The following 2 communications were provided to clients of Baskin Wealth Management regarding the launch of the Client Focused Reforms in 2021
First Quarter 2021 – Conflicts of Interest
The Canadian Securities Administrators, the umbrella organization of the provincial and territorial securities industry regulators, published a series of changes to regulations to implement Client-Focused Reforms impacting all firms registered to provide investment advice and trade in securities in Canada. These changes come into effect this year and require that firms provide additional disclosure and, in some cases, make changes to business processes.
The purpose of the reforms is to ensure that all firms put the interests of clients first when recommending or choosing investment products. Our approach to managing your wealth has been built around this principle, from our initial meeting with you to assess your needs and the ongoing discussions to ensure the portfolio continues to meet them; to the approach we take in building portfolios with a focused number of securities so that we have a comprehensive understanding of all investments in your portfolio; to the simple and transparent way that we charge for our services. As such, we believe that we are extremely well positioned to follow the new regulations and we support them wholeheartedly.
The first stage of the reforms will come into effect on June 30 this year and requires all investment firms to provide more information to clients where there is a material conflict of interest between them and their clients and to ensure that all are addressed, not surprisingly, in the best interest of clients. A key shift with these reforms is that it is no longer sufficient to simply disclose a conflict of interest but instead to avoid it if it cannot be addressed in the best interest of the client.
Baskin has completed a thorough review of all areas identified by the reforms as potential conflicts of interest and we provide below some additional disclosure. We note that a key part of this exercise is to ensure these disclosures are easy to find and in plain language. For this reason, we have consolidated below all disclosures, both new and that exist today in the initial documents that you signed when opening your account, namely the Retainer Letter amongst others. As we continue to improve our communication with you, we will be updating our Retainer Letter in the next year to make sure it is as easy to read and understandable as possible.
It is important to point out that, following the review of the areas below, there has been no change in the services that we provide or in the way our relationship with you will be conducted.
As always, if you have any questions or concerns, please contact your Portfolio Manager.
Baskin constructs client portfolios using primarily strategies managed by Baskin and therefore does not typically include any investments from other managers. In order to ensure that the solutions we provide are appropriate for your needs and objectives, portfolio managers at Baskin have an obligation to complete a thorough assessment of your goals, circumstances and tolerance for risk before making any investment on your behalf.
Once we have agreed with you on a strategy and captured this in your Investment Policy Statement, we will then build and manage your portfolio based on the proprietary models we’ve developed, using individual securities, such as stocks and bonds, and/or through pooled investment funds, also managed by us (“Pooled Funds”). The Pooled Funds are an efficient vehicle for managing your assets and provide benefits to you including improved diversification, better pricing when securities are traded in larger amounts and increased investment opportunities.
As outlined below in Compensation, Baskin and individuals acting on its behalf do not receive compensation based on the type of investment solution deployed in your portfolio and there are no management fees charged within the Pooled Funds. There are expenses that relate to the operation and administration of the Pooled Funds paid by unitholders and capped to a maximum with expenses above this maximum paid by Baskin. As more clients invest in the Pooled Fund, it may result in reduced costs for its unitholders and potentially reduces the costs Baskin pays to cover the expenses above the maximum. As indicated above, we will always ensure that the solutions we include in your portfolio are aligned with your goals and objectives. When determining which expenses are allocated to the Pooled Fund, Baskin ensures they are relevant to the operation and administration of the Pooled Fund as outlined in its governing documents and these are reviewed annually by an independent auditor.
The Pooled Funds are offered to clients of Baskin only and are not available to the public and therefore cannot be transferred out or held at another financial institution. In the event you decide to transfer your assets to another institution, and you hold a Pooled Fund, it will be sold and you will receive the proceeds in cash to facilitate the transfer.
As indicated above and as outlined in our Retainer Letter and the fee agreement you signed, our fees are simple and transparent. The only way we get paid is from our investment management fee. We do not earn any commissions, trailer fees or any other type of compensation.
To ensure that our staff are in no way influenced by their compensation on how your portfolio is invested, none of their pay is based on the type of investment solutions you hold.
Fair allocation of investment opportunities
As outlined in the Fairness Policy on Purchasing and Selling Securities in Appendix C of our Retainer Letter, it is our policy to ensure that every client is treated fairly in regard to the trading of securities to avoid any potential conflict of interest between clients.
Employees of Baskin may have personal investment accounts where they can hold and trade the same securities that are held in client accounts. To ensure employees of Baskin are not advantaged over clients when they trade, policies and procedures are in place which include pre-trade approval, monitoring of employee investment activities and sanctions for non-compliance.
Gifts and Entertainment
Baskin has a policy that limits the dollar amount of any gift or entertainment received by a staff member from either a client, supplier or potential supplier to avoid any real or perceived influence on decisions being made.
Employee outside business activities
Staff of Baskin are often involved in their communities in a variety of ways and at times this may include sitting on boards or simply being in a position of influence. Any of these activities requires prior review and approval and will only be granted if it has been determined that there is no conflict with either Baskin or its clients.
Error and complaint handling
We treat any complaints or errors with the utmost importance and will work closely with you to address your concerns and resolve any errors. Any error that has a financial impact will be reviewed by senior management of Baskin and, as outlined in our Welcome Letter when you opened your account with us, if you are not satisfied with the outcome, you will have recourse to a 3rd party dispute resolution service.
Fourth Quarter 2021 – Document Updates and New Disclosure
In the first half of 2021, we let you know about some new regulations published by the Canadian Securities Administrators, the umbrella organization of provincial and territorial securities industry regulators. These new rules, which primarily focused on disclosure of any material conflicts of interest and required us to make some changes to our Retainer Letter, were part of a broader initiative called Client Focused Reforms. The overall purpose of these Reforms is to ensure that all investment firms put the interests of clients first when recommending or choosing investment products – something that we wholeheartedly support.
As of December 31, 2021, the last set of changes related to these Reforms came into effect. These changes entail some additional new disclosure on our part and, as well, require us to collect more information from you. While making these changes, we took the opportunity to make other updates to our documents to reduce the number of times we will be asking for your signature. To do this, we consolidated several documents and updated terms to eliminate the requirement for signatures on others.
We have outlined below some of the key changes. Over the coming year at your Annual Portfolio Review, your Portfolio Manager will discuss these in more detail and will be asking for any additional information that we don’t already have on file.
Summary of Key Changes to our Documents
- We have expanded the list of questions on our new Client Information Form, in particular, adding a number of questions related to your investment objectives, investment experience and comfort level with risk.
- We have replaced our Retainer Letter, which required your signature, with an Investment Management Agreement for which you will acknowledge receipt when signing our Client Information Form.
- While the Investment Management Agreement largely reflects the terms contained within the Retainer Letter, following are some important differences:
- We have provided some additional detail on how fees are charged to our pooled funds and how frequently the pools are valued (each Tuesday and month end). Neither of these represent a change from how the pools have always operated.
- The new Reforms require that we clearly state that any fees charged to your portfolio will have an impact on your investment return.
- They also require us to let you know that, in determining the suitability of an investment for you, we will always place your interest first.
- We have updated the terms describing how we will act upon notice of your death or incapacity to ensure that we are being instructed by a properly authorized individual and that all actions taken are in your best interest or that of your estate.
- Previously, any change made to our terms would require you to sign a new agreement. In our effort to reduce the number of signatures, we have updated this to require that, instead, we provide you with 60 days advance notice of changes.
- Finally, we have extended the notice period from 5 days to 30 days in the event you request your account be closed. This is to follow industry standards and ensure there is sufficient time to allow for the transfer and/or sale of your investments. Regardless, in all cases, we will do our best to complete the transaction as quickly as possible.
Baskin Wealth Management strives to be on the forefront of best practices for our industry. We believe very strongly that transparency and disclosure are the basis of a strong and mutually beneficial relationship between us and our clients. For this reason, we welcome the industry reforms. Our compliance group, headed by Jenn Dahil and our Chief Compliance Officer, Rob McDonald, ensure that we are always acting, as is required, in the best interests of our clients. We welcome your questions and comments.