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MSN-0009

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Paige Ward

General Counsel, Corporate Secretary and Vice President, Policy

(416) 943-5838

pward@mfda.ca

MSN - 0009

Oct 1, 2001

(Updated Mar 4, 2013)

Dual Occupations – Selling Deposit Instruments and Providing Non-Securities-Related Financial Planning Services

MFDA Staff Notices are intended to assist Members and their Approved Persons in the interpretation, application of and compliance with requirements under MFDA By-laws and Rules. Notices make reference to these requirements and set out MFDA staff's interpretation of how to comply with these requirements. Notices may also include best practices or guidance.


Background

MFDA Rule 1.1.1 (Business Structures – Members) requires all “securities related business” to be conducted through the Member, except the sale of deposit instruments discussed below. “Securities related business” is defined in Section 1 (Definitions) of MFDA By-law No. 1 to mean any business or activity that constitutes trading or advising in securities for the purposes of applicable securities legislation in any jurisdiction in Canada. This includes securities sold pursuant to exemptions under applicable securities legislation (e.g. limited partnerships).

MFDA Rule 1.2.1(c) (Dual Occupations) allows Approved Persons to have another gainful occupation provided certain conditions are met. Many Approved Persons are engaged in the sale of deposit instruments (such as Guaranteed Investment Certificates or “GICs ”) and the provision of non-securities related financial planning services as a “dual occupation ” outside their dealer.

Deposit Instruments

In some jurisdictions, deposit instruments do not fall within the definition of “securities” under local securities legislation. As a result, the Alberta, British Columbia and Ontario Securities Commissions (the “Recognizing Jurisdictions”) have agreed that the sale of deposit instruments by an Approved Person independent of the Member need not be conducted through the Member.

Financial Planning

Financial planning services may include giving advice with respect to the buying or selling of securities but may also include activities that are not securities related. The provision of non-securities-related financial planning services can also be carried on as a “dual occupation” by Approved Persons provided all of the conditions of Rule 1.2.1(c)(i) to (vii) are being complied with. As a term and condition of recognition of the MFDA as a self-regulatory organization, the Recognizing Jurisdictions required the MFDA to provide that an Approved Person that wishes to carry on such non-securities-related financial planning services as a dual occupation outside the Member, may only do so through another entity that is otherwise regulated or that is subject to the rules of a widely recognized professional association.

MFDA Requirements for Selling Deposit Instruments and Providing Financial Planning Services as a Dual Occupation

As noted above, the sale of deposit instruments and non-securities-related financial planning services may be carried on by an Approved Person as a dual occupation outside the Member. In such cases, the Member and the Approved Person must ensure that they are complying with the provisions of Rule 1.2.1(c)(i) to (vi), in addition to the requirements that relate specifically to financial planning set out in Rule 1.2.1(c)(vii):

  1. Such services must be provided through another entity that is either regulated by a governmental authority or statutory agency or subject to the rules and regulations of a widely-recognized professional association (Rule 1.2.1(c)(vii)(A));
  2. Approved Persons must comply with the requirements of any applicable legislation in connection with such services (Rule 1.2.1(c)(vii)(B));
  3. The Member and the MFDA must have access to financial plans that are prepared on behalf of the clients of the Member by its Approved Persons (Rule 1.2.1(c)(vii)(C)); and
  4. Approved Persons must have satisfied any applicable proficiency requirements promulgated by securities regulatory authorities having jurisdiction (Rule 1.2.1(c)(vii)(D)).

MFDA staff is of the view that neither the MFDA Rules nor the Recognizing Jurisdictions’ terms and conditions of recognition of the MFDA as a self-regulatory organization prohibit Approved Persons from selling deposit instruments or providing non- securities-related financial planning services outside the Member, where the Member is also carrying on the same type of activity directly.

However, in these situations it will be critical for the Member to ensure that the MFDA’s requirements for “dual occupations” under Rule 1.2.1(c) are being complied with. In particular, the dealer must be aware of and approve such outside activity and must ensure that clear disclosure is provided to the client about which activities are the business and the responsibility of the Member and which activities are the business and responsibility of the Approved Person. It is recommended that such disclosure in these situations should further clarify that such activities of the Approved Person are not supervised by the Member and the Member may not be liable for such activities. Further, as noted above with respect to financial planning, such activities may only be carried out through another entity that is either regulated by a governmental authority or statutory agency or is subject to the rules and regulations of a widely recognized professional association.

Given the fact that the same type of activity may be carried on both through the Member and by Approved Persons outside of the Member, there may be an increased possibility of client confusion regarding the liability and responsibility of the Member for such activity. Accordingly, MFDA staff and staff of the Recognizing Jurisdictions intend to monitor this area closely and will continue to evaluate whether additional regulatory requirements are appropriate for these situations. Members are reminded that any client complaints that arise as a result of these situations should be dealt with in accordance with the provisions of MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline.

DM #329367