NIN 95/59 - Application of Section 30 of the Act to Trust Companies [NIN - Rescinded]

A large number of amendments to the Securities Act, will be brought into force on January 1, 1996 (see NIN#95/40). Included in those amendments are changes intended to clarify limitations on the exemption from adviser registration set out in section 30(2) of the Securities Act. In particular, section 30(3)(a)(ii) of the Securities Act clarifies that section 30(2) does not apply to, inter alia, a savings institution where, if the institution advertises its business, advising is featured in the advertisements. The definition of "savings institution" set out in section 29 of the Interpretation Act, R.S.B.C. 1979, c. 206 includes a trust company.

Background

Section 30(2) of the Securities Act exempts a number of persons, including trust companies, from the requirement under section 20(1)(c) of the Securities Act to register as an adviser. As currently worded, section 30(3) of the Securities Act allows the exemption only so long as the performance of the service as an adviser is solely incidental to the persons principal business or occupation. The "solely incidental" limitation on the advising registration exemption will continue after January 1, 1996, in section 30(3)(a)(i) of the Securities Act, as the first prong of a two-pronged test. Section 30(3)(a)(ii) of the Securities Act sets out the second prong of the test. That section clarifies that, if, inter alia, a trust company advertises its business and advising is featured in the advertisements, the trust company may not rely upon the adviser registration exemption set out in section 30(2) of the Securities Act.

The amendments to section 30 of the Securities Act described in the previous paragraph extend to an insurer, a savings institution (including a trust company), the Business Development Bank of Canada (formerly, Federal Business Development Bank), a lawyer, an accountant (CA, CGA, CMA), a registered dealer (with respect to its research reports) and a publisher or writer (provided that the publication meets certain tests).

Blanket Order

The amendments to section 30 of the Securities Act are intended to clarify that a trust company may not rely upon the adviser registration exemption set out in section 30 of the Securities Act where the trust company advertises portfolio management or investment counselling services that are severable from, rather than solely incidental to, the trust companys principal business. Further, the Commission considers that discrete portfolio management or investment counselling services, unrelated to the principal business of a trust company, are indistinguishable in any material sense from services offered by portfolio managers or investment counsel registered under the Act and, accordingly, require registration.

However, the Commission recognizes that, where a trust company advertisement features portfolio management or investment counselling services that are solely incidental to the trust companys principal business, the amendments to section 30 of the Securities Act may restrict the trust company from relying upon the adviser registration exemption set out in section 30 of the Act. Staff of the Commission intend to consult further with financial institutions and other securities regulators to clarify what constitutes the "principal business" of trust companies and an appropriate interpretation of "solely incidental", and to consider when it is appropriate for a trust company that is not registered to feature portfolio management or investment counselling services in its advertising.

In the interim, by BOR#95/14, the Commission is providing blanket relief, for a period of one year, from the requirement for trust companies to register as advisers where they advertise portfolio management or investment counselling services that are solely incidental to the trust company acting as:

• executor or administrator of an estate
• trustee of a testamentary or inter vivos trust
• committee of the estate of a "mentally disordered person", as defined in the Mental Health Act, R.S.B.C. 1979, c. 256
• guardian of the estate of a "minor", as defined in the Interpretation Act
• attorney under a power of attorney for a client who lacks the legal capacity to manage his or her own affairs, or
• administrator of a private charitable foundation.

Any advertisement that features portfolio management or investment counselling services that are not solely incidental to one of the services described above would disqualify the trust company from reliance on the registration exemption.

The amendments to section 30 of the Securities Act do not restrict a trust company from offering and advertising portfolio management or investment counselling services where the services are to be provided by persons registered as portfolio managers under the Act, including portfolio management or investment counselling services provided by persons employed by a registered adviser that is controlled by or affiliated with the trust company.

DATED at Vancouver, British Columbia, on December 21, 1995.

Douglas M. Hyndman
Chair

REF: BOR#95/14
NIN#95/40