31-701 - Advising under the Securities Act [BCIN- Rescinded]
| Published Date: | 2000-12-22 |
|---|---|
| Effective Date: | 2000-12-21 |
| Rescinded Date: | 2009-09-28 |
Any person who trades in or acts as an adviser for securities or exchange contracts is required to register (or be exempt from registration) under the Securities Act.
This registration requirement is intended to ensure that persons who provide investment advice and trading services to investors meet established standards of education, experience and ethical conduct and comply with specific ongoing regulatory obligations. These include obligations to “know the client”, to determine that a specific transaction is suitable for that client and to deal fairly, honestly and in the best interests of the client.
This Interpretation Note provides guidance about the types of activities that constitute advising and about the scope of the advising exemptions. A series of “Questions and Answers” is attached.
What is Advising?
Advising is offering an opinion about the investment merits of, or recommending the purchase or sale of, securities or exchange contracts. It includes making investment decisions for another person. A person that engages in, or holds himself or herself out as engaging in, the business of advising is an adviser and must be registered or exempt from registration.
The provision of factual information about an issuer is not advising, as long as it is not accompanied by a recommendation regarding, or an opinion about the merits of, the issuer’s securities.
Exemptions from the Adviser Registration Requirement
Section 44 of the Act provides limited exemptions from the adviser registration requirement for regulated professionals, registered dealers (and their registered partners, directors, officers and salespersons), financial institutions and the media and are subject to several conditions. BOR#95/15 and BOR#95/16 provide exemptions from the adviser registration requirement with respect to specified securities that are considered relatively “safe” (e.g., federal and provincial government bonds, GICs, investment grade commercial paper) or that are regulated (or whose issuers are regulated) under other statutes.
Other exemptions from the adviser registration requirement are found in section 86 of the Securities Rules (for investment dealers acting as portfolio managers in accordance with s. 12 of the Securities Rules) and BOR#96/20 (for trust companies acting as executors or administrators of estates or in a similar capacity).
Registration to trade in securities or exchange contracts does not include registration to advise. However, registered dealers and their registered salespersons may act as advisers without adviser registration in the following circumstances:
(a) a registered dealer, including a limited dealer, is exempt where it distributes research reports or similar analyses prepared by an employee, if the distribution of research is “solely incidental” to its business as a dealer and advising is not featured in any of its business advertising; and
(b) a registered dealer, including a limited dealer, or a person registered as a partner, director, officer or salesperson of that dealer, is exempt only to give advice that is “reasonably in fulfillment of [their] duty to ensure the suitability of a proposed purchase or sale for a client”.
The latter exemption permits a salesperson to advise clients for whom the “know your client” process has been completed in order to recommend investments suitable for the client’s specific investment needs and objectives.
The exemption does not permit a salesperson to provide general advice through, for example, recommending specific securities at a seminar for the public, or in mass mailings of advice about a particular security except possibly in the form of the dealer’s research reports.
A “Questions and Answers” section applying many of the points raised above is attached as a schedule to this Interpretation Note.
DATED at Vancouver, British Columbia, on December 21, 2000.
Steve Wilson
Executive Director
Ref: BOR#95/15
BOR#95/16
BOR#96/20
Securities Act, section 44
Securities Rules, sections 12, 86
This Interpretation Note may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.
Questions and Answers
Q: I am a mutual fund salesperson working for a mutual fund dealer. Can I recommend to my clients that they purchase “exempt market products” (for example limited partnership units offered by way of offering memorandum)?
A: Only if your firm has complied with the registration conditions applicable to these products, and if through the proper exercise of the know your client rule you have ensured that the investment is suitable for each client to whom you recommend it.
For example, if you had assessed a client's investments needs and objectives, income and net worth together with their current investment portfolio and determined that a particular limited partnership being sold under an exemption meets the client’s needs and goals, you could provide the client with advice related to that security to help them make an informed decision about whether to invest in that security. Advice focused on suitability can only be provided in discussions with individual clients.
Mutual fund dealers, and other “limited” dealers must comply with specific conditions of registration before they can use the available trading registration exemptions. These conditions include requirements to conduct due diligence on the “exempt market product”, to have a responsible individual (with specified proficiency) contact prospective purchasers of these investments to ensure suitability, in most cases to provide a written disclosure document called an offering memorandum for the “exempt market product”, to provide additional training for salespersons trading in the “exempt market product”, and prohibiting the sale of a security of any company that has a relationship with the limited dealer. These conditions will help ensure that limited dealers and their salespersons are knowledgeable about the securities they offer, and that the “exempt market products” are thoroughly reviewed and understood before they are offered to any client.
Anyone interested in reviewing the conditions can contact the Registration Division at the Commission to obtain a copy. The conditions are also described in BC Interpretation Note 33-701.
Q: Our firm, a mutual fund dealer, wants to hold a seminar on mutual funds for clients and potential clients. Can we give opinions on the merits of particular mutual funds at the seminar?
A: Yes, but in a limited way.
Registered dealers, including mutual fund dealers, are generally exempt from the requirement to register as advisers where:
(a) they are distributing research reports or similar analyses prepared by a salesperson, the advice so distributed is “solely incidental” to their business, and advising is not featured in any advertising of their business; or
(b) the advice given is reasonably in fulfillment of their duty to ensure the suitability of a proposed purchase for a client.
If your firm is providing opinions or information similar to that in a research report your firm could provide general advice about the merits of a mutual fund at the seminar. However, any advice regarding the suitability of the investment for investors can only be provided in direct discussions with individual clients.
Q: Our firm, a mutual fund dealer, would like to hold a seminar where we will talk about “exempt market products” (for example limited partnership units offered by way of offering memorandum). Can we do this?
A: Only if the seminar is limited to providing factual information and you give no advice or recommendations. The dealer has to ensure that any information it provides complies with any conditions of registration.
Q: I am a director of a company that is planning to do a “road show” in connection with a proposed offering. I am not registered with the Commission as an adviser and no exemptions from the adviser registration requirement appear to be available to me. What can I say about the company at my presentations?
A: You should provide only factual, previously disclosed information concerning the company at your presentations. As you are not registered as an adviser with the Commission and are not exempt from the adviser registration requirement, you cannot provide opinions concerning the investment merits of, or recommend investment in, the offering. If asked whether you would recommend investment in the offering you should tell the person that you cannot do so because you are not registered. You should direct the person to obtain that investment advice from an appropriately registered adviser or dealer.
Q: I am a financial planner. I commonly provide clients with general tax planning advice, including advice concerning the benefits of RRSPs and the different tax treatment for interest income, dividends and capital gains. Do I need to register with the Commission as an adviser to provide this advice?
A: No. Provided you do not provide opinions concerning the merits of specific securities, or recommend that your clients purchase or sell specific securities, you need not register with the Commission as an adviser.
Q: I provide investor relations services to an issuer. I am not registered as an adviser under the SecuritiesAct. I want to call people up and tell them that the issuer is a great company and that they should “get in now” before the share price goes up. Can I do this without adviser registration?
A: No. Telling people that an issuer is a great company that they should invest in constitutes advising under the SecuritiesAct, and adviser registration (or an applicable exemption) is required. In addition, you should be aware of section 50 of the Securities Act, which prohibits a person from giving an undertaking about the future value or price of a security while engaging in investor relations activities or with the intention of effecting a trade. In addition, section 52 of the Securities Act requires your investor relations activities to be disclosed by the issuer.