This Conflicts of Interest disclosure describes existing and reasonably foreseeable material conflicts of interest that affect, or may affect, your interests as a client of Pembroke and provides you with information of how Pembroke manages any such material conflicts of interest, both existing, and those that are reasonably foreseeable. This document serves only as information, so it does not create or modify any agreement, relationship, or obligations between you and Pembroke. Please review this disclosure and if you have any questions or would like more information, please contact your Pembroke Representative(s).
A conflict of interest includes any circumstance where:
- the interests of different parties, such as the interests of a client and those of Pembroke, are inconsistent or
divergent
- Pembroke may be influenced to put their interests ahead of their client’s interests, or
- monetary or non-monetary benefits available to Pembroke, or potential detriments to which Pembroke may
be subject, may compromise the trust that a reasonable client has in Pembroke.
Generally, a conflict of interest is material if the conflict may be reasonably expected to affect either of the following or both:
- the decisions of the client in the circumstances,
- Pembroke’s recommendations or decisions in the circumstances.
Pembroke addresses a material conflict in the best interest of its clients by accurately identifying the conflict in a timely way by taking reasonable steps to identify existing and reasonably foreseeable material conflicts of interest. Reasonable steps to identify such conflicts include:
- taking proactive measures to anticipate reasonably foreseeable conflicts;
- identifying existing conflicts;
- assessing the materiality of those conflicts to distinguish between those conflicts that are material and those
that are not.
Pembroke identifies and addresses material conflicts of interest through our policies and procedures that clearly outline that representatives are to avoid any situation in which their personal interests’ conflict or appear to conflict with their responsibilities as an employee. Pembroke has internal supervisory systems and declaratory obligations to ensure conflicts of interest are managed and properly disclosed to clients.
How Pembroke Manages Material Conflicts of Interest
PML is in the business of providing advice to Canadian residents either in their segregated accounts or by investing clients in investment Funds managed by its affiliate, PPW. PML is also the adviser for most of the pooled funds and the mutual funds managed by PPW (the “Funds”). PML acts as an advisor to clients under fully discretionary investment management agreements which may permit the investment in Funds in its discretion without first obtaining a client’s prior consent.
Pembroke is required to inform clients of the nature and extent of any material conflicts of interest identified by Pembroke and its clients.
1. Proprietary Products
PPW offers only proprietary products it manufactures including mutual funds and pooled funds. It does not offer a broader range of non-proprietary products, as such, the suitability determination conducted by PPW 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. While this limits your investment choices, our solutions were designed with careful thought and intention to simplify the range of investment options for clients. Further, PPW employees do not receive any sales-based compensation or commissions when helping clients build portfolios, and we do not charge redemption fees or exit penalties. These measures help ensure that clients can easily redeem or transfer out in-kind without punitive measures if they feel they want access to a broader range of non-proprietary products. In all cases, our proprietary funds bear the “Pembroke” name and therefore, the relationship is transparent.
2. Outside Business Activities
At times, Pembroke employees may want to participate in outside activities such as serving on a board of directors, participating in community events or pursuing personal outside interests. Employees may not engage in outside business activities unless they have been disclosed to the Firm and no real or perceived conflict of interest exists. Outside business activities means any business carried on by an employee other than business done on behalf of Pembroke and includes any arrangement:
- whereby an employee is a partner, shareholder, director, or officer of another entity; or
- for which direct or indirect payment, compensation or other benefit is received or expected; or
- involves any position of influence.
The Branch Manager and/or the Compliance Officer will take reasonable measures to detect undisclosed outside business activities using existing review/approval procedures regarding advertising, website (if applicable), trade names, branches, trading, and commissions and will specifically ask each potential employee during the recruitment process, and periodically after the employee is hired, whether they have a dual occupation or outside business activity.
3. How Our Representatives Are Paid
Pembroke representatives’ compensation is not tied to the sales or revenue generation. We do not provide our representatives any incentives, bonus compensation, or compensation based on sales volume. We train our representatives with respect to their obligations to act fairly, honestly and in good faith.
4. How Our Supervisory Staff Is Paid
Pembroke’s compliance and supervisory staff’s compensation is not tied to the sales or revenue generation of the Firm overall or the representatives that the compliance and supervisory staff supervise. We train our compliance and supervisory staff with respect to their obligations to act fairly, honestly and in good faith and resolve all material conflicts of interest in favour of clients.
5. Gifts
Monetary and non-monetary benefits of a nominal nature/value may be given to or accepted from clients provided that the Chief Compliance Officer has been notified, has determined that the benefit is of a nominal nature/value, and has given prior approval to the giving or accepting of the benefit. When employees, officers and directors of Pembroke accept gifts of more than a minimal value in connection with services provided, there is a perceived or potential conflict of interest that could compromise or give the impression of compromising independence. Pembroke manages this conflict of interest by adopting internal policies and procedures that supplement regulatory requirements, including policies regarding gifts and entertainment such as tracking gifts and entertainment benefits received by representatives. Monetary or non-monetary benefits having a maximum value of $100.00 will be considered to be nominal. Pembroke prohibits individuals registered with Pembroke from accepting compensation from any other person, outside the scope of their relationship with Pembroke, unless they obtain prior approval from Pembroke.
6. Services of Related Parties
PML is in the business of offering advisory services. In its role of providing advisory services to clients, PML makes the determination whether to invest a client in a Fund. As noted above, PML only invests its clients in Funds which are sponsored by its affiliate, PPW. Where PML is the advisor to the client, fees may be charged directly to the clients by PML, in which case no management fees are borne by the Fund. In other situations, the Fund may bear the management fees in respect of the relevant class of units, in which case the client does not pay fees directly to PML. The consequences of these fee arrangements are that there is never a duplication of management fees.
Further, due to regulatory requirements, it is necessary to have a dealer execute the trade for purchases of a Fund made by PML on behalf of its clients. PPW is the dealer in connection with all trades of PML’s advisory clients into the Funds. In such event, PPW simply executes the trade order and does not provide any advice to PML.
7. Related Registrants
PPW is a related party of PML. Certain individuals who are directors and officers of PML are also directors or officers of PPW. Individuals who are directors or officers of PPW, but are not registered as portfolio managers of PML, do not participate in, or influence, PML’s investment decisions or advisory activities for its clients or any Fund for which it is an advisor.
8. Using Borrowed Money to Make an Investment
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. As a rule, Pembroke does not recommend the utilization of leverage for the purpose of facilitating the sale of Pembroke Funds or other securities, in the case of PML. Pembroke does not make available or make arrangements with lending institutions for client loans for investment purposes. However, a proposed client/investor should not necessarily be refused as a client for the sole reason that the purchase price will be paid by way of leverage. Clients must be provided with a balanced presentation of available options and the risks associated with the use of leverage must be clearly disclosed.
9. Referral Arrangements
Paid referral arrangements must be addressed in the best interest of the client. Before Pembroke refers a client, in exchange for a referral fee, to another party, Pembroke must determine that making the referral is in the client’s best interest. In making that determination, Pembroke considers the benefits to the client of making the particular referral over alternatives or at all. In making a referral, Pembroke and its employees must be guided only by the client’s interests. Pembroke will not make a client referral to a party solely because of the referral fee that they will receive from that party, or because the amount or duration of the referral fee that they will receive from that party may be greater than the amount or duration of the referral fee that they would receive from a competitor to that party. If a client pays more for the same, or substantially similar, products or services as a result of a referral arrangement, Pembroke would not consider the inherent conflict of interest to have been addressed in the best interest of the client.
The referral fee can take the form of a flat fee, a contingent fee or commission split, or a fee based on value of assets invested or transferred.
When making a referral, Pembroke will take reasonable steps to satisfy itself that the other party to the referral arrangement is appropriately qualified to perform the contemplated services, and if applicable, is appropriately registered.
Pembroke will perform appropriate due diligence in determining the steps that are necessary in the particular circumstances including:
- an assessment of the types of clients that the referred services would be appropriate for, and
- an assessment of the qualifications of the referral party, including taking reasonable steps to determine whether the referral party has been the subject of any civil actions, regulatory or professional disciplinary matters conducted under any legislation, or client complaints, relating to his, her or its professional activities.
A written agreement governing the referral arrangement is required prior to the implementation of such an arrangement. The Chief Compliance Officer will obtain signed acknowledgement of consent to the agreement from the client prior to the first transaction which will lead to a referral fee payment. If referral arrangements are entered into, Pembroke will monitor and account for referral payments and ensure that clients are given sufficient information regarding potential conflicts of interest and the fees that will be paid under the arrangements. Pembroke employees cannot enter into referral arrangements independently of Pembroke or without Pembroke’s knowledge. Where referrals are given, Pembroke will satisfy itself that the recommendations that have been made are in the best interests of the client and are not inappropriate in the circumstances.
10. Fair Allocation amongst Clients
PML is engaged to act as an advisor by many clients and Funds. A conflict can arise if PML favours one client over another in selecting securities. PML endeavours to fairly allocate available securities to the portfolios of clients and Funds. A copy of PML’s fair allocation policy is provided to advisory clients and can also be obtained upon request.
11. Fees
PML typically charges client fees as a percentage of the net asset value of the client’s account. Where PML has an investment management agreement with the client and uses the services of PPW, PML is responsible for the fees of PPW, such that there is no duplication of fees. PML is generally responsible for the valuation of its client’s assets and PPW is responsible for the valuation of the Fund’s assets and may obtain the services of third parties for such services in respect of certain Funds. In circumstances where the fair value of a security cannot be determined in the usual manner, PML must determine the fair value of the asset.
Certain PML clients may also be charged performance or incentive fees. Such fees pose a potential conflict to the extent that advisors may be motivated to take greater risks in making investment decisions. A further conflict may arise because, performance fees paid in prior periods, if the performance subsequently lags, are not required by law to be returned. Details regarding the calculation of performance fees are provided to clients before they invest.
Other than its management and advisory fees, PPW does not charge Pembroke Funds for other PPW or PML services. The Funds bear their own operating expenses, including services of third-party service providers.
12. Personal Trading
When individual portfolio managers and other personnel invest in the same securities as the clients or the Funds, there is a perceived or potential conflict of interest that the person may benefit from opportunities at the expense of clients and Funds. Pembroke has a process for clearing trades requested to be made for their own account by portfolio managers and other staff who have access to information regarding the portfolios of clients and Funds.
13. Pricing and Account Errors
PML may have a potential conflict of interest when determining when, and how, to deal with a pricing error or other type of account error, due to the time, processing cost and reimbursement of investors involved. If a client of PML is invested in a Fund, PPW, as investment fund manager, will have the responsibility for determining the net asset value of the Fund. PPW will have a similar potential for conflict of interest when determining whether there is a pricing error. PPW follows industry standards in determining how to correct fund errors in the client’s best interest.
14. Investments in Related or Connected Issuers
A Related Issuer is a person or company related to us if:
(a) the person or company issuing securities is an influential securityholder of us,
(b) we are an influential securityholder of the person or company issuing securities, or
(c) we, and the person or company issuing securities, are each a related issuer of the same third person or company.
A Connected Issuer means an issuer or selling security holder distributing securities where the issuer or selling securityholder, or a related issuer of the issuer or selling securityholder, has a relationship with any of the following persons or companies that may lead a reasonable prospective purchaser of the securities to question if we are independent of the issuer or selling securityholder for the distribution:
(a) us;
(b) a related issuer to us;
(c) a director, officer or partner employed by us; or
(d) a director, officer or partner of a related issuer to us
Neither PML nor PPW invest assets of clients or Funds in related issuers of PML. The Funds may be “connected issuers” of PML. The Funds managed by PPW are referred to as “Pembroke Funds”. PPW solely offers Pembroke Funds to its clients. If PML were to invest in a Fund which is not a Pembroke Fund, PML would describe in its marketing and similar materials its relationship or connection to such fund.
15. Investments in Certain other Issuers
If any of the partners, directors, officers, or employees of PML or PPW, are also partners directors or officers of an issuer, PML will not invest in such issuers without the prior written consent of the clients, after disclosure of that fact has been made.
16. Principal Transactions with Certain Parties
PML and PPW employees do not knowingly purchase securities identified in prohibitions contained in securities laws.
17. Cross Trading with Investment Funds and Client Accounts
PML employees are not permitted to cross trade, defined as the purchase or the sale of securities from or to Funds managed by PPW or clients advised by PML, unless an exemption is available or in the case of the mutual funds offered by prospectus and managed by PPW, with the consent of the Independent Review Committee (IRC) of such Funds. The IRC of the mutual funds, which is appointed by the Manager and is responsible for reviewing conflict of interest matters related to the operation of such Funds, has consented to cross trades solely between two public mutual funds managed by PPW and advised by PML provided certain terms and conditions are met.
18. Best Execution and Soft Dollars
PML will select brokers and dealers from which they reasonably expect to obtain the best price (after considering all transaction costs and research or other benefits) and execution. “Soft Dollars” means the payment of higher brokerage commissions than could otherwise be negotiated in order to pay for services or other benefits provided or procured by the broker for the Investment Manager. Canadian securities regulators have published rules on acceptable soft dollar practices. PML uses brokerage commissions (“soft dollars”) only to a limited extent and only in compliance with Canadian regulatory rules.
19. Executing Trades to Purchase the Funds
PML’s services as advisor and those of PPW as dealer are integrated and generally not separable from each other when PPW acts as dealer on the trade of the Funds to PML clients. In such circumstances, PPW does not receive any compensation for acting as dealer on the trade. PML’s interest is in the fees paid to it by the client or Fund for its advisory services. PML does not search for or recommend Funds which are not sponsored by PPW. PML considers the suitability of Funds for clients solely in the context of the available Funds sponsored by PPW.
20. Proxy Voting and Other Corporate Actions
While PML usually has discretion in voting the portfolio securities purchased on behalf of clients and Funds, to avoid the perception of conflict that might arise therefrom, PML subscribes to an independent proxy voting service. PML also has a policy not to invest in securities of issuers for the purpose of exercising control over issuers or participating in management of issuers.
21. Other Conflicts of Interest
From time to time, other conflicts of interest may arise. Pembroke will continue to take appropriate measures to identify and respond to such situations fairly and reasonably and in the best interests of its clients.
This detailed disclosure is provided to you as a result of the Canadian Securities Administrators’ Client Focused Reforms (the “CFRs”), which are securities law reforms intended to codify industry best practices and existing regulatory guidance.
This document provides important information concerning the relationship between Pembroke Management Ltd. and/or Pembroke Private Wealth Management Ltd. and you, our client. To clarify, when the terms “we,” “us” the “Investment Manager” or “PML” are used in this document, we mean Pembroke Management Ltd. When the terms “PPW” “Fund Manager” and “Fund Dealer” are used in this document, we mean Pembroke Private Wealth Management Ltd., a wholly owned subsidiary of the Investment Manager. When we refer to “Funds” we are referring to investment funds managed by PPW. When we refer to “Pembroke” or the “Firm” we are referring to both PML and PPW collectively. When we refer to “you” or “your” in reference to a PML account, we are referring to you as the holder or joint holder of an account managed by us on a discretionary basis (an “Account”) and when applicable, anyone authorized to give instructions in respect of an Account. When we refer to “you” or “your” in reference to a PPW account, we are referring to you as the holder or joint holder of an account managed by us on a non-discretionary basis (an “Account”) when instructions are received by anyone authorized to give instructions in respect of an Account.
