Guardian Capital LP

Decision

Headnote

Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the know-your-client, trusted contact person and suitability determination requirements, and the requirements to deliver account statements and investment performance reports, granted to a portfolio manager in respect of investors in a model portfolio service offered through affiliated and unaffiliated mutual fund dealers and investment dealers -- decision should not be viewed as precedent for other filers

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7(1).

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.2, 13.2.01, 13.3, 14.14, 14.14.1, 14.18 and 15.1(2).

October 15, 2024

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
GUARDIAN CAPITAL LP
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from the following requirements with respect to clients invested in accordance with the Model Portfolios (as defined below):

(a) the requirements (the Know Your Client Requirements) in the Legislation that the Filer take reasonable steps to:

(i) establish the identity of a client and, if the Filer has cause for concern, make reasonable inquiries as to the reputation of the client;

(ii) establish whether the client is an insider of a reporting issuer or any other issuer whose securities are publicly traded;

(iii) ensure that the Filer has sufficient information regarding the client's investment needs and objectives, financial circumstances and risk profile, among other information, to enable the Filer to meet its suitability determination obligations under the Legislation (as described below); and

(iv) keep the information described above current

(collectively, the Know Your Client Exemption);

(b) the requirement (the Trusted Contact Person Requirement) in the Legislation that the Filer take reasonable steps to:

(i) obtain from the client the name and contact information of a trusted contact person, and the written consent of the client for the Filer to contact the trusted contact person to confirm or make inquiries about any of the following:

a. the Filer's concerns about possible financial exploitation of the client;

b. the Filer's concerns about the client's mental capacity as it relates to the ability of the client to make decisions involving financial matters;

c. the name and contact information of a legal representative of the client, if any;

d. the client's contact information; and

(ii) keep the information described above current

(collectively, the Trusted Contact Person Exemption);

(c) the requirement (Suitability Determination Requirement) in the Legislation that the Filer, before it opens an account for a client, purchases, sells, deposits, exchanges or transfers securities for a client's account, takes any other investment action for a client, makes a recommendation or exercises discretion to take any such action, determine, on a reasonable basis, that such action is suitable for the client and puts the client's interest first (the Suitability Determination Exemption); and

(d) the requirement (the Statement Delivery Requirement) in the Legislation that the Filer deliver account statements and investment performance reports to clients who have invested in accordance with the Model Portfolios

(the Statement Delivery Exemption and, together with the Know Your Client Exemption, Trusted Contact Person Exemption and Suitability Determination Exemption, 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 Filer has 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 Filer in each of the other provinces of Canada (the Other Jurisdictions, and together with Ontario, the Canadian Jurisdictions) in respect of the Exemption Sought.

Interpretation

Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.

NI 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Representations

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

The Filer

1. The Filer is an Ontario limited partnership, which is wholly-owned by Guardian Capital Group Limited. The general partner of the Filer is Guardian Capital Inc., an Ontario corporation wholly-owned by Guardian Capital Group Limited, with its head office in Toronto, Ontario.

2. The Filer is registered as: (i) a portfolio manager in all of the provinces of Canada; (ii) an exempt market dealer in all of the provinces of Canada; (iii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iv) commodity trading counsel in Ontario; and (v) a commodity trading manager in Ontario.

3. The Filer is not in default of securities legislation in any Canadian Jurisdiction.

The Services

4. The Filer, in its role as portfolio manager, will create and manage model portfolios (the Services), comprising investment funds managed by the Filer, an affiliate of the Filer or third-party unaffiliated investment fund managers (collectively, the Funds).

5. Each Fund will be an open-ended mutual fund, including an exchange-traded fund (ETF), established under the laws of Ontario or another Canadian Jurisdiction.

6. The securities of each Fund that is an ETF will be listed and traded on a recognized exchange.

7. Each Fund will be a reporting issuer in one or more of the Canadian Jurisdictions and will be subject to the provisions of National Instrument 81-102 Investment Funds.

8. Pursuant to a written agreement (the Services Agreement) between the Filer and the applicable dealer, the Filer will provide the Services to be made available to clients of investment dealers and mutual fund dealers (the Dealers) that participate in the Dealers' model portfolio programs (each, a Program). Each Dealer will be: (a) registered in the applicable Canadian Jurisdictions as a dealer in the category of mutual fund dealer, and a member of the Canadian Investment Regulatory Organization (CIRO); or (b) registered in the applicable Canadian Jurisdictions as a dealer in the category of investment dealer, and a member of CIRO. The Dealers will include dealers that are affiliated with the Filer.

9. The Programs will allow Dealers to recommend to clients model portfolios of Funds (each, a Model Portfolio) that are created and maintained by the Filer pursuant to the Services.

10. As part of the Services, the Filer will manage each Model Portfolio to ensure it remains in compliance with its stated investment objective and investment guidelines at all times (the Investment Guidelines) and will determine from time to time whether any changes to the composition of the Model Portfolio would be appropriate.

11. The Filer will design the asset mix and select securities for the Model Portfolios, as well as direct trades that reflect changes in the Model Portfolios made from time to time and that will be effected by the Dealers in client accounts. Each Model Portfolio will comprise a selection of Funds and will have its own unique allocation of Funds that are exposed to different asset classes (the Asset Classes).

12. Exposure to the different Asset Classes in a Model Portfolio will be achieved using the Funds. Each Model Portfolio will have a percentage target weight within one or more Asset Classes (the Target Weight), which may, due to changes in the market value of the Funds within the Model Portfolio, increase or decrease within an upper and lower range (the Permitted Range). From time to time, the Filer may decide to change the Target Weight within the Permitted Range of a Model Portfolio or replace a Fund in the Model Portfolio with one or more alternative Funds (the Model Re-allocation). Subject to the notice requirements set out in paragraph 43 below, the Filer may also decide to change the Permitted Range of an Asset Class of a Model Portfolio (Weighting Changes).

13. The applicable Dealer will collect all of the required know-your-client (KYC), and trusted contact person (TCP) information (including information about the client's personal circumstances, financial circumstances, investment needs and objectives, investment knowledge, risk profile and investment time horizon required for a suitability determination) for each client who wishes to participate in the Program. Prospective clients of the Dealer will complete a questionnaire and meet with a registered dealing representative of the Dealer (an Advisor) in order to determine which Model Portfolio will be suitable for the client and put the client's interest first. Based on the Advisor's suitability determination, a Model Portfolio recommendation will be made to the prospective client by the Advisor.

14. The client will discuss the recommended Model Portfolio and the Funds within the Model Portfolio with their Advisor. The Advisor will communicate with the client in accordance with the Dealer's usual processes and in accordance with securities legislation, which may include face-to-face meetings (in person or on-line) and/or via telephone or email or other written correspondence. However, the client ultimately chooses the Model Portfolio. The client has no ability to select Funds within a Model Portfolio.

15. A detailed investment policy statement or similar document (the Investment Policy Statement) will be created for the client by the Dealer. The Investment Policy Statement or other similar document will reflect the Investment Guidelines of the Model Portfolio, the composition of the Model Portfolio and the Funds in the Model Portfolio, the Target Weights among the Asset Classes and the Permitted Range(s) of the Model Portfolio.

16. Once the client confirms the final Investment Policy Statement, the client will sign an acknowledgement form or similar document that describes the fees and provides for the payment of the fees to the Dealer, who will in turn pay fees to the Filer for the Services, and the terms of the Program (the Client Agreement), approving the final Investment Policy Statement and the Model Portfolio, and authorizing the Filer and the Dealer to implement and maintain the Model Portfolio.

17. The Dealer will make trades in the Funds to invest the client in accordance with their chosen Model Portfolio.

18. When, due to changes in the relative market value of the Funds included in a Model Portfolio, the Model Portfolio exceeds the Permitted Range, the Filer will update the Model Portfolio so that it is returned to a relative weight that is within the Permitted Range, and the Filer may also use its discretion from time to time to rebalance holdings in the Funds in the Model Portfolios within the Permitted Ranges (an Account Rebalance). As noted above, and subject to the applicable notice requirements, the Filer may also use its discretion to implement a Weighting Change in a Model Portfolio.

19. Where the Filer updates a Model Portfolio to reflect a Model Re-Allocation or an Account Rebalance, the Dealer will execute appropriate trades (a Rebalancing Trade) within a reasonable time to reflect such updates in client accounts. Where the Filer updates a Model Portfolio to reflect a Weighting Change, the Dealer will execute appropriate trades (Weighting Change Trades) within a reasonable time to reflect such updates in client accounts. In each case, the Dealer will confirm receipt of the Filer's instructions and will provide written confirmation to the Filer that the trades have been effected in accordance with the Filer's instructions in the applicable client accounts.

20. In the Client Agreement, the client will authorize the Dealer (or an affiliate of the Dealer or another dealer registered in a category that permits the trade) to undertake Rebalancing Trades and Weighting Change Trades in accordance with the Model Portfolios and as directed by the Filer.

21. Clients will have no direct contact with the Filer in connection with the Filer's management of the Model Portfolios. Clients will interact solely with the applicable Dealer and Advisor of the Dealer in connection with the Filer's management of the Model Portfolios and the Dealer's administration of the clients' accounts.

22. Each Dealer and their Advisors will not market the Programs as managed account programs to their clients -- their recommendation will be limited to recommending that a client participate in a Program, through which the client will invest in accordance with a Model Portfolio. Although the Filer develops the Model Portfolios, each Dealer and each Advisor must determine whether or not investing in the constituent Funds included in the Model Portfolio is suitable for that client and puts the client's interest first. The Filer is responsible for developing the Model Portfolios and managing them, but does not refer to any specific client's circumstances in doing so.

23. Where the Dealer determines that a Model Portfolio is no longer suitable for a client or no longer puts the client's interest first or that a different Model Portfolio would be more appropriate for the client, this will be communicated to the client by the Dealer, and the Dealer will take appropriate action. A change to a different Model Portfolio will not be made without the client entering into a new Client Agreement in respect of the new Model Portfolio.

24. Each Dealer has the option of imposing a minimum investment amount for clients to participate in the Program, and the minimum investment amounts for different Dealers may vary.

25. A client may terminate their participation in a Program at any time by contacting their Dealer.

Fees and Expenses

26. Each client that participates in the Program will pay a fixed Dealer fee in return for the administration of the Program (the Program Fee).

27. The Program Fee will include the fee payable by the Dealer to the Filer in return for the Services and any Outside Management Fees (as defined below).

28. The Model Portfolios comprise institutional series units of Funds that are conventional mutual funds, and, if applicable, units of ETFs. Any applicable management fees for institutional series units of Funds (the Outside Management Fees) that are conventional mutual funds will be charged outside the Funds and negotiated by the Dealer with the applicable investment fund manager of the Fund. Certain institutional series of Funds that are conventional mutual funds have operating expenses, and may have a performance fee, that will be charged within the Funds. The management fees and operating expenses for ETFs will be charged within the ETFs.

29. There will be no duplication of any fees or charges for the same services as a result of a client's decision to participate in the Program. No sales charges, redemption fees, switch fees or early trading fees will be charged in connection with any of the trades effected by the Dealer in connection with the Service. For Model Portfolios comprised of ETFs, brokerage fees, if any, will be paid by the Dealer for each trade it effects in connection with the Service.

30. All fees and expenses charged in respect of the Program, including the Program Fee (which includes any Outside Management Fees), will be described in the Client Agreement. The fees and expenses related to the Funds, including those managed by the Filer, will be described in the Fund prospectus and Fund Facts or ETF Facts, as applicable.

Client Agreement and Client Reporting

31. If the prospective client decides to proceed with participating in a Program and investing in accordance with a Model Portfolio, the Client Agreement is entered into between the client and the Dealer, which will set out, among other matters, the following:

(a) Model Portfolio --- The client will acknowledge the Filer's role in managing the Model Portfolios on a discretionary basis with a view to ensuring that the Model Portfolios are managed in accordance with the Investment Guidelines (as defined below) and within the Permitted Ranges indicated in the Client Agreement, which may be adjusted in the discretion of the Filer subject to the notice requirement described below, and that the Filer is not responsible for taking into consideration the client's circumstances in the management of the Model Portfolios;

(b) No changes to another Model Portfolio --- In the event that a Dealer determines that an investment in a particular Model Portfolio is no longer suitable for a client or no longer puts the client's interest first, and that a different Model Portfolio would be more appropriate for the client, this will be communicated to the client by the Dealer, and the Advisor of the Dealer will undertake the analysis described in paragraphs 13 and 14 above and enter into a new Client Agreement before the client's investments are changed to reflect the new Model Portfolio;

(c) KYC, TCP and suitability --- The client will acknowledge that the Know Your Client Requirements, the Trusted Contact Person Requirement, and the Suitability Determination Requirement are not the responsibility of the Filer, but instead will be that of the Dealer who will gather and periodically update the KYC and TCP information concerning the client and determine, on at least an annual basis, that the selected Model Portfolio continues to be suitable for the client and put the client's interest first;

(d) Weighting Change Trades -- Subject to the notice requirements set out in paragraph 43 below, the client will acknowledge that the Filer may use its discretion, from time to time, to make decisions regarding Weighting Changes for a Model Portfolio, and will authorize the Dealer to purchase and redeem securities of the Funds in the client's account to reflect such Weighting Changes to the Model Portfolio (the Weighting Change Trades);

(e) Rebalancing Trades --- The client will acknowledge that the Filer may from time to time use its discretion to direct an Account Rebalance or a Model Re-allocation, which will be effected through the Dealer as Rebalancing Trades;

(f) Fee Redemption Trades --- The client will authorize the Dealer to redeem units of the Funds to pay fees owed by the client to the Dealer pursuant to the Client Agreement (the Fee Redemption Trades);

(g) The Filer will agree, in its Services Agreement with each Dealer, to be responsible for ensuring that the Model Portfolios are managed in accordance with the Investment Guidelines agreed to with the Dealer and acknowledged by the client; and

(h) No discretionary authority for the Dealers --- The client will acknowledge that the Dealer will not have discretionary authority to participate in the management of the Model Portfolio or to direct Weighting Change Trades or Rebalancing Trades.

32. In addition to the Client Agreement, the client will also be provided by the Dealer:

(a) with the final Investment Policy Statement prior to or concurrently with the execution of the Client Agreement which sets out the Investment Guidelines of the Model Portfolio, the composition of the Model Portfolio and the Funds in the Model Portfolio, the Target Weights, the Permitted Range(s), as well as the fees payable to the Dealer, who will in turn pay fees to the Filer; and

(b) within two days of trades being implemented for the Model Portfolio, with the Fund Facts and ETF Facts, as applicable, as may be required by applicable securities laws, subject to any applicable exemption available to the Dealer, in respect of the Funds included in the Model Portfolio for a client. In the event that, as part of the Rebalancing Trades, a new replacement Fund is incorporated as part of the Model Portfolio, the client will similarly be provided with the Fund Facts or ETF Facts, as applicable, for the replacement Fund, as may be required by applicable securities laws, subject to any applicable exemption available to the Dealer.

33. The Dealer is responsible for arranging for the execution of the Client Agreement and related materials by the client.

34. Account opening documents relating to the Program will explain the different responsibilities of the Dealer and the Filer with respect to the client and the Model Portfolio. This will include disclosure that the Filer is responsible for managing the Model Portfolio without reference to the client's circumstances and only in accordance with the Model Portfolio selected by the client, and that the Dealer alone will have the responsibility to determine that the selected Model Portfolio is and remains suitable for the client and puts the client's interest first.

35. The Funds that will comprise each Model Portfolio will be held directly by each client in their own account with the Dealer and if the client has not already opened an account with the Dealer, the client will complete an account application.

36. Each Dealer will reflect all Weighting Change Trades, Rebalancing Trades or Fee Redemption Trades in the client's account.

37. Each Dealer will be responsible for providing clients in the Program with account statements in accordance with the requirements under the Legislation. Such statements of account will identify the assets participating in the Program and invested in accordance with the Model Portfolios.

38. Trade confirmations for every transaction in a client's account will be provided to the client by the Dealer in accordance with the requirements under the Legislation.

39. An investment performance report will be sent to each client in the Program by the applicable Dealer on an annual basis.

40. The Dealer will also provide the client with an annual tax reporting package, as applicable.

41. Clients will be able to access their accounts in the manner each Dealer makes its accounts available for its clients.

Oversight and Monitoring

42. The following monitoring and oversight procedures will be carried out in connection with each client's account in the Program:

(a) An annual portfolio review will be conducted by the relevant Advisor to determine whether there have been any changes to the client's circumstances, including the client's personal and financial circumstances, investment needs and objectives, risk profile and investment time horizon, that would warrant the selection of another Model Portfolio; and

(b) There will be ongoing oversight of each Model Portfolio by the Filer's advising representatives to determine whether the composition of the Model Portfolio remains in compliance with its Investment Guidelines and the Filer's advising representatives will determine from time to time whether any changes to the composition of the Model Portfolio, such as changes to the Funds or Target Weights, would be appropriate.

43. Provided that the Dealer, except in exceptional market circumstances, is given at least 60 days' advance written notice (the Written Notice) and the Model Portfolio remains consistent with its Investment Guidelines at all times, the Filer may also, from time to time, use its discretion to make Weighting Changes.

44. The Written Notice will describe the proposed Weighting Change and will provide sufficient detail for the Dealer to determine whether the Model Portfolios, after the implementation of the proposed change, would continue to be appropriate for its clients. The Written Notice will specify that if the Dealer does not provide an objection to the proposed Weighting Change by a specified date, such non-objection will be deemed to be consent for the changes on the effective date.

Exemption Sought

45. Through the Filer's provision of the Services, and pursuant to, together, the Services Agreement between the Filer and the applicable Dealer and the Client Agreement between the Dealer and the client, (i) clients that participate in a Program have investment exposure to portfolio management decisions made by the Filer, and (ii) the Filer and the Dealer each deliver distinct ongoing registrable services for the benefit of the client, which together comprise the Program.

46. In the absence of the Exemption Sought, the Filer would therefore be required:

(a) to gather and update the information contemplated by the Know Your Client Requirements and the Trusted Contact Person Requirement for each client in the Program;

(b) to make a suitability determination for each client in the Program in respect of the applicable Model Portfolio(s) and ensure that each Rebalancing Trade and Weighting Change Trade is suitable for each client in the Program and puts the client's interest first in accordance with the Suitability Determination Requirement, rather than invested in accordance with the Investment Guidelines for the Model Portfolios; and

(c) to deliver account statements and investment performance reports to clients who have invested in accordance with the Model Portfolios in as required by the Statement Delivery Requirement.

47. The Dealers do not require an exemption from the adviser registration requirement under the Legislation as a result of their involvement with the Program, as they will not be engaged in providing discretionary management advice to clients in connection with the management of the Model Portfolios and will be effecting the Rebalancing Trades and Weighting Change Trades without exercising any discretion.

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 Exemption Sought is granted provided that:

(a) the Filer is, at the time of any client investment in the Program, Rebalancing Trade and Weighting Change Trade, registered under the Legislation as an adviser in the category of portfolio manager;

(b) each Rebalancing Trade and Weighting Change Trade is made in accordance with the Investment Guidelines of the selected Model Portfolio;

(c) each client in a Program is informed in writing:

(i) of the roles, duties and responsibilities of the Filer and the Dealer, including that:

a. the Filer will manage the Model Portfolios without reference to the client's circumstances and only in accordance with the terms of each Model Portfolio that is created and maintained by the Filer pursuant to the Services;

b. the Dealer will be solely responsible for gathering and periodically updating KYC and TCP information concerning the client and confirming, on at least an annual basis, that the selected Model Portfolio continues to be suitable for the client and puts the client's interest first;

(ii) that the client will receive account statements and performance reports from the Dealer, and will not receive account statements and performance reports from the Filer;

(d) the Filer will adopt, maintain and apply oversight policies and procedures designed to provide reasonable assurance that each Dealer complies with its KYC, TCP and suitability determination obligations with respect to each client in a Program, including requiring that:

(i) the Dealer not market and sell the Model Portfolios through an order-execution-only, suitability-exempt channel;

(ii) the Dealer notify the Filer of each instance where a Model Portfolio is sold to a client on the basis of a client-directed trade as contemplated in section 13.3 of NI 31-103 and similar provisions under CIRO rules;

(iii) the Dealer be responsible for gathering and periodically updating KYC and TCP information concerning the client and confirming, on at least an annual basis, that the selected Model Portfolio continues to be suitable for the client and puts the client's interest first;

(iv) the Dealer, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that the Dealer has complied with its KYC, TCP and suitability determination obligations with respect to each client in the Program.

(e) the Filer will adopt, maintain and apply oversight policies and procedures designed to provide reasonable assurance that each Dealer complies with its client reporting obligations in respect of clients in a Program, including requiring that the Dealer, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that:

(i) the Dealer has complied with its client reporting obligations under the rules of CIRO, and

(ii) the Dealer has undertaken steps in accordance with its policies and procedures to provide reasonable assurance that account statements and investment performance reports delivered to clients are complete, accurate and delivered on a timely basis in a format that is compliant with the rules of CIRO.

(f) the Filer will adopt, maintain and apply oversight policies and procedures designed to provide reasonable assurance that each Dealer complies with its obligations in respect of all trading for clients in a Program, including requiring that the Dealer, on an annual basis, no later than 30 days after the end of the calendar year, provide a certificate to the Filer that the Dealer has effected all trades for clients in a Program in accordance with the selected Model Portfolios as directed by the Filer; and

(g) the Filer has a written agreement in place with each Dealer concerning their respective roles, duties and responsibilities to clients in respect of a Program and the Services.

"Vera Nunes"
Manager, Registration, Inspections and Examinations Division
Ontario Securities Commission

OSC File #: 2023/0530