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 Obliga-tions 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 five representatives 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.

 October 23, 2018

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. Vincent Tonietto, Mr. Giles Marshall, Mr. Scott Guitard, Mr. Kevin McLachlan and Mr. David Cieslowski (collectively, the Representatives) to be registered as an advising representative or an associate 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 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 of the provinces of Canada and in the Yukon (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 registered as a portfolio manager in each of the provinces of Canada and in the Yukon and as a commodity trading manager in Ontario. The head office of FTCC is located in Toronto, 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. The head office of FTIC is located in Toronto, Ontario. FTIC is the investment fund manager of various Canadian proprietary mutual funds and pooled funds, and provdes 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. Tonietto is a Vice-President and Portfolio Manager as well as a member of the Investment Counsel team of FTCC. Mr. Tonietto’s primary responsibilities include portfolio management, investment research and client service. Mr. Tonietto prepares customized proposals designed to achieve client objectives and is an active participant in the investment decision making process as a member of FTCC's Investment Strategy Committee. Mr. Tonietto has been registered as an advising representative in Ontario and Quebec since November 2, 2017. Mr. Tonietto has also been registered in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island since November 6, 2017. Mr. Tonietto is a resident of Quebec.

6.             Mr. Marshall is a Vice-President and Portfolio Manager as well as a member of the Investment Counsel team of FTCC. Mr. Marshall’s primary responsibilities include portfolio management, investment research and client service. Mr. Marshall prepares customized proposals designed to achieve client objectives and is an active participant in the investment decision making process as a member of FTCC's Investment Strategy Committee. Mr. Marshall has been registered as an advising representative in Newfoundland and Labrador, Nova Scotia and Prince Edward Island since September 28, 2009. Mr. Marshall has also been registered as an advising representative in New Brunswick, Ontario and Quebec since December 2, 2009, British Columbia since June 11, 2010, Manitoba and Saskatchewan since May 20, 2014. Prior to the implementation of NI 31-103, Mr. Marshall was registered as an officer (non-advising) in each of the provinces of Canada and in the Yukon from 2004 to September 2009. Mr. Marshall is a resident of Ontario.

7.             Mr. Guitard is a Vice-President and Portfolio Manager as well as a member of the Investment Counsel team of FTCC. Mr. Guitard’s primary responsibilities include portfolio management, investment research and client service. Mr. Guitard prepares customized proposals designed to achieve client objectives and is an active participant in the investment decision making process as a member of FTCC's Investment Strategy Committee. Mr. Guitard is also the co-lead portfolio manager for several mutual funds managed by FTCC. Mr. Guitard was registered as an associate advising representative in Alberta, British Columbia, Manitoba and Saskatchewan from February 14, 2013 to June 10, 2014. His registration was changed to advising representative on June 12, 2014 and he has also been registered as an advising representative in the Yukon since June 12, 2014 and in Ontario since September 18, 2014. Mr. Guitard is a resident of Alberta.

8.             Mr. McLachlan is a Vice-President and Portfolio Manager as well as a member of the Investment Counsel team of FTCC. Mr. McLachlan’s primary responsibilities include portfolio management, investment research and client service. Mr. McLachlin prepares customized proposals designed to achieve client objectives and is an active participant in the investment decision making process as a member of FTCC's Investment Strategy Committee. Mr. McLachlan has been registered as an advising representative in Alberta, British Columbia, Manitoba, Ontario, Saskatchewan and Yukon since March 21, 2017. He has also been registered in Newfoundland and Labrador since November 24, 2017. Mr. McLachlan is a resident of Alberta.

9.             Mr. Cieslowski is a Vice-President and Private Wealth Counselor with FTCC. Mr. Cieslowski prepares trades to support updated Investment Strategy Committee recommendations, ongoing account administration and compliance reviews and completes research reports as requested by supervising Portfolio Managers or the Investment Strategy Committee. Mr. Cieslowski has been registered as an associate advising representative in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Quebec since December 20, 2016. Mr. Cieslowski is a resident of Ontario.

10.          Franklin Templeton Investments wishes to service Canadian domiciled clients that have moved to the U.S. as well as any Canadian domiciled clients that may, as a result of a change in circumstances or otherwise, relocate to the U.S. in the future. The Representatives are presently only registered with FTCC and are unable to provide investment management services to U.S. clients. Dual registration with both FTIC and FTCC would allow the Representatives to advise U.S. clients since FTIC is registered with the SEC and would also allow the Representatives to continue to provide investment management services to FTCC clients that relocate to the U.S.

11.          Dual registration is being requested to permit the Representatives to provide portfolio management services to clients located outside of Canada, but from within Canada, under FTIC’s SEC registration (in addition to their registration with the Jurisdictions). The Representatives would continue to advise any current or future Canadian domiciled clients strictly pursuant to their FTCC registration.

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

13.          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.

14.          In the absence of the Relief Sought, the Filers would be prohibited by the Dual-Registration Restriction from permitting the Representatives to be registered as an advising representative or associate advising representative of each Filer, even though the Filers are affiliates and have controls and compliance procedures in place to deal with each Representative’s advising activities.

15.          FTCC and FTIC are affiliated and accordingly, the dual registration of the Representatives 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 to support FTCC clients that relocate to the U.S. are aligned and therefore the potential for conflicts of interest is minimal.

16.          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 Representatives and will be able to deal appropriately with any such conflicts, should they arise. Further, it is expected that each of the Representatives, if the Relief Sought is granted, will only be advising non-Canadian clients in their capacity as an advising representative or associate advising representative of FTIC. This will mitigate the risks of conflicts of interest arising from the Representatives’ dual registrations.

17.          The Filers adhere to a common Franklin Templeton Investments allocation of trades policy to ensure that investment opportunities suitable for funds and clients of both Filers are allocated between them fairly.

18.          The Filers do not expect that the dual registration of the Representatives will create significant additional work for the Represenatives and are confident that the Representatives will continue to have sufficient time to adequately serve both firms.

19.          The Chief Compliance Officer and Ultimate Designated Person of each Filer will ensure that the Representatives each have sufficient time and resources to adequately serve each Filer and its clients.

20.          The relationship between FTCC and FTIC, and the fact that each of the Representatives is dually registered with both FTCC and FTIC, will be fully disclosed in writing to clients of each of FTCC and FTIC that deal with such Representative.

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.              The Representatives are subject to supervision by, and the applicable com-pliance requirements of, both Filers;

ii.             The Chief Compliance Officer and Ultimate Designated Person of each Filer ensures that the Representatives have sufficient time and resources to ade-quately serve each Filer and its respective clients;

iii.            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 Representatives, and deal appropri-ately with any such conflicts; and

iv.            The relationship between the Filers, and the fact that the Representatives are dually registered with both Filers, is fully disclosed in writing to clients of both Filers.

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