In the Matter of BMO Group Retirement Services Inc., 2009 CanLII 75327

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions – Plan Sponsors, CAP Members, and a named service provider exempted from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds to tax-assisted capital accumulation plans, subject to certain terms and conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as amended s. 25, 53, 74(1).

Rules Cited

National Instrument 81-102 – Mutual Funds

National Instrument 45-106 – Prospectus and Registration Exemptions

Published Documents Cited

Amendments to NI 45-106 – Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005), 25 OSCB 8681.

November 17, 2009

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 BMO Group Retirement Services Inc. (the Filer)

Decision

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision, on behalf of the Filer (including its respective directors, officers, representatives and employees acting on its behalf), any Plan Sponsor (as defined herein) and any Fund (as defined herein), under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a ruling:

(a) that the dealer registration and prospectus requirements contained in the Legislation shall not apply to the Filer (including its respective directors, officers, representatives and employees acting on its behalf) or any plan sponsor of any CAP that uses the services of the Filer in respect of its CAP (including, but not limited to, any employer, trustee, trade union or association or a combination of them that establishes a CAP, and any service provider to the extent that the plan sponsor has delegated its responsibilities to the service provider) (a Plan Sponsor, or collectively, the Plan Sponsors) in respect of trades in the securities of any mutual funds selected for the CAPs sponsored by the Plan Sponsors, whether managed by an affiliate of the Filer or third parties (collectively, the Funds), subject to certain terms and conditions (the CAP Blanket Order Equivalent Relief)

(the Exemption Sought)

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application) the Ontario Securities Commission is the principal regulator for this application, and the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in the jurisdictions of Québec, Newfoundland and Labrador, the Yukon Territory and Nunavut.

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.

The defined term “CAP” used herein shall have the meaning given to the term “capital accumulation plan” as defined in section 1.1 of the Guidelines for Capital Accumulation Plans published in May 2004 by the Joint Forum of Financial Market Regulators (the CAP Guidelines).

The relief from the dealer registration requirement in the CAP Blanket Order Equivalent Relief shall be referred to as the Dealer Registration Relief.

The relief from the prospectus requirements in the CAP Blanket Order Equivalent Relief shall be referred to collectively as the Prospectus Relief.

Representations

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

The Filer is a corporation governed by the laws of Canada. Its head office is located in Toronto, Ontario.
The Filer has entered into an agreement to purchase the group retirement services business of ICMC Group Retirement Services Inc. (Integra), a wholly owned subsidiary of Integra Capital Management Corporation, such purchase to include the various administration agreements relating to the CAPs of certain Plan Sponsors. The purchase of the Integra group retirement services business is anticipated to close by the end of November 2009.
A CAP is a tax assisted investment or savings plan, and can include a defined contribution pension plan (a DCPP, also known as a money purchase pension plan), a group registered retirement savings plan (a RRSP), a group registered education savings plan (a RESP), or a deferred profit sharing plan (a DPSP), established by a Plan Sponsor that permits an individual to make investment decisions among two or more investment options offered within the plan.
The Filer will provide its services to Plan Sponsors where the investment choices for the members of the CAP (each a Member and, collectively, the Members) include Funds of the Filer, its affiliates and/or Funds managed by a manager unrelated to the Filer, whether offered by prospectus or on a private placement basis.
The Filer intends to trade in securities of the Funds as part of the group retirement services it will provide to various Plan Sponsors from time to time.
Plan Sponsors to whom the Filer will provide services may be employers, trustees, trade unions, associations or a combination of these that establish a CAP.
A Plan Sponsor establishes a CAP for the benefit of individual Members. Members may include current or former employees, or a person who belongs, or did belong, to a trade union or association, or

(a) his or her spouse;

(b) a trustee, custodian or administrator who is acting on his or her behalf, or for his or her benefit, or on behalf of, or for the benefit of, his or her spouse; or

that have assets in a CAP, and also includes any person who is eligible to participate in such plans.

The services that the Filer will provide to the Plan Sponsor will generally involve recordkeeping of Member data, transactions processing in respect of Member accounts, provision of Member statements as required under pension standards legislation and/or the applicable recordkeeping agreement and processing changes to Member accounts such as termination, death, retirement or a change in marital status.
The services that the Filer will provide to the Members will generally include direct contact services through its call centre and a variety of self-help tools that allow Members to make investment decisions regarding their investments.
The Filer will not be involved in plan design, engage in discretionary decision making with respect to the CAPs or Member accounts, select investments for the CAPs, or provide investment advice to Members.
Members and, in some cases, the Plan Sponsor, will make initial investment decisions, and subsequent changes to those investment decisions, with or without the assistance of an advisor selected by the Member (which will not be the Filer). These instructions are transmitted to the Filer and the Filer will then transmit these instructions to the Funds directly. The interest in the securities of the Funds will be registered in the name of the Filer (or other nominee) for the account of the relevant plan. The Filer will establish and maintain the records reflecting the interest of each Member or Plan Sponsor, as the case may be, in each Fund.
The Filer, the Plan Sponsors and the Funds intend to trade within CAPs or to Members in accordance with the conditions set out in proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions related to CAPs, which were published by the Canadian Securities Administrators (the CSA) on October 21, 2005 (the Proposed CAP Exemption) and adopted in the form of a blanket exemption by the securities regulatory authorities in all provinces and territories of Canada, other than in Ontario, Québec, Newfoundland and Labrador, the Yukon Territory and Nunavut (the CAP Blanket Exemption). The Proposed CAP Exemption and the CAP Blanket Exemption contemplate both dealer registration and prospectus exemptions, where required.
Though no equivalent to the CAP Blanket Exemption has been adopted in the jurisdictions of the principal regulator, Québec and Newfoundland and Labrador, the Yukon Territory or Nunavut, CSA Notice 81-405 Request for Comment on Proposed Exemptions for Certain Capital Accumulation Plans (the CAP Staff Notice) states that, in the jurisdiction of the principal regulator, the conditions described in the Proposed CAP Exemption will form the basis of the circumstances in which OSC staff expects that they could recommend that the principal regulator grant discretionary relief to an applicant. The regulators located in the other jurisdictions in which no equivalent to the CAP Blanket Exemption was adopted made it clear that they would be prepared to grant discretionary relief on terms similar to those contained in the Proposed CAP Exemption.
As Plan Sponsors will typically approach group retirement services providers, such as the Filer, for assistance with respect to the above regulatory issues, the Filer is seeking an exemption on behalf of the Filer, the Plan Sponsor and the Funds, as applicable, from the prospectus requirements where the Fund meets the conditions set out in this Application. The Filer will obtain on behalf of the Plan Sponsor a certificate from the manager of each such Fund certifying that such Fund complies with Part 2 of National Instrument 81-102 Mutual Funds (NI 81-102).
The Filer is not in default of securities legislation in any jurisdiction.
On October 17, 2006, Integra, certain mutual funds that formed the investment choices within the CAPs (some of which were distributed under a prospectus pursuant to National Instrument 81-101 Mutual Fund Prospectus Disclosure, while others were distributed under exemptions from the prospectus requirements of the Legislation) and one Plan Sponsor applied for and obtained relief from the principal regulator from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds within CAPs and, pursuant to the Mutual Reliance Review System for exemptive relief applications, from the equivalent requirements of the Autorité des marchés financiers and the Securities Commission of Newfoundland and Labrador, subject to certain terms and conditions (the MRRS Order). The MRRS Order was consistent with the Proposed CAP Exemption and the CAP Blanket Exemption.
The Filer, having entered into an agreement to purchase the business of Integra that was the subject of the MRRS Order, seeks relief on terms similar to the MRRS Order so that it may continue to provide the group retirement services to CAPs.
The CAP Staff Notice stated that the purpose of the Proposed CAP Exemption was to remove existing barriers to trading mutual fund securities with Members of CAPs where there is no valid regulatory reason for having such barriers.

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:

for the Dealer Registration Relief

(a) the Plan Sponsor selects the mutual funds that Members will be able to invest in under the CAP;

(b) the Plan Sponsor establishes a policy, and provides Members with a copy of the policy and any amendments to it, describing what happens if a Member does not make an investment decision;

(c) in addition to any other information that the Plan Sponsor believes is reasonably necessary for a Member to make an investment decision within the CAP, and unless that information has previously been provided, the Plan Sponsor provides the Member with the following information about each mutual fund the Member may invest in:

(i) the name of the mutual fund;

(ii) the name of the manager of the mutual fund and its portfolio advisor;

(iii) the fundamental investment objective of the mutual fund;

(iv) the investment strategies of the mutual fund or the types of investments the mutual fund may hold;

(v) a description of the risks associated with investing in the mutual fund;

(vi) where a Member can obtain more information about each mutual fund's portfolio holdings; and

(vii) where a Member can obtain more information generally about each mutual fund, including any continuous disclosure;

(d) the Plan Sponsor provides Members with a description and amount of any fees, expenses and penalties relating to the CAP that are borne by Members, including:

(i) any costs that must be paid when the mutual fund is bought or sold;

(ii) costs associated with accessing or using any of the investment information, decision-making tools or investment advice provided by the Plan Sponsor;

(iii) mutual fund management fees;

(iv) mutual fund operating expenses;

(v) record keeping fees;

(vi) any costs for transferring among investment options, including penalties, book and market value adjustments and tax consequences;

(vii) account fees; and

(viii) fees for services provided by service providers,

provided that the Plan Sponsor may disclose the fees, penalties and expenses on an aggregate basis, if the Plan Sponsor discloses the nature of the fees, expenses and penalties, and the aggregated fees do not include fees that arise because of a choice that is specific to a particular Member;

(e) the Plan Sponsor has, within the past year, provided the Members with performance information about each mutual fund the Members may invest in, including:

(i) the name of the mutual fund for which the performance is being reported;

(ii) the performance of the mutual fund, including historical performance for one, three, five and ten years if available;

(iii) a performance calculation that is net of investment management fees and mutual fund expenses;

(iv) the method used to calculate the mutual fund's performance return calculation, and information about where a Member could obtain a more detailed explanation of that method;

(v) the name and description of a broad-based securities market index, selected in accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, for the mutual fund, and corresponding performance information for that index; and

(vi) a statement that past performance of the mutual fund is not necessarily an indication of future performance;

(f) the Plan Sponsor has, within the past year, informed Members if there were any changes in the choice of mutual funds that Members could invest in and where there was a change, provided information about what Members needed to do to change their investment decision, or make a new investment;

(g) the Plan Sponsor provides Members with investment decision-making tools that the Plan Sponsor reasonably believes are sufficient to assist them in making an investment decision within the CAP;

(h) the Plan Sponsor must provide the information required by paragraphs (b), (c), (d) and (g) prior to the Member making an investment decision under the CAP;

(i) if the Plan Sponsor makes investment advice from a registrant available to Members, the Plan Sponsor must provide Members with information about how they can contact the registrant;

for the Prospectus Relief

(a) the conditions set forth in paragraph 1 above are met;

(b) the Funds comply with Part 2 of NI 81-102;

this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Dealer Registration Relief will terminate upon the coming into force in securities rules of a registration exemption for trades in a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to make such a rule, and
this Decision, as it relates to the jurisdiction of a Decision Maker with respect to the Prospectus Relief will terminate upon the coming into force in securities rules of a prospectus exemption for the distribution of a security of a mutual fund to a CAP or 90 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to make such a rule.

“James Turner”

“Margot Howard”

Name: James Turner

Title: Vice-Chair

Ontario Securities Commission

Name: Margot C. Howard

Title: Commissioner