CONFLICT OF INTEREST DISCLOSURE STATEMENT
Introduction
The Conflict of Interest Disclosure Statement provides you with information on conflicts of interest that may arise during your relationship with Westmount Wealth Management (“WWM”). Westmount Wealth Management is registered to carry on business as a Portfolio Manager in the province of British Columbia, Alberta and Ontario.
It is important that you are fully informed about these conflicts. Canadian securities laws require us to take reasonable steps to identify, disclose, and respond appropriately to existing and potential material conflicts of interest. Please take a moment to read it carefully. Your Portfolio Manager can answer any questions you may have.
a. What is a conflict of interest?
A conflict of interest is any circumstance where the interests of different parties, such as the interest of a client and those of WWM or its employees, are inconsistent or divergent. A conflict of interest also includes any circumstances where a registrant may be influenced to put their interest ahead of a client’s. This includes situations where an employee may receive monetary or non-monetary benefits or disadvantages, which could compromise the objectivity of a decision. Conflicts are considered material if they affect the decision making of the client or judgement of WWM or its employees.
b. How do we handle conflicts of interest?
It is our policy to identify conflicts of interest and ensure that they are always resolved in your best interest, ahead of our own interest and any other competing considerations. If we cannot resolve a conflict in your best interest, we will completely avoid the activity that raises that conflict.
We have policies in place and provide ongoing training to our employees to assist them to identify existing and reasonably foreseeable material conflicts of interests in a timely manner and address them in your best interest.
c. Why is this important?
It is important that you understand that if a conflict arises, we will always resolve it in your best interest or completely avoid it altogether.
d. Delivery of Disclosure.
The Conflict of Interest Disclosure Statement (“COI Statement”) will be provided to you at the time of account opening. You can find a copy of the COI Statement on our website or you can contact us to request a copy. The COI Statement will be updated annually, or as we identify new material conflicts of interest as part of our ongoing conflicts of interest management. The updates will be provided to clients in a timely manner by email or mail depending on the consent we have received from you.
CONFLICTS OF INTEREST
Managed Accounts Invested in Proprietary Funds
Conflicts exist when we exercise our discretion to invest your Account in our proprietary Funds. In these instances, the conflict arises because we will receive additional fee revenue from the Funds in which you invest, which we would not receive if your Account were invested in third party funds or securities. In this case it may be perceived that we are favouring our business interest over yours.
We manage this conflict in the following manner:
KYC/Suitability Assessment: By ensuring that each WWM Model Portfolio, and the underlying Funds in your Account are recommended to you based on a comprehensive suitability assessment. You will only receive the products and services that are appropriate to you in our professional judgement. We employ a robust Know your Client/Suitability process that is supervised by an internal compliance team. We constantly review and assess the service offering and fees to ensure they bring value to you.
Professional Judgement: When we recommend a Model Portfolio, we do so because we have used our professional judgement to assess the appropriateness and suitability of the investment for you in our discretion. The depth of our investment team and the nature of our processes mean that we are able to effectively assess our products and services to ensure they are competitive and suitable to each client.
Fee Disclosure: We disclose our fees associated with services we provide to you, including management fees, and the advisory fee applicable to the Westmount Wealth Management Funds. This means you will be able to compare and evaluate our costs.
Compensation Practices: Our Portfolio Managers and Wealth Advisors are paid a base salary and bonus compensation partially based on the value of assets they manage. This conflict is managed because the compensation is calculated on the overall value of assets, and there is no incentive paid at a client or product level. We prohibit compensation practices that would favour our proprietary products over third-party products.
Fair Allocation of Investment Opportunities
WWM manages Accounts for clients and serves as the investment advisor to the Westmount Wealth Management Funds (“the Funds”). The Funds are different and are managed separately from client Accounts. It is our policy to ensure that we deal fairly, honestly and in good faith when allocating investment opportunities (which includes securities traded on public exchanges, new issues, or participation in an initial public offering) across all Accounts. No single Account will receive preference in the allocation of investment opportunities. The principal determination when allocating investment opportunities is the suitability of the transaction given each client’s particular investment mandate.
WWM clients are invested in the Model Portfolios, which may include the Funds. This enhances the ability for WWM to allocate trades fairly and ensure that similarly situated clients receive similar investments at the same time and the same price.
Related and Connected Issuers
The Funds are the only investment products that are advised by WWM. The Funds are proprietary products and are related and connected issuers of WWM, because WWM is the investment advisor of the Funds and earns advisory fees from the Funds. The WWM Funds are the only related and connected issuers of WWM.
Further information regarding the WWM Funds and how they are managed is set out in the WWM Funds Offering Memorandum under “Conflicts of Interest” and “Fees and Expenses”.
Proprietary Products
WWM offers our clients Model Portfolios which may include proprietary products. In carrying out our duties as a portfolio manager, we select the Model Portfolio that is most suitable for you, which may include one or more WWM Funds. The selection of the Model Portfolio and the Funds invested therein will be based on your personal circumstances and investment needs, which may change over time. As we only offer Model Portfolios consisting of proprietary and a limited selection of non-proprietary products, our suitability determination 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.
We have policies and procedures in place to manage our Know Your Client and Know Your Product obligations as a Portfolio Manager, which includes compliance and training programs. Our Investment Team conducts ongoing assessment of our Funds, which includes peer reviews to ensure our proprietary products continue to be competitive within the greater market offerings.
Error Corrections
Should an error occur while managing your Account, a potential conflict of interest could occur during the process of correcting the error where the expense is charged to you, or a gain is taken by WWM. We avoid this conflict by bearing all costs associated with trading errors, and if a trade error results in a loss, we will endeavor to make you whole.
All errors are documented in an error log as a control measure and are approved by the Chief Compliance Officer. Annually, a brief account of trade errors is included in the Chief Compliance Officer’s report to the Board.
Full Control over Client Affairs
WWM deems a Westmount registrant having full control or authority of a client’s financial affairs to be an inherent material conflict of interest and therefore we prohibit such activity. This includes but is not limited to, acting as a trustee, executor, power of attorney or any other position that may give a registered advisor such as your Portfolio Manager control over the financial affairs of a client. An exception may be granted to individuals acting on behalf of their immediate family – including parents, spouse, children, and siblings – with Compliance approval.
Revenue Based Compensation
Portfolio Managers, Wealth Advisors and other client facing employees in the investment industry are often paid by salary, bonus and by commission as part of their compensation agreements. This raises a material conflict of interest as it may be perceived that the Portfolio Manager or employee is putting their interest ahead of yours.
WWM compensates its Portfolio Managers and Wealth Advisors with a base salary and with a variable portion of their compensation derived from the ongoing management fees received from client accounts.
WWM manages the conflict by not paying these employees an upfront commission, but rather an ongoing portion of management fees. In addition, we provide training and supervision around assessing various types of investments as to their suitability for clients. There is no bonus compensation tied to investment performance, sales commissions, or trading activity. In addition, there is no difference in compensation between Model Portfolios whether they consist of proprietary or non-proprietary products.
Compliance Compensation
Compliance staff at Westmount are responsible for the design and implementation our compliance program. Compliance staff are also responsible for the oversight of Westmount's registered employees. Where compliance staff have incentives tied to revenue generation, they may be incentivized not to raise issues or findings for fear of loss to the firm and, consequently, to their own compensation.
This conflict is managed by compliance staff compensation being primarily based on a base salary, with limited annual bonus compensation based on their individual performance that is not related to revenue generation.
Personal Trading
WWM has adopted a policy intended to restrict and monitor all personal trading in order to prevent, detect and mitigate conflicts between such personal trading and the interests of the Funds and the Accounts. Pursuant to that policy any individual who has or can obtain access to non-public information concerning the portfolio holdings, the trading activity or the ongoing investment programs of our funds or client accounts, is prohibited from using such information for their direct or indirect personal benefit or in a manner that would not be in the best interest of our clients.
These individuals also must not use their position to obtain special treatment or investment opportunities not generally available to our clients or the public. These individuals are only allowed to make a personal trade if it falls within our personal trading policy and has been approved by the designated compliance officer, where it was determined that such trade will not cause a conflict with the best interest of our clients. Employees are required to have duplicate trading statements delivered to Compliance, who is responsible for reviewing them for monitoring purposes.
Outside Activities
At times, employees of WWM may participate in outside activities such as serving on a board, participating in community events of pursuing a personal outside business interest. It is our policy that no registered individual may act as a director or officer of another investment firm. WWM has a policy in place that requires individuals to avoid situations where a conflict of interest may arise and for registrants to seek approval from Compliance prior to initiating an outside activity. An analysis is conducted based on the nature of the activity and the time commitment required to ensure there is little impact to clients. Activities that potentially create a conflict of interest are prohibited.
In certain circumstances your Portfolio Manager or Wealth Advisor may provide you with additional services such as insurance solutions. These activities may require registration not related to the investment industry. In these cases, approval to engage in the outside activity will be required by Compliance. An assessment will be conducted for potential conflicts of interest that may arise, prior to granting approval.
Referral Arrangements
WWM may enter into referral arrangements whereby it pays a fee for the referral of a client to WWM or receives a fee for referring a client to a third-party. This is a potential conflict because WWM may have a financial incentive in making or receiving the referral, whether the services offered are appropriate.
No such payments for referrals will be made or received unless the referred investors are first advised of the arrangement in writing, the terms and conditions are explained, and all applicable securities laws are complied with. No referral will be made or received unless WWM has determined it would be in the client’s best interest.
Soft Dollar Arrangements
Soft dollar arrangements occur when brokers have agreed to provide other services (relating to research and trade execution) at no cost to WWM in exchange for brokerage business from WWM’s clients, including the Funds and Accounts. This presents a potential conflict because WWM may be financially incentivized to trade excessively in client accounts in order to generate soft dollars. WWM does not use Soft Dollar Arrangements.
Best Execution
Trades in publicly traded securities for client accounts are executed by Fidelity Clearing Corporation ULC (“FCC”). As part of our Third-Party Oversight Policy, we regularly review the trade execution services available from other execution brokers with a view to ensuring that we are getting fair and competitive trade execution consistent with industry practice. Westmount also ensures that we have reviewed FCC’s best execution disclosure, and obtained an annual attestation from FCC that they have complied with and tested their best execution policies. Westmount monitors trade execution and will follow up with FCC if we identify any execution results that are inconsistent with their best execution disclosure.
Please note that Westmount clients do not pay:
(i) trade execution fees for subscriptions for, and redemptions of, Units of the WWM Funds to clients; or
(ii) commission on equity trade execution; or
(iii) annual account fees, transfer in fees, or custody fees.
Any trade execution and custody costs directly associated with the management of the Funds are borne by each Fund. Please review the section on Administration Fees and Expenses as described in the WWM Funds Offering Memorandum.
Fair Valuation and Pricing
The Management Fees you pay are based on the value of the assets in your Account. There is a potential conflict of interest because the higher the valuation of your Account the higher the fees we are paid. To ensure the fair valuation of the underlying securities held in client accounts and in the Funds, we have implemented policies and procedures that set our pricing principles for investment funds. bonds, equities and illiquid securities as well as a policy for valuation of foreign currencies.
Affiliates & Tied Selling
Westmount’s affiliate, Westmount Wealth Planning Inc. (“WWP”), provides insurance products and services to clients. WWP may also offer its products and services to clients of Westmount Wealth Management Inc (“WWM”). WWM and WWP’s employees, officers and directors may be compensated in connection with offering such products and services. Also, employees, officers and directors of WWP may also be employees, officers and directors of WWM. This presents a material conflict because Westmount could be incentivized to use its influence to cause clients to retain products and services from WWP.
Prospective WWP clients receive an Insurance Disclosure and Privacy Consent document prior to becoming a WWP client. The disclosure informs clients of the relationship between WWP and WWM. Insurance recommendations are made solely based on an assessment of your specific insurance needs. Please note that you may obtain insurance products and services from third-party service providers if desired, and there is no obligation to utilize WWP insurance products and services.
Tied selling is the practice of making access to any paid product or service offered at WWM dependent upon the purchase of or sale of any other product or service. This presents a potential material conflict if clients are forced to pay for products and services that are not appropriate for them.
Examples of tied selling include:
a) Making the purchase of an investment dependent on the purchase of another investment;
b) Making the sale of a product dependent on the sale of other products;
c) Access to insurance coverage is dependent on transferring investments into a managed account;
d) Managed account services access dependent on insurance being purchased.
Westmount Wealth Management Inc. employees and affiliates are specifically banned from the practice of tied selling. No person acting on behalf of WWM or its associated companies will engage in tied selling.
Gifts & Entertainment
As a general principle, gifts and entertainment can neither be received nor given by a Westmount employee if these are considered to be excessive or extravagant, as this creates a conflict of interest between Westmount and the gift giver or the recipient. Excessive gift giving/receiving could cause or be perceived to cause a loss of independence or objectivity in recommending investments or taking investment action.
Westmount’s gifts and entertainment policies ensure that all clients are treated fairly. Compliance approval is required for any gift occurrence of $250 or more. Gifts and entertainment are monitored by the Chief Compliance Officer to ensure that individual and annual aggregate instances remain modest and do not lead to influence.
Fee Fairness
Having different or multiple fee schedules for clients can be a material conflict of interest, as it can affect the decisions of a client, or the services or products offered by Westmount. In addition, where a client is charged more than other clients for the same or substantially similar products or services, there could be a breach of Westmount’s duty to treat clients fairly, honestly, and in good faith.
Westmount has a standard fee schedule that is applicable to all clients based on invested assets. This schedule is disclosed to you and is explained in your Investment Management Agreement. Where a client has over $20mm in invested assets with Westmount, the fees charged on the amount over $20mm may be negotiated, subject to approval by Westmount's Chief Compliance Officer.
Third-Party Compensation and Embedded Commissions
It is an inherent conflict of interest for a registrant to receive third-party compensation. Westmount does not sell or recommend investments with third-party compensation such as trailing commissions. In rare circumstances a client may transfer in-kind a mutual fund or other security with embedded commissions. If these investments pay trailing commissions, Westmount Wealth will look to switch to a non-trailing-commission-paying series without triggering a tax event, and if not possible, will exclude the investment from the calculation of Management Fees.