June 28, 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 CANADIAN IMPERIAL BANK OF COMMERCE (the Filer)
AND
CIBC SECURITIES INC. (the Representative Dealer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement in the Legislation for a dealer to deliver or send the most recently filed fund facts document (Fund Facts) in the manner as required under the Legislation (the Pre-sale Fund Facts Delivery Requirement) in respect of the purchases of a High Net Worth Class (as defined below) securities of the Funds (as defined below) that are made pursuant to Lower Fee Switches (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 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 in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (the Other Jurisdictions, together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in NI 81-102, 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 Filer:
The Filer
The Filer is a Schedule 1 Canadian chartered bank governed by the Bank Act (Canada) with its head office in Toronto, Ontario.
The Filer is registered as an investment fund manager in Newfoundland and Labrador and Québec.
The Filer is the manager of the CIBC mutual funds (the Existing Funds), each of which is subject to the requirements of National Instrument 81-102 Investment Funds (NI 81-102). The Filer may in the future become the manager of additional funds that are subject to the requirements of NI 81-102 (the Future Funds, and together with the Existing Funds, the Funds and, individually a Fund).
The head office of the Representative Dealer is located in Toronto, Ontario.
The Representative Dealer is an affiliate of the Filer, registered as a mutual fund dealer in the Jurisdictions.
Securities of the Funds are, or will be, distributed through dealers (Dealers or individually, a Dealer) who may or may not be affiliated with the Filer, including the Representative Dealer.
Each Dealer is, or will be, registered as a dealer in one or more of the provinces and territories of Canada. Other than Dealers who are registered as exempt market dealers, the Dealers are, or will be, members of either the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada.
Neither the Filer nor the Representative Dealer is in default of the securities legislation in any of the Jurisdictions.
The Funds
Each Fund is, or will be, an open-end mutual fund trust created under the laws of the Province of Ontario.
Each Fund is, or will be, a reporting issuer under the laws of the Jurisdictions. The securities of the Funds have, are, or will be, qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been, or will be, prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101). The units of the Funds are referred to herein collectively as “Securities” and individually as a “Security”.
The Existing Funds currently offer up to 9 classes of Securities: Class A, Class T4, Class T8, Class F, Class D, Class O, Institutional Class and Premium Class under a simplified prospectus, Fund Facts and annual information form dated July 5, 2017, as amended July 21, 2017. The Filer may offer additional classes in the future.
Certain Existing Funds that offer Class A also offer Premium Class Securities.
Premium Class Securities, and any future applicable high net worth class securities (each, a High Net Worth Class) of the Funds generally have or will have lower management fees than Class A Securities, and any future applicable retail class securities (each, a Retail Class) and is or will be only available to investors who have invested in a single account at least $100,000 (CAD) in the CIBC Canadian T-Bill Fund or the CIBC Money Market Fund, or at least $100, 000 (USD) in the CIBC U.S. Dollar Money Market, or at least $50,000 (CAD) or (USD), as applicable, in any other individual Fund (Eligibility Criteria), and where a High Net Worth Class is available for the applicable Fund.
The Existing Funds are not in default of securities legislation in any of the Jurisdictions.
Automatic Switches
The Filer is starting a program effective on or about July 23, 2018 (the Implementation Date) whereby investors holding Retail Class Securities of a Fund in a single account or holding, in aggregate, the Retail Class Securities and the High Net Worth Class Securities of the same Fund in a single account, will automatically be switched into the High Net Worth Class Securities of that same Fund if they meet the Eligibility Criteria and would benefit from lower fees. The Filer will automatically switch the Retail Class holders into the High Net Worth Class (the Lower Fee Switches) on a weekly basis without the dealer or investor having to initiate the trade. If an investor holding High Net Worth Class Securities of a Fund in a single account ceases to meet the Eligibility Criteria, the Filer may switch the High Net Worth Class back into the applicable Retail Class Securities of that same Fund without the dealer or investor initiating the trade (the Higher Fee Switches, and together with the Lower Fee Switches, the Automatic Switches).
The Lower Fee Switches will generally take place when the investor purchases additional Securities in a single account or when positive market movement moves the investor’s account holdings into High Net Worth Class eligibility.
The Higher Fee Switches may occur because of redemptions of High Net Worth Class Securities within an account that decrease the amount of total investments with the Filer for purposes of calculating the investor’s eligibility for High Net Worth Class Securities. However, in no circumstances will market value declines lead to Higher Fee Switches.
Once an investor holding Retail Class Securities in a single account has qualified for the High Net Worth Class and the Filer has initiated a Lower Fee Switches, the investor will continue to enjoy the benefit of lower fees associated with the applicable High Net Worth Class Securities, even if market performance reduces High Net Worth Class Securities value within the account below the Eligibility Criteria.
Investors may access High Net Worth Class Securities of a Fund by (a) initially investing in High Net Worth Class Securities if they meet the Eligibility Criteria or (b) initially investing in Retail Class Securities and then, upon meeting the Eligibility Criteria, having those Retail Class Securities be switched into High Net Worth Class Securities by way of a Lower Fee Switch.
Investors may access Retail Class Securities of a Fund by (a) initially investing in Retail Class Securities or (b) initially investing in High Net Worth Class Securities and then, upon no longer meeting the Eligibility Criteria for the High Net Worth Class Securities, having those High Net Worth Class Securities be switched into Retail Class Securities by way of a Higher Fee Switch.
The trailing commission for the High Net Worth Class will be lower than the trailing commission on the Retail Class.
Further to each Lower Fee Switch, an investor’s account would continue to hold Securities in the same Fund(s) as before the Automatic Switch, with the only material differences to the investor being that the fees charged for the High Net Worth Class Securities would be lower than those charged for Retail Class Securities.
The Filer will monitor whether an investor meets, or continues to meet, the Eligibility Criteria as of the second last business day that the Filer’s head office in Toronto is open for business (a “Business Day”) of each week. In addition, the Filer will monitor whether an investor, who has met the Eligibility Criteria, has made any new investments in the Retail Class Securities, as of the second last Business Day of the week. The Lower Fee Switches, however, will be carried out on the last Business Day of the week.
Further to each Higher Fee Switch, an investor’s account would continue to hold Securities in the same Fund(s) as before the Automatic Switch, with the only material differences to the investor being that the management fees charged for the Retail Class Securities would be higher than those charged for High Net Worth Class Securities.
There are no sales charges, switch fees or other fees payable by the investor upon an Automatic Switch.
Implementation of the Automatic Switches will have no adverse tax consequences on investors under current Canadian tax legislation.
Delivery requirements
Each Automatic Switch will entail (a) a redemption of the Retail Class security, immediately followed by a purchase of the High Net Worth Class Security, or (b) a redemption of the High Net Worth Class Security, immediately followed by a purchase of the corresponding Retail Class Security. Each purchase of Securities done as part of an Automatic Switch will be a “distribution” under the Securities Act (Ontario), which triggers the Pre-Sale Fund Facts Delivery Requirement.
Pursuant to the Pre-Sale Fund Facts Delivery Requirement, a dealer is required to deliver the most recently filed Fund Facts of a class of a Fund to an investor before the dealer accepts an instruction from the investor for the purchase of securities of that class of the fund.
In the absence of the Exemption Sought, the Filer may not carry out the Lower Fee Switches without compliance with the Pre-Sale Fund Fact Delivery Requirement.
Reasons supporting the Exemption Sought
- While the Filer will initiate each trade done as part of an Automatic Switch, the Filer does not propose to deliver the Fund Facts to investors in connection with the purchase of Securities made pursuant to a Lower Fee Switch for the following reasons:
(a) an investor holding Retail Class Securities in a single account that qualifies for High Net Worth Class Securities will not pay management fees at a rate higher than the rate of the management fees of the Retail Class Securities for which it initially subscribed; and
(b) since Retail Class securityholders would have received a Fund Facts disclosing the higher level of fees which applied to the Retail Class for which they initially subscribed, the investor would derive little benefit from receiving a further Fund Facts document for each Lower Fee Switch.
The dealer will be required to deliver the Retail Class Fund Facts to investors in connection with the purchase of Retail Class Securities made pursuant to a Higher Fee Switch, as required by the Pre-Sale Fund Facts Delivery Requirement.
The Filer will deliver, or will arrange for the delivery by the Dealers, of trade confirmations to investors in connection with each trade done further to an Automatic Switch. Furthermore, details of the changes in classes of Securities held will be reflected in the account statements sent to investors for the quarter in which the change occurred.
The Filer will disclose the eligibility requirements and the management fees applicable to the Retail Class and the High Net Worth Class in the simplified prospectus.
The Filer will communicate with Dealers about the Lower Fee Switches so that Dealers will be equipped to appropriately notify existing Retail Class investors of the changes applying to their Retail Class investments and appropriately advise new Retail Class investors about the Lower Fee Switches.
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 investors invested in the Retail Class prior to the Implementation Date, the Filer will liaise with the relevant Dealers to devise and implement a notification plan for such investors regarding the Automatic Switches to communicate the following:
(a) that their investment may be switched to a High Net Worth Class with lower fees upon meeting the applicable Eligibility Criteria;
(b) that other than a difference in fees, there will be no other material difference between the Retail Class and the High Net Worth Class;
(c) that if they cease to meet the Eligibility Criteria for High Net Worth Class, their investment may be switched into a series with higher management fees which will not exceed Retail Class fees; and
(d) that they will not receive the Fund Facts when they purchase Securities further to a Lower Fee Switch, but that
(i) they may request the most recently filed Fund Facts for the relevant class by calling a specified toll-free number or by sending a request via email to a specified address;
(ii) the most recently filed Fund Facts will be sent or delivered to them at no cost;
(iii) the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer’s website; and
(iv) they will not have the right to withdraw from an agreement of purchase and sale (a Withdrawal Right) in respect of a purchase of class Securities made pursuant to a Lower Fee Switch, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the relevant class contains a misrepresentation, whether or not they request the Fund Facts.
- the Filer will incorporate disclosure in the Prospectus for the Retail Class and the High Net Worth Class that sets out the following:
(a) the eligibility requirements for both the Retail Class and the High Net Worth Class;
(b) the management fees applicable to investments in both the Retail Class and the High Net Worth Class; and
(c) in the event investors cease to meet the Eligibility Criteria of a specified High Net Worth Class, that their investment may be switched into a class with higher management fees which will not exceed the applicable Retail Class fees.
- In each Fund Facts for the Retail Class and the High Net Worth Class, the Filer will disclose:
(a) under the heading “How much does it cost?”, a summary of the Automatic Switches program, consisting of:
(i) a statement explaining that the Automatic Switches program offers a management fee decrease;
(ii) in the case of the Retail Class only, a statement explaining the scenarios in which the Lower Fee Switches will be made;
(iii) a statement that Higher Fee Switches may be made due to the investor no longer meeting the Eligibility Criteria;
(iv) a cross-reference to the disclosure described below under paragraph 3(a)(vi);
(v) a cross-reference to the more detailed disclosure in the simplified prospectus for more information about the program; and
(vi) a statement disclosing that investors should speak to their representative for more details about the program.(b) at the end of the disclosure under the sub-heading “Fund Expenses”, a statement that discloses the management fee decrease of the applicable High Net Worth Class from the management fee of the applicable Retail Class, shown in percentage terms.
- For Retail Class investors, the Filer sends these investors an annual reminder notice advising that they will not receive the Fund Facts when they purchase High Net Worth Class Securities further to a Lower Fee Switch, but that
(a) they may request the most recently filed Fund Facts for the relevant class by calling a specified toll-free number or by sending a request via email to a specified address;
(b) the most recently filed Fund Facts will be sent or delivered to them at no cost;
(c) the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer’s website; and
(d) they will not have a Withdrawal Right in respect of a purchase of class Securities made pursuant to a Lower Fee Switch, but they will have a right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the relevant class contains a misrepresentation, whether or not they request the Fund Facts.
- The Filer will provide to the principal regulator, on an annual basis, beginning 60 days after the date upon which the Fund Facts Delivery Relief is first relied upon by a Dealer, either:
(a) a current list of all such Dealers that are relying on the Exemption Sought; or
(b) an update to the list of such Dealers or confirmation that there has been no change to such list.
- Prior to a Dealer relying on the Exemption Sought, the Filer provides to the Dealer a disclosure statement informing the Dealer of the implications of this decision.
“Stephen Paglia”
________________________________________ Stephen Paglia, Manager Investment Funds and Structured Products Branch Ontario Securities Commission
Application No. 2018/0267