RELATIONSHIP DISCLOSURE

Relationship Disclosure Document- November 2018

 

Gravitas Securities Inc. (GSI) prioritizes in maintaining strong relationships with our clients and helping you to manage and grow your wealth. In order to foster these relationships and assist you to reach your financial goals, it is essential that we clearly define and document our relationship with you. This document will also describe the types of products and services

GSI offers, the features of your account(s) and how it/they operate(s), as well as our responsibilities to you.

 

1. The accounts, services and products we offer

We offer you the following account types:

  • Advisory accounts - Your Advisor is responsible for providing suitable and unbiased investment recommendations to you that meet the standard of care expected of a trained investment professional based on the Know Your Client (KYC) information that you provide to us. In all your Advisory accounts, our relationship with you is a non-fiduciary relationship. In these circumstances, you (or your authorized representative) are the ultimate decision maker and you (or your authorized representative) direct(s) all trading and is (are) responsible for all investment decisions in your account.

  • Managed accounts - These are also referred to as “non-advisory” or “discretionary managed accounts” where your Advisor independently exercises his or her authority (uses his or her discretion) to make investment decisions within the framework of your overall directions. They make no recommendations to you and you make no decisions, as they invest on your behalf. Your Advisor will work with you to prepare an Investment Policy Statement that will provide the framework for your investment portfolio.

 

Accounts and Services, we offer:

  • Cash Accounts;

  • Margin/Option Accounts;

  • COD/DAP Accounts (Cash on Delivery/Delivery Against Payment);

  • Fee-based Accounts;

  • Managed Accounts;

  • Retirement Savings Plan Accounts;

  • Retirement Income Plan Accounts;

  • Tax-Free Savings Accounts;

  • Registered Education Savings Plan Accounts;

  • Registered Disability Savings Plan Accounts; and

  • Joint Accounts.

 

Our products services include:

  • Cash and cash equivalents such as T-bills and Money Market instruments;

  • Equities including warrants;

  • Fixed income and other debt related securities;

  • Alternative investments such as options;

  • Mutual Funds; and

  • Offering Memorandum (OM) exempt products (Investment Funds, private placements).

 

Your Advisor can explain these investment products to you, as well as how they work, their risks and possible returns, and whether they are appropriate for you. For more information, you can also read plain-language investment explanations in Investment at a Glance, a booklet prepared by the Canadian Securities Administrators for financial consumers like you.

New products and services

 

We will offer additional services and products as they are developed. You can find out about new offerings and whether they are appropriate for you by visiting our website, speaking with your Advisor, or reading information included with your statements or in other communications.

2. Jurisdictions where we are registered to operate

 

GSI will only act as an investment dealer and investment fund manager in the jurisdictions where we are registered.

 

3. Fees

 

All fees are disclosed as required by regulation and vary depending on the accounts and services you use. We offer you a choice of Commission or Fee-Based accounts. On an annual basis, you will receive a report from GSI detailing all fees and commissions paid by you to your Advisor and GSI.

Commission – Based accounts may be described as accounts by which your Advisor is paid a commission in return for the investment advice or transaction services provided. Therefore, a commission is applied for every trade processed in your account. This commission charge is traditionally pre-determined for various types of investments and outlined, for example, in several documents which may include: GSI’s fee schedule, our Carrying Broker’s fee schedule, or a mutual fund’s prospectus.

Fee – Based accounts may be described as an account where you pay an annualized fee rather than commissions on each transaction. A fee is applied to your account based on a calculation that considers your monthly closing net asset values. GSI provides a separate Fee-Based Account Agreement, which describes to you how the fees are calculated and the services to be provided.

We will recommend the account that is appropriate for you based on how you expect to use the account. For example, if you expect to buy and hold securities for a long period of time or intend to buy and sell more frequently.

 

Information regarding the standard fees that you will pay for services are provided when you open your account in the GSI document entitled “Service Charges & Fees for Accounts Managed by Gravitas Securities Inc.” Additional fees will vary depending on whether you have chosen a commission-based or a fee-based account model.

 

Other charges are negotiable and depend on the investments you have built over time with one of our advisors, or transfer to us from another dealer. In the case of negotiable charges, we need your consent and charges are included on the transaction confirmation slips we send you; and/or that you receive from our carrying broker at the time of a transaction.

 

4. Suitability

 

GSI Advisors are required to regularly assess the suitability of your accounts. Our Investment Advisors and Portfolio Managers will ask a series of questions to all their clients to satisfy the “Know Your Client” (KYC) obligation and to conduct a proper suitability assessment. Ongoing suitability reviews are performed for all GSI managed accounts.

 

Your Advisor will collect information on your net worth, age and investment experience and will meet with you to discuss other information and to assess your risk tolerance and investment objectives.

 

The suitability factors that guide us in our decision as to an investment’s suitability include what we understand to be your current:

  1. Financial situation: What financial assets (deposits, investments) and liabilities (debt, mortgage) you have and the sources and amount of your income – we will consider the size of any transaction compared to the overall value of your net financial assets (assets minus liabilities).

  2. Investment knowledge: Whether you consider yourself, or we understand you, to be a novice at investing, have some knowledge or feel you understand some of the more complex financial products.

  3. Investment objectives: What you tell us are your specific financial goals; this will help us determine how to balance the desire to keep your money safe (not lose principal), earn income, and increase your capital through growth in the market value of your holdings/account.

  4. Time horizon: When you expect to need your financial assets, for example, to buy a house, pay for education or enter retirement – in retirement, this may also include consideration of tax requirements to withdraw minimum amounts.

  5. Risk tolerance: Whether, even if you have many years to earn and save, you feel comfortable with the possibility of losing money in some years.

 

Our understanding of your profile is critical. Some of the above factors are relatively easily answered with a “yes” or “no” or a number, however, some are more complex, particularly your risk tolerance. Each client’s investment objectives and risk tolerance are two separate but related factors; each factor must be assessed based on the client’s financial and personal circumstances and must be reasonable considering those circumstances.

 

Your Advisor will be required to update your KYC account information regularly and will need to review suitability of your KYC before placing any orders from you or from recommending any trades or changes to your account. Certain trigger events such as a change of your Advisor or market fluctuations may also require KYC updates to your account information.

 

Advisory Accounts: Your Advisor will review the reasonableness of the information that you provide during the account opening, account transfer and account approval process. Prior to placing orders for you, depositing investments or recommending changes to your account, your 4 | P a g e Advisor will review your KYC to determine if your trades and investment products are suitable for you.

 

Managed Accounts: Your Portfolio Manager will engage you in a discovery process whereby you will complete a detailed Investor Questionnaire. The questionnaire is a tool to determine a portfolio for you based on your goals, risk tolerance, objectives, time horizon and overall financial situation. Your responses are reviewed by your Portfolio Manager and the Designated Managed Account Supervisor, who will determine the suitability of the account. It is imperative that you share current and factual information with us throughout the discovery process and the maintenance of the account. The information helps us determine suitability and/or if a change may be required to the account.

 

Suitability Process

 

The combination of these factors that make up your profile will help us suggest the allocation of your holdings between, for example:

  • Registered (tax-advantaged) and non-registered accounts;

  • Debt, equity, mutual fund and other instruments;

  • Canadian and foreign investments;

  • Whether to borrow to invest rather than paying in cash only;

  • Terms of specific instruments; and

  • The riskiness of both individual securities and the combination of securities in your portfolio.

 

Below we provide a summary of the procedures we use to help you understand how we bring all the information you provide to us into decisions as to what investments to recommend to you.

 

We use a three-step approach to determine if an investment is suitable for you.

  1. Based on discussions with you and your answers on the KYC form, we determine whether you are a risk-averse client, somewhat risk-tolerant or can accept greater losses in pursuit of higher gains.

  2. We rate investments as low, medium or high risk. For example, a Guaranteed Investment Certificate (GIC) is low risk whereas investing in equities from companies in developing countries could be considered high risk.

  3. We consider other relevant factors, for example.

 

  • Managed accounts: If you want to avoid specific market sectors or companies due to ethical considerations or investment preferences.

  • Advisory accounts: If you are risk-averse, but have a reasonable amount of financial assets and you want to invest a small portion of your overall portfolio in a new issue of a startup/venture company, which is run by an individual you know and whose business acumen you respect, we would tell you that while the specific investment is not suitable for you, it might be acceptable if you can “afford” to lose some or the entire investment. An investment that is small in proportion to the total portfolio may not be unsuitable.

 

Suitability Review Timing

 

When (1) accepting each of your orders or (2) recommending a security or strategy to you, we will review each order or strategy in the context of the KYC suitability factors described above.

 

We will also conduct a suitability determination when:

  • Securities are deposited or transferred to your account/(s);

  • The Advisor responsible for the account changes;

  • There has been a material change in your personal or financial circumstances or objectives;

  • There are ongoing severe market fluctuations that may affect your investment strategy or ability to convert your assets to cash in the near future (for example, for the purchase of a home, retirement or other significant changes to your KYC profile).

 

If during the suitability determination we identify any concerns, we will discuss them with you and we may be required by our regulators or good business practice to document our discussions and, if we are strongly concerned, refuse to execute a transaction or terminate an account relationship

 

5. Reporting

 

Your will receive reporting for your accounts from us in several ways:

 

Trade Confirmations: We provide you with written confirmation by mail, 2-3 days after a transaction is processed in your Advisory account, with details of every purchase, sale, and other relevant transaction details. Please look for and review your confirmation as soon as you receive it. Trade confirmations for Managed accounts will be not be issued unless you request a copy in writing.

 

We do our utmost to avoid errors, however, from time to time errors may occur. Please let us know within 30 days if you see any transactions that you do not recall or identify any errors.

 

Account Statements: You will receive account statements directly from GSI on a monthly basis when there has been activity in your account. You will receive a quarterly statement regardless of whether there has been activity in your account. Your account statement confirms all account activity, including purchases and sales of securities, deposits, contributions and withdrawals, dividends, interest earned and paid, transfers, and any other transactions that occurred in your account over the previous period. Note: These statements also list your current holdings and the net value of your portfolio as if you had closed all positions as of the date on the statement.

 

Performance: We provide you with the return on your investments an on annual basis. Your annual Investment Performance Report provides you with the annual performance of your accounts since inception with GSI using Time Weighted Rate of Return (TWRR) and Money Weighted Rate of Return (MWRR). The definitions of these performance calculations are:

 

Time Weighted Rate of Return: “TWRR” calculations measure the performance of all cash and securities in your account over time. The results of this performance calculation isolate the investment decisions made within your account and is independent of the timing of deposits and withdrawals which are not under the control of your Advisor. Therefore, your account’s TWRR can be compared against an appropriate benchmark for you to assess your performance.

 

Money Weighted Rate of Return: “MWRR” is the calculation method used to measure the 6 | P a g e performance experienced by you, the investor. The rate of return displayed above is influenced by the timing of deposits and withdrawals from your account. MWRR takes into consideration not only the amount of the cash flow but also the timing of the cash flow. This provides you a picture of how your account is performing considering decisions you have made to deposit or withdraw funds over a set period. MWRR should not be compared to a benchmark as they are not calculated the same way.

 

Please note that you may earn more or less than others may have made on the same investments or that you may read in market commentary due to differences in when you buy and sell securities.

 

Fee and Commission Report: As noted under the topic fees above, on an annual basis we will issue a report to you detailing all fees and commissions paid by you to your Advisor and GSI. These fees and commission include but are not limited to: managed account fees, fees paid on fee-based accounts, commission paid on buys and sells of equities, commissions embedded in fixed income products, front end and back end commissions on mutual funds, trailer fees paid on mutual funds and exempt product, etc.

 

6. Fairness Policy

 

GSI maintains standards to ensure fairness in the allocation of investment opportunities among its clients. GSI’s policy is that no single account or type of account will receive preference in the allocation of investment opportunities.

  • Non-Employee and Pro – Non-Employee accounts will always take precedence over Pro – Employee accounts.

  • The amount of fees and commissions paid by a client will have no bearing on the allocation or priority of their orders.

 

Block Trades

 

When orders for more than one account are entered as a combined order, and transactions are executed at varying prices, GSI will endeavour to treat all clients on a basis that is fair and reasonable in the context of the nature of the transaction and the transaction costs. This may include calculating a weighted average execution price and commission to be attributed to all accounts having orders included in the combined order. For greater certainty, when trades are bunched or blocked, the policy of GSI is to allocate amongst clients on a pro rata basis. GSI will endeavor to ensure that orders and modifications or cancellations of orders are recorded and are time-stamped.

 

Partial Fill Block Order

 

When orders for more than one account are entered as a combined order and less than the total order is executed as a block, GSI will generally attempt to make pro-rata allocations based on order size. GSI will also take into consideration:

  • the proportion of the portfolio (or portfolio section) that the security represents;

  • the weight of the industry or security type in the portfolio (or portfolio section), and

  • the cash reserve position in the portfolio (or portfolio section).

 

When orders for more than one account are entered as a combined order and the transactions are all executed at the same price, each client account will be given the same execution price.

 

Filling orders for an Initial Public Offering (IPO)

 

When orders for an initial public offering are entered for more than one account and are completely or partially filled, GSI will attempt, to the best of its ability, to allocate the filled orders on a pro rata basis according to the proportion of the total of all orders submitted by GSI for that initial public offering. Subject to market conditions and stock exchange procedures, GSI will use its best efforts to ensure that orders are processed and executed on a first-in, first-out basis. The foregoing procedures will be revised from time to time in keeping with changes with regulatory requirements and industry practices. In the event of any such revision, GSI will, as required, file them with the appropriate regulatory authority.

 

GSI may decide to use other allocation models to allow more clients to participate in an oversubscribed issue. In some cases where demand is very high, GSI may introduce a ceiling or maximum number of shares per person or may allocate on a pro rata basis.

 

7. Conflicts of Interest

 

Actual, potential and perceived conflicts of interest arise where an action or decision by someone has the effect of benefiting others at another person’s expense. Conflicts of interest may arise as we are an intermediary, acting for both buyers and sellers and involved in investment banking services for certain issuers. These conflicts can be:

  • Between you and our firm, as well as between you and your Advisor;

  • Between you and our other clients: we act for many clients and must allocate investment opportunities among all of them fairly, so as not to intentionally favour one client over another; and

  • Between us and our related companies or associated companies.

 

We have policies and procedures in place to address the handling of conflicts of interest:

  • We avoid conflicts prohibited by law as well as conflicts that we cannot effectively control.

 

In situations that we do not or cannot avoid, where our interests may compete with yours, your interest is always given priority by our acting in one of two ways:

  • We control or manage acceptable conflicts by physically separating different business functions, restricting the internal exchange of information in person or through systems, reducing the possibility of one part of our organization unsuitably influencing another, removing the financial incentive of an employee to favor a particular product or service over another that may be more suitable, and setting up and testing our operational review and approval processes.

  • We disclose information about any remaining conflicts to you so that, when you evaluate our recommendations and actions, you can assess independently if these conflicts are significant.

GSI requires its Management, Advisors, Portfolio Managers and Employees to disclose conflicts of interest in advance to you. GSI requires all registrants who are dually licensed (for example, to sell insurance, prepare tax returns or another business role) to provide to their clients a Dual Occupation Disclosure form when applicable, advising clients of a potential conflict of interest.

See our Conflicts of Interest Statement below for disclosure of GSI business relationships.

8. Conflicts of Interest Statement

 

Securities laws and regulations require GSI to have policies and procedures in place to address the handling of conflicts of interest. A conflict of interest or a potential conflict of interest may arise where GSI is able to take an action or decision where the result would benefit the firm at the client’s expense.

 

The purpose of this statement is to:

  • Describe the types of business relationships that present potential conflict of interest situations; and

  • Provide transparency by disclosing those business relationships that GSI has.

 

Terminology Describing Business Relationships

 

Where we act as your broker, advise you, or exercise discretion on your behalf with respect to securities issued by us or a related party or a connected party during distribution, we must disclose to you our relationship with the issuer of the securities. Following is a brief explanation of the types of business relationships that are described as related and/or connected. If you wish to read the full regulatory definitions of the terms “related issuer” and “connected issuer”, please refer to National Instrument 33-105: Underwriting Conflicts.

  • An issuer is related to us if they are an influential securityholder of GSI, if GSI is an influential securityholder of theirs, or if we have a common influential securityholder.

  • An issuer is connected to us if the relationship is such that a reasonable prospective purchaser of the issuer’s securities might question the independence of the parties for purposes of the distribution.

  • For example, Principals of GSI may accept officer positions and/or directorships from companies unrelated to GSI; in doing so, that company would be a “connected issuer” to GSI under relevant securities law.

  • A party is associated with us if we or an influential securityholder of GSI, beneficially own, directly or indirectly, securities carrying more than 10% of the voting rights of the party.

 

GSI Corporate Information

 

GSI has three lines of business: retail wealth advisory, investment banking for corporations, and asset management. Conflicts of interest may arise from all areas of GSI business, though more likely when a client is being advised to invest in one of the firm’s investment banking opportunities or asset management products. GSI has adopted appropriate policies and procedures to address conflicts of interest. For example, firm policies requires Advisors to disclose any relevant relationships and connections prior to advising or trading on behalf of clients.

 

The following statement outlines, as of the issuance of this document , certain relationships that present potential conflicts of interest, which may arise between GSI and the client. Please note the information provided in this statement sets out situations most likely to give rise to a conflict of interest situation and as such is not exhaustive. Further information is available directly from your Advisor and will be made available as described below in the section: Where Potential Conflicts are Disclosed.

 

Related and Connected Issuers

 

Gravitas Investments Inc. (Gravitas Investments) is a division of Gravitas Securities Inc. that provides asset management services and manages a portfolio of six different funds for which GSI receives compensation – Gravitas Special Situations Fund, Gravitas Select Flow Through LP II, Gravitas Select Flow-Through LP III, Gravitas Select Flow-Through LP 2016, Gravitas Short-Duration Flow-Through 2017, Gravitas Select Flow-Through 2017;

 

Gravitas Financial Inc. (CNSX: GFI) is an integrated financial and advisory services public company operating various affiliated subsidiaries. GFI and Ilium Corp. through their jointly held holding corporation, Gravitas International Corporation (GIC) have a significant indirect equity interest holding of greater than 50% of GSI. A Director of GSI is also a director of GIC. From time to time, GSI acts as a portfolio manager or advisor to GFI in selected corporate finance initiatives;

 

The Mint Corporation is connected to GSI, having common ownership and a director of GSI is on its Board; and

 

ForeGrowth Inc. (ForeGrowth) is an asset manager headquartered in Toronto, it is an affiliate of GSI. ForeGrowth uses GSI as an Investment Fund Manager for its investment funds.

 

Where Potential Conflicts are Disclosed

If we do act for you in a transaction that presents a conflict of interest, the potential conflict will be disclosed to you, depending on the nature of the transaction:

  • We will notify you up-front about our relationships when giving you advice with respect to the purchase or sale of securities of related and/or connected issuers; and

  • In the event of GSI and/or one of the principals being involved in a new issue, the Prospectus or Offering Memorandum will describe the nature of the relationship with the issuer.

 

GSI policies and procedures require full disclosure for potential conflict of interest situations and all principals know to be diligent for when such situations may occur, to ensure the appropriate information is provided to and acknowledged by the client.

 

Disclosure of other Relationships

 

Additionally, the principals and representatives of GSI may act as directors or officers of other companies or organizations. GSI has policies and procedures that minimize the potential for conflicts of interest resulting from any such positions, including specific, up-front disclosure of such relationships when needed. GSI closely supervises the trading activity of any individual who is also a director of a public company to ensure continuous compliance with the conflict of interest provisions.

 

Certain of GSI directors and officers are also directors of the following publicly listed companies:

  • Gravitas Financial Inc. (CNSX: GFI); and

  • The Mint Corporation (TSX-V: MIT)

 

9. Documents we will provide to you

 

In addition to this Relationship Disclosure Document, we will provide each of our clients with the following documents:

  • A signed copy of your New Client Application Form;

  • A copy of your New Client Account Application Form when there have been changes made;

  • Any conflicts of interest disclosures (e.g. Dual Occupation Disclosure Form);

  • GSI Fee Schedule;

  • CIPF Brochure;

  • IIROC’s “Making a Complaint: A guide for investors” and “How Can I Get My Money Back? A Guide for Investors”;

  • How IIROC Protects Investors Brochure; and

  • Strip Bond Disclosure Document (if applicable)

 

10. Complaints or Questions?

If you have any complaints or questions about dealing with GSI, please phone or write to us at the contact information provided below. GSI has a documented process to deal with client complaints and we seek to resolve any complaints through that process. We provide you with a copy of IIROC’s brochure, “Making a Complaint: A guide for investors”, which summarizes the firm’s requirements for responding to investor complaints. Additionally, GSI is a participant in the Ombudsman for Banking Services and Investments (OBSI), an independent service for resolving investment disputes.

Gravitas Securities Inc.
333 Bay Street, Suite 1700
Toronto, Ontario, M5H 2R2
T: (416) 367-0999
general@GravitasSecurities.com
www.GravitasSecurities.com