing representatives of MD Management to each be registered as advising representatives of MD Financial (the Relief Sought). For clarity, the Relief Sought will apply to the Representative and up to nine (9) additional represen-tatives. The up to nine (9) additional representatives will be comprised of future individuals registered as advising representatives or associate advising representatives of MD Financial, and future individuals registered as dealing representatives of MD Management (collectively, the Future Representatives).

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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filers in each jurisdiction of Canada outside of Ontario (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.             MD Financial is registered as a portfolio manager in each of the provinces and territories of Canada and is registered in Ontario in the category of exempt market dealer, commodity trading manager and investment fund manager. MD Financial is also registered as an investment fund manager in the provinces of Quebec and Newfoundland and Labrador. The head office of MD Financial is located in Ontario.

2.             MD Financial manages two families of mutual funds that are each offered by simplified prospectus – being the MD family of mutual funds, primarily distributed by MD Management, and the MDPIM family of mutual funds (collectively, MD Family of Funds), which are available to discretionary managed account clients of MD Financial through its division known as MD Private Investment Counsel (MDPIC). MD Financial also manages a pooled fund (MDPIM Pooled Fund) that is distributed pursuant to applicable prospectus exemptions, primarily to its MDPIC managed account clients.

3.             MD Management is registered as an investment dealer in each province and territory of Canada and is a member of the Investment Industry Regulatory Organization of Canada (IIROC). The head office of MD Management is located in Ontario.

4.             Since MD Financial directly holds all of the issued and outstanding shares of MD Management, each such entity is an affiliate of the other. Both MD Financial and MD Management are part of the Canadian Medical Association (CMA) group of companies.

5.             MDPIC, a division of MD Financial, offers investment advice and portfolio management services to clients that have discretionary asset managed accounts.

6.             MD Management offers primarily “advisory” services to its clients, being non-discretionary accounts, as well as financial planning and life insurance products (through its dually licenced representatives).

7.             Clients of both MD Management and MD Financial must be “qualified eligible clients”, which is defined primarily as physicians and their families who are members of the CMA, or clients who are sponsored by such members.

8.             MD Financial has decided to establish a new Private Client Program (the New Program) for its most affluent of clients – being those clients with investable assets above the specified minimums for the New Program. Under the New Program, MD Financial will offer customized and holistic financial planning and an enhanced service model to clients that have complex financial needs and the applicable levels of investable assets.

9.             The New Program is unrelated to the activities of MD Financial as investment fund manager and portfolio manager of the MD Family of Funds and the MDPIM Pooled Fund. None of the MD Family of Funds and the MDPIM Pooled Fund will be a client of the Representative or the Future Representatives in the New Program.

10.          Clients participating in the New Program will have one point of contact within MD Financial – who will advise the clients on their advisory accounts with MD Management and their discretionary accounts with MD Financial, as well as assist them with any tax planning, estate and trust planning, legal issues (for instance, incorporation strategies), insurance or other financial planning matters. The single client contact will coordinate all financial planning needs for the clients participating in the New Program, by referring the client to MD experts or to outside experts that have been vetted by MD Financial.

11.          From an investment perspective, the New Program clients may continue to have an advisory account with MD Management, as well as an MDPIC managed account with MD Financial. The single client contact will coordinate these investment accounts, and the client will not liaise with any other individual registrant.

12.          Initially the Representative will be the primary single client contact, but MD Financial expects that up to nine (9) additional individuals located in provinces outside of Ontario may also be so employed by MD Financial and MD Management.

13.          The Representative is currently registered as an advising representative of MD Financial. He is authorized to manage client relationships with high net worth individuals for discretionary portfolio management services (the MDPIC managed accounts). He is resident in Ontario. The Representative is familiar with the business model of the CMA group of companies, including that of MD Management. MD Management intends to put forward his registration with IIROC as a dealing representative so that he can work with the New Program clients in respect of their accounts with MD Management.

14.          It is expected that the Representative, and the Future Representatives, as the single client contact under the New Program, will be:

a.             the single point of contact for clients participating in the New Program;

b.             responsible for providing the highest levels of service to clients of the New Program; and

c.             qualified, under NI 31-103 and applicable IIROC rules, to be registered as an advising representative or associate advising representative with MD Finan-cial, and also as a dealing representative (registered representative) with MD Management and will seek such dual registration.

15.          The Representative and the Future Representatives will be subject to supervision by, and the applicable compliance requirements of, both Filers.

16.          The Chief Compliance Officer and Ultimate Designated Person of each Filer will ensure that the Representative and Future Representatives have sufficient time and resources to adequately serve each Filer and the clients in the New Program.

17.          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 the Representative and the Future Representatives, and will be able to deal appropriately with any such conflicts.

18.          The Filers are not in default of any requirement of securities legislation in any Canadian jurisdiction.

19.          MD Financial is not in default of any requirement of commodity futures legislation or derivatives legislation.

20.          In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representative and Future Representatives to act both as an advising representative or associate advising represen-tative of MD Financial as well as a dealing representative (registered representative) of MD Management, even though the Filers are affiliates and have controls and compliance procedures in place to deal with their advising and/or dealing activities. Both MD Financial and MD Management consider that the concept of the Representative and the Future Representatives being the single point of contact for clients in the New Program to be in the best interests of those clients.

21.          The effective delivery of the New Program depends on the industry experience and proficiency of the Representative and Future Representatives that are registered with both Filers.

22.          There are valid business reasons for the Representative and the Future Representatives to be registered with both Filers.

23.          MD Management is wholly-owned by MD Financial and accordingly, the dual registration of the Representative and the Future Represen-tatives will not give rise to the conflicts of interest present in a similar arrangement involving unrelated, arm’s length firms. The interests of MD Financial and MD Management are aligned in conjunction with the New Program. The role of the Representative and the Future Representatives will be to support the business activities and interests of both MD Financial and MD Management in connection with the New Program, as well as the clients who participate in the New Program, and accordingly no conflicts of interest arise from the dual registration.

24.          The Representative and the Future Represen-tatives will have a sole focus on clients in the New Program, therefore their dual registration does not create significant additional work for these individuals and they will be able to adequately serve both Filers.

25.          The relationship between MD Financial and MD Management, and the fact that the Representative and Future Representatives are dually registered with both MD Financial and MD Management, will be fully disclosed in writing to clients of both MD Management and MD Financial that participate in the New Program.

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 on the following conditions:

i.              That at any point in time the Filers have no more than ten (10) representatives who are registered with both Filers;

ii.             The Representative and the Future Representatives are subject to super-vision by, and the applicable compliance requirements of, both Filers;

iii.            The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representative and Future Representatives have sufficient time and resources to adequately serve each Filer and the clients in the New Program;

iv.            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 the Representative and the Future Representatives, and deal appropriately with any such conflicts; and

v.             The relationship between MD Financial and MD Management, and the fact that the Representative and Future Repre-sentatives are dually registered with both MD Financial and MD Management, is fully disclosed in writing to clients of both MD Management and MD Financial that participate in the New Program.

The Relief Sought shall cease to be effective when either of the following apply:

i.              The Representative and the Future Representatives are no longer registered in any of the Jurisdictions as an advising representative or associate advising representative of MD Financial;

ii.             The Representative and the Future Representatives are no longer registered in any of the Jurisdictions as a dealing representative of MD Management.

“Elizabeth King”

Deputy Director, Compliance and Registrant Regulation

Ontario Securities Commission