In a member regulation notice the Investment Dealers Association of Canada is laying out some of the issues advisors must contend with if they intend to deal with clients in the United States.

It notes that some firms have provided opinions from U.S. lawyers, often acting on behalf of the client, in support of exempt status in dealing with the client. Some of these have been little more than an attestation that the client is wealthy and sophisticated.

The IDA says that members are not required to obtain a legal opinion regarding each and every U.S. client, but must be able to identify the exemption under which they are permitted to deal with the client. “If, as in the case of dealings with institutional clients … the exemption is based on the client’s qualification by virtue of its size or the nature of its business, members must use due diligence to ensure that the client qualifies.”

In cases where firms rely on a legal opinion to support dealings with a U.S. resident client, the opinion must:

  • state that the opinion is provided to the firm; and, state the basis for exemption;
  • acknowledge that exemptions must also be considered on a case-by-case basis;
  • state the law firm’s understanding that a copy of the opinion may be relied upon by the IDA;
  • not be based on securities or transactional registration exemptions; and
  • the opinion should not be based on the North American Free Trade Agreement.

    The IDA cautions, “Opinions relying on a federal unsolicited transaction exemption are unlikely to be adequate. The actual facts usually do not support this federal exemption and such an exemption is rarely, if ever, available at the state level.”

    It also indicates that it is not acceptable to deal with a U.S. resident client placing orders through a corporation, partnership, trust or other entity organized outside the U.S., including in Canada. “Members can deal with Canadian or foreign corporations or other entities having operating businesses in Canada through their authorized Canadian representatives regardless of where their owners may reside, but not with personal holding or investment companies established in Canada in an attempt to circumvent U.S. dealer registration requirements.”