General Terms and Conditions Relationship disclosure
Your relationship with us This booklet contains important information about your relationship with National Bank Financial Wealth Management and your investments. We ve made it easy to understand, so please take the time to read it carefully, and keep it for future reference. More information can be found in the Account Terms and Conditions document and in the Welcome to National Bank Financial booklet. In addition, supplementary documentation and agreements may also apply for certain types of accounts and investment products. Managing the world s most important investments: Yours!
Table of contents National Bank Financial Wealth Management Here for you... 04 Products and services offered... 05 Your Investment Advisor An essential partner... 06 The Know-Your-Client rule... 07 Your relationship with us Advisory or Discretionary... 10 Communicating with you... 12 Fees and charges you pay... 14 Other fees you may be charged... 20 Fees and payments we may receive from third parties... 22 Conflicts of interest... 23 Voicing your concerns... 24 Our success is your financial success... 25
04 GENERAL TERMS AND CONDITIONS National Bank Financial Wealth Management Here for you As a valued client of National Bank Financial Wealth Management (NBF Wealth Management), we wish to make sure you understand how we work together. This booklet describes our products and services, and our relationship with you. It also explains our responsibilities as a financial institution and how we charge for our services, as well as your responsibilities as a client. Take time to read it carefully. We recommend that you keep this booklet, as well as all other literature you received from NBF Wealth Management for future reference and, if you have any questions, don t hesitate to ask your Investment Advisor. We look forward to a continuing, long and fruitful relationship serving you.
05 Products and services offered Our mission is to help our clients manage their wealth and meet their financial goals. The most important and valuable component of our offering is, therefore, advice. But financial advice translates into recommendations, and we also provide the accounts as well as all of the products and services needed to act upon our advice, and to implement our recommendations. Investment Accounts As you probably know, we offer two broad categories of investment accounts: non-registered and registered. In the non-registered group, there are cash accounts (also known as regular accounts), margin accounts (accounts with borrowing privileges), short margin accounts, joint accounts, options accounts, hedge accounts and futures accounts. We also have a variety of registered accounts including Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESPs) and Tax-Free Savings Accounts (TFSAs). More information about our range of accounts can be obtained from your Investment Advisor. Other products and services Complementing our different kinds of accounts is a comprehensive line-up of products and services, including a wide choice of investment vehicles, a suite of managed products, full discretionary asset management, investment research from a number of sources, as well as financial and estate planning.
06 GENERAL TERMS AND CONDITIONS Your Investment Advisor An essential partner Your Investment Advisor is a key component of your relationship with NBF Wealth Management and your principal point of contact with the Firm. He or she accompanies you at every step of the investment process, and is there to answer questions or deal with any concerns you may have. Guiding you through the investment process You are unique. This is precisely why your advisor has worked with you to define a personalized investment strategy that reflects your investment objectives, time horizon, risk tolerance, investment knowledge and overall financial situation. The central element of this strategy is the specific target mix of asset classes designed to help you achieve your goals while respecting your chosen investor profile. The next step involves the choice of the specific securities which correspond to this asset mix when combined into a portfolio. Your Investment Advisor helps you choose between different types of investments, including individually-held stocks, bonds and money market instruments, or pooled vehicles invested in these same securities, such as mutual funds, exchange-traded funds, separately managed accounts, baskets and others. More information about the types of investments is available in the Welcome to National Bank Financial booklet that was sent to you when you began your relationship with us. Of course, your Investment Advisor monitors your portfolio on an ongoing basis. From time to time he or she will make buy and sell recommendations to
07 capitalize on market opportunities, to rebalance your portfolio when the returns from different asset classes have been asymmetrical, or to adapt the portfolio so that it better fits your evolving personal and financial situation. The Know-Your-Client rule The Know-Your-Client rule is one of the cornerstones of securities industry regulation. Its premise is simple: the better an advisor knows his or her clients and understands their wants and needs, the better he or she can advise them. Therefore, when you opened your account with us, your Investment Advisor gathered information about you in compliance with this Know-Your-Client rule, in order to give advice and make recommendations suitable for your personal and financial situation. Ensuring that you make suitable investments is one of your Investment Advisor s most important tasks, and the Know-Your-Client information is essential to accomplishing this. When you and your advisor filled out your Client Account Application Form for individuals, you were asked for the following information: your age your marital status your occupation your income and net worth your financial situation the number and age of your dependents your risk tolerance your investment objectives your time horizon your investment knowledge and experience
08 GENERAL TERMS AND CONDITIONS After opening your account, you were then given a copy of the Client Account Application Form containing the information about you which we had gathered. We also give you amended copies of this document whenever there are material changes made to the information it contains. Over the course of your relationship with NBF Wealth Management, your Investment Advisor checks in with you from time to time to see whether there have been any changes in your personal and financial situation or in your investment objectives that could call for altering the types of investments you have in your accounts, or their relative weightings. Should there be material changes to your situation, your Investment Advisor reviews your Know-Your-Client information as well as the investments held in your accounts to ensure they remain suitable for you, and makes recommendations for any modifications that might be appropriate. Remember, you also have a duty to inform your Investment Advisor promptly of any changes to your personal or financial circumstances, or to your objectives that may materially affect the accuracy of the Know-Your-Client information we have on file for you.
09 Documents you received when you opened your account Here s the list of key documents you would have received to read when you opened your first account. Should you require copies of any of the documents listed below, your Investment Advisor can provide them, as well as answer any questions you may have. Please keep this brochure as well as the documents mentioned below in a safe place for future reference. Account Terms and Conditions document Welcome to National Bank Financial booklet Canadian Investor Protection Fund brochure Investment Industry Regulatory Organization of Canada s guide explaining how investors should go about registering a complaint Strip Bonds Information Statement Additional agreements that apply to your accounts A copy of your Client Account Application Form, which contains the Know-Your-Client information
10 GENERAL TERMS AND CONDITIONS Your relationship with us Advisory or Discretionary You can have two types of relationship with National Bank Financial Wealth Management: Advisory: We give you advice and make recommendations but leave the ultimate investment decisions in your hands. This is known as an advisory relationship, because our role is limited to providing suitable advice and acting upon your instructions. The ultimate decisionmaking rests with you. Discretionary: As an alternative, once your objectives and investor profile have been established, you can entrust the day-to-day management of your investments to us. We call this a discretionary relationship, because you give us discretion to make investment decisions with your best interests in mind. Of course, it s possible to combine these two approaches, where you retain control over part of your portfolio and delegate the management of the rest. Advisory accounts: With an advisory account, your Investment Advisor makes recommendations and helps you to take investment decisions, but the ultimate responsibility for deciding to proceed with the purchase or disposition of an investment remains yours. Here, our responsibility is to ensure the recommendations we make are suitable based on the Know-Your-Client information we have gathered. We also have the obligation to inform you about whether investments you choose on your own are suitable. Suitability and Advisory accounts: Your Investment Advisor assesses the suitability of the investments in your account whenever: instructions to execute a trade are accepted a recommendation is made
11 securities are transferred or deposited into your account there is a change in your Investment Advisor or the portfolio manager responsible for your account there is a material change to your Know-Your-Client information. Since most of our clients are investing for the long term, the suitability of investments held in an advisory account won t necessarily be reviewed in the event of market fluctuations event when these fluctuations are significant. Be sure to let your Investment Advisor know if you have any questions or concerns about events or circumstances you think could affect the suitability of the investments in your account. Managed accounts: With this type of account, you are not asked to validate and approve each transaction before it is made in your account. When opting for a managed account, your Investment Advisor works with you to establish your objectives, time horizon, risk tolerance and investor profile. Then, he or she helps you choose the managed account(s) that best suit your needs. The day-to-day management of your investments is then assumed by your Investment Advisor, or by the external portfolio managers(s) you have selected. Of course, you are kept fully informed on a regular basis of any transactions made in your managed account. Suitability and Managed accounts: Ongoing suitability verification is provided as part of the managed account service each transaction is analysed before being executed to ensure it is appropriate, in light the investment mandate you have chosen and the prevailing market conditions. More information can be found in the documentation specifically related to your managed account that you received when you opened this account.
12 GENERAL TERMS AND CONDITIONS Communicating with you Confirming your transactions We send you a written confirmation of each transaction made in one of your accounts. These confirmations go out the day following the transaction date, and are sent either in paper form by regular mail or electronically. If you have chosen electronic delivery, your transaction confirmations are posted to our secure web site which is accessible at your convenience with the username and password you were assigned. If you have a managed account, you have the choice not to receive transaction confirmations. Please regularly verify all trade confirmations and let us know of any errors or problems within 10 days from the date you have received them. If we do not hear from you within this 10-day period, we consider the confirmations to be accurate, and that you have authorized, recognized and accepted the transactions made for your account. Portfolio statements When there is investment activity in your account, we send you a month-end portfolio statement reporting all of the activity that took place during the course of the previous month this statement is sent at the beginning of the following month. If there was no activity in your account but it holds cash or securities, a portfolio statement is sent to you each quarter. Statements are available in either paper or electronic form. As is the case with confirmations, electronic statements are posted and archived on our secure web site where you can access them at your convenience.
13 Carefully examine all statements and let us know about any errors or problems within 30 days from the date of receipt. If we don t hear from you within that 30-day period, we consider that you have accepted the portfolio statement as accurate and that you have authorized, recognized and accepted the transactions listed therein. More information regarding your portfolio statement can be found in the Welcome to National Bank Financial booklet you received when you began your relationship with NBF Wealth Management. Account performance reporting NBF Wealth Management does not currently provide account performance reporting information such as a rate of return calculation or realized and unrealized income and capital gains reports, but we are exploring ways to do so in the future. We will be sure to inform you when this service does become available. NBF Wealth Management does, however, supply average cost information and, by comparing the current market price of any given security in your account to its average cost, you can determine whether you have an unrealized profit or loss for this investment. Contacting us If you find any problems with either your trade confirmations or portfolio statements, or if you need to send us any information, including a change in your address, telephone number or email, be sure to let your Investment Advisor know as soon as possible. Please don t hesitate to contact us immediately if you are not satisfied with any aspect of our service or our handling of your accounts. Contact information for our Client Services Department can be found on the last page of your portfolio statement.
14 GENERAL TERMS AND CONDITIONS Fees and charges you pay We believe that people who know how they are being charged for services and how much they are paying tend to feel they are getting better value for their money. We encourage you to read the following information carefully and to ask your Investment Advisor if you have any questions. The fees we charge vary depending on the type of account you have chosen, the services you want, and the level of activity you require to accomplish your goals. Two basic pricing options National Bank Financial s core product is dispensing investment advice, and then executing the securities transactions to implement the recommendations we make. As a client, you pay for this in one of two ways: By the transaction (a commission or spread charged each time an investment is bought or sold that covers the cost of the transaction, as well as advice and service); or By fee for service (a fee levied as a percentage of the assets you hold with us that covers advice, service and transaction execution). Each of these pricing options has its advantages and disadvantages one is certainly not better than the other and, regardless of the option you have chosen, you get the same level of service.
15 Note that our default way of pricing is by the transaction. If you pay for our services with an asset-based fee, specific documentation was signed. Costs and fees applicable to this service were described in supplementary, related documentation. 1. By the transaction pricing The most important thing to understand about this pricing option is that, while it is associated with an activity (a transaction), the commission or spread charged covers the advice and ongoing service you receive from NBF Wealth Management and your Investment Advisor as well as the actual execution of your transaction. Generally speaking, commissions are charged on transactions of listed securities such as common and preferred shares, options, and ETFs where we typically act as an agent, whereas spreads apply to fixed-income trades bonds, stripped coupons, treasury bills and GICs where we are usually acting as a principal. As explained in greater detail below, commissions may also apply to certain mutual fund transactions. Commissions (common and preferred shares, ETFs and other listed securities) Commissions are charged both when a stock or other listed security is purchased and when it is disposed of. The commission is added to the cost of the security on a purchase and deducted from the proceeds for a disposition. These amounts are clearly identified on the transaction confirmations you receive.
16 GENERAL TERMS AND CONDITIONS Spreads (fixed-income securities other than preferred shares) A spread is a charge built into fixed-income investments reflecting the difference between the actual cost of a product to the distributor and the price at which it is offered to the end client. Virtually all financial institutions charge spreads on their fixed-income products. Investment dealers build spreads into their fixedincome transaction rates by purchasing securities such as bonds, debentures or treasury bills in extremely large quantities directly from the issuers at a certain interest income level or yield. They then resell them to individual investors in much smaller quantities at a slightly lower yield. The difference between these two rates is the spread, which covers the cost of doing business and the financial risk of holding large quantities of securities in inventory. Note that when your Investment Advisor quotes you a yield-to-maturity on a fixed-income investment, the spread has already been taken into account. In other words, the yield you are quoted is exactly the rate of return you will earn on the bond, stripped coupon or T-bill, provided you hold it to maturity. Generally speaking, the spread will vary directly with the maturity of the security the shorter the term, the smaller the spread and vice versa. Finally, one other situation where we may earn revenue in the form of a spread is when a transaction involves converting currencies. For instance, if you purchased a stock listed in euro on the Frankfurt stock exchange in your Canadian dollar-denominated account, we would convert your Canadian cash to euros using our exchange rate for the day in order to settle the transaction. National Bank Financial could earn a spread on that currency conversion due to the difference between our wholesale and retail foreign exchange rates.
17 Mutual funds We have included a special section devoted to mutual funds since they are a little more complex from a what you pay perspective than a simple stock or bond. There are two components to what you pay when investing in mutual funds. Management fees are charged by all mutual funds. Depending on the fund you purchase, there may also be a transaction fee in the form of a commission. Mutual funds Management fees All mutual funds charge management fees, which are deducted directly from the fund s assets and goes toward paying the fund s expenses (portfolio management, record keeping, custody, reporting, etc.) and generating a profit margin for the fund company. Management fees are charged as a percentage of the fund s assets under administration and this percentage is disclosed in both the fund s prospectus and its annual information form. Management fees vary depending on the category of underlying assets, with fees for equity funds typically being higher than for bond or money market funds. For certain funds, a portion of the management fee is remitted to the distributor (in this case, NBF Wealth Management and its Investment Advisors) on an ongoing basis for as long as the investor owns the fund. The portion of the management fee remitted to the distributor is called a trailing commission or trailer fee. Mutual funds Trailing commissions When a trailing commission is paid by the fund out of its management fee to the distributor, the percentage used to calculate this amount is fully disclosed in the fund s prospectus. The logic behind trailing commissions is that they compensate the distributing firm and its Investment Advisors for the costs incurred (maintaining the position on its books, issuing statements, etc.) and for the ongoing advice and service provided.
18 GENERAL TERMS AND CONDITIONS Mutual funds Commissions Commissions are charged on many mutual funds but, contrary to other investments, the commission applies either when you buy the fund or when you sell it not both. Commissions charged upon the purchase (sometimes referred to as a front load ) are calculated as a percentage of your gross purchase and are simply subtracted from the actual amount invested. For instance a 2% commission charged on a $5,000 fund purchase results in $100 being taken off the top by NBF Wealth Management and $4,900 being invested. Many funds are available for purchase with a deferred sales charge option (sometimes referred to as back load ). With this option, there is nothing to be paid up front, and your full amount is invested in the fund. The fund company applies a charge when you redeem your investment according to a declining schedule the longer you own the fund, the less you pay when you redeem it. In most cases the deferred sales charge actually falls to zero usually over a period not exceeding seven years. This deferred sales charge (DSC) is applied on the gross amount redeemed and subtracted from the fruit of the sale. For instance, if you redeemed $5,000 of mutual funds and the DSC had declined to 1% because you had held the fund for several years, $50 would have been taken off the proceeds and the net amount you received from the sale would have been $4,950. Finally, there are also many funds offered for sale without transaction commissions (often referred to as no-load funds).
19 2. Fee for service Pricing Compared to commissions and spreads, the fee for service pricing option is fairly simple to understand. A fee is calculated as a percentage of the value of your investments. This amount, which is charged either monthly or quarterly, covers the cost of ongoing advice and service as well as the execution of all of the transactions required to manage your portfolio in other words, it replaces commissions and spreads. Many clients prefer this pricing option because they never have to factor the cost of doing a transaction into their investment decisions. Fee-based accounts come in two basic varieties: advisory and managed. The choice you made between these two types of fee-based accounts would have been a function of the nature of the relationship you wanted to have with NBF Wealth Management and your Investment Advisor. Advisory fee-based accounts An advisory fee-based account is an account where you retain full control over your investments your Investment Advisor makes recommendations which you are free to follow or not. The fees to be paid are disclosed in the fee-based account agreement you signed when you opened your account, and you see the amounts charged on a periodic basis listed in your portfolio statements. Where the fees apply to a non-registered account, they are generally deemed to be tax deductible, although we recommend that you consult with your accountant or tax expert to determine how this applies to your personal situation.
20 GENERAL TERMS AND CONDITIONS Managed accounts With a managed account, you have delegated the day-to-day activity of monitoring your portfolio and deciding which securities to buy or sell to your Investment Advisor, or to a portfolio manager. The fees paid are shown in the managed account agreement you signed at the time you opened your account. NBF Wealth Management has a number of innovative managed account offerings. Once again, where the fees apply to a non-registered account, they are generally deemed to be tax deductible. The same comment about consulting with your tax expert applies. Other fees you may be charged Fees related to transactions executed on foreign exchanges If you buy or sell securities listed on foreign markets, you should know that certain stock exchanges, securities commissions, prime brokers or foreign governments may, from time to time, impose taxes or apply trading, execution or settlement fees on financial transactions made in their country. These fees are kept by the exchange, securities commission or government and are not shared with NBF. When such fees are levied, they are over and above the usual commissions and administration fees that National Bank Financial applies to your accounts and your transactions, regardless of the pricing option you have chosen. Where applicable, these supplemental charges appear on your transaction confirmations.
21 Interest charges If NBF Wealth Management grants you credit, either in a margin account or as a result of a negative balance in one of your accounts, you will be charged debit interest at the prevailing rate. Similarly, if you engage in the short sale of securities, where applicable a carrying charge will also assessed to cover the cost of borrowing the securities. Administration fees So far we have covered the fees and charges when we provide advice and execute your transactions. But like all financial institutions, we also charge fees for specific services that are peripheral to our core business. These fees, which we call administration fees, are listed in the Welcome to National Bank Financial booklet provided when accounts are opened and also available from your Investment Advisor. Basic service fee Our annual basic service fee covers all of the costs associated with opening and maintaining an investment account. This basic service fee only applies to clients who have opted to pay us by the transaction. And, since this fee is waived whenever the activity in a client s account generates enough revenue to cover the costs of maintaining it, it is rarely actually charged. Note that fees, commissions, spreads and other charges mentioned above may change from time to time. We will let you know in advance of any changes, as prescribed by the regulations that govern our industry.
22 GENERAL TERMS AND CONDITIONS Fees and payments we may receive from third parties There are a number of situations where third parties may pay us a consideration over and above the commission, spread or asset management fees we charge you. For example, we may match your order with an order from another party that pays us a commission. Another example is when we act as the principal in the transaction in other words, when you buy or sell directly from us/to us, or to one of our affiliates, rather than from a third party. Sometimes being the principal gives us the opportunity to earn extra revenues. In certain cases where you purchase mutual funds on a deferred sales charge basis, the fund manufacturer may pay a consideration to NBF Wealth Management in its capacity as a distributor. When we act as an underwriter (buying securities from the issuer and reselling them to our clients), we may receive commissions directly from the issuer of the securities. These commissions are described in the prospectus or other documents related to the securities. Finally, in the case of reorganizations, certain issuers may pay NBF Wealth Management solicitation fees to compensate our Investment Advisors for the work involved in getting investors to vote their proxies. The above are examples only. There may be other situations in which we receive fees or commissions from third parties on transactions we execute for you. If and when such situations create a material conflict of interest, this is disclosed to you by your Investment Advisor.
23 Conflicts of interest The very nature of our business as a financial intermediary means that we are frequently acting for both the seller and the buyer of a security. This, of course, creates the potential for conflicts of interest, which is a prime reason why our industry is one of the most tightly regulated and closely scrutinized in Canada. The potential for conflicts of interest is not a problem in itself, provided that proper steps are taken to identify such situations and to manage them in a manner where the interests of all parties are protected. We consider a potential conflict of interest to be any circumstance in which our interests, or the interests of our Investment Advisors or employees, could be seen as less than fully aligned with the interests of our clients. We carefully identify all potential conflicts of interest that could arise during the normal course of our business, and then assess the level of risk associated with each one. Where we identify situations that could create a material conflict of interest or represent too high a risk for you or for the integrity of financial markets, we take the necessary steps to avoid them usually by foregoing the business opportunity giving rise to the situation. Otherwise, we take appropriate measures to control the potential conflict. Where such situations of potential conflict cannot be avoided, we take care to notify you so that you are aware of them and are able to factor this into your decision making. To help you better understand and assess potential and actual conflicts of interest, a more detailed explanation of typical material conflicts, with examples of what we do to manage them. It can be found in the Account Terms and Conditions booklet given to you when you opened your account. A copy is also available through your Investment Advisor.
24 GENERAL TERMS AND CONDITIONS Voicing your concerns We think it s important that you feel comfortable contacting us whenever you have a question or comment concerning our products or services. We welcome feedback about any aspect of your relationship with NBF Wealth Management because constructive criticism is valuable input that enables us to improve our offering. Should you have a less-than-fully-satisfactory experience, please do let us know. We appreciate the opportunity to revisit our processes, products or services to see how we can make them better. Please feel free to contact us. The full procedure for registering a complaint is explained in the Making a Complaint section of the Welcome to National Bank Financial booklet that you received when opening your account. You will find information about how to make a complaint in the Investment Industry Regulatory Organization of Canada-approved brochure entitled An Investor s Guide to Making a Complaint which would also have been received when you opened your account. Your Investment Advisor can provide you with copies of these documents.
25 Our success is your financial success Having a financial institution with which you have developed a strong relationship based on trust is an important step toward a good investment experience. NBF Wealth Management is proud to provide our clients with objective, unbiased advice supported by an innovative range of products and services, a comprehensive set of tools, and exhaustive economic and financial research from both internal and external sources. We are honoured that you chose NBF Wealth Management and we thank you for the relationship we have developed together one that we have confidence will be long and fruitful. We look forward to continuing to serve your financial needs.
nbfwm.ca National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada and is a member of the Canadian Investor Protection Fund. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). 2013 National Bank Financial. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Financial. 29583-202 (2013/12)