Conflicts of interest

APPENDIX “A”: Conflicts of interest disclosure

There will be situations where a conflict will arise between the interests of ScotiaMcLeod and/or its advisors and your interest. These conflicts may be actual conflicts of interest or you may perceive that ScotiaMcLeod or its advisors have a conflict of interest. Conflicts can give rise to a concern that ScotiaMcLeod or its advisors may act or will act with a view to their own business or personal interest. Conflicts can also arise in circumstances where there are differing interests amongst clients, which may lead to a perception that ScotiaMcLeod will be favouring a client or set of clients over other clients. 

Canadian securities laws require ScotiaMcLeod to take reasonable steps to identify and respond to material conflicts of interest in your best interest and tell you about them, including how the conflicts might impact you and how ScotiaMcLeod addresses them in your best interest.

We seek to avoid or minimize conflicts where reasonably possible. We seek to avoid actual or perceived favouritism or discrimination amongst clients and to ensure that no client receives preferential treatment over another in the operation and management of their account and execution of trades. Some conflicts cannot be avoided, including those conflicts that are inherent in our relationship with Scotiabank and with our affiliates arising out of our membership in the Scotiabank group of companies. It is important that you are fully informed regarding our conflicts, including how we address them in your best interests.

This Conflicts of Interest Disclosure (Conflicts Statement) sets out important information regarding our material conflicts of interest. These are described in this Conflicts Statement, along with the potential impact on and risk that the conflict could pose to you and how we address the conflict to minimize its impact and risks to you and our other clients. In situations that we do not or cannot avoid a conflict of interest, where our interests may compete with yours, we will always give your interests priority over ours, which allows you to be confident that we address conflicts in your best interest. Generally speaking, we deal with and manage conflicts as follows:

<     We avoid conflicts which are prohibited by law, as well as conflicts that we cannot effectively control in your best interest.

<     Our advisors are required to comply with various policies and procedures, which are designed to ensure that our advisors follow ethical and client-first business practices. These policies and procedures include the Scotiabank Code of Conduct.

<     We control or manage acceptable conflicts by physically separating different business functions and restricting the internal exchange of information.

<     Our internal compensation practices are designed to ensure that advisors are not incented or influenced to make investments in your account in specific issuers or financial products.

<     For each material conflict, we seek to resolve it in your best interest.

<     We disclose information about conflicts material to you so that you can assess independently if these conflicts are significant to you.

Material conflicts arising from being a member of the Scotiabank group of companies:

ScotiaMcLeod is a division of Scotia Capital Inc. Scotia Capital Inc. is a wholly-owned indirect subsidiary of the Bank of Nova Scotia (Scotiabank). Our relationship to Scotiabank and its other financial services subsidiaries (the Scotiabank group of companies) creates conflicts of interest when we provide products and services to you that are sourced from or provided by other members of the Scotiabank group of companies.

Scotiabank and its various financial services subsidiaries, including ScotiaMcLeod, are commercial businesses and seek to maximize profits while providing fair, honest and appropriate services to clients. This means we may encourage you to do more business with us and the other members of the Scotiabank group of companies, and we may engage our affiliates to provide us with products and services for your account, but will always do so in a way that we consider in your best interests. We will only enter into these transactions or arrangements where they are permitted under applicable securities laws and where we believe they are in your best interests.

Although Scotia Capital Inc. is under common ownership with the other members of the Scotiabank group of companies and may from time to time have directors and officers in common with these other firms, Scotia Capital Inc. is a separate and distinct corporate entity. ScotiaMcLeod generally carries on its activities independent of the other firms owned by Scotiabank. However, from time to time there may be certain cooperative business arrangements between it and the other firms, such as arrangements relating to introduction of clients, distribution of products, advisory relationships or administrative support.

In addition to applicable regulatory provisions and contractual provisions respecting any business arrangements that may exist between ScotiaMcLeod and the other Scotiabank group of companies, the directors, officers and employees of each of the firms are subject to Guidelines or Codes of Conduct governing their actions. These Guidelines are supplemented by our internal compliance policies and procedures.

In all cases, the conflicts described in this section raise perceptions that we will favour the business interests of the various members of the Scotiabank group of companies, when the products and services we provide you that are sourced from or provided by those members may not be in your best interests. These conflicts and how we manage them to ensure that we act in your best interests are described below.

We would like you to use more services offered by members of the Scotiabank group of companies and buy more of the products offered by other members of the Scotiabank group of companies.

<     Referral arrangements are disclosed and operated in accordance with regulatory standards.

<     We have policies and procedures prohibiting recommendations solely for the purpose of generating revenue for us without any benefit to you.

In the course of our relationship with you, we may trade in or give advice on securities of “related” and “connected” issuers. We may:

<     Make recommendations regarding these securities to you.

<     Sell investment fund securities issued and managed by affiliates of ScotiaMcLeod.

<     Exercise discretionary authority to buy or sell these securities for your account.

<     We manage this conflict in your best interest:

• We are required by regulation to disclose this when we make a recommendation to you.
• We inform you whether a transaction involved a related or connected security on the trade confirmation and account statement.
• Our advisors receive the same commission compensation payout as a percentage of gross revenue regardless of the product originator.
• We make such recommendations based on our assessment of suitability of the investment for you.
• We conduct due diligence on such securities in the same ways as we do for other unrelated securities issuers.
• All of our related parties are disclosed in the Scotia Capital Inc. Statement of Policies, which is available on our website and updated from time to time to disclose a full listing of our “related” and “connected” issuers.
• If you have an advisory account with us, you consent to the purchase or sale of securities issued by our “related” and “connected” issuers. If you have a managed account with us, you consent to your ScotiaMcLeod advisor exercising discretionary authority in connection with the purchase or sale of securities issued by our “related” and “connected” issuers.

We may receive commissions or other forms of compensation (new issue commission) when securities are offered for sale for the first time in the primary market and/or through a secondary offering (new issue) and the securities are distributed by ScotiaMcLeod or one of its affiliates as a member of the underwriting or selling group.

The new issue commission is paid by the security issuer and/or selling security holder to ScotiaMcLeod, our affiliate(s) and/or their respective advisors, as applicable, and this is in addition to any commission and/or any other fees and charges you pay us in respect of our trading or advising on such securities for your accounts (account fees).

If you have an advisory account with us, you agree that new issues may be purchased in any of your advisory accounts. You acknowledge that your advisor, ScotiaMcLeod and/or its affiliate(s) may be paid a new issue commission by the security issuer and/or selling security holder and that this is in addition to any account fees payable by you in respect of your advisory accounts. If you have a managed account with us, you acknowledge and consent to ScotiaMcLeod:

(a)           transferring-in to your managed account(s); and

(b)          exercising its discretionary authority to hold in your managed account(s); securities previously purchased by you on a new issue, notwithstanding that ScotiaMcLeod or any of its affiliates may have acted as a member of the underwriting or selling group for the new issue and received new issue commission from the security issuer and/or selling security holder in respect of the new issue and this is in addition to any commission and/or other fees and charges you pay us in respect of our trading or advising on such securities for your accounts.

ScotiaMcLeod monitors advisors who recommend their clients invest in securities underwritten by ScotiaMcLeod and all such investments must be suitable for the client and in the client’s best interest. We maintain information barriers between our corporate trading activities and retail advisory business.

We may sell you securities which we own (called principal trades) and profit by doing so.

We will tell you whether we acted as principal or agent for each transaction on the trade confirmation.

In the case of fixed income securities, which we always sell as principal, we provide you with a stated yield to maturity so you can assess the competitiveness of our pricing.

We engage in trading of securities for our own account (called proprietary trading).

We maintain information barriers between our corporate trading activities and retail advisory business.

Firm and employee trades are identified as such and client trades are given priority to firm and employee trades in accordance with industry “client priority” regulations.

We and our affiliates may earn revenue from other sources derived from our management and operation of your account.

All such business conducted by ScotiaMcLeod and our affiliates is on market terms and conditions and we monitor such business on a periodic basis to determine whether it and our applicable affiliates provide appropriate service to us and our clients in ways they would do if the affiliates were not related to us.

Referral arrangements may exist from time to time within the Scotiabank group of companies, including ScotiaMcLeod. Referral arrangements are arrangements in which an existing or prospective client is referred to or from a registrant within the Scotiabank group of companies, and compensation is provided to or by a registered person in respect of the referral.

You may have been referred to ScotiaMcLeod by another member of the Scotiabank group of companies, or you may have been referred to another member of the Scotiabank group of companies that is qualified and registered to offer you products or services not offered by ScotiaMcLeod. The purpose of these referrals is to introduce you to experts within the Scotiabank group of companies who are best suited to help you achieve your financial goals.

A referral fee may be paid or received, directly or indirectly, by a member of the Scotiabank group of companies, or by a referring employee of a member of the Scotiabank group of companies. The amount of any referral fee paid or received for referral services will not affect the fees paid or payable by you.

A brief description of the members of the Scotiabank group of companies who may have referred you to ScotiaMcLeod and to whom you may be referred, and the general nature of the services each provides, is set out below.

<     The Bank of Nova Scotia (Scotiabank®) is a federally regulated bank that provides a broad range of banking services, including day-to-day banking, power savings accounts, chequing accounts, registered savings accounts, GICs, lending services, mortgages, credit cards, electronic banking, and financial planning, through both domestic and international business lines.

<     The Bank of Nova Scotia Trust Company (Scotiatrust®) is a federally regulated trust company that provides a broad range of trust services, including estate and trust management, will and estate planning, philanthropic advisory services and custody.

<     1832 Asset Management U.S. Inc. is a registered advisor in the United States and provides discretionary investment management services to individual and institutional clients who reside in the United States.

<     Scotia Wealth Insurance Services Inc. is a provincially regulated insurance firm and provides insurance products and strategies for income and asset protection.

<     Scotia Capital Inc. (SCI) is a registered investment dealer in all provinces and territories of Canada that provides investment advisory, securities trading, financial planning, and related services to individual and non-individual clients through its full-service brokerage division, ScotiaMcLeod, and self-directed, electronic securities trading services through its online, self-directed, non-advisory brokerage division, Scotia iTRADE®. SCI’s Global Banking and Markets division conducts Scotiabank’s wholesale banking and capital markets business with corporate, government and institutional investor clients.

Current referral arrangements involving ScotiaMcLeod

By Scotiabank to ScotiaMcLeod

Wealth Management Consultants employed by Scotiabank who are involved in sales activities related to the Scotiabank group of companies refer clients to the expert within the Scotiabank group of companies best suited to helping them achieve their financial goals. If a referral is made by Scotiabank to ScotiaMcLeod that results in new business for ScotiaMcLeod, compensation for these referrals may be paid by ScotiaMcLeod to Scotiabank, in the form of a flat annual fee based on the revenue estimated to be earned by ScotiaMcLeod during that fiscal year.

By Global Banking and Markets to ScotiaMcLeod

Global Banking and Markets will receive a one time payment from ScotiaMcLeod for any qualifying referral resulting in new business. To qualify, the referral must meet minimum dollar value thresholds. The payment shall be a one time payment representing an aggregate 25% of the fees received from the referred business during the initial year following the referral.

By ScotiaMcLeod to 1832 Asset Management U.S. Inc.

ScotiaMcLeod receives payment from 1832 Asset Management U.S. Inc. (1832 US) for the referral of an existing ScotiaMcLeod client who resides in the U.S. which results in the opening of an Investment Management Account by 1832 US. To qualify, the referral must meet minimum dollar value thresholds and other criteria. The payment is a continuing quarterly payment (except for the first payment which will be a one-time payment of 30% of 1832 US collected investment management fees received from the referred business during the immediately preceding financial year.

By ScotiaMcLeod to Scotiabank

ScotiaMcLeod receives payment from Scotiabank for the referral of a client which results in new business for Scotiabank. If a referral of a client is made by a ScotiaMcLeod advisor to Scotiabank (Retail Banking) which results in new business for Scotiabank (Retail Banking), Scotiabank (Retail Banking) will reimburse ScotiaMcLeod for referral fees paid by ScotiaMcLeod to its advisors in the circumstances described below.

A ScotiaMcLeod advisor will receive a one-time payment from ScotiaMcLeod of up to $250 for a referral made to Scotiabank (Retail Banking) in respect of the following products and services:

<     A new mortgage or line of credit of a minimum amount, the amount of the payment depending on the amount funded or drawn down.

<     A new Scotia Professional Plan if it includes a business account with overdraft protection, unless the client already has both a Small Business and Retail relationship with Scotiabank.

<     A new ScotiaOne Account Plan for business if it includes a business account, bank account and Visa account unless the client already has both a Small Business and Retail relationship with Scotiabank.

By ScotiaMcLeod to Scotiatrust

If a referral of a client is made by a ScotiaMcLeod advisor to Scotiatrust for the preparation of a Will, ScotiaMcLeod may receive a one-time payment from Scotiatrust of 10% the Scotiatrust Estate Administration fee for certain Wills signed between November 1, 2006 and November 1, 2016.

By ScotiaMcLeod to Scotia Wealth Insurance Services Inc.

A ScotiaMcLeod advisor may receive a payment for referring a client to Scotia Wealth Insurance Services Inc. that results in new insurance business.

<     ScotiaMcLeod advisors who are life-licensed will receive up to 75% of new business and renewal revenue for life insurance products offered.

<     ScotiaMcLeod advisors who are not life-licensed may receive a one-time payment of up to 50% for new business revenue only.

By ScotiaMcLeod to Global Banking and Markets

If a referral is made by a ScotiaMcLeod advisor for a product or service provided by Global Banking and Markets, advisors will receive a one time payment representing an aggregate 25% of the fees received from the referred business during the initial year following the referral. To qualify, the referral must meet minimum dollar value thresholds.

As a firm, we may know confidential information as a result of business relationships with issuers of securities, which we cannot disclose to you when our advisors recommend you invest in those securities.

We operate our corporate finance and retail advisory businesses separately so that such information is tightly controlled and not shared by corporate finance with our retail advisory businesses.

Our internal information barriers are designed to ensure regulatory requirements are complied with and retail advisory employees do not have access to any non public information that may be available to our corporate finance businesses.

Our relationships with issuers of a security may mean we directly benefit from you buying the issuer’s securities, such as when the issuer is using the funds to repay or secure a loan to us.

Confidential information which cannot be publicly disclosed is protected through internal information barriers so that it is not shared and does not influence any retail advisory activities.

We may receive compensation by sending trades to specific destinations.

This includes electronic communication networks, market makers and exchanges in connection with trades on markets we direct to such destinations through affiliates or directly. Industry regulations dictate our best price and best execution obligations to you.

We disclose to you our ownership interests in marketplaces and policies and procedures for order routing.

Below is a list of other material conflicts, and the primary methods we use to manage them in your best interest.

We earn compensation by selling products and services to you for which you pay us.

<     We endeavour to be fully transparent on fees and commissions and fully inform you in advance so that you know what you will be paying.

<     We offer a wide variety of pricing options to choose from.

We would like you to use more of our services and buy more of our products.

We do not engage in “tied selling”, which is prohibited by regulation. We have policies and procedures prohibiting recommendations solely for the purpose of generating revenue for us without benefit to you.

Our compensation, organizationally and individually, may involve commissions based on sales volume.

We offer:

• fee-based accounts
• managed accounts, and
• similar products such as no-load mutual funds, which have pricing structures designed to reduce commission incentives.

Different products and services have differing levels of compensation.

Our compensation is disclosed to you and we offer pricing alternatives intended to reduce the conflicts associated with commission based pricing.

We are obliged by industry regulations and firm policy to make only suitable investment recommendations.

We may receive compensation from securities issuers and other third parties based on selling you their products.

These may be in the form of “trailer fees” on mutual funds and commissions and “trailer fees” on segregated funds and insurance policies.

We disclose to you the situations and type of third party compensation we may receive.

Securities regulations require issuers to provide specific disclosure in the offering document (e.g. prospectus) of such arrangements and the compensation we will receive.

We are obliged by industry regulations and firm policy to make only suitable investment recommendations.

We are compensated in other ways as a result of the business you may do with us.

This may include interest spreads on uninvested cash deposits with us and foreign exchange spreads when you convert currencies.

Various forms of other compensation we may receive are disclosed to you.

We may need to select which clients will be offered certain securities if availability is limited.

We have a “fair allocation” policy for managed accounts and pooled investment funds.

For non-discretionary accounts, individual advisors make the determination based on individual client relationships.

If you hold an applicable security, we may be paid by issuers, offerors or others to solicit your proxy or vote in respect to takeover bids, corporate reorganizations, solicitation of proxies, etc.

Securities regulations require specific disclosure of such arrangements and the compensation we will receive in documents such as information circulars, takeover bid circulars and issuer bid circulars.

We may direct commissions generated from trading in your account to pay for order execution as well as services used in the investment decision-making process that will be of benefit to all our clients’ accounts.

<     Any use of brokerage commissions in this way will comply with applicable securities laws which regulate the use of client brokerage commissions.

<     The types of services generally obtained through the use of client brokerage commissions include order execution, order execution goods and services, and research goods and services.

At times, ScotiaMcLeod advisors may participate in outside business activities such as serving on a board of directors, participating in community events or pursuing personal outside business interests.

<     We have policies in place which require advisors to disclose situations where a conflict of interest may arise prior to engaging in any outside business activity in order to determine how such conflicts may be addressed.

<     Advisors may only engage in such outside business activities if approved by an applicable supervisor pursuant to our policies.

Our executive and advisors are not permitted to accept gifts or entertainment beyond what we consider consistent with reasonable business practice and applicable laws.

<    We set maximum thresholds for such permitted gifts and entertainment so that there cannot be a perception that the gifts or entertainment will influence decision-making.

Personal trading

<   We have a personal trading policy that requires our advisors to maintain all investment accounts at ScotiaMcLeod and we monitor accounts for inappropriate activity, such as front running, trading ahead of clients etc.

Personal dealings with clients

<   ScotiaMcLeod advisors who have personal relationships with their clients are not permitted to provide any different services or recommendations to those clients than they would for unrelated clients.