Compliance Memo

Compliance Memo; 2018-03; Lower Management Expense Ratio (“MER”) Series Funds

For more information, contact:

Compliance Team
compliance@gpwealth.ca

Date Issued:

July 30, 2018

As a registered advisor, the Know-Your-Product (KYP) requirement is a fundamental part of meeting basic suitability obligations for a client. One aspect of the KYP is knowing the cost of the products you are recommending which includes the obligation to provide clients with preferred pricing or a lower MER series of the same mutual fund when and if the client is eligible.

Several mutual fund companies have implemented programs to automatically provide investors with a lower MER upon eligibility while others have moved to a single price model for all investors. However, there are many mutual fund companies that have not implemented monitoring for preferred pricing or automatic preferred pricing. 

As the financial advisor of record for a client, you are required to fully understand the products you recommend including understanding when a client may be eligible for the preferred price of a product and recommending a switch for each client that is eligible. 

If you are licensed to recommend segregated funds you have the same duty of care requirement to understanding when a client may be eligible for the preferred price of the product and recommending a switch for each client that is eligible.

Important Information

You may be liable for all overage charges the client incurs over and above the lower priced products including any regulatory fees and fines. We recommend that you review your client accounts to verify that each client that qualifies for preferred pricing or a lower MER series of the same mutual fund has been properly notified.

Please refer to MFDA Bulletin #0739-C; 2018 Compliance and Member Education Priorities; Section 1.3 Lower Management Expense Ratio (“MER”) Series Funds for further guidance and clarification in respect of the disclosure and record-keeping requirements.

MFDA Staff Notice 0048 – Know Your Product provides guidance on the roles of the Member and the Approved Person in the Know Your Product process.

As always, if you have questions or comments, contact the Compliance Department by email at compliance@gpwealth.ca.