Conflicts of Interest
Under Canadian securities law, we are required to address and manage existing and reasonably foreseeable, material conflicts in the best interest of our clients. 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
- Monetary or non-monetary benefits available to the firm or a registered representative, or potential detriments to which they may be subject, may compromise the trust that a reasonable client has in the firm or the individual
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 the client in the circumstances, and/or the recommendations or decisions of the firm or its registered representatives in the circumstances.
In general, we deal with and manage relevant conflicts as follows:
- Avoidance – this includes avoiding conflicts that are prohibited by law as well as conflicts that cannot effectively be addressed
- Control – we manage acceptable conflicts through means such as separating different business functions and limiting the internal exchange of information
- Disclosure – we provide you with information about conflicts of interest so you can independently assess their significance when evaluating our recommendations and any actions we take
Our employees and board directors are trained to recognize conflicts of interest between themselves, individually, and any client and between Rally as a firm and any client. They are also required to report any existing or potential conflicts of interest to our Chief Compliance Officer. When such a report is made, a formal conflict of interest assessment of the situation is performed by Rally’s Chief Compliance Officer who determines how the matter will be resolved in the best interest of clients.
On an annual basis, or more frequently as appropriate, we review existing, potential or reasonably foreseeable conflicts of interest between us, including each individual acting on our behalf, and our clients. The following are the conflicts of interest that we have identified and a description of how they are addressed.
Personal Trading
Nature and Extent of the Conflict of Interest
An employee might take unfair advantage of their knowledge of our clients’ investment and trading information to profit illicitly from that knowledge when trading in their personal accounts. Personal trading conflicts can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
Such trading might be contrary to the clients’ best interests in that in rare cases, high-volume trades by an employee may influence the share price adversely resulting in a client selling their shares at a lower price or purchasing at a higher price.
How the Conflict of Interest has Been or Will be Addressed
Our employees are required to disclose personal holdings of securities over which they or certain related parties have discretionary trading authority and to obtain authorization before trading in any securities except mutual funds, exchange-traded funds, securities issued by the Canadian federal or provincial government and GICs, CD’s and term deposits with any financial institution.
Gifts and Entertainment
Nature and Extent of the Conflict of Interest
The acceptance of gifts and entertainment from third parties could compromise the independence or objectivity of our employees when making investment decisions for or recommendations to clients. The acceptance of gifts and entertainment can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
An employee may be influenced to prioritize one client over another based on which clients provide such employee gifts and thus not have a particular client’s best interests in mind when making investment decisions for or recommendations to certain clients.
How the Conflict of Interest has Been or Will be Addressed
Employees are prohibited from accepting gifts or entertainment from persons or organizations with which we have an existing or potential business relationship and that could reasonably be expected to compromise or give the impression of compromising their independence in connection with managing a client account or providing investment recommendations to clients.
Outside Activities
Nature and Extent of the Conflict of Interest
An employee might engage in activities outside of their employment engagement with us that entail contractual or fiduciary duties to that third party that would conflict with what is in the best interests of our clients. The engagement in activities outside an employee’s employment with us can amount to a material conflict of interest.
Potential Impact on and Risk to a Client
The conflicting contractual activity might be contrary to the clients’ best interests in that an employee may exercise preferential treatment or bias when making client decisions or recommendations in order to benefit their other outside activities.
How the Conflict of Interest has Been or Will be Addressed
Employees are prohibited from engaging in activities outside of work that might compromise their ability to act objectively and in the best interest of our clients. Employees must obtain approval from our Chief Compliance Officer before engaging in outside activities and such approval may be subject to stipulations.
Operational Errors
Nature and Extent of the Conflict of Interest
We might correct an error in a manner that unfairly advantages Rally and/or one or more of our employees at the expense of a client or other party. Correction of operational errors can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
The client may suffer financial losses in their portfolio and actions taken to correct the error may be contrary to the client’s best interests.
How the Conflict of Interest has Been or Will be Addressed
We will correct any operational errors in a way that is fair and equitable to all clients and places client interests ahead of our own.
Referrals
Nature and Extent of the Conflict of Interest
We might make referrals of third parties to our clients that are not in the best interest of our clients in order to maximize our compensation. The securities regulatory authorities have indicated that referral arrangements generally present material conflicts of interest.
Potential Impact on and Risk to a Client
The referral arrangement might be contrary to the clients’ best interests in that the products or services provided by the referred agent may not be suitable for the client.
How the Conflict of Interest has Been or Will be Addressed
We will refer a client to another party only if it has a reasonable basis to consider such a referral to be in the client’s best interest. In making that determination, we consider the benefits to the client of making a referral to an alternative party or not making a referral to any party at all. We will also disclose the existence of a referral arrangement and any fees it may receive from the referral arrangement prior to the referral.
Fair Allocation of Investment Opportunities
Nature and Extent of the Conflict of Interest
We might manage our trading in a way that favours the interests of one client over another, and by extension favour the interests of Rally over the interests of a client. Fair allocation of investment opportunities can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
One client may not have access to investment opportunities or suffer financial losses in their portfolio.
How the Conflict of Interest has Been or Will be Addressed
Where we aggregate trade orders for an investment opportunity by creating a “block trade”, if such a block trade is completed or only partially completed, we will ensure that each client account participating in the block trade receives its pro rata share of the securities being purchased or pro rata share of the proceeds of the securities sold and pays its pro rata share of any commissions involved. Pro rata calculations will be made on the basis of the weighted average of the purchase or sale prices and commissions paid. If an investment opportunity cannot be allocated on a pro rata basis among all participating client accounts, we will make every effort to address any trading inequities at the next opportunity so that every account will, over time, receive equitable treatment in the allocation of investment opportunities.
Cross Trades
Nature and Extent of the Conflict of Interest
We might manage trading in a way that favours the interests of one client over another, and by extension favour the interests of Rally over the interests of a client. Cross trades can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
The client may suffer financial losses in their portfolio.
How the Conflict of Interest has Been or Will be Addressed
We do not permit cross trades between client accounts unless we have disclosed the conflict of interest involved to each client whose account would be involved, obtained their written consent before the cross transaction takes place and the cross transaction has been determined, after a formal conflict of interest assessment by our Chief Compliance Officer, to be in the best interest of all clients involved. If one of the clients involved is in an investment fund, the disclosure will be provided to, and consent obtained from each unitholder of the fund.
Use of Client Brokerage Commissions
Nature and Extent of the Conflict of Interest
We might select one or more brokers to conduct trades on behalf of clients based, in whole or in part, on benefits that we would receive from a particular broker and (a) these benefits are paid for out of commissions generated by our trading activity on behalf of clients and (b) the benefits we receive cannot be shown to provide a proportionate benefit to the clients whose commission dollars are involved. The use of client brokerage commissions can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
The client’s account may incur unnecessary or higher trading costs.
How the Conflict of Interest has Been or Will be Addressed
We do not utilize commission dollars generated by our securities trading activities to obtain goods or services from any broker unless those goods or services are directly related to the execution of trades for the clients whose commission dollars are involved.
Related and Connected Issuers and Proprietary Products
Nature and Extent of the Conflict of Interest
An issuer of securities is “related” to Rally if, through ownership or direction or control over voting securities, we exercise a controlling influence over that issuer or that issuer exercises a controlling influence over us or the same third party exercises a controlling influence over both us and the issuer. An issuer is “connected” to Rally if due to indebtedness or other relationships, a reasonable prospective purchaser might question if that issuer and Rally are independent of each other.
Our related and connected issuers include securities we manage and offer pursuant to prospectus exemptions to individuals and entities qualifying as “accredited investors” or who can purchase in reliance on another available prospectus exemption. Our related and connected issuers will be considered “proprietary products” given the relationship between us and such issuers.
In carrying on our business as a portfolio manager and/or exempt market dealer, we may, with respect to securities of related and/or connected issuers:
- Exercise discretionary authority to buy or sell these securities for client accounts
- Make recommendations regarding these securities to clients
- Distribute securities to clients of investment products we established and manage
When we manage investment funds, we will also be the adviser of such funds. If we cause a client managed account to invest in an investment fund that we manage, the adviser of that fund will also be the adviser of the managed account. In such circumstances, the mind and management of both the fund-adviser and the managed account adviser will be individuals within Rally.
The securities regulatory authorities have indicated that selling clients securities of related and/or connected issuers can present a material conflict of interest.
Potential Impact on and Risk to a Client
An investment in a related and connected issuer and proprietary products may not be in the best interest of the client and may result in financial losses.
How the Conflict of Interest has Been or Will be Addressed
Disclosure concerning specific related and connected issuers is provided, and any necessary client consent is obtained, in our account opening documentation, including the investment management agreement entered into.
Accessibility of Non-Proprietary Products
Nature and Extent of the Conflict of Interest
We might favour proprietary products over non-proprietary products contrary to the best interests of a client. Favouring proprietary products can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
Limiting clients to our proprietary products may not be in the best interest of the client.
How the Conflict of Interest has Been or Will be Addressed
We do not create any impediments to the use of non-proprietary products in our client accounts.
Compensation for the Use or Recommendation of Third-Party Securities
Nature and Extent of the Conflict of Interest
A Rally employee might (1) recommend to/buy on behalf of a client or (2) recommend that a client retain/decide, on behalf of a client, to retain a third-party security in a client’s account in order to maximize Rally revenues, profits and compensation, including to the employee, for example in a situation where a mutual fund has embedded commissions (trailer fees) payable to entities purchasing the fund on behalf of / recommending the fund to clients. This could present a material conflict of interest.
Potential Impact on and Risk to a Client
The investment may not be suitable for the client or in the best interests of the client and may result in higher fees or financial losses.
How the Conflict of Interest has Been or Will be Addressed
We do not accept compensation related to the use of third-party products such as sales commissions and “trailer” fees. We have established controls to ensure that employees base their investment actions and recommendations on, in addition to all other relevant factors, the quality of the securities involved without influence from any potential third-party compensation or benefit that we might derive, for example trailer fees, in connection with purchasing or recommending a security.
Other
Nature and Extent of the Conflict of Interest
An employee might financially or otherwise exploit a client, given the client’s trust in the employee’s professionalism and professional ethics, by advising or permitting the client to enter into an arrangement with the employee that is not in the client’s best interest. Employee arrangements with clients can amount to material conflicts of interest.
Potential Impact on and Risk to a Client
The arrangement is not in the best interests of the client and may result in financial losses.
How the Conflict of Interest has Been or Will be Addressed
Employees are prohibited from purchasing assets from a client outside of the normal course of business and from exercising full control or authority over the finances of a client, for example, by acting under a power of attorney arrangement for the client.
January 2025