SEC Division of Investment Management staff letter: Industrial Alliance, Investment Management Inc.

Investment Adviser Act of 1940 — Section 203(a) Industrial Alliance, Investment Management Inc.

March 14, 2012

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 2011122931

Your letter dated March 12, 2012 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the “Commission”) under section 203(a) of the Investment Advisers Act of 1940 (“Advisers Act”) against Industrial Alliance, Investment Management Inc. (“IAIM”) if IAIM does not register with the Commission as an investment adviser under the Advisers Act under the circumstance described in your letter and below.

You represent the following: IAIM is an investment adviser with its principal office and place of business in Canada, and no office or place of business in the United States. 1 IAIM is a wholly-owned subsidiary of Industrial Alliance Insurance and Financial Services Inc., a life and health insurance holding company in Canada (“Parent”). IAIM has several types of Canadian advisory clients. In addition, IAIM manages assets of U.S. insurance companies that are “insurance companies” under the Advisers Act 2 and also are direct or indirect wholly-owned subsidiaries of the Parent (“U.S. Insurance Companies”). IAIM’s only U.S. clients are the U.S. Insurance Companies. IAIM makes use of the mails or any means or instrumentality of interstate commerce (“U.S. jurisdictional means”) for the purpose of acquiring information about the securities of U.S. issuers and effecting transactions in securities of U.S. issuers through U.S. brokers and dealers. 3 IAIM otherwise only uses U.S. jurisdictional means in connection with its business as an investment adviser in providing advice to the U.S. Insurance Companies.

Section 203(a) of the Advisers Act states that, except as provided in section 203(b), it shall be unlawful for any investment adviser, unless registered under this section, to make use of U.S. jurisdictional means in connection with his or its business as an investment adviser. Section 203(b)(2) of the Advisers Act provides that section 203(a) does not apply to an investment adviser whose only clients are insurance companies.

You believe that IAIM should not be required to register as an investment adviser under the Advisers Act given the nature and extent of its activities in, and contacts with, the United States. In support of your request, you note that the Commission and the staff have taken a number of analogous positions concerning the extraterritorial application of the Advisers Act with regard to a non-U.S. adviser’s relationships with its non-U.S. clients. 4 In addition, you note that the staff has provided relief from the registration provisions of the Advisers Act for foreign advisers that make limited use of U.S. jurisdictional means. 5 You assert that IAIM’s limited use of U.S. jurisdictional means in connection with its business as an investment adviser is not a sufficient basis to require registration under the Advisers Act.

Based on your facts and representations, we would not recommend enforcement action to the Commission against IAIM under section 203(a) of the Advisers Act if IAIM does not register as an investment adviser under the Advisers Act. Our position is based particularly on your representations that:

IAIM’s principal office and place of business is in Canada, and it has no office or place of business in the United States;

IAIM’s only U.S. clients are the U.S. Insurance Companies; and

IAIM only uses U.S. jurisdictional means in the limited ways described above.

This response expresses our view on enforcement action only and does not express any legal or interpretive position on the issues presented. Because our position is based upon all of your facts and representations, any different facts or representations may require a different conclusion. 6

Michael S. Didiuk Senior Counsel

These facts were confirmed to the staff by Matthew C. Dallett of Edwards Wildman Palmer LLP, counsel to IAIM on March 14, 2012.

Section 202(a)(12) of the Advisers Act provides that “insurance company” has the same meaning as in the Investment Company Act of 1940. Section 2(a)(17) of the Investment Company Act in relevant part provides that “insurance company” means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a State.

See Gim-Seong Seow, SEC Staff No-Action Letter (Nov. 30,

1987) (“Seow Letter”) (“On at least two previous occasions, Division staff has indicated that a foreign adviser to foreign clients may, without registering under the Advisers Act, use U.S. jurisdictional means to acquire information about securities of United States issuers, and effect transactions in securities of United States issuers through United States brokers or dealers, for the benefit of the adviser’s clients. See Double D. Management, Ltd., (pub. avail. Jan 31, 1983) and BOH Investment Management Co. (Hong Kong) Limited (pub. avail. Jan. 2, 1987)”).

For example, you point to former rule 203(b)(3)-1(b)(5) under the Advisers Act. That rule provided that, for purposes of now - repealed section 203(b)(3) of the Advisers Act, a non-U.S. adviser was required to count only its clients that were U.S. residents; in contrast, a domestic adviser needed to count all of its clients. See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Act Release No. 1633 (May 15, 1997). See also Vocor International Holding S.A., SEC Staff No-Action Letter (Apr. 9, 1990), Murray Johnstone Ltd., SEC Staff No-Action Letter (Apr. 17, 1987); and Alexander, Holburn, Beaudin & Lang, SEC Staff No-Action Letter (Aug. 13, 1984).

In addition, the Commission and the Division of Investment Management do not apply most of the substantive provisions of the Advisers Act to a registered non-U.S. investment adviser’s dealings with its non-U.S. clients. If a registered investment adviser, however, is a U.S. investment adviser, the Advisers Act would apply to the adviser’s dealings with both its United States and non-U.S. clients. See Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers Act Release No. 3222 (June 22, 2011); Registration Under the Advisers Act of Certain Hedge Fund Advisers, Investment Advisers Act Release No. 2333 (Dec. 2, 2004); American Bar Association, Subcommittee on Private Investment Entities, SEC Staff No-Action Letter (Aug. 10, 2006); The National Mutual Group, SEC Staff No-Action Letter (Mar. 8, 1993); Uniao de Bancos de Brasileiros S.A., SEC Staff No-Action Letter (July 28, 1992); SEC Division of Investment Management, Protecting Investors: A Half Century of Investment Company Regulation, Chapter 5, The Reach of the Investment Advisers Act of 1940 (May 1992).

See Seow Letter, supra note 3.

This letter confirms the position that the staff provided orally to Matthew C. Dallett of Edwards Wildman Palmer LLP, counsel to IAIM on February 8, 2012.

Incoming Letter

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/investment/noaction/2012/iaim031412-203a.htm

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EDWARDS WIlDMAN PALMER UP
111 HUNTINGTON AVENUE
BOSTON, MA 02199
+16172390100 moin +1617227.:1420 fox
EDWARDS
WILDMAN edwordswildmon.com
Matthew C, Dallett
617.239.0303 fax 866.955,8690
mdallett@cdwardswildman.com
Investment Advisers Act §§203(a), 203(b)(2)
VIA EMAIL AND OVERNIGHT COURIER
Securities and Exchange Commission
Division ofInvestment Management
Attn: Douglas 1. Scheidt, Esq" Associate Director and Chief Counsel 1 00 F Street, N,E, Washington, D,C, 20549-0504 Re: Industrial Alliance, Investment Management Inc,

Request for No-Action Assurance

Ladies and Gentlemen:
We are writing on behalf ofIndustrial Alliance, Investment Management Inc" a corporation incorporated under the laws of Canada ("IAIM"), IAIM seeks assurance from the staff of the Division ofInvestment Management (the "Staff') that the Staff will not recommend enforcement action to the U.S, Securities and Exchange Commission (the "Commission") under Section 203(a) of the Investment Advisers Act of 1940 (the "Advisers Act") ifIAIM does not register with the Commission as an investment adviser under the Advisers Act in the circumstances described below, Statements of fact contained herein are statements ofIAIM, In summary, it is our opinion that IAIM should not be required to register under the Advisers Act because it has no place of business in the United States and its only clients in the United States , , are lIlsurance compames, Background IAIM is a wholly-owned subsidiary ofIndustrial Alliance Insurance and Financial Services Inc" a life and health insurance holding company in Canada ("Parent"), (This letter refers to Parent and its direct and indirect, wholly-owned or controlled, subsidiaries as the "IA Group,") IAIM is headquartered in Quebec City and also has places of business in Montreal, Toronto, and Vancouver. IAIM is registered as a pOlifolio manager and investment fund manager with the Autorite des marches financiers in Quebec, its principal regulator, and is registered to conduct investment Illanagement activities with the securities regulators in Alberta, British Colombia, Manitoba, New Brunswick, Nova Scotia, Ontario, and Sakatchewan, IAIM is also registered to conduct derivatives activities in Quebec, Ontario and British Columbia, IAIM has no place of business in the United States, BOSTOH • CHICAGO' fT lAUDERD,\lE • HARTfORD' lONDON' lOS ANGElES I MADISON N) • NEW YORK' NEWPORT BEACH

PROVIDENCE' STAMFORD t TOKYO' WASHINGTON DC • WEST PALM BEACII • HONG KONG {ms'Jcioled office}

Douglas J. Scheidt, Esq.
IAIM engages in several types of advisory business in Canada:

• IAIM manages general assets for Parent and other Canadian members of the IA Group,
  including insurance companies. At December 31, 2011, the general assets of the IA Group managed by IAIM aggregated CDN$23.7 billion.
• rAIM also manages "segregated funds" for Parent. Segregated funds are offered only to
  Canadian residents in connection with Canadian insurance products. At December 31, 2011, the Parent segregated funds managed by IAIM held aggregate assets valued at CDN$13. 7 billion.
• For another Canadian member of the IA Group, IA Clarington Investments Inc.
  ("IACII"), IAIM manages mutual funds established and domiciled in Canada as well as "pooled funds," which are collective investment funds established in Canada under a Canadian declaration oftrus!. At December 31, 2011, the IACII mutual and pooled funds managed by IAIM held aggregate assets valued at CDN$8.5 billion.
• IAIM also manages pooled funds that it has established itself in Canada under a Canadian
  declaration oftrus!. At December 31, 2011, the IAIM pooled funds held aggregate assets valued at CDN$28.4 million.
• Finally, IAIM manages separate accounts for a small number of unaffiliated Canadian
  pension funds and other Canadian institutional investors. These are IAIM's only unaffiliated clients. Each ofthese accounts is managed on a discretionary basis under an individual account agreement. At December 31, 2011, these accounts held aggregate assets valued at CDN$0.6 billion. In addition to its Canadian clients, since July 2010, IAIM has managed assets ofUS. insurance companies that are also direct or indirect wholly-owned subsidiaries ofParent (the "Insurance Companies").! There are clll1'ently five Insurance Companies. They were acquired by Parent in 2010 and are headquartered in Georgia and Texas. At December 31, 2011, assets of the Insurance Companies under IAIM's management aggregated US$1.5 billion. IAIM expects that it will manage assets of any additional US. insurance company members of the IA Group that are acquired in the future. The assets IAIM manages for the Insurance Companies are their own assets, principally deriving from premiums paid by insurance customers. They are held to satisfy the obligations ofthe Insurance Companies' insurance business. IAIM does not hold itself out as providing investment advice to the public in the United States, and its only U.S. clients are these members of the IA Group. Other than the limited use ofUS. jurisdictional means for the purpose of acquiring infonnation about the securities ofUS. issuers and effecting transactions in securities through I Even ifIAIM was considered to be engaged in business as an investment adviser in the United States) this has been permissible without investment adviser registration on the basis of §203(b )(3) of the Advisers Act and Rule 203(b)(3)-1(b)(5). Section 203(b)(3) has been eliminated by §403 ofthe Dodd-Frank Wall Street Reform and Consumer Protection Aet of 20 1 O.

Douglas J. Scheidt, Esq.
U.S. brokers and dealers, which the Staff has acknowledged is permissible for foreign advisers to non-U.S. clients,2 IAIM only uses U.S. jurisdictional means in connection with its business as an investment adviser in providing advice to the Insurance Companies. Discussion IAIM is a foreign adviser with no place of business in the United States. It has no U.S. clients other than the Insurance Companies. As discussed below, ifIAIM had no other clients, it would not be required to register under the Advisers Act. In fact, IAIM does have a small number of other, unaffiliated clients outside the United States. However, we believe that those foreign clients alone should not require IAIM to register under the U.S. Advisers Act. Fm1hennore, since any benefits of registration would accrue only to IAIM's corporate affiliates, they are greatly outweighed by the costs of doing so. For Purposes ofSection 203(b)(2), IAIM's Only Clients are Insurance Companies Advisers Act Section 203(b )(2) exempts from registration "any investment adviser whose only clients are insurance companies." The Insurance Companies are "insurance companies" as defined in §202(a)(12) of the Advisers Act (which refers to §2(a)(17) ofthe Investment Company Act of 1940).3 Accordingly, ifIAIM had no other clients, there would be no need for the requested relief, whether IAIM was a domestic or a foreign adviser. Although the language of §203(b)(2) does not literally covel' IAIM because the Insurance Companies are not IAIM's "only" clients, they are IAIM's only clients in the United States. As discussed below, the reach of the Advisers Act does not generally extend to a foreign adviser's activities outside the United States with its foreign clients. Accordingly, IAIM should be considered to have only insurance company clients for plllposes ofthe Advisers Act and to be exempt from registration under §203(b )(2). IAIM's Foreign Clients Should Not By Themselves Force IAIM to Register in the United States As acknowledged in Protecting Investors, A HalfCentury ofhivestlllellt Company Regulation (SEC Division of Investment Management (May 1992)), the Commission has little regulatory interest in the foreign activities of foreign advisers. That study states that "the Advisers Act generally would not govern the relationship between a registered foreign adviser and its clients residing outside the United States. In this situation, the United States would not have a significant regulatory interest because the relationship would involve neither clients, nor advisory services rendered, within the United States" (Id., p.231). 2 E.g., Gilll-Seong Seoll' (November 30, 1987); Double D Management Ltd. (January 31, 1983). 3 Section 2(a) (17): IIInsurance company" means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the
insurance commissioner or a similar official Of agency of a State; or any receiver or similar official or any liquidating agent for such a company, in his capacity as such.

Douglas J. Scheidt, Esq.
The Commission has followed this policy over the past two decades. For example, in Release IA-1633 (May 15, 1997), the Commission adopted former Rule 203(b)(3)-1(b)(5) under the Advisers Act, pem1itting an adviser with its principal office and place ofbusiness outside the U.S. to count only those clients that were U.S. residents for purposes ofthe §203(b )(3) exemption fi'om registration for advisers with 14 or fewer clients. In 2004, when the Commission proposed rules to redefine who counted as a "client" for purposes of various exemptions from the Advisers Act, it stated that most ofthe substantive provisions of the Advisers Act did not apply with respect to the foreign clients of a foreign adviser (Release IA￾2266, Section II.B.8.C.3.c (July 20, 2004)). The proposed rules permitted a foreign adviser to a foreign fund to treat the fund as a single client, rather than count each of the fund's investors (Id.). This was in part, as the Commission acknowledged, because investors in foreign funds, which are generally governed by the laws ofthe jurisdiction where the fund or adviser is located, would have no reason to expect the full protection ofU.S. securities laws (!d.). Most recently, the Commission determined in Release IA-3222 that the foreign clients of a foreign adviser would not affect its eligibility for the new §203(m) exemption, stating that "[Rule 203(m)-1] reflects our long-held view that non-U.S. activities ofnon-U.S. advisers are less likely to implicate U.S. regulatory interests and that this telTitorial approach is in keeping with general principles of international comity" (p.77). The Staff has applied this policy since 1992, particularly in a series of no action letters beginning with Uniao de Bell/COS de Brasileiros S.A. (July 28, 1992) (the "Unibanco Letter"). Citing the Protecting Investors study, the Staff granted no-action relief to a registered adviser located outside the U.S., allowing it to avoid compliance with most aspects of the Advisers Act with respect to its foreign clients. In doing so, the Staff stated that many offshore advisers "may be reluctant to register with the Commission, however, because the Advisers Act may prohibit them from engaging in business practices with their foreign clients that are both legal and customary in their home countries. Further, non-United States clients would not expect the Advisers Act to govern their relationship with a non-United States adviser" (!d.). The Staff has consistently confil111ed this position tln'ough a series of subsequent no action letters based on circumstances similar to those in the Unibanco Letter. E.g., Nat't. Mutual Life Ass 'n. ofAustralasia, Ltd. (March 8, 1993), Mercury Asset Management pic (April 16, 1993), Murray Johnstone Holdings Ltd., (October 7, 1994), Royal Bank ofCanada (June 3,1998). As discussed above, ifIAIM's only U.S. clients, the Insurance Companies, were its only clients, lAIM would be exempt from registration under §203(b )(2), even if they
weren't its corporate affiliates. Furthermore, if the exemption offonner §203(b)(3) were still available, lAlM's foreign clients would not be counted in determining whether that exemption applied. 4 Given IAIM's lack of a U.S. presence and the lack of a U.S. regulatory interest in IAIM's foreign clients, we do not believe that lAIM should be required to register under the U.S. Advisers Act solely because it has foreign clients. 4 Fonner Rule 203(b)(3)-I(b)(5).

Douglas J. Scheidt, Esq.
The Costs ofRegistration and Compliance Would Far Outweigh the Benefits IfIAIM was required to register under the Advisers Act, it would still be able to provide advisory services to its Canadian clients in compliance only with Canadian law, not the Advisers Act. E.g., ABNAMRO Bank N V. (July 1, 1997); Murray Johnstone Holdings Ltd.; Mercury Asset Management pic. Accordingly, it would only have to provide firm brochures, brochure supplements, and other Advisers Act disclosures to insurance companies that - if they were IAIM's only clients - would not receive them because IAIM would not need to be registered. Accordingly, the costs ofregistration and ongoing compliance would substantially outweigh the need. Conclusion IAIM's only U.S. clients are insurance companies. As evidenced by §203(b)(2), the Commission has no regulatory interest under the Advisers Act in governing the relationship between IAIM and its U.S. insurance company clients. As a foreign adviser with no U.S. place ofbusiness that is regulated by foreign authorities with respect to its foreign clients, IAIM presents a strong case for respecting the principles of international comity cited by the Commission. Accordingly, the fact that it has foreign clients should not, alone, require IAIM to register under the U.S. Advisers Act. Furthermore, the costs of the disclosures and client-oriented compliance required by Advisers Act registration would substantially outweigh the benefits. Therefore, we request that the Staff provide assurance to IAIM that it will not recommend that the Commission take enforcement action against IAIM ifit does not register with the Commission as an investment adviser in the circumstances described above. If the Staff disagrees with any of the views expressed herein, we would appreciate an opportunity to discuss the matter with the Staff before any written response to this letter is provided. Please direct any questions or comments you have to me at mdallett@edwardswildman.com or (617) 239-0303. cc: Christine Vachon