Advanced Capital Corporation - Invest in Local Residential Mortgages

Advanced Capital Corporation (“ACC ” or the “Firm”) is an Exempt Market Dealer incorporated under the laws of Canada. ACC is wholly owned by President and CEO Michael Hapke. The Firm’s only office is located in Ottawa, Ontario. 

The firm is registered under the category of Exempt Market Dealer (EMD) within the province of Ontario (principal regulator). 

ACC is in the business of providing captive dealer services to Advanced Mortgage Investment Corporation (“AMIC” or the “Issuer”). ACC and AMIC are related and connected by virtue of common ownership and control. ACC provides captive dealer services for AMIC via an agency agreement. ACC’s Clients are individuals and corporations that wish to invest in AMIC, or individuals and corporations who have invested in AMIC via a transaction that was processed by the Firm. 

Under securities regulations, ACC, in its registrant role, is required to identify material conflicts of interest which would be expected to arise between ACC (including each individual acting on its behalf) and its Clients in the ordinary course of our business. Further, if a reasonable investor would expect to be informed of the nature and extent of an identified conflict of interest, ACC must do so.  

A conflict of interest is any existing or reasonably foreseeable circumstance where the interests of different parties are inconsistent, competing or divergent. Actual, potential and perceived conflicts of interest may exist. ACC will manage these conflicts by either controlling the conflict, disclosing the conflict to Clients, or avoiding the conflict if it is prohibited by law or where the risk of harm is too high. 

The purpose of this Conflicts of Interest Disclosure Statement is to provide Clients with a description of such conflicts ACC (as a registrant firm with a role as a dealer) might encounter and the measures ACC has taken to prevent, avoid, and mitigate such conflicts. 

We recognize that conflicts may arise between ACC, our Dealing Representatives and our Clients. Some of these conflicts of interest are inherent in the business model that we use. We seek to avoid or minimize conflicts of interest where reasonably possible. However, some conflicts of interest cannot be avoided and, although others could be avoided, we have chosen to manage them.  

We have policies and procedures in place to manage the conflicts of interest that we believe are sufficient to protect the interests of Clients and fulfill our obligations to Clients. 

We have a duty to deal fairly, honestly and in good faith with our clients.  

This disclosure does not create or modify any agreement, relationship, or obligations between you and ACC. If there is a significant change to the information contained in this document, we will post the updated information as soon as possible on our website at advancedcapitalcorp.com. If you have any questions, please contact ACC at info@advancedcapitalcorp.com or at (613) 274-0055. 

The following is a list of material conflicts of interest that ACC has identified: 

• ACC only offers shares of AMIC for sale. 
• ACC is a Captive Dealer. 
• AMIC and ACC are not independent of each other. 

A related issuer means a person or company that influences or is influenced by, through ownership or direction and control over voting securities, another person or company.  

A person or company is connected to another person or company if, due to its relationships with such person, a prospective purchaser of securities of the person or company might question the other person or company’s independence from the first person or company.  

ACC is both related and connected to the Issuer. ACC is wholly owned by President and CEO Michael Hapke. Michael Hapke is also the president and CEO of the Issuer. Michael Hapke is a member of the board of directors of the Issuer and is one of the common shareholders of the issuer. Michael Hapke is the controlling mind and ultimate decisionmaker for both entities, and is the signatory for any contracts between or relating to the entities. 

When ACC sells AMIC shares to a Client, ACC is recommending a related and connected product to a Client. ACC will disclose its relationship or connection to such related and connected product to the Client and will receive the Client’s written consent to the investment. 

Because of ACC’s relationship with AMIC, ACC may have a perceived, less than independent viewpoint when performing due diligence on AMIC. ACC may also be considered to have an added incentive to sell AMIC shares. The recommendations and determinations of our Dealing Representatives, management and supervisory staff may be affected by this relationship.  

Mitigation of this conflict of interest is provided by AMIC’s board of directors which has the authority to oversee, amend, renew, or cancel the agency agreement by which ACC provides its services to AMIC. The majority of the AMIC board of directors is comprised of individuals who are independent of ACC. The board authorizes payment of the management fee and oversees the compliance of the management fee payments with the terms of the management agreement and offering memorandum. The board also appoints the auditors who in turn provide an independent report to the board related to the operations of the Issuer. 

Also: while AMIC shares are the sole product approved by ACC for sale to Clients, ACC is not AMIC’s exclusive dealer. AMIC has opted to mitigate the conflict of interest inherent in the captive dealer model by seeking out other dealer firms to approve AMIC for distribution. This results in additional control over conflicts of interest between Clients and ACC as captive dealer because it allows the operations of the Issuer to be scrutinized by persons and entities with no bias derived from being related and connected to the Issuer by virtue of common ownership and control. 

While ACC does have policies and procedures in place to assess a purchase of AMIC shares as suitable for a Client, Clients may wish to get independent advice from a trusted professional before they consider purchasing these related/ connected issuer securities through ACC. 

Listing of “related or connected issuer” products offered by ACC:  

• Advanced Mortgage Investment Corporation, (“Advanced MIC” or “AMIC”) offering preferred shares of the MIC to qualified investors by way of an Offering Memorandum and subscription document (the “MIC Shares”). 

ACC has a relationship (including common control) with the following related or connected parties, which receive compensation for the services they perform for the Issuer. 

Advanced Alternative Lending (“AAL” or the “Manager”) 

Michael Hapke is also the president, CEO, controlling mind, common shareholder, and control person of Issuer’s Manager, Advanced Alternative Lending (or “AAL”).  AAL is a licensed mortgage administrator in Ontario. AAL provides management services to AMIC via a Management Agreement. AMIC’s board of directors has the authority to oversee, amend, renew, or cancel the management agreement by which AAL provides its services to AMIC. The majority of the AMIC board of directors is comprised of individuals who are independent of AAL. AAL is not registered with any securities commission in any capacity. 

For greater clarity, AMIC does not have staff or personnel other than its board of directors. Via the management agreement, AAL provides any staff needed to operate AMIC. Any persons working for AAL are staff of AAL and not of AMIC. The board of directors of AMIC has no authority over AAL staffing decisions. AAL staff are compensated from the management fees paid to AAL by AMIC; these management fees are paid from the income of the Issuer, which is generated by the investment of share capital by ACC Clients. 

The relationship between the Issuer and the Manager creates a material conflict of interest between ACC and its Clients in the following way. The Manager is compensated for its work originating and managing the mortgage portfolio which is funded from the share capital that is originated by the Dealer. The Manager provides all qualitative reporting regarding the mortgage portfolio held by the Issuer. 

When performing Client suitability reviews or when reviewing the Issuer for ongoing approval on the product shelf, ACC staff who are also AAL staff are reviewing their own work. There is no impartial or unbiased review of AAL data provided to ACC. 

This material conflict of interest is mitigated by the proactive disclosures re: portfolio performance that are posted publicly on the AMIC web site. The Manager has taken the position that via proactive disclosure, potential and existing ACC Clients can review the performance of the Issuer each month in a location that is accessible at all times without having to make a special request for information. The staff of the Manager who prepare these disclosures are the same individuals who are the ACC personnel who perform ongoing product shelf approvals for the Issuer to be distributed by ACC. 

The publication of this performance data is in excess of current disclosure requirements for private companies. The data is incorporated by reference into the Offering Memorandum which in turn protects AMIC shareholders (who are also ACC clients, as well as clients of other firms) from misrepresentation. 

Mortgage Brokers City Inc. (“MBCI” or the “Brokerage”) 

In addition, Michael Hapke is the CEO of Mortgage Brokers City Inc. (or “MBCI”), a licensed mortgage brokerage in Ontario which, through its independent mortgage brokers and agents, may receive compensation from the Issuer when mortgage loans originated by the brokerage are funded by the Issuer. MBCI is not the sole brokerage that originates mortgages for AMIC; AMIC is not obligated to approve or fund any mortgages originated by MBCI. MBCI is not registered with any securities commission in any capacity. 

MBCI brokers/agents are independent consultants and are not employees of MBCI. They choose where to place their deals and the owner/CEO has no input on this. MBCI brokers/agents are not obligated to submit mortgage applications to AAL for underwriting for funding by the Issuer. MBCI brokers/agents do not receive compensation in excess of what non-MBCI agents/brokers would receive for applications made to AAL for funding by the Issuer. 

ACC offers Clients access to only one product. ACC does not offer a wide range of products from variety of issuers or sectors. Rather, ACC offers a single product from a related and connected issuer with which ACC has a relationship and from which ACC independent.  

The product that ACC offers may not be suitable for everyone. ACC’s Dealing Representatives can only provide advice regarding the sole product that ACC offers and cannot provide Clients with advice on other investments or asset classes in which it may be beneficial for Clients to invest.  

ACC’s Dealing Representatives receive compensation from the sale of Advanced MIC shares. This compensation could theoretically bias ACC DRs in favour of recommending AMIC shares to Clients.  

If ACC Clients wish for advice about other securities, those Clients will need to seek out a different registered firm. 

ACC has and may continue to form referral arrangements with other parties. Such referral arrangements are made in writing in advance of a referral being made to ACC.  

For trades resulting from referrals from third parties with whom a referral arrangement has been made, ACC may pay referral fees. Referral fees are disclosed in writing to potential investors at the time a transaction results from a referral having been made. Potential investors have the right to refuse to allow ACC to pay the referral fees related to their trade. 

ACC does not charge its Clients a fee for its services. ACC is paid commissions and agency fees by the Issuer. The commissions and agency fees are paid from the income of the Issuer and have a direct and reducing impact on the dividends the Issuer pays to ACC’s Clients. For greater clarity, while ACC does not charge fees to Clients directly, the commissions and agency fees paid by the Issuer can be compared to an indirect fee to Clients. 

ACC and AMIC control this conflict via the work of the AMIC board of directors which oversees ACC’s compliance with the compensation-related terms of the agency agreement. As the compensation amounts paid to ACC are strictly defined in the agency agreement, the compensation is predictable and does not materially impact the returns earned by ACC Clients who have invested in AMIC shares. 

Each of the Firm, the Issuer, the Manager, and the Brokerage is responsible for paying for all routine and customary expenses relating to the entity’s own operations, including auditing, legal and accounting fees, communication expenses, printing and mailing expenses, all costs and expenses associated with the sale of units including private placement report fees, if any, expenses related to providing financial and other reports to Clients and convening and conducting meetings of the board of directors, all taxes, assessments or other governmental charges levied against the entity, interest expenses and all brokerage and other fees relating to the origination of mortgages funded by the Issuer.  

In addition, both ACC and AMIC are responsible for paying of expenses associated with ongoing investor relations and education relating to the Client accounts. The amount of these expenses will vary from time to time but will be disclosed in the financial statements of the Issuer and the Firm.  

ACC may in its sole discretion, elect to absorb certain on-going expenses of the Issuer via an abatement of the Agency Fees in whole or in part. 

The Issuer pays ACC an agency fee of up to 0.4% of the Issuer’s Assets Under Management or AUM as defined in the Issuer’s Offering Memorandum. The agency fee is subject to applicable taxes including HST.