Focus Asset Management Ltd.
Standards of Fairness, Conflicts of Interest
and Relationship Disclosure Statement
When there is a material change to any of the disclosures detailed below, Focus will either provide you with an updated copy of this document or direct you to our website for additional information. Certain disclosures must be provided in writing on an annual basis and they will be distributed accordingly.
A. Standards of Fairness
The following sets forth in general terms the standards of fairness that Focus will exercise in dealing with you and all other clients.
Focus and its employees shall conduct themselves with integrity and act in an ethical manner in their dealings with you.
Focus shall not knowingly participate or assist in the violation of any statute or regulation governing securities markets. Responsible employees shall exercise reasonable supervision over subordinate employees subject to their control to prevent any violation by such persons of applicable statutes or regulations.
Focus shall exercise diligence and thoroughness when taking any investment action for you, and all other clients, and shall have a reasonable and adequate basis for such actions, supported by appropriate research and investigations. In taking investment action for you, we will consider its appropriateness and suitability for your account.
Focus will manage your account within the guidelines established with each client, as detailed in their Investment Management Agreement.
Focus shall ensure that your account is supervised separately and distinctly from our other client accounts; however, in placing orders for the purchase or sale of securities, we may pool your order with that of another client, or clients.
Transactions for client accounts shall have priority over transactions completed for Focus employees so that employee transactions do not act adversely to your interests.
Focus is registered under National Instrument 31-103 as a Portfolio Manager in Ontario, Quebec, Manitoba, Saskatchewan, Alberta, British Columbia and Nova Scotia. Focus is also registered as an Investment Fund Manager in the provinces of Ontario and Quebec. Registration as an Investment Fund Manager is only required in Focus’ home jurisdiction (Ontario) as well as in the provinces of Quebec and Newfoundland as long as Focus solicits business and has investors resident in that province. Focus is only required to register as an Investment Fund Manager in all other provinces if the firm conducts activities related to investment fund management from within that province.
C. Conflicts of Interest and Disclosure Statements
Focus Asset Management Ltd. (“Focus”, the “Firm”, “we” “our”, “us”) is providing you with this Conflict of Interest Disclosure in accordance with new laws that come into force on June 30, 2021. This document describes existing or reasonably foreseeable material conflicts that may affect your interests as our client, including how we address those conflicts in your best interest.
A conflict of interest can include any circumstance where:
- the interests of different parties, such as the interests of the Firm and those of a client, are inconsistent or divergent;
- the Firm or one of its registered representatives may be influenced to put their interests ahead of a client’s interests; or
- monetary or non-monetary benefits or disadvantages accruing to Focus or its registered representatives that might compromise the trust that a reasonable client has in the firm or any of its registered representatives.
Whether a conflict is “material” or not depends on the circumstances. In determining whether a conflict is material, we will typically consider whether the conflict may be reasonably expected to affect the decisions of our clients in the circumstances, and/or the recommendations or decisions of the Firm or its registered representatives in the circumstances.
What follows below are details regarding the specific material conflicts of interest that we have identified to date. In case other material conflicts of interest arise, which may happen from time to time, we will inform you of the nature and extent of any such other conflicts of interest prior to any of your subsequent transactions with us or our advice to you.
1. Proprietary Products 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, the registrant or those “related” to the registrant 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.
Focus’s business model includes managing certain proprietary funds including the FAM Balanced Fund, FAM Registered Balanced Fund, Focus Dividend Equity Fund, Focus Core Equity Fund, Focus Fixed Income Fund, Focus Credit Opportunities Fund, Focus Private Debt Fund Limited Partnership and the Focus Infrastructure & Real Assets Fund Limited Partnership (the “Focus Funds”). The Focus Funds are connected/related to Focus because the Firm established the Focus Funds and acts as their portfolio manager and investment fund manager.
Regulators have noted that where a registered firm distributes securities of connected/related issuers, a material conflict of interest exists because Focus may have an incentive to recommend the Focus Funds to its clients over other third party funds that do not provide similar incentives. Focus may also be incented to fail to disclose or provide inadequate disclosure to investors about the Focus Funds in cases where there is negative information (for example, where a company owned by one of the Focus Funds is experiencing financial difficulty), resulting in investors taking on more risk than they could, or wish to, bear.
Focus takes the following steps to mitigate the actual and potential conflicts of interest described above:
- Advisers and Dealers at Focus are not directly compensated for recommending any specific products to their clients including the Focus Funds.
- On an annual basis, Focus conducts an analysis of similar funds available to a similar client base. Focus is comfortable that the Focus Funds compare favorably to these similar funds.
- Focus has policies and procedures in place to ensure that its representatives conduct a suitability analysis for each client accepted into the Focus Funds. This suitability analysis ensures that the Focus Funds are appropriate for that client. Certain types of clients may be able to waive this suitability.
- In conducting its suitability analysis for a client, each representative of Focus will have a thorough understanding of: (i) the structure and features of the Focus Funds; and (ii) amongst other client information, the personal and financial circumstances of that relevant client.
- Focus has retained independent legal and regulatory counsel to provide ongoing training regarding a representative’s suitability obligations when accepting a client into the Focus Funds.
2. Internal Compensation Arrangements
Focus’s employees may be perceived as incentivized to recommend certain products or services over others. Specifically, Focus employees could be perceived as motivated by the Firm to encourage the purchase of any of the Focus Funds.
Focus takes the following steps to mitigate the actual and potential conflicts of interest described above:
- Compensation for Focus employees is based on a fixed annual salary with a variable bonus element which is based on each individual’s performance of their core accountabilities as well as the overall success of the Firm. Accordingly, the primary compensation driver for Focus employees is not tied to any selling activities.
- The Chief Compliance Officer reviews client files and suitability recommendations of registered Focus employees from time to time. Focus employees understand that any variable bonus compensation could be affected if suitability issues are found during these reviews.
3. Conflicts at the Supervisory Level
One of the mitigation tools that Focus uses to control for the compensation conflicts of its employees (see Item 2 above) is a Chief Compliance Officer review of suitability recommendations. However, it may be perceived that the Chief Compliance Officer himself could be conflicted during these reviews in that he also may receive variable bonus compensation. To address this conflict, Focus has structured the compensation of its Chief Compliance Officer such that no part of any variable bonus compensation paid is tied to the sales or revenue generation of the Firm or of the registered representatives that are supervised.
4. Fee Based Accounts
Focus could be conflicted where it holds commissioned based securities in fee-based accounts. Specifically, it could be perceived that Focus is obtaining dual compensation in that it is earning any fees associated with the management of the account while also recommending securities that drive additional compensation to Focus. This is sometimes referred as “double charging” the client. However, Focus does not charge a fund management fee for any of its Focus Funds invested through a fee based account. Therefore, Focus will never “double charge” a client.
5. Outside Activities
Focus’s registered individuals may become involved in other activities outside of their employment with Focus (e.g., sitting on boards of directors or providing volunteer services for a charity). These outside activities could: (i) impact the amount of time a Focus registered individual spends on Focus employment or registration obligation; and (ii) create a conflicting interest as to how a Focus registered individual discharges its obligations to Focus or its clients.
Focus has policies and procedures to ensure that all outside activities are reported to and considered by its Chief Compliance Officer. The Chief Compliance Officer will only approve such outside activities that do not conflict with Focus operations or obligations. Certain outside activities, such as, acting as a registrant for any other registered firm in Canada or acting in the capacity of power of attorney or executor for a client, are prohibited.
6. Best Execution
Focus manages both the Focus Funds and segregated client accounts (collectively referred to as “Accounts” or individually as an “Account”). Focus may use a brokerage firm to execute trades on behalf of any Account based on a pre-existing relationship, rather than objective qualitative or quantitative considerations. This is considered a best execution conflict of interest.
Focus has policies and procedures to ensure that when Focus directs brokerage transactions to brokers, the service is comparable to that which Focus may obtain from other brokers and the commission rates are equivalent to or better than those that would have been normally charged by the broker. Focus monitors the level of service provided by any broker that executes trades on behalf of all Accounts with respect to the cost and execution of trades.
Some brokerage firms with which Focus executes transactions provide research goods and services that include issuer-specific research reports, industry summaries, economic commentary and access to meetings with company management or industry analysts that are associated with investment opportunities that Focus is considering. One brokerage firm provides access to software that allows Focus to execute trades in the marketplace in real time using a direct market access system. Another brokerage firm maintains an account where a portion of the commissions paid can be allocated to research goods and services provided by a third party. The names of all brokerage firms used by Focus will be provided to clients upon request.
7. Fair Allocation of Investment Opportunities
It is Focus’ policy to ensure that it deals fairly, honestly and in good faith when allocating investment opportunities (which includes securities traded on public exchanges, private equity issues or participation in an initial public offering) across all Accounts so that no single Account or type of Account will receive preference in the allocation of investment opportunities.
The principal determination when allocating investment opportunities among client Accounts is the suitability of the transaction given each client’s particular investment mandate. When transactions are completed that will affect more than one Account they will be bulked together and executed as one block trade. Once the block trade is completed, or partially completed if the order needs to be executed over more than one trading day, each Account will be given its pro-rata share of the order so that all Accounts transact at the same price and pay the same rate of commission. If a block trade is completed using more than one Dealer, which results in materially different prices and/or different commission rates, then Accounts will be allocated their pro-rata share from each of the separate trades.
Where it is not possible to apply a rigid pro-rata formula when allocating a partially filled block order (for example, if the Dealer is only able to complete a very small portion of the total order) then other criteria will be considered in an attempt to ensure the allocations are fair and reasonable. Such considerations may include: the proportion of the portfolio that the traded security represents, the overall weighting of the asset class or industry sector for the traded security in the Account, the cash reserve position of the Account or the target weighting for the security in relation to the total size of the Account. If, for any reason, an investment opportunity cannot be allocated using a pro-rata formula that can be applied to all participating Accounts then every effort will be made to address trading inequities at the next opportunity so that every Account will, over time, receive equitable treatment in the allocation of investment opportunities.
When completing pro-rata allocations, any segregated Accounts that are managed solely for the benefit of an employee of Focus, or an immediate family member, will be filled only after all other Accounts receive their full allocation.
8. Personal Trading
Focus employees trade in the same securities as our clients. While some employees invest directly in the Focus Funds, others hold securities in Accounts that are segregated and therefore trades will be executed in the same individual securities held by our clients. Where this is the case every attempt is made to have employees trade right alongside clients so that all Accounts are treated fairly.
Focus has created a personal trading policy that employees must adhere to when executing orders for any accounts where they, or an immediate family member, are a beneficial owner or where the employee influences control over the account. The policy has procedures in place that require pre-clearance for all trades and enforce a blackout period where trading is prohibited under certain circumstances. Employees are also obligated to attest on an annual basis to a full and complete list of all accounts that would be subject to this policy.
9. Gifts and Entertainment
While it is recognized that conducting business may involve some modest exchange of gifts and business-related entertainment, the value of such gifts and entertainment must not create a real or perceived conflict of interest and must not impair the independence or objectivity of the recipient.
Focus has policies and procedures in place with respect to the receipt or giving of gifts and/or entertainment. These policies and procedures require employees to contact the Chief Compliance Officer with any concerns about the receipt or giving of a gift or entertainment and whether that may create a conflict of interest. Further, employees are required to notify the Chief Compliance Officer upon receipt of a gift or entertainment in excess of $100 (on an individual basis).
D. Management Fees
Focus charges its clients a management fee based on a percentage of the total market value of their portfolio at the end of each quarter. Details regarding the fee calculation process and the related management fee schedule are included in Schedule C of your investment management agreement.
Focus does not generally compare returns of its clients to a specific benchmark unless the client incorporates such a request in their mandate. The following benchmarks may be provided to clients as part of their review package for information purposes only.
The RBC Broad Bond Index is a broad measure of the Canadian investment-grade fixed income market, weighted by market capitalization.
The S&P/TSX Composite Index is a widely known equity index of Canadian publicly traded, large-capitalization companies.
The S&P 500 Index is a widely known equity index of the 500 leading publicly traded, large-capitalization companies in the US stock market.
The Canadian and United States Consumer Price Index are measures for each respective country that examines the weighted average of prices of a basket of consumer goods and services to asses price changes associated with the cost of living.
F. Focus Employee Code of Conduct
Focus employees may at times find themselves in a situation where there is a conflict between their own personal interests and those of a client. In order to address these situations Focus has established a Code of Conduct (“Code”) that employees must abide by. Employees must also attest to their knowledge and understanding of the Code on an annual basis. The Code covers a number of potential conflicts; among them are situations involving outside business activities, accepting gifts and entertainment from service providers and the use of confidential information. The Code also incorporates the CFA Institute Code of Ethics and Standards of Professional Conduct.
G. Complaint Process
Focus maintains detailed policies and procedures for handling client complaints which are outlined below. Effective May 1, 2014, the Canadian Securities Administrators implemented a requirement for all registered firms to ensure that the Ombudsman for Banking Services and Investments (OBSI) is made available as an independent dispute resolution or mediation service for all clients that have an eligible compliant. Focus is registered as a Participating Firm with the OBSI.
Any complaints with respect to the services provided by Focus should first be directed to a representative of Focus at:
Focus Asset Management
200 King Street West, Suite 610, Box 69
When registering a complaint, please tell us what went wrong, when it happened and what you expect (for example, money back, an apology, an account correction).
We will acknowledge your complaint in writing, as soon as possible, but no later than five business days after receiving your complaint. We may ask you to provide clarification or more information to help us resolve your complaint. In order to help us respond as quickly as possible you should make your complaint as soon as possible after the event that causes the complaint occurs, reply promptly if we ask you for more information and keep copies of all relevant documents, such as letters, emails and notes of conversations with us.
We will provide written notice of our decision within 90 days of receiving your complaint which will include:
- A summary of the complaint
- The results of our investigation
- Our decision to make an offer to resolve the complaint or deny it. We will also include an explanation of our decision.
In the event that we cannot provide you with our decision within 90 days we will inform you of the delay, in writing, as well as explain why our decision is delayed and give you a new date for our decision.
If you are satisfied with our offer to resolve the complaint we will proceed with our decision and the matter will be closed. However, if you are not satisfied with our decision you may be eligible for the OBSI’s dispute resolution service (note that Quebec residents may consider the free mediation service offered by the Autorité des marchés financiers). Also, keep in mind, you always have the right to go to a lawyer or seek other ways of resolving your dispute at any time. A lawyer can advise you of your options. There are time limits for taking legal action and delays could limit your options and legal rights later on.
If we do not provide our decision within 90 days after you made your complaint or if you are not satisfied with our decision, you may be eligible for OBSI’s free and independent dispute resolution service. You have the right to use OSBI’s service if:
- your complaint relates to a trading or advising activity of Focus or by a representative of our firm
- you brought your complaint to us within 6 years from the time that you first knew, or ought to have known, about the event that caused the complaint, and
- you file your complaint with OBSI according to one of these time limits:
- If we do not provide you with our decision with 90 days, you can take your complaint to OBSI any time after the 90-day period has ended.
- If you are not satisfied with our decision, you have up to 180 days after we provide you with our decision to take your complaint to OBSI.
OBSI can recommend compensation of up to $350,000 and their service is available free of charge to clients of Focus. This does not restrict your ability to take a complaint to a dispute resolution service of your choosing at your own expense, or to bring an action in court, keeping in mind the time limits for legal action.
OBSI can best assist with your complaint if you promptly provide them with the following information:
- Your contact information as well as contact information for Focus
- The name and contact information of any Focus representative involved with your complaint
- Details of your complaint
- All relevant documents, including any correspondence and notes of discussions with Focus.
OBSI works confidentially and in an informal manner. It is not like going to court and you do not need a lawyer. During its investigation, OBSI may interview you and representatives from Focus. We are required to cooperate in OBSI’s investigation.
Once OBSI has completed its investigation, it will provide its recommendations to you and us. OBSI’s recommendations are not binding on either party.
OBSI can recommend compensation of up to $350,000. If your claim is higher, you will have to agree to that limit on any compensation you seek through the services provided by OBSI. If you want to recover more than $350,000, you may want to consider another option, such as legal advice, to resolve your complaint.
Contact information to file a complaint with OBSI:
By email at email@example.com
By telephone: 1-888-451-4519 or 416-287-2877 in Toronto
For more information about OBSI, visit www.obsi.com