Securities Law & Instruments


Subsection 74(1) of the Securities Act (Ontario) -- relief from the requirement to register as a mutual fund dealer under sections 25(1) and 26(2) of the Act -- relief granted to a firm already registered as an exempt market dealer and portfolio manager -- exemption is limited to the sale of investment funds to managed accounts where the clients are not accredited investors.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 26(2) and 74(1).

R.S.O. 1990, c. S.5, AS AMENDED





The Ontario Securities Commission (the Commission) has received an application from the Filer for a ruling pursuant to subsection 74(1) of the Act that the Filer be exempt from the requirements in section 25(1) and 26(2) of the Act (the Ontario Registration Requirement) that would otherwise require the Filer to be registered as a dealer in the category of mutual fund dealer in order to trade in United Funds (as defined below) on behalf of fully managed accounts that it manages where its clients are not accredited investors(the Requested Relief).


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


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

1. The Filer is a limited partnership subsisting under the laws of the Province of Manitoba. The Filer is registered as an adviser in the category of portfolio manager and as a dealer in the category of exempt market dealer under the Ontario Act and holds equivalent registrations under the securities legislation of each other Jurisdiction.

2. The general partner of the Filer is a wholly-owned subsidiary of CI Investments Inc. (CII). CII is registered as an investment fund manager and a portfolio manager under the Act and holds equivalent registrations under the securities legislation of each other province and territory of Canada.

3. The United Funds are 'mutual funds', as defined in section 1 of the Act, that are qualified by simplified prospectus pursuant to the requirements of National Instrument 81-101 Mutual Fund Prospectus Disclosure and are subject to National Instrument 81-102 Mutual Funds (NI 81-102).

4. CII is the investment fund manager and portfolio manager of the United Funds.

5. The Filer offers discretionary portfolio management services to high net worth clients who are accredited investors and whose portfolios are invested mostly, but not entirely, in United Funds (Accredited Investor Managed Accounts). The Filer conducts its discretionary management activity and trading in securities under its adviser and exempt market dealer registration.

6. The Filer also has a small number of clients which it inherited following the amalgamation of United Financial Corporation (UFC) and CII, on January 1, 2010. Prior to the amalgamation with CII, UFC was registered as a limited market dealer in Ontario and acted as both the investment fund manager and adviser to the United Funds. After the amalgamation, in order to take advantage of economies of scale and reduce duplicative services, CII took on the role of investment fund manager and adviser of the United Funds, while UFC's discretionary account management division was transferred to the Filer (Legacy Clients). Some of these Legacy Clients are not accredited investors but wish for the Filer to continue managing their accounts.

7. In addition, from time to time, the Filer may accept certain clients for managed accounts who are not accredited investors due to their relationship with clients who are accredited investors. (together with Legacy Clients, Non-Accredited Investor Managed Accounts).

8. The Non-Accredited Investor Managed Accounts only invest in United Funds.

9. Subject to the activities described in paragraphs 6, 7 and 8 above which the Filer has engaged in since 2010, to the best of its knowledge, the Filer is not in default of the securities legislation in Ontario.

10. The Filer is seeking an exemption from mutual fund dealer registration that would allow it to purchase mutual funds on behalf of its Non-Accredited Investor Managed Account clients. The Filer is unable to rely on its exempt market dealer registration because these clients are not accredited investors.

11. In the absence of obtaining the Requested Relief, the Filer would be required to register as a mutual fund dealer solely for the purpose of trading in the United Funds on behalf of Non-Accredited Investor Managed Accounts in Ontario. Registration as a mutual fund dealer would also require the Filer to join the Mutual Fund Dealer's Association (MFDA), which is not desirable or feasible since the Filer's business is the management of accounts on a discretionary basis, which is prohibited by the MFDA under Rule 2.3.1 (a) and therefore the Filer would require an exemption from being a member of the MFDA.

12. Unless the Requested Relief is granted, the Filer will be prohibited from trading in securities of investment funds on behalf of its Non-Accredited Investor Managed Account clients in Ontario in the circumstances described above unless the Non-Accredited Investor Managed Account client invests a minimum of $150,000 in the United Fund. This is because:

(a) National Instrument 45-106 Prospectus and Registration Exemptions excludes from the definition of "accredited investor" a managed account if it is acquiring in Ontario a security of an investment fund; and

(b) Section 8.6 of National Instrument 31-103 Registration Requirements and Exemptions provides an exemption from the Ontario Registration Requirement only if:

(i) the Filer is both the fund's adviser and investment fund manager; and

(ii) the purchase is in the managed account of a client of the Filer that manages the fund.

13. In obtaining the Requested Relief, the Filer still desires to maintain its exempt market dealer registration. The purpose for maintaining its exempt market dealer registration is so that the Filer can continue to offer customization of portfolios to its Accredited Investor Managed Account clients. A customized portfolio means that the Filer may include outside securities and investment funds managed by non-affiliated advisers in portfolios of Accredited Investor Managed Account clients if or when appropriate in meeting the client's objective and to execute monthly rebalancing trades in managed accounts.


The Commission is satisfied that the decision would not be prejudicial to the public interest.

The decision of the Commission is that the Requested Relief is granted.

Dated this 10th day of January, 2014

"AnneMarie Ryan"
Ontario Securities Commission
"Edward P. Kerwin"
Ontario Securities Commission