Conflict of Interest Disclosure
Westcourt Capital Corporation (“Westcourt”, the “Firm”, “we” “our”, “us”) is providing you with this Conflict of Interest Disclosure in accordance with new laws that come into force on June 30, 2021. This document describes existing or reasonably foreseeable material conflicts that may affect your interests as our client, including how we address those conflicts in your best interest.
You should refer to Westcourt’s Relationship Disclosure Information document for other information that you may find important about your relationship with us including but not limited to, the services we offer, the fees and expenses we charge you and the risks that you should consider when making investments.
A conflict of interest can include any circumstance where:
(a) the interests of different parties, such as the interests of the Firm and those of a client, are inconsistent or divergent;
(b) the Firm or one of its registered representatives may be influenced to put their interests ahead of a client’s interests; or
(c) monetary or non-monetary benefits or disadvantages to Westcourt or its registered representatives that might compromise the trust that a reasonable client has in the firm or any of its registered representatives.
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 our clients in the circumstances, and/or the recommendations or decisions of the Firm or its registered representatives in the circumstances.
What follows below are details regarding the specific material conflicts of interest that we have identified to date. In case other material conflicts of interest arise, which may happen from time to time, we will inform you of the nature and extent of any such other conflicts of interest prior to any of your subsequent transactions with us or our advice to you. Westcourt has retained independent legal and regulatory counsel to review, on an annual basis, its conflicts of interest to determine that appropriate mitigation and disclosure is carried out.
1. Proprietary Products and Connected Issuers
For the purposes of this summary, (i) the word “connected” is intended to involve a state of indebtedness to, or other relationship with, the registrant or those “related” to the registrant that, in connection with a distribution of securities, would be material to a purchaser of the securities; and (ii) the word “related” is intended to involve positions permitting, through ownership or otherwise, a controlling influence, and would include all companies under a common controlling influence.
Westcourt’s business model includes managing certain proprietary funds (the “Westcourt Funds”). The Westcourt Funds are connected/related to Westcourt because the Firm may act as their portfolio manager and investment fund manager.
Regulators have noted that where a registered firm distributes securities of connected/related issuers, a material conflict of interest exists because Westcourt may have an incentive to recommend the Westcourt Funds to its clients over other third party funds that do not provide similar incentives. Westcourt may also be incented to fail to disclose or provide inadequate disclosure to investors about the Westcourt Funds in cases where there is negative information (for example, where a company owned by one of the Westcourt Funds is experiencing financial difficulty), resulting in investors taking on more risk than they could, or wish to, bear.
Westcourt takes the following steps to mitigate the actual and potential conflicts of interest described above:
• Westcourt representatives are not directly incentivized for accepting a client into the Westcourt Funds.
• On an annual basis, Westcourt conducts an analysis of similar funds available to a similar client base. Westcourt is comfortable that the Westcourt Funds compare favorably to these similar funds.
• Westcourt has policies and procedures in place to ensure that its representatives conduct a suitability analysis for each client accepted into the Westcourt Funds. This suitability analysis ensures that the Westcourt Funds are appropriate for that client. Certain types of clients may be able to waive this suitability.
• In conducting its suitability analysis for a client, each representative of Westcourt will have a thorough understanding of: (i) the structure and features of the Westcourt Funds; and (ii) amongst other client information, the personal and financial circumstances of that relevant client.
• Westcourt has retained independent legal and regulatory counsel to provide ongoing training regarding a representative’s suitability obligations when accepting a client into the Westcourt Funds.
2. Third Party Compensation
Westcourt’s business model includes recommending third party products that in turn provide compensation to Westcourt. Westcourt may receive trailer, commission or distribution fees from third party managers. Westcourt may also receive structuring fees for assisting with creating a third-party fund share class that would appeal to Westcourt clients.
Absent appropriate controls, clients may perceive a Westcourt recommendation as being driven by third party compensation as opposed to what is appropriate for the client. Westcourt takes the following steps to mitigate the actual and potential conflicts of interest described above:
• Westcourt employees are not directly incentivized to recommend any specific product.
• For the majority of the managed account/private wealth clients, Westcourt has contractually bound itself such that it can never collect fees for the management of that managed account. This mitigates any “double charging” consideration discussed further in Item 5 below. Where Westcourt does collect a fee from the management of a managed account, those fees are first offset by the third party compensation before the balance (if any) is paid to Westcourt.
• Westcourt specifically discloses any third party fee arrangements to its clients. For managed account/private wealth clients, Westcourt provides reporting on all commissions and trailer fees to its clients.
• Westcourt deploys a robust due diligence and ongoing monitoring program on any product it recommends such that any of its recommended products can be objectively substantiated. Westcourt’s due diligence process is conducted by a dedicated team that does not include or consider any compensation benefits to Westcourt as part of its diligence process.
• On an annual basis, Westcourt conducts an analysis of similar funds available to a similar client base. Westcourt is comfortable that its recommended products compare favorably to these similar funds.
3. Internal Compensation Arrangements
Westcourt’s employees may be perceived as incentivized to recommend certain products. Specifically, Westcourt employees could be perceived as motivated by the Firm to encourage the purchase of certain third party funds or any of the Westcourt Funds that may provide compensation to Westcourt.
Westcourt takes the following steps to mitigate the actual and potential conflicts of interest described above:
• Westcourt employees are not directly incentivized to recommend any specific product.
• Westcourt employee compensation is primarily based on a fixed salary. Any variable bonus element of employee compensation is significantly smaller than the fixed component.
• The Chief Compliance Officer reviews client files and suitability recommendations of registered Westcourt employees from time to time. Westcourt employees understand that any variable bonus compensation could be affected if suitability issues are found during these reviews.
4. Conflicts at the Supervisory Level
One of the mitigation tools that Westcourt uses to control for the compensation conflicts of its employees (see Item 3 above) is a review by the Chief Compliance Officer of suitability recommendations. However, it may be perceived that the Chief Compliance Officer herself could be conflicted during these reviews in that she also may receive variable bonus compensation. To address this conflict, Westcourt:
• Has structured the Chief Compliance Officer’s compensation to be primarily based on a fixed salary.
• Retains independent and legal regulatory counsel to conduct a Firmwide compliance review every few years. This compliance review would include suitability reviews.
5. Fee Based Accounts
Westcourt could be conflicted where it holds commissioned based securities in fee-based accounts. Specifically, it could be perceived that Westcourt is obtaining dual compensation in that it is earning any fees associated with the management of the account while also recommending securities that drive additional compensation to Westcourt. This is sometimes referred as “double charging” the client. However, as mentioned above in Item 2, Westcourt will never “double charge” a client.
6. Referral Arrangements
Westcourt does not actively seek out referral arrangements. However, from time to time, Westcourt may enter into referral arrangements where another party refers clients to us or where we refer clients to a third party for a fee.
When referring a client to a third party, or accepting a referred client, Westcourt must ensure that such a relationship is in the best interest of the client. Westcourt should not enter into a referral arrangement solely because of the referral fee that they will receive from that party. Furthermore, if a client pays more for the same, or substantially similar, products or services as a result of a referral arrangement, Westcourt would not be seen as appropriately discharging its obligations to its clients.
In order to mitigate any actual or potential conflicts, Westcourt will bring the referral relationship and the terms of that referral relationship to the attention of the referred client. In addition to client disclosure, Westcourt has adopted several procedures to ensure it determines that accepting a referral is in a referred client’s best interest. These procedures include: (i) requiring a review by the Chief Compliance Officer of any referral arrangement; (ii) conducting due diligence on potential third-party referrers; (iii) ensuring that the referred client does not pay additional fees or compensation for the same service or product provided to other Westcourt clients as a result of the referral arrangement; and (iv) keeping a record of all payments related to Westcourt’s referral arrangements.
7. Firm’s Securities Owned by Clients
Westcourt operates independently of any client influence. While Westcourt does not have any clients directly holding any ownership interest of Westcourt, Pasa Holdings Inc. is a beneficial owner of Westcourt. Pasa Holdings Inc. is owned by Patricia Saputo and companies related to her may also be clients of Westcourt from time to time.
Westcourt has fair allocation polices (discussed below at Item 10) in place to ensure that Ms. Saputo will not be treated in a manner that would prefer her over other clients of Westcourt.
8. Outside Activities
Westcourt’s registered individuals may become involved in other activities outside of their employment with Westcourt (e.g., sitting on boards of directors or providing volunteer services for a charity). These outside activities could: (i) impact the amount of time a Westcourt registered individual spends on Westcourt employment or registration obligation; and (ii) create a conflicting interest as to how a Westcourt registered individual discharges its obligations to Westcourt or its clients.
Westcourt has policies and procedures to ensure that all outside activities are reported to and considered by its Chief Compliance Officer. The Chief Compliance Officer will only approve such outside activities that do not conflict with Westcourt operations or obligations.
9. Best Execution
Westcourt primarily deals in the private alternative market and accordingly it does not often need to retain the services of a broker to execute its advisory services for its clients. However, in limited circumstances, Westcourt may hire a brokerage firm to execute trades on behalf of its clients. The selection of this broker may be perceived as determined based on a pre-existing relationship, rather than objective qualitative or quantitative considerations. This is considered a best execution conflict of interest.
Westcourt has policies and procedures to ensure that when Westcourt directs brokerage transactions to brokers, the service is comparable to that which Westcourt may obtain from other brokers and the commission rates are equivalent to or better than those that would have been normally charged by the broker. Westcourt monitors the level of service provided by any broker retained on behalf of its clients with respect to the cost and execution of trades.
10. Fair Allocation of Investment Opportunities
Westcourt owes its clients a duty to treat each client fairly. This duty must be considered when allocating investment opportunities.
Over the time period in which a client has engaged Westcourt, no client shall receive preferential treatment over any other client. It is Westcourt’s policy that all clients should be treated fairly and in allocating securities or investment opportunities among clients, all clients should receive equivalent treatment on an aggregated basis.
Because of the differences in client investment objectives and strategies, risk tolerances, tax status and other criteria, there may be differences among clients in invested positions and securities held. The following factors may be taken into account by Westcourt in allocating securities among its private wealth clients: (i) client’s investment objective and strategies, (ii) client’s risk profile, (iii) client’s tax status, (iv) any restrictions placed on a client’s portfolio by the client, (v) size of the client’s account, (vi) total portfolio invested position, (vii) nature of the security to be allocated, (viii) size of available position, (ix) supply or demand for a security at a given price level, (x) current market conditions, (xi) timing of cash flows and account liquidity, (xii) previous opportunities offered to a client, and (xiii) any other information determined to be relevant to the fair allocation of securities.
Prior to trade execution, Westcourt identifies the appropriate funds/accounts for a position and the aggregate size desired for a trade. In the event that less than the full amount can be filled at the desired price, a trade is allocated among the funds/accounts in an equitable manner, generally on a pro rata basis.
Please note, based on Westcourt’s services arrangements with its private wealth clients and its exempt market dealer clients, its private wealth clients will generally have priority on investment opportunities where there is limited capacity.
11. Gifts and Entertainment
While it is recognized that conducting business may involve some modest exchange of gifts and business-related entertainment, the value of such gifts and entertainment must not create a real or perceived conflict of interest and must not impair the independence or objectivity of the recipient.
Westcourt has policies and procedures in place with respect to the receipt or giving of gifts and/or entertainment. These policies and procedures require employees to contact the Chief Compliance Officer with any concerns about the receipt or giving of a gift or entertainment and whether that may create a conflict of interest. Further, employees are required to notify the Chief Compliance Officer upon receipt of a gift or entertainment in excess of $500 (on an individual basis).