Client Focused Reforms – Understanding and Addressing Conflicts of Interest
Canadian securities regulators have launched new regulatory requirements known as Client Focused Reforms, intended to ensure the protection and fair treatment of clients of the investment industry.
The Client Focused Reforms include the need for us to inform you about how we identify and respond to conflicts of interest.
What are Conflicts of Interest?
Conflicts of interest, or the perception of a conflict of interest, may arise when your interests are seen as inconsistent or different from those of the portfolio manager/advisor, Foundation Wealth, or another client and that difference could be seen as influencing us to put other interests ahead of your interest. Examples include giving preferential treatment to one client over another, making decisions which impact our compensation or granting special treatment to providers with whom we have an underlying or financial relationship.
How do we Deal with Conflicts when they Arise?
We address all conflicts of interest in the best interest of our clients. Where we cannot address a conflict of interest in the best interest of the client, we avoid the conflict entirely.
We manage and minimize conflicts wherever possible. We avoid conflicts entirely where they would result in actual or perceived favouritism amongst clients in the operation and management of their accounts and execution of trades.
Some conflicts cannot be reasonably avoided, including those conflicts that are inherent in our relationship with our affiliates including with other Purpose Financial entities, like Purpose Investments. We believe that it is important that you are fully informed regarding our conflicts, including how we address them in your best interests.
We are highlighting the following examples in terms of how we deal with conflicts. Please refer to the Relationship Disclosure Information provided to you at account opening for more information.
Potential Conflict: There is a potential conflict of interest in any paid referral arrangements, because the individual making the referral has a financial interest in introducing the client to the other service provider regardless of whether the services offered are appropriate.
Conflict management: We have policies in place to perform due diligence and approve any proposed referral arrangements. Arrangements are only approved if we determine that there is adequate disclosure of the details of the arrangement to clients and the benefits to clients exceed any financial arrangement. We also review arrangements on an annual basis to ensure that clients continue to receive benefits from them.
Compensation and Incentive Programs
Potential Conflict: Some securities pay a fee to an advisor for the advice they give to clients. If these securities are not excluded from the advice fee calculation for fee-based accounts, a client could pay for advice twice.
Conflict management: For Foundation Wealth accounts that are fee-based, we monitor the accounts regularly and have testing activities to prevent the application of an account fee to a trailing-commission-paying security to prevent this.
Potential conflict: If bonus compensation of compliance and supervisory staff was tied to sales or revenue generation of the firm overall, compliance and supervisory staff may be incentivized not to raise issues or findings for fear of loss to the firm, and consequently to their own compensation.
Conflict management: Annual bonuses do make up part of the compensation package for some Foundation Wealth employees. Bonuses are based on both the individual and firm’s overall performance. However, Foundation Wealth’s management team recognizes that the firm’s overall performance is not only a matter of financial performance. Foundation Wealth is dedicated to fostering a robust compliance culture, and the efficacy of compliance and supervisory functions are also important considerations that factor into management’s assessment of the firm’s performance for bonus calculations. Performance assessments of the firm and individual employees are never purely based on the firm’s financial performance.
Personal Financial Dealings and Interests
Potential Conflict: An individual at the firm puts their interests above clients’ due to personal interests.
Conflict management: We mitigate against this risk by monitoring personal trading of our registered employees and certain other individuals with access to information; we prohibit financial dealings outside of the portfolio management activities between our employees and our clients, gifts and entertainment policies are enforced and monitored, and outside business activities are known and managed.
Potential Conflict: In selecting investments for client accounts, a firm could prefer products from a related company over another investment company to the client’s detriment.
Conflict management: Through our investment risk committees, we review all products that are offered to you such that we believe these products are suitable solutions irrespective of whether they are related party products or not. We monitor performance of products on a continuous basis and perform ongoing suitability reviews of your holdings.
Discretionary Authority and Trading
Potential Conflict: A firm could trade in products that are to their benefit or to the benefit of another client and not in your best interests.
Conflict management: Acting in your best interests drives everything that we do. We have implemented a “fair allocation” policy to ensure we treat all clients impartially and put client trades ahead of ours. We regularly monitor and test this policy.
Custody of your assets
Potential Conflict: An employee could take advantage of short-term opportunities through actions related to the direct holding of the investment assets of clients.
Conflict management: We do not hold the cash and securities in your accounts directly. Client assets are held in Canada in a fully disclosed, segregated account at a qualified Canadian custodian. Each client account held by a custodian is insured by the Canadian Investor Protection Fund (“CIPF”) and is unrelated to us as the portfolio manager. We provide statements to you as does the custodian, on a monthly or quarterly basis as applicable.
How do you find out more?
This Disclosure Statement will be available on our website and in your investor portal or by mail depending on your delivery preference.
If you still have questions after reading this document, please reach out to firstname.lastname@example.org and we would be happy to address any of your concerns.