RELATIONSHIP DISCLOSURE INFORMATION
Background
On this page, we provide important information concerning the relationship between Qube Investment Management Inc. and you, our client. To clarify, when the terms “we,” “us,” “QIM” are used in this document, we mean Qube Investment Management Inc.
When we refer to “you” or “your”, we are referring to you as the holder or joint holder of an account managed by us on a discretionary basis and when applicable, anyone authorized to give instructions in respect of an account.
QIM is registered as a portfolio manager in the provinces of Alberta and British Columbia. The Firm’s principal securities regulator is the Alberta Securities Commission, and its head office is located at 9414 91 Street NW, Edmonton AB T6C 3P4.
As a portfolio manager under applicable Canadian securities laws, we are obligated to provide you with information that a reasonable client would consider important about its relationship with QIM. This includes information so that you may understand the nature of your relationship with QIM and the discretionary investment authority that we will exercise over your managed account(s) with us. This document also describes material conflicts of interest that arise or may arise between the Firm, individuals acting on its behalf and its clients, or between the differing interests of two or more of the Firm’s clients to whom the Firm owes a duty. We have provided disclosure about material conflicts of interest to help inform your decision when evaluating our business practices, conflicts management and overall performance on an ongoing basis.
Other important information you need to know about your relationship with us and the operation of your account will be contained in the Investment Management Agreement (“IMA”) you enter into with the Firm, as well as the Investment Policy Statement (“IPS”) which will be developed to summarize your general investment goals and objectives, as well as the strategies that the Firm will employ as a result.
If there is a significant change to the information contained in this document, we will provide you with updated information in writing as soon as reasonably possible.
Your Relationship With QIM and Our Obligations to You
QIM offers separately managed account services to individual, corporate, charitable and trust investors. Discretionary accounts are managed with complete discretion in accordance with the terms of the Investment Management Agreement entered into between you and us in connection with your Account and any applicable Investment Policy Statement or other similar document which, among other things, outlines your investment needs and objectives, financial circumstances and risk tolerance, and any amendments thereto. This means that QIM will not need to seek further instructions from you in order take investment actions for your account(s) with us. However, QIM will not have authority to withdraw account holdings without your explicit instructions except for the payment of fees as detailed in the IMA you have entered with the Firm.
In certain circumstances, we may not have discretionary authority over certain types of investments held within your Account, but in such circumstances this fact will be noted in the Investment Management Agreement or other documentation in relation to your Account. We will only transact on those investments based on your instructions.
QIM is obligated to ensure your account(s) are managed prudently and in accordance with the IPS that has been developed. Prior to taking any investment action, QIM has an obligation to assess whether a purchase or sale of a security is suitable for you and puts your interests first.
Client account assets are generally invested in equity securities and fixed-income instruments. QIM does not distribute nor invest client assets in proprietary funds or products. Securities purchased for a client’s account will generally be listed on an exchange, although the Firm would caution that a listing on an exchange does not ensure that a security will have liquidity at a desirable price. To the extent a security purchased for a client’s account is subject to specific resale or transfer restrictions, the Firm will take that factor into consideration as part of its determination as to whether the security is suitable for the client.
Your Custodian
QIM does not hold physical custody of your investment assets. For your protection, your assets must be segregated and held by a custodian that is subject to regulatory oversight, minimum capital, and insurance requirements.
You will have opened an account with a Custodian, which will serve as the Custodian for your account holdings, and which will be responsible for trade settlement, record keeping and tax reporting (the “Custodian”). The Custodian is directly responsible to you for the performance of these services. We have directed that you use the custody services of National Bank Independent Network (NBIN) for this purpose. NBIN is a Canadian ‘qualified custodian’ under applicable securities law and is independent of QIM. NBIN’s head office is located at Exchange Tower, 130 King St W 3200 2, Toronto, ON M5X 1J9. NBIN is an investment dealer that is regulated by the Investment Industry Regulatory Organization of Canada (IIROC). NBIN holds all domestic securities of the client in a segregated account in Canada.
QIM has trading authority over client assets held at the Custodian but does not have access to client assets held at the Custodian and is not authorized to transfer securities or cash into or out of client accounts held at the Custodian, except for its entitlement to the payment of its management fees from the accounts. The Custodian is required to segregate client assets from its own assets and is subject to regulatory oversight, minimum capital, and insurance requirements. The Custodian may hold securities on behalf of the client in its name, as nominee of the client. Client assets held by a Custodian are subject to risk of loss, including: (i) if a Custodian becomes bankrupt or insolvent; (ii) if there is a breakdown in a Custodian’s information technology systems; or (iii) due to the fraud, willful or reckless misconduct, negligence or error of a Custodian or its personnel.
The Firm has reviewed the Custodian’s reputation, financial stability, relevant internal controls, and ability to deliver custodial services and has concluded that the Custodian’s system of controls and supervision is sufficient to manage risks of loss to client assets in accordance with prudent business practice.
Your accounts held at the Custodian (NBIN) will be covered by the Canadian Investor Protection Fund (CIPF).
CIPF Protection
The cash and security assets in your accounts by are covered by the Canadian Investor Protection Fund (“CIPF”), details of these limits can be found here. Should the custodian firm become insolvent, CIPF provides coverage as follows:
For an individual holding an account or accounts with the Custodian, the limits on CIPF protection are as follows:
- $1 million for all general accounts combined (such as cash accounts, margin accounts and TFSAs), plus
- $1 million for all registered retirement accounts combined (such as RRSPs, RRIFs and LIFs), plus
- $1 million for all registered education savings plans (RESPs) combined where the client is the subscriber of the plan.
- A corporation, partnership or unincorporated organization holding an account with a member firm is generally considered to be separate from its owners or partners for purposes of determining the limit on CIPF protection . The limit on CIPF protection for these types of clients is generally $1 million for all accounts combined.
CIPF coverage does not insure against market losses due to volatile markets, product suitability, or insolvency of an actual security in an account.
Account Types
QIM offers most personal and corporate/non-personal account types. For example, we offer the following registered accounts: TFSA, RRSP, RRIF, LIRA, LIF, RESP, RDSP and IPP. For personal clients, we also offer the following taxable accounts: individual, joint (JTROS), informal trust (ITF). All of the taxable accounts are offered as cash. With respect to corporate/non-personal account types, we offer corporate, charitable and trust accounts. These accounts are also offered as cash.
Fees and Costs Related to Your Account(s)
Managed accounts are charged the management fee that is established in the IMA that has been entered into between the client and QIM. This fee compensates the Firm for portfolio management services. Custody fees will also be payable from the Client’s account to the Custodian. These fees are established/described in the IMA. Clients will also pay trade-based fees to the custodian in addition to the percentage-based custody fee. These fees are established/described in the IMA.
In limited instances, we may purchase mutual fund securities for a client, in which case the security purchased will typically be an “F” Class security (lowest management expense ratio (MER) and no trailing commissions). QIM does not receive, nor expect to receive benefits, from any third-party in connection with a client’s purchase or ownership of a security through the Firm.
QIM will not impose any new operating charges in respect of your account or increase the amount of its management fee unless written notice of the new or increased charge or fee is provided to you at least 90 days before the date on which the imposition or increase becomes effective.
In general, the management fees you are charged by us, as well as any third-party expenses you pay in connection with your account as outlined above, lower what would otherwise be the investment returns you may earn from your investments. Additionally, while you do not directly pay the fees or expenses that are charged by a third-party investment manager to an investment fund in which you are invested (as the case may be) or the expenses that are charged to any such investment funds, they affect you because they reduce an investment fund’s returns.
The payment of fees and expenses also affect the return that could otherwise be earned on an account due to compounding interest. Compound interest is a process by which interest is earned on the principal balance in an account. If this interest earned is retained and reinvested into the principal balance of the account, it thereby generates incremental interest on the prior interest generated in the account. That is, compounding refers to generating earnings on previous earnings. The effect of paying fees or expenses in a client account is to reduce the principal balance of the account. Therefore, the effect of paying fees and expenses is the cost of the fees and expenses themselves in addition to the fact that there is less principal in the account subject to the effects of compounding returns in the future.
Investment Risks
Under applicable Canadian securities laws, QIM is required to disclose the risks that should be considered when making an investment decision. Before making any investment decision, it is important to consider your investment objectives, your level of risk tolerance and the risks associated with the investment you are considering.
Generally, there is a strong relationship between the amount of risk associated with a particular investment and its potential to increase in value in the long term. However, investment risks vary depending on the type of investment.
QIM will select securities that are in-line with your investment objectives and risk profile as set out in your IPS. However, the actual performance of a portfolio will be dependent on various conditions, including market fluctuations, that are both unpredictable and beyond the control of QIM and its representatives. Your account may lose value and positive returns on your account cannot be guaranteed.
The following is a summary of the risks of investing. Please note that this list is not meant to be exhaustive and has been provided to give you a general indication of the factors that can affect the value of your portfolio(s).
Market risk is the impact of a decline in the overall market on the value of your portfolio.
Inflation risk is the risk of a decline in the purchasing power of your savings due to a general rise in prices.
Credit risk is the risk of a decline in the value of bonds or money market instruments held in your portfolio because of a decline in the perceived creditworthiness of the Issuer. In the worst-case scenario, the Investor could lose most or all his or her investment if the Issuer is unable to repay the debt obligation, and there are insufficient assets to pay off the debt.
Currency risk is the risk of a decline in the value of securities held in a foreign currency, due to an appreciation in the value of the Canadian dollar. It also addresses the risk of a decline in the profits of Canadian Issuers due to fluctuations in the value of currencies in which the Issuer transacts with customers or supplies, or currencies in which the Issuer holds foreign assets.
Equity risk is the general risk of investing in equity markets. The equity markets will fluctuate based on a variety of factors, including general economic and market conditions, interest rates, political developments, investor sentiment, and changes within the company that issues the security.
Financial leverage risk: Borrowing to invest contains substantial risks. Borrowing to invest is also known as leverage or margin lending.
As outlined in your IMA, we would advise you that using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.
Disclosure of Conflicts
Under applicable Canadian securities laws, QIM is required to address and manage existing, as well as reasonably foreseeable, material conflicts in the best interest of its clients. A conflict of interest can include any circumstance where:
(a) the interests of different parties, such as the interests of the Firm and those of a client, are inconsistent or divergent;
(b) the Firm or one of its registered representatives may be influenced to put their interests ahead of a client’s interests; or
(c) monetary or non-monetary benefits available to the Firm or a registered representative, or potential detriments to which they may be subject, may compromise the trust that a reasonable client has in the Firm or the individual.
Whether a conflict is “material” or not depends on the circumstances. In determining whether a conflict is material, QIM will typically consider whether the conflict may be reasonably expected to affect the decisions of the client in the circumstances, and/or the recommendations or decisions of the Firm or its registered representatives in the circumstances.
In addition to other measures that will be taken to address existing and reasonably foreseeable material conflicts of interest, QIM will typically provide clients with disclosure in respect to the potential conflict. It is important that clients read this disclosure to help inform their decision when evaluating our business practices, conflicts management and overall performance on an ongoing basis. The Canadian Securities Administrators note that conflict disclosure is critical to a client’s ability to make an informed decision about how to manage and evaluate its relationship with a firm.
A summary of the specific material conflicts of interest identified by QIM are set out below.
QIM’s President and Ultimate Designated Person are also Advising Representatives. QIM’s CCO is also an Advising Representative.
Given the relatively small size of the firm, there is some overlap in the firm’s staff between compliance responsibilities and investment advisory activities. For example, Ian Quigley is the firm’s Director and Ultimate Designated Person, as well as being registered as an Advising Representative. Michael Baker is the Chief Compliance Officer and also an Advising Representative. The CSA have noted that if a firm’s compliance staff’s compensation is tied to the revenue generation of the firm overall or the registered individuals that they supervise, there is an inherent conflict of interest that may cause them to put their interests ahead of client’s interests.
In addition to disclosing this potential conflict of interest to you, QIM manages this conflict by adhering to its well-developed compliance policies and procedures, including conducting proper know-your-client, know-your- product and suitability assessments when required when taking any investment action for a client.
Having a UDP and CCO does not relieve anyone else in the firm of the obligation to report and act on compliance issues. All employees of QIM, whether in a registered position or not, have the responsibility and authority to report on identified compliance issues, and are granted the latitude to make recommendations to the CCO that certain policies and procedures be added and/or updated to strengthen compliance at QIM.
Referral Arrangements
Certain clients have been referred to QIM by third-party financial planners, wealth managers or other service providers. In this event, the firm has Referral Agreements in place with certain of these third parties which provide that, in the event QIM is engaged to provide services to a referred client, a percentage of the management fee collected by the Firm from the client is then paid to the third-party referrer, typically for the duration of the referred client’s relationship with the Firm. To the extent you have been so referred to QIM, the Firm brings this to your attention as it is important for you to understand and consider that the third-party referrer (and its individual representatives, as the case may be) will be compensated by QIM for the referral of your business to QIM. Clients that are referred to QIM should only choose to engage the Firm if they are satisfied that the Firm will be able to meet their investment needs and objectives.
Personal Trading
In the event QIM’s personnel personally trade or otherwise invest in the same securities as the Firm’s clients, or otherwise conduct any dealing activities for their own behalf, there may be a potential or actual conflict of interest that the personnel may benefit from opportunities at the expense of our clients. QIM has personal trading policies and procedures in place that sets forth standards to which the Firm’s personnel are held and that is intended to appropriately manage this potential conflict of interest. In addition to the Firm’s policies and procedures in these regards, the Firm and its personnel must comply with applicable Canadian securities laws which, without limitation, prohibit activities such as insider trading, tipping and front running.
QIM may manage the personal investment portfolios of its employees and related persons directly through managed accounts that will participate along with client managed accounts. Any such accounts are subject to the Firm’s policy in respect to the fair allocation of investment opportunities, as such policy is summarized below. QIM employees and related persons may pay reduced or zero management fees to the Firm. This is an indirect form of compensation. QIM staff members may also be permitted to operate personal trading accounts in non-managed portfolios at QIM and other registered firms.
Allocation of Investment Opportunities
Allocating investment opportunities can present a conflict of interest, for example, when the investment opportunity is attractive but the amount of securities available for purchase is potentially not sufficient to meet what would otherwise be the overall demand in respect of the opportunity. As QIM has multiple clients, the potential exists for the Firm to favour one client over another in the allocation of an attractive investment opportunity.
Under applicable Canadian securities laws, QIM has an obligation to deal fairly, honestly and in good faith with its clients, which includes a requirement to ensure fairness in allocating investment opportunities among its clients. In connection with complying with its obligations in this respect, the Firm is required to inform its clients of its policy with respect to the fair allocation of investment opportunities. The Firm’s fair allocation of investment opportunities policy is set out at section 10 below.
QIM’s Fair Allocation of Investment Opportunities Policy
Allocation takes place at the account level, where the PM or trader determines, prior to submitting the trade ticket to the trading desk, how the trade will be allocated among the accounts under the PM’s management. Under this rule, each participating account will receive a percentage of the executed portion of the order based upon its percentage of the entire order (rounded to the nearest whole trading lot, when possible, 100 or 1,000 shares). This rule applies to all accounts that are participating in the execution on the same trading terms (i.e. price limits, approximate time of entry, etc.). All allocations will be made at the average execution price.
The basic purpose of this rule is to ensure fair treatment of all accounts and to avoid the appearance of favoritism or discrimination among accounts. There may be times, however, where strict application of this rule does not lead to a fair and reasonable allocation. In such circumstances, allocation by a method other than this rule will be permitted where such allocation produces a fairer and more reasonable result.
Pro-rata gives an unreasonable result.
If QIM manages more than one account, reasonable allocation of the same security amongst the accounts may be determined by an evaluation of the cash position of each account, the desired weight by QIM of the same security in each account, the mandate of each account, the effect on risk, liquidity, and the general composition of the respective account. If the default allocation gives an unreasonable result in this regard, QIM may overwrite the default allocation method.
Insiders
QIM is required by Canadian securities laws to take reasonable steps to establish whether a client is an insider of any reporting issuer or issuer whose securities are publicly traded.
To comply with this requirement, QIM will obtain confirmation from each client when the client first opens an account with QIM as to whether the client is a director, officer or other “insider” of a reporting issuer or issuer whose securities are publicly traded. QIM is not responsible to file insider reports on behalf of clients. If a client is an insider of any reporting issuer or issuer whose securities are publicly traded, then he or she is responsible to file insider reports as applicable.
Investment Performance Benchmarks
You may assess the performance of your investments by comparing them to an investment performance benchmark. Benchmarks show the performance over time of a select group of securities. There are many different types ofbenchmarks. When selecting a benchmark, care must be taken to choose a benchmark that reflects the composition of your investments. For example, the S&P/TSX Composite Index follows the share prices of the largest companies listed on the Toronto Stock Exchange. The S&P/TSX Composite Index would be a good benchmark for assessing performance of a Canadian Equity portfolio that only invests in large Canadian companies. It would not be an appropriate benchmark if your investments are diversified in other products, sectors or geographical areas.
QIM managed accounts will be reviewed in relation to the appropriate benchmarks reflecting risk equivalent returns. QIM’s Benchmark selection is determined as follows:
- Open Cash Deposits: 91-Day T-Bill Index or equivalent
- Fixed Income: DEX Universe Bond Index.
- Equities: 50% Canadian (TSX), & 50% US (S&P 500 Index) or MSCI Global Total Return Index.
QIM’s Know-Your-Client and Suitability Obligations
Know-Your-Client (KYC)
QIM’s know-your-client (“KYC”) obligation is one of its most fundamental duties to you as a client. We have a responsibility to understand your financial and personal circumstances to make suitable investment recommendations for your account. We need to obtain current and accurate personal and financial information about you such as your age, marital and employment status, income, net worth, investment knowledge, investment needs and objectives, risk profile (e.g., willingness and financial ability to tolerate risk) and time horizon so that an accurate suitability assessment can be conducted by the Firm. As part of its KYC obligation, the Firm also must take reasonable steps to establish: (a) a client’s identity and, if the Firm has cause for concern, make reasonable inquiries as to the client’s reputation, and (b) whether a client is an insider of a reporting issuer or any other issuer whose securities are publicly traded.
For establishing the identity of a client that is a corporation, partnership, or trust, QIM must establish the following:
(a) the nature of the client’s business; and
(b) the identity of any individual who,
(i) in the case of a corporation, is a beneficial owner of, or exercises direct or indirect control or direction over, more than 25% of the voting rights attached to the out- standing voting securities of the corporation, or
(ii) in the case of a partnership or trust, exercises control over the affairs of the partnership or trust.
QIM’s registered representatives will collect KYC information directly from you in person, by telephone or electronic means. QIM’s acceptance of your account is subject to completion of this process. For you to remain as a client in good standing, your account documentation must be kept up to date. QIM endeavours to keep client KYC information up-to-date and takes reasonable steps to obtain updated KYC information from a client no less frequently than once every 12 months.
Nonetheless, it is important that you actively participate in our relationship. We encourage you to:
Keep us fully and accurately informed regarding your personal circumstances, and promptly advise us of any change to information that could reasonably result in a change to the types of investments appropriate for you, such as a change to your income, investment objectives, risk tolerance, time horizon or net worth.
Review the documentation and other information we provide to you regarding your Account, transactions conducted on your behalf and the holdings in your portfolio and ask us any questions you have about this information or your relationship with us.
Compare the records you receive from us with your custodian’s periodic statements for consistency, where applicable. However, please note possible temporal differences may occur due to differing basis of preparation.
Suitability
A suitability assessment is the Firm’s obligation to determine that any investment action it takes on behalf of a client’s account(s) is suitable for the client and puts the client’s interest first.
When is a suitability assessment required? We will conduct a suitability assessment at the time of your account opening, when significant funds are deposited to or withdrawn from your account, prior to taking any investment action on behalf of your account(s), and in the event we become aware of any significant change in your personal or financial circumstances that could give rise to a change in your investment needs or objectives or in the way in which we manage your account.
For example, marriage or divorce; the birth or adoption of a child; the death of a spouse; the onset of any chronic or terminal illness; any loss or change in income, savings or employment; or any similar development.
Designating a Trusted Contact Person
In accordance with applicable securities laws, each individual client of the firm, regardless of age, is required to complete a Designation of a Trusted Contact Person Form (the “TCP Form”). This is required for QIM to comply with its obligation to take reasonable steps to obtain the name and contact information of a client’s trusted contact person (“TCP”), as well as the client’s written consent for QIM and its representatives to contact the TCP in prescribed circumstances.
While we would strongly encourage you to appoint a TCP, as provided by the attached TCP Form, you can choose to refuse to provide us with a designated TCP.
Why appoint a TCP and when will QIM contact them?
We cannot share private information about you without your permission. By making this appointment you allow QIM to contact and share information with TCP (or your alternate TCP if we are unable to contact your primary TCP) in the following circumstances:
we are concerned about your mental capacity as it relates to financial decision making;
we need to know or confirm the identity and contact information of your legal representative (if any);
we need to confirm your current contact information; or
we are concerned that you might be subject to financial exploitation, which could include fraud, coercion, or unauthorized transactions.
QIM is not obligated in any circumstance to contact your TCP. Your TCP has no authority to instruct QIM unless he or she is also your legal representative – that is, your Guardian or Attorney for Property.
Who should I designate as my TCP?
You should designate someone who you trust, is mature and can communicate and engage with us in conversations about your personal circumstances if we call them in the circumstances described above. We encourage you to select an individual who is not involved in making decisions about your account(s) (i.e., someone who is not already your legal representative). We encourage you to contact your TCP.
Can I change my mind?
If you want to replace your TCP and appoint a new one, please contact us and we will send you a new form to allow you to identify your new TCP. By designating a new TCP, you will revoke all prior designations. We will rely on the most recent appointment in our files.
What if I choose not to designate a TCP?
You are not obligated to designate a TCP. In making your decision, please consider that the purpose of the TCP is to allow us to release confidential information to someone you have selected if we have concerns about your welfare. Without your permission, if a situation arises where QIM has concerns about your welfare, we will not have the option of trying to resolve these concerns by communicating them to the TCP. In the worst case, this could lead to a situation where QIM is obligated to stop or refuse transactions in, or place a hold on, your account(s) while we take the steps necessary to meet and address our concerns.
Temporary Holds
Under applicable securities laws, we are permitted to place a temporary hold on all or a portion of the assets in your accounts with us in certain circumstances as described below. In these circumstances, we may place a temporary hold regardless of whether you have designated a TCP. The decision to place a temporary hold will be made by our Chief Compliance Officer.
A temporary hold based on financial exploitation may be appropriate in instances where our Chief Compliance Officer reasonably believes a client has become a vulnerable client and financial exploitation in respect of its account(s) has occurred, is occurring, has been attempted or may be attempted. A “vulnerable client” is a client who might have an illness, impairment, disability, or aging-process limitation that places the client at risk of financial exploitation.
A temporary hold based on a lack of mental capacity may be appropriate in instances where our Chief Compliance Officer reasonably believes that a client no longer has the mental capacity to make decisions involving financial matters.
There may be other circumstances under which a temporary hold can be placed on an account. If a temporary hold is placed on your account, we will promptly provide you with written notice of the temporary hold and the reasons for such hold being placed on some or all the assets of your account(s) with us. We will then notify you when the temporary hold has been terminated. Within 30 days of placing a temporary hold, and unless the hold has been previously terminated, within every subsequent 30-day period, we will be required to terminate the temporary hold or to provide you with notice of our decision to not terminate the hold and the reasons for that decision.