National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from the requirement in s. 3.2.01(1) of NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to a model portfolio program, subject to certain conditions -- Relief from the requirement in subsections 5.2(1), (3) and (4) of NI 81-101 to allow dealer to physically deliver or electronically send in a single email attachment or single document accessible through a hyperlink one document containing the fund facts documents of all of the funds in a model portfolio, along with a cover page, in respect of purchases of securities of the funds made pursuant to a model portfolio program, subject to certain conditions -- National Instrument 81-101 Mutual Fund Prospectus Disclosure.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2.01(1), 5.2(1), 5.2(3), 5.2(4), 6.1.
July 15, 2020
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 SEI INVESTMENTS CANADA COMPANY (SEI) AND IN THE MATTER OF RICHARDSON GMP LIMITED (the Representative Dealer, and, together with SEI, the Filers)
The principal regulator in the Jurisdiction has received an application from SEI on behalf of the Funds (as defined below) and the Representative Dealer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting each Dealer (as defined below) from the requirement in subsection 3.2.01(1) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) to deliver or send the most recently filed fund facts document (a Fund Facts) in the manner required under the Legislation (the Fund Facts Delivery Requirement) in respect of purchases of securities of the Funds (as defined below) that are made in connection with Rebalancing Trades (as defined below), Weighting Change Trades (as defined below), New Fund Addition Trades (as defined below) and Additional Investments (as defined below) (the Exemption 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 in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Québec, Saskatchewan and Yukon (the Other Jurisdictions, and together with Ontario, the Canadian Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
SEI and the Funds
1. SEI is an unlimited liability company organized under the laws of the Province of Nova Scotia. The registered office of SEI is located in Toronto, Ontario.
2. SEI is registered as a portfolio manager and an exempt market dealer in each of the Canadian Jurisdictions, and as an investment fund manager in Ontario, Newfoundland and Labrador, and Québec. SEI is also registered under the Commodity Futures Act (Ontario) as an adviser in the category of commodity trading manager.
3. SEI is the investment fund manager of certain mutual funds (the Existing Funds) that form part of the SEI Portfolios model portfolio service described below (the Service). SEI may, in the future, also become the manager of additional mutual funds (the Future Funds and, together with the Existing Funds, the Funds) that will also form part of the Service.
4. Each of the Funds is, or will be, a reporting issuer in one or more of the Canadian Jurisdictions, and subject to the requirements of National Instrument 81-102 Investment Funds (NI 81-102). Securities of the Funds are, or will be, qualified for sale pursuant to a simplified prospectus, annual information form and Fund Facts that have been, or will be, prepared and filed in accordance with NI 81-101.
5. The Funds are, or will be, open-ended mutual funds established under the laws of Ontario.
6. Except as described in representation 34 below, SEI is not in default of securities legislation in any of the Canadian Jurisdictions. The Funds are not in default of securities legislation in any of the Canadian Jurisdictions.
7. Securities of the Funds are, or will be, distributed through dealers that are unaffiliated with SEI, including the Representative Dealer (the Dealers, and each, a Dealer).
8. The Representative Dealer is registered as an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC).
9. Each Dealer is, or will be: (a) registered in the applicable Canadian Jurisdiction(s) as a dealer in the category of mutual fund dealer and, other than mutual fund dealers registered in Québec, is, or will be, a member of the Mutual Fund Dealers Association; or (b) registered in the applicable Canadian Jurisdiction(s) as a dealer in the category of investment dealer and is, or will be, a member of IIROC.
10. Except as described in representation 41 below, the Representative Dealer is not in default of securities legislation in any of the Canadian Jurisdictions.
11. Through the Service, SEI constructs and makes available to investors, through Dealers, asset allocation portfolios which are invested exclusively in various combinations of the Funds (the SEI Portfolios, and each, an SEI Portfolio).
12. The Service offers a number of SEI Portfolios, each of which is comprised of a selection of Funds and corresponds to a different investment objective, investment horizon and risk profile. The SEI Portfolios are designed to meet a wide range of investor goals, from capital preservation to maximum growth, and span a broad risk-return spectrum.
13. Each SEI Portfolio is, and will be, comprised entirely of Funds for which SEI acts as investment fund manager.
14. Each SEI Portfolio has a specified target fund allocation that defines the percentage of the portfolio to be invested (the Target Weighting) in each Fund.
15. Because of fluctuations in the value of the Funds in each SEI Portfolio, their actual weighting will vary from time to time in relation to the initial allocation. As such, as a part of the Service, SEI may need to rebalance an investor's holdings in the Funds from time to time back to the Target Weighting for each Fund within the selected SEI Portfolio through purchases and redemptions of securities of the Funds (the Rebalancing Trades).
16. In addition, as part of the Service, SEI may also need to reallocate securities of the Funds held in an investor's account through purchases and redemptions of securities of the Funds in order to change the composition of the selected SEI Portfolio, including to:
(a) add one or more new Funds to an SEI Portfolio (each, a New Fund), when SEI considers another Fund to be more appropriate than an existing Fund in an SEI Portfolio (the New Fund Addition Trades);
(b) remove one or more Funds from an SEI Portfolio (the Fund Removal Trades); and
(c) change the Target Weighting of one or more Funds within an SEI Portfolio (the Weighting Change Trades, and together with the Rebalancing Trades, the New Fund Addition Trades, and the Fund Removal Trades, the Service Trades).
17. An investor in the Service (the Investor) must invest a specified minimum amount to be eligible to invest in an SEI Portfolio. All distributions made by the Funds within an SEI Portfolio are set to reinvest automatically in additional securities of the Funds for all accounts.
18. An Investor may, from time to time, contribute additional funds to the Investor's accounts with a Dealer for investment in the selected SEI Portfolio through the Service. Such additional funds will be applied towards the purchase of additional securities of the Funds in accordance with the Target Weighting of each Fund (the Additional Investments).
19. In order to invest in an SEI Portfolio, the Investor meets with a registered representative of a Dealer (the Registered Representative), who collects and assesses all of the relevant know-your-client (KYC) and suitability information, including the Investor's financial circumstances, investment knowledge, investment objectives, investment time horizon and risk tolerance, for each Investor.
20. SEI provides an investment policy statement or equivalent document, setting out the rules governing the investment in each SEI Portfolio (the SEI Investment Policy Statement) to the Dealer. The SEI Investment Policy Statement is intended to establish a clear understanding between the Investor and the Dealer as to their respective duties and responsibilities, the investment policies and objectives of the selected SEI Portfolio, and the rules governing the investment in the selected SEI Portfolio. The SEI Investment Policy Statement for each SEI Portfolio also discloses the Target Weighting of the applicable SEI Portfolio.
21. SEI may also provide a form of questionnaire or another similar process (the Questionnaire) to the Dealer to help the Registered Representative and the Investor determine the SEI Portfolio that best suits the Investor's needs and financial goals.
22. SEI requires each Dealer to provide the SEI Investment Policy Statement of the applicable SEI Portfolio to Investors.
23. The SEI Portfolio will be selected by the Investor in consultation with the Dealer, based on, if applicable, the information contained in the Questionnaire completed by the Investor with the assistance of the Registered Representative (or any other similar process employed by the Dealer), as well as the unique circumstances of the Investor and the investment mandate of each SEI Portfolio, as described in the SEI Investment Policy Statement.
24. If the Investor decides to invest in an SEI Portfolio, SEI (through a pre-signed agreement prepared by SEI), the Investor and the Registered Representative will complete and sign a form of investor application and agreement and related documents, including, as the case may be, the relevant SEI Investment Policy Statement or equivalent document (the Agreement).
25. The Dealer is responsible for arranging for the execution of the Agreement and related materials by the Investor as a condition of the Dealer investing assets of the Investor in the selected SEI Portfolio.
26. The Agreement outlines the rules governing the investment in the selected SEI Portfolio, including with respect to the following matters:
(a) Model Portfolio -- The Investor engages SEI to act as manager of the cash, securities and property (the Portfolio Assets) held in respect of the Investor's account with SEI in accordance with the selected SEI Portfolio. The Agreement contains disclosure relating to the Service Trades, including that, under the SEI Portfolio program, SEI is the manager of the SEI Portfolios and will be providing discretionary investment management services with respect to each SEI Portfolio, including rebalancing the percentage allocations of the Funds in the selected SEI Portfolio back to the applicable Target Weighting, adding and removing Funds from the selected SEI Portfolio and changing the applicable Target Weighting of the Funds in the selected SEI Portfolio.
(b) Role of the Third Party Dealer -- The Investor invests in the selected SEI Portfolio through an appropriately registered Dealer which serves as its agent and attorney-in-fact, including for the purposes of assisting the Investor in the selection of the SEI Portfolio, and instructing SEI to (i) invest the Investor's assets in accordance with the selected SEI Portfolio, (ii) invest additional money into the selected SEI Portfolio, (iii) withdraw money from the selected SEI Portfolio, and (iv) make required Service Trades. The Dealer in turn instructs SEI in connection with the selected SEI Portfolio. SEI is entitled to accept absolutely and without any inquiry the Investor's choice of the selected SEI Portfolio, and invest in the Funds in accordance with such SEI Portfolio. The Investor specifically authorizes SEI to, among other things, (i) follow the instructions from the Dealer, as agent of the Investor, to invest additional money into, and withdraw money from, the selected SEI Portfolio; and (ii) maintain appropriate records of the Portfolio Assets, including all purchases and redemptions and provide regular transaction reporting to the Dealer, as agent of the Investor.
(c) KYC and Suitability -- The Investor acknowledges that SEI: (i) is not responsible for making any asset allocation recommendations or evaluating the suitability of a particular SEI Portfolio for the Investor's needs and financial goals, for supervising or monitoring trading by the Dealer in the Investor's account with the Dealer, or for providing for the rebalancing of the SEI Portfolios on an individual basis; and (ii) will receive discretionary authority and instructions with respect to the investment of the Investor's assets with the selected SEI Portfolio solely from the Dealer as the Investor's agent and attorney-in-fact.
(d) Termination -- The Investor may hold Funds through the Investor's account with the Dealer either (a) as part of the Service or (b), if contemplated under the Investor's account arrangements with the Dealer, on a standalone basis outside of the Service. The Investor may elect at any time to terminate its participation in the Service by instructing the Dealer to discontinue the Investor's participation in the Service, in which case, the Dealer will arrange for the Investor's investments in the Funds to be fully redeemed. Should the Investor wish to continue to invest in the Funds on a standalone basis outside of the Service, the Dealer will arrange for the Investor's investments in the Funds to be fully redeemed and for the Investor to re-invest in the Funds.
27. SEI Portfolios comprised of Class E, F or O units may be selected. The fees and expenses charged in respect of an investment in an SEI Portfolio are currently as follows:
(a) For SEI Portfolios comprised of Class E units, SEI will receive management fees from each Fund in respect of the Investor's holdings. A portion of the management fee (as detailed in the Fund Facts and simplified prospectus) is currently paid to the Dealer in the form of a trailing commission.
(b) For SEI Portfolios comprised of Class F units, SEI will receive management fees from each Fund in respect of the Investor's holdings. Since Class F units are intended for use within Dealer-sponsored fee-based accounts, an advisory fee will also be charged by the Dealer to the Investor.
(c) For SEI Portfolios comprised of Class O units, SEI will receive management fees as detailed in the Agreement. These management fees are charged on a tiered basis depending upon the market value of the assets held in the SEI Portfolio. SEI Portfolios comprised of Class O units will generally also be subject to an advisory fee (the Investor's Agent Fee) of up to 1.50% that is determined and mutually agreed to by the Registered Representative and the Investor. The Investor's Agent Fee is communicated to SEI under the Agreement. The combined Investor's Agent Fee and management fees for the applicable SEI Portfolio will be paid by redemption of Class O units from a Fund in the Investor's account selected at SEI's discretion.
28. There is no duplication of any fees received by SEI and the Dealer, and no separate fees, such as sale charges, redemption fees, switch fees or early trading fees, charged in connection with the Service Trades.
29. The fees and expenses charged in respect of an investment in an SEI Portfolio, such as the management fee and the operating expenses applicable to the Funds, are described in the Agreement, as well as in the simplified prospectus and Fund Facts of the Funds.
30. As a registered portfolio manager and the manager of the Service, SEI is responsible for ensuring that the Investor's assets are invested in accordance with the terms of the selected SEI Portfolio and for monitoring the suitability of trading decisions, including Service Trades, that it makes at the level of the SEI Portfolio such that the trading decisions are suitable for the particular risk-return profile of the SEI Portfolio selected by the Investor.
31. SEI actively monitors the SEI Portfolios to ensure that the investment objectives are being met within the expected risk parameters.
32. Investors have no direct contact with SEI in connection with SEI's management of the SEI Portfolios and interact solely with the Dealer and the Registered Representatives in connection with SEI's management of the SEI Portfolios and the Dealer's administration of its accounts.
33. As SEI does not have any direct interaction with the Investor, other than through the Dealer that is acting as the Investor's agent and attorney-in-fact, the Service contemplates that the Dealer will be solely responsible for compliance with the KYC and suitability requirements at the level of the Investor. In particular, the Service contemplates that the Dealer is solely responsible for gathering and periodically updating KYC information concerning the Investor and confirming the suitability of the selected SEI Portfolio for the Investor given the Investor's financial goals, risk tolerance and unique circumstances.
34. SEI has received separate exemptive relief to address compliance with the dealer registration, KYC, suitability and account reporting requirements in the Legislation relating in respect of the Service.
35. The securities of the Funds that comprise each SEI Portfolio are directly held by each Investor in his/her own account(s) established with the Dealer.
36. The Service Trades and Additional Investments will be reflected in each Investor's account(s) with the Dealer on the business day following such Service Trades, and the records of SEI and the Dealer are reconciled daily.
37. The Dealer will send statements of account to each Investor on a monthly basis if any transactions have occurred in the Investor's account with the Dealer during the preceding month, or on a quarterly basis otherwise.
38. The Dealer will send an investment performance report to each Investor on an annual basis.
The Exemption Sought
39. The Rebalancing Trades, Weighting Change Trades and New Fund Addition Trades will result in redemptions and purchases of securities of one or more Funds in the SEI Portfolio. The Additional Investments will result in purchases of securities of one or more Funds in the SEI Portfolio. Each such purchase is a "distribution" under the Legislation, which triggers the Fund Facts Delivery Requirement.
40. The Fund Facts Delivery Requirement requires that a dealer, unless it has previously done so, deliver or send to a purchaser of a security of a fund the most recently filed Fund Facts for the fund before the dealer accepts an instruction from the purchaser for the purchase of the security.
41. The Fund Facts Delivery Requirement may not have been consistently complied with for purchases of securities of the Funds made in connection with Rebalancing Trades, Weighting Change Trades, New Fund Addition Trades and Additional Investments prior to the date of this decision.
42. Prior to the initial set-up of a new SEI Portfolio for an Investor, the Dealer will send or deliver the Fund Facts in respect of each Fund in the selected SEI Portfolio to the Investor, in accordance with the Fund Facts Delivery Requirement.
43. With respect to New Fund Addition Trades, the Dealer will provide the Investor with the most recently filed Fund Facts for any New Funds that are added to the applicable SEI Portfolio as soon as practicable following the settlement date of the New Fund Addition Trade.
44. In the absence of the Exemption Sought, unless the Dealer has previously done so, the Dealer would be required to deliver the most recently filed Fund Facts for each affected Fund in an Investor's selected SEI Portfolio prior to each (a) Rebalancing Trade, (b) Weighting Change Trade, (c) New Fund Addition Trade and (d) Additional Investment.
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 Exemption Sought is granted provided that:
(a) the Dealer provides each Investor with the most recently filed Fund Facts for any New Funds that are added to the applicable SEI Portfolio as soon as practicable following the settlement date of a New Fund Addition Trade;
(b) each Investor in an SEI Portfolio is sent or delivered a notice that states:
(i) that except as provided for in paragraphs 42 and 43 above, the Investor will not receive the Fund Facts for the Funds in the SEI Portfolio after the date of the notice, unless the Investor specifically requests them;
(ii) that the Investor is entitled to receive upon request, at no cost to the Investor, the most recently filed Fund Facts for the Funds in the SEI Portfolio by calling a specified toll-free number, or by sending a request by mail or e-mail to a specified address or e-mail address;
(iii) how to access the Fund Facts for the Funds in the SEI Portfolio electronically;
(iv) that except for securities of New Funds that are purchased pursuant to New Fund Addition Trades, the Investor will not have a right of withdrawal under the Legislation for Rebalancing Trades, Weighting Change Trades and Additional Investments, but will continue to have a right of action if there is a misrepresentation in the prospectus or any document incorporated by reference into the prospectus; and
(v) that the Investor may terminate the Agreement at any time;
(c) at least annually, the Investor will be advised in writing of how he/she can request the most recently filed Fund Facts;
(d) the most recently filed Fund Facts is sent or delivered to the Investor if the Investor requests it;
(e) SEI provides to the principal regulator, on an annual basis, beginning 60 days after the date upon which the Exemption Sought is first relied upon by a Dealer, either:
(i) a current list of all such Dealers that are relying on the Exemption Sought; or
(ii) an update to the list of such Dealers or confirmation that there has been no change to such list; and
(f) prior to a Dealer relying on the Exemption Sought, SEI provides to the Dealer a disclosure statement informing the Dealer of the implications of this decision.