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CSA NI 81-105 Mutual Fund Sales Practices and related consequential amendments
Letter Summary:
The proposed amendments would prohibit, in connection with the distribution of prospectus qualified mutual fund securities: (i) the payment of upfront sales commissions by fund organizations to dealers (thereby discontinuing DSCs) and (ii) trailing commission payments by fund organizations to dealers who do not make a suitability determination. The CSA expects that since fund organizations will not incur the cost of financing upfront sales commissions, the management fees charged to the funds who previously offered a DSC option will be reduced, and that dealers will turn to their clients for direct compensation. The CSA expect to provide a transition period of one year from the date of final publication of the amendments. These amendments will complement the Client Focused Reforms already proposed as amendments to NI 31-103.
Overview of the Council’s Comments:
The CAC believes simple and transparent fee structures help promote investor protection and strengthen the relationship between the investor and the advisor. Consistent with the council’s prior submissions, we expressed disappointment with how the current proposal allows fund organizations to use trailing commission payments, as an incentive, to promote fund sales to investors, so long as the dealer makes a suitability determination. In addition, we requested guidance detailing how an advisor can and should manage conflicts within the potential new enhanced suitability requirements set out in the Client Focused Reforms in the proposed amendments to NI 31-103. Lastly, the CAC supported the proposal of banning trailing commission payments by fund organizations to dealers who do not make a suitability determination.