Dixon Mitchell Investment Counsel Inc.
Conflicts of Interest Disclosure
Jan 10, 2022
Canadian securities laws requires Dixon Mitchell Investment Counsel Inc. (“we”, “us” or “our”) to take reasonable steps to identify and respond to existing and reasonably foreseeable material conflicts of interest in our clients’ best interests and inform clients about them, including how the conflicts might impact clients and how we plan to address them in the best interests of our clients. This document describes the material conflicts of interest that arise or may arise in our capacity as a portfolio manager for our managed account clients and in our capacity as an exempt market dealer for clients that purchase securities of investment funds created and managed by us, including the Dixon Mitchell Pooled Funds (currently comprised of the Dixon Mitchell Small Cap Fund, the Dixon Mitchell Canadian Equity Fund, the Dixon Mitchell U.S. Equity Fund, and the Dixon Mitchell Canadian Bond Fund) (the “Funds”), through us. For material conflicts of interest associated with our activities as investment fund manager and portfolio advisor of the Funds, please see the confidential information memorandum or other disclosure document for the Funds under the heading “Manager Conflicts of Interest” (or similar) or in other disclosure provided to investors.
What is a Conflict of Interest?
A conflict of interest may arise in circumstances where (i) our interests or those of our representatives and your interests as our client may be inconsistent or different, (ii) we or our representatives may be influenced to put our or their interests ahead of yours, or (iii) monetary or non-monetary benefits available to us, or potential negative consequences for us, may compromise the trust that you have in us.
How do we address Conflicts of Interest?
We and our representatives always seek to resolve all material conflicts of interest in your best interest. Where it is determined that we cannot address a material conflict of interest in your best interest, we and our representatives will avoid that conflict.
We have adopted policies and procedures to assist us in identifying and controlling any conflicts of interest that we and our representatives may face.
Material Conflicts of Interest
A description of the material conflicts of interest that we have identified, the potential impact and risk that each conflict of interest could pose, and how each conflict of interest has been or will be addressed, is set out below.
Limitation on Product Offering: Proprietary Products Only
As an exempt market dealer, the investment opportunities currently available through us are limited to securities of the Funds that are managed by us (referred to as “proprietary products”). Because of our role in managing the business and affairs of the Funds, these are considered to be connected issuers to us. Additional information about the Funds is available in the Funds’ confidential information memorandum or other disclosure document, copies of which are available from us upon request.
Our roles in managing, advising and selling securities of the Funds will inevitably give rise to certain conflicts between our interests and yours. These conflicts of interest could mean that we are only providing you access to proprietary products because we receive compensation related to those products. In addition, our relationship with these products may cause us to follow a ‘know your product’ process that is less robust than it otherwise would be for non-proprietary products. Our review of these products may also be conducted with a less independent view than would be done by an arm’s length party. Further, because we do not offer investments in third party products, any suitability determination conducted by us and our representatives will not consider the larger market of non-proprietary products or whether those non-proprietary products would be better, worse, or equal in meeting your investment needs and objectives.
We manage these conflicts by ensuring that we do not receive any fees or other compensation for our services as an exempt market dealer and our representatives do not receive any sales-based compensation or commissions or referral fees related to the sale of proprietary products. In addition, unless you are a “permitted client” and have requested that we not make suitability determinations for your account, we will conduct a suitability assessment to ensure that each investment is suitable for you and in your best interests, having regard to your financial and other circumstances. We also carry out periodic assessments of the products we offer, including their performance, to ensure that they remain appropriate for the range of our clients and prospective clients. If we believe that the name of any Fund is not similar enough to convey a Fund’s relationship to us, we will provide you with specific disclosure regarding that relationship at the appropriate time. Despite the steps we take to manage these conflicts, you may wish to get independent advice from a trusted professional before you consider investing in the proprietary products we offer.
Transactions or Arrangements with Certain Related and Connected Issuers
For the purposes of this summary, (i) the word “connected” is intended to involve a state of indebtedness to, or other relationship with, us or those “related” to us that, in connection with a distribution of securities, would be material to a purchaser of the securities; and (ii) the word “related” is intended to involve positions permitting, through ownership or otherwise, a controlling influence, and would include all companies under a common controlling influence.
In the course of providing services to you, we may from time to time advise you or exercise discretion on your behalf with respect to the purchase or sale of securities from or to, or issued by, persons or companies which are related or connected to us. These transactions and arrangements will give rise to conflicts of interest, and we have adopted policies and procedures to identify and respond to these conflicts. We will only enter into these transactions or arrangements where they are permitted under applicable securities laws and where we believe they are in your best interests in the applicable circumstances.
The following types of transactions and arrangements give rise to a conflict of interest given our relationship to the parties involved:
Mutual funds for which we act as manager and/or portfolio advisor
We are the manager and portfolio advisor of the Funds, mutual funds offered to investors pursuant to exemptions from prospectus requirements under securities laws. In addition, we are the portfolio advisor of the VPI Canadian Balanced Pool and the VPI Total Equity Pool, both mutual funds managed by Value Partners Investments Inc., which are offered for sale to investors pursuant to a simplified prospectus filed with applicable securities regulators. We may from time to time exercise our discretion to purchase and redeem units of these funds for our clients. Our role in acting as the manager and/or portfolio advisor of these funds means that the funds may be considered to be connected to us. If we invest the assets of our clients in any of these funds or any other mutual fund or other investment fund for which we act as the manager and/or portfolio advisor, we will ensure that the management fees paid to us by our clients do not duplicate any similar fees received by us from the fund.
Allocation of Investment Opportunities
We provide investment management services for various funds and other clients. The size and mandate of these funds and other accounts differ and the portfolios are not identical. As a consequence, we may purchase or sell a security for the portfolio of one fund or account prior to other funds or accounts. This could occur, for example, as a result of the specific investment objectives of the funds or accounts, or the different cash resources of the funds or accounts. If the availability of any particular security is limited and that security is appropriate for the investment objective of one or more of the funds or accounts, any purchase of that security will be allocated on an equitable basis in accordance with our Fair Allocation of Investment Opportunities policy. A copy of this policy is available upon request.
Broker-Dealer Selection/Best Execution
Unless otherwise directed by a client in writing, all decisions as to the purchase and sale of securities for a Fund or any other fund or account managed by us and all decisions as to the execution of portfolio transactions, including the selection of execution venues, the broker-dealer and the negotiation, where applicable, of commissions or spreads, will be made by us as the portfolio manager of the Fund or other fund or account.
We use third party dealers to execute trades on behalf of the Funds and other funds and accounts, but we also may have many other relationships with them. It is possible that we may be biased in our selection of broker-dealers based on these relationships, or by certain incentives offered by some broker-dealers. This may result in the commissions paid by our clients being somewhat higher than those that might be charged by different dealers.
In selecting broker-dealers to effect portfolio transactions for the Funds and other funds or accounts, we have a fiduciary duty to seek to obtain best execution (i.e., the most advantageous execution terms reasonably available under the circumstances, but may not necessarily be the lowest price). In selecting broker-dealers, we assess each broker-dealer’s order execution capabilities (which involves a number of factors, including execution price, speed of execution, certainty of execution, and overall cost of the transaction) and research products and services. We use the same criteria in selecting all of our broker-dealers, regardless of whether the broker-dealer is our affiliate.
We maintain a list of approved broker-dealers that meet our requirements for execution and research capabilities. We perform periodic evaluations of order execution capabilities and products and services received from the approved broker-dealers and will update the list, as appropriate. We may select broker-dealers from this list of approved broker-dealers, who may charge a commission in excess of that charged by other broker-dealers, if we determine in good faith that the commission is reasonable in relation to the services utilized by us. These determinations can be viewed in terms of either the specific transaction or our overall responsibility to all clients.
Soft Dollar Arrangements
The Manager may in the course of providing portfolio management services for the Funds and its other clients enter arrangements with brokers or other third parties involving the use of brokerage commissions generated by client accounts (or “soft dollars”). Although the brokers involved in soft dollar arrangements do not necessarily charge the lowest brokerage commissions and such arrangements may not always benefit all clients at all times, the Manager will nonetheless enter into such arrangements when it is of the view that such brokers provide best execution and/or the value of the research and other services exceeds any incremental commission costs. These arrangements will only be entered in accordance with Dixon Mitchell’s policies regarding the use of the brokerage commissions paid by clients. Dixon Mitchell will, in seeking best execution and entering arrangements involving the use of brokerage commissions, comply with all applicable laws.
Personal Trading Activities
Employee personal trading can create a conflict of interest because employees with knowledge of our trading decisions could use that information for their own benefit. We have adopted a Personal Trading Policy to restrict and monitor personal trading by our employees, officers and directors in order to ensure that they act in accordance with applicable Canadian securities laws and other applicable laws, that they act in the best interests of Dixon Mitchell Investment Counsel Inc. and our clients, that they avoid actual or potential conflicts of interest, and that they do not engage in personal securities transactions that are prohibited by law, such as insider trading, or that negatively impact the Funds and our clients.
Each of our employees, officers and directors put the interests of our clients first, ahead of their own personal self-interests. In particular, any individual who has, or is able to obtain access to, non-public information concerning the portfolio holdings, the trading activities or the ongoing investment programs of our clients, is prohibited from using such information for his or her direct or indirect personal benefit or in a manner which would not be in the best interests of our clients. These individuals also must not use their position to obtain special treatment or investment opportunities not generally available to our clients or the public. These individuals are only allowed to make a personal trade if it falls within our Personal Trading Policy or if our Chief Compliance Officer has determined that such trade will not conflict with the best interest of our clients. We encourage our employees, officers and directors to invest primarily in the same portfolio models used for client accounts, thereby reducing the amount of their personal investments and consequently, reducing the likelihood of a conflict of interest arising between us and our clients.
At times, individuals acting on our behalf may participate in activities outside of their employment with us, such as serving on a board of directors, participating in community events or pursuing personal outside business interests, whether paid or unpaid. A potential conflict can arise from such an individual engaging in such activities as a result of compensation received, the time commitment required or the position held by the representative in respect of these outside activities. The potential impact and risk to you are that these outside activities may call into question the representative’s ability to carry out their responsibilities to you or properly service you, there may be confusion which entity(ies) the representative is acting for when providing you with services and/or if the outside activity places the representative in a position of power or influence over you.
We address this conflict by requiring individuals acting on our behalf to disclose any proposed outside activities to us prior to engaging in such activities, and such activities must be approved by us before an individual can engage in such activities. We will not allow an individual acting on our behalf to proceed with the outside activity if it is determined that the outside activity will give rise to material conflicts of interest that cannot be addressed in our clients’ best interest.
Gifts and Entertainment
The receipt of gifts or entertainment from business partners may result in a perceived conflict as it gives rise to the perception that our representatives will favour such business partners when making investment decisions. To manage this perceived conflict of interest, we have adopted a gifts and entertainment policy, which prohibits our representatives from accepting gifts or entertainment beyond what we consider consistent with reasonable business practice and applicable laws. We set maximum thresholds for such permitted gifts and entertainment so that there cannot be a perception that the gifts or entertainment will influence decision-making.
Management Fee Practices
We generally use a standard fee schedule for the management fees payable by our clients. We may under limited instances allow clients to negotiate management fees that differ from our standard fee schedule. This may include, for example, legacy clients whose fees were established prior to the implementation of our current standard fee schedule, new clients referred by existing clients, certain institutional or ultra-high-net-worth clients, or situations in which we determined that an adjustment was needed to remain competitive. This creates a potential conflict of interest between our interests and those of our clients to the extent that some clients are aware of the ability to negotiate management fees and others are not. To address this, we have adopted a standard fee schedule based on measurable criteria, have implemented measures designed to ensure that deviations from our standard fee schedule are applied fairly and consistently, and ensure that all clients are aware that management fees are negotiable in limited circumstances.
We may enter into referral arrangements from time to time whereby we pay or provide a fee or other benefit for the referral of a client to us or to one of the funds we manage, or whereby we receive a fee or other benefit for the referral of a client to another entity. Referral arrangements may be entered into both with other registrants and with non registrants. Referral arrangements may give rise to conflicts of interest as a result of the fee or other benefit provided for the referral or due to the relationship among the parties to the arrangement.
In all cases, the referral arrangement will be set out in a written agreement which will be entered into in advance of any referrals being made. Details of how the referral fee is calculated and paid and to whom it is paid and other required information regarding each referral arrangement will be provided to affected clients as required.
We also have policies and procedures that are designed to ensure that fees and other benefits received or paid or provided, as applicable, in connection with referral arrangements are appropriate and do not provide inappropriate incentives, and that any referral by us is in the client’s best interest. We undertake periodic reviews of referral arrangements. Clients are not obligated to purchase any product or service in connection with a referral.