When Is It Time to Change Exempt Market Dealers?
This article is provided for general informational purposes only and does not constitute legal advice. Whether an exempt market dealer is required depends on the specific facts, the activities being carried on, and the applicable securities legislation.
Selecting an exempt market dealer is an important decision for any investment fund. The dealer plays a central role in supporting capital raising activities, supervising registered dealing representatives, satisfying regulatory obligations, and facilitating investor onboarding.
Many investment fund managers maintain the same dealer relationship for years. As the business grows, however, the firm’s fundraising objectives, product offerings, and operational requirements often evolve. A dealer relationship that was well suited to an emerging fund may not provide the same level of support for a manager conducting larger offerings, launching additional products, or expanding its distribution strategy.
Changing exempt market dealers should therefore be viewed as a strategic business decision rather than simply an operational exercise. The objective is not to find a different dealer for its own sake, but to determine whether the current relationship continues to support the fund’s long-term growth.
This article discusses common circumstances in which investment fund managers may consider changing exempt market dealers and the factors that should be evaluated before making that decision.
Why Investment Fund Managers Change Exempt Market Dealers
Changing exempt market dealers is a normal part of the lifecycle of many investment funds. As organizations mature, their requirements often become more sophisticated, and the capabilities they expect from their dealer relationship may change accordingly. A decision to change dealers does not necessarily indicate dissatisfaction with the existing relationship. In many cases, the manager’s business has simply evolved. Common reasons investment fund managers consider changing exempt market dealers include:
* increased annual fundraising;
* launching additional investment funds or new product offerings;
* expanding distribution into additional provinces;
* growing the number of registered dealing representatives;
* seeking greater operational efficiency;
* requiring additional compliance support; or
* preparing for the next stage of the firm’s growth.
The appropriate exempt market dealer should support both the manager’s current operations and its future objectives.
Signs It May Be Time to Consider a New Exempt Market Dealer
There is rarely a single event that prompts an investment fund manager to change dealers. More often, the decision results from several operational or strategic considerations that develop over time. The following circumstances may indicate that it is appropriate to evaluate whether the existing dealer relationship continues to meet the firm’s needs.
Your Fund Has Outgrown Its Current Dealer
As fundraising activities expand, the operational demands placed on both the investment fund manager and its exempt market dealer increase. A manager conducting multiple offerings, raising substantially more capital than in previous years, or introducing additional investment products may require greater operational support than was originally contemplated. Similarly, firms that initially raised capital through a small group of investors may later require dealer infrastructure capable of supporting broader distribution activities, larger investor volumes, or more complex product offerings. Growth does not necessarily require changing dealers. It may, however, justify evaluating whether the existing relationship remains appropriate.
Your Distribution Strategy Has Changed
Investment fund distribution rarely remains static. A manager may begin by raising capital within a single province before expanding nationally. Others may increase the number of registered dealing representatives, establish dedicated investor relations teams, or introduce new fundraising channels. Changes such as these often affect supervisory requirements, onboarding processes, and operational workflows. Where the distribution strategy has evolved significantly, it may be appropriate to assess whether the dealer’s capabilities continue to align with the manager’s objectives.
Onboarding New Products Takes Longer Than Expected
Launching a new investment fund or introducing a new product generally requires dealer due diligence, product review, and operational preparation. While careful review is an important component of a dealer’s regulatory obligations, prolonged onboarding timelines may affect fundraising schedules and product launches. Investment fund managers should consider whether existing processes remain efficient as the organization grows and additional products are introduced. The objective is not necessarily to complete onboarding more quickly, but to ensure that the dealer’s review process remains organized, predictable, and appropriately resourced.
Service Levels No Longer Meet Your Expectations
As businesses grow, expectations regarding operational support often evolve. Investment fund managers may require more responsive communication, greater coordination during capital raises, improved administrative support, or increased availability from experienced compliance professionals. Service expectations naturally vary between organizations. What worked effectively during the early stages of a fund’s development may no longer satisfy the operational requirements of a larger and more active manager.
Periodic evaluation of the dealer relationship can help determine whether service levels continue to support the firm’s ongoing activities. As fundraising activity increases, timely communication and efficient operational support can become increasingly important to maintaining momentum during capital raising activities.
Compliance Expectations Have Changed
As investment funds grow, compliance requirements often become more complex. Managers may introduce additional investment products, conduct continuous offerings, supervise a larger number of registered individuals, or expand their distribution activities across multiple jurisdictions. These developments frequently require more sophisticated compliance processes and closer coordination between the investment fund manager and the exempt market dealer. A fund manager should periodically assess whether its current dealer’s compliance framework, supervisory approach, and operational processes continue to align with the firm’s evolving requirements.
You Are Looking for a Long-Term Distribution Partner
An exempt market dealer should be more than a service provider responsible for processing subscription documents. For many investment fund managers, the dealer becomes an important part of the firm’s distribution infrastructure, supporting capital raising activities over many years.
As the business evolves, managers may seek a dealer with greater operational capacity, experience supporting similar investment funds, or infrastructure capable of accommodating future growth. Selecting a dealer that can scale alongside the business may reduce the need for further transitions as the organization expands.
What Should You Look for in a New Exempt Market Dealer?
If a fund manager decides to evaluate alternative dealers, the decision should extend beyond fees or onboarding timelines. A prospective dealer should be capable of supporting both the manager’s current operations and its long-term strategic objectives. When comparing exempt market dealers, investment fund managers may wish to consider factors such as:
* experience working with similar investment funds;
* the dealer’s compliance framework and supervisory processes;
* operational capabilities and investor onboarding procedures;
* responsiveness and communication;
* experience supporting multiple investment products;
* technology and administrative systems; and
* the ability to accommodate future growth.
A thorough due diligence process should consider both the quality of the dealer’s compliance infrastructure and the practical support the dealer provides throughout the fundraising process.
What Does Changing Exempt Market Dealers Typically Involve?
With appropriate planning, changing exempt market dealers is generally a structured process that can be managed without unnecessary disruption to ongoing fundraising activities. While the specific requirements vary depending on the circumstances, the transition commonly includes discussions regarding the manager’s business, dealer due diligence, product review, onboarding documentation, and planning for an orderly transition of fundraising activities.
An experienced dealer will typically work with the investment fund manager to establish an appropriate onboarding timeline and coordinate the transition in a manner that minimizes disruption to ongoing operations. Advance planning is particularly important where the manager is conducting continuous offerings or expects to launch additional investment products during the transition period.
Questions Every Investment Fund Manager Should Ask Before Changing Dealers
Before selecting a new exempt market dealer, investment fund managers should consider several practical questions.
* Does the dealer have experience supporting investment funds similar to ours?
* Can the dealer support our anticipated fundraising activity over the next several years?
* How does the dealer approach product due diligence and onboarding?
* What operational support is available throughout the fundraising process?
* How are dealing representatives supervised?
* Will the dealer’s infrastructure support our future growth?
Answering these questions can help identify whether a prospective dealer is positioned to support the manager’s long-term business objectives.
Frequently Asked Questions
Can an investment fund change exempt market dealers?
Yes. Investment fund managers may change exempt market dealers where appropriate. The transition typically involves dealer due diligence, onboarding, and planning to support an orderly continuation of fundraising activities.
Does changing exempt market dealers interrupt fundraising?
Not necessarily. With appropriate planning and coordination, many transitions can be managed in a manner that minimizes disruption to ongoing exempt market distributions.
What should an investment fund look for in a new exempt market dealer?
Important considerations include the dealer’s experience, compliance framework, operational capabilities, onboarding process, communication, and ability to support the manager’s future growth.
How long does it take to change exempt market dealers?
The timeline varies depending on the investment fund, the products being distributed, the completeness of the manager’s documentation, and the dealer’s onboarding process.
Does a new exempt market dealer conduct its own due diligence?
Yes. An exempt market dealer generally conducts its own review of the investment fund, its management team, and the securities being distributed before commencing a dealer relationship.
Contact Us
Startly Capital provides outsourced exempt market dealer services to investment funds and other issuers raising capital under prospectus exemptions. If you are evaluating your current exempt market dealer relationship or considering changing dealers, contact us to discuss how our EMD platform can support your long-term fundraising objectives.
This article is current as of the time of publication, is for informational purposes and does not constitute professional advice. Independent legal advice should be sought prior to relying on any information herein.