Compliance Memo

Compliance Memorandum 2018-01; Disclosure of Fees and Charges

For more information, contact:

Compliance Team
compliance@gpwealth.ca

Date Issued:

January 17, 2018

While financial advisors have been aware of the requirement to disclose all commissions, fees and charges to clients for some time, this Memorandum serves as a reminder regarding these requirements.

MFDA Rule 2.4.4 states that prior to the acceptance of any order in respect of a transaction in a client account, the client must be informed of any sales commission generated, fees or any other charges that are applicable in respect of the transaction. Such disclosure must include an approximate amount of commission generated from a DSC purchase option, annual service fees and/or advisory fees.

For a new purchase, commissions generated on DSC purchases and any other applicable fees are to be disclosed as exact amounts in dollars. Where the amount cannot be known precisely due to transactions resulting from a transfer in cash, fees and commissions must be disclosed in a reasonable estimation of the amount in dollars.

As an example, a financial advisor opens a new account and assets are being transferred in cash to purchase mutual funds, the financial advisor would be expected to provide a reasonable estimation of the commission generated with a DSC purchase option including the service fee income from the new purchases to the client.

The financial advisor must record notes of the conversation where compensation and charges were discussed. All “Transfers in Cash” with pending investment instructions must be accompanied by meeting notes indicating the estimation of the compensation and charges.

An example of notes:

  • Client agreed to “transfer in cash” their RRSP
  • Client indicated their account value was approximately $100,000
  • Discussed with client that since they had held the mutual funds for 4 years at former dealer, the DSC fee would be approximately 3% or around $3,000
  • Discussed with client that the new mutual funds recommended and to be purchased with the DSC option will generate approximately $5,000 in commission and the annual service fee commission will be approximately $500

On a redemption, all fees must be disclosed including withholding taxes, DSC charges and any other account charges resulting from the transaction.  If the amount is $0, it must be so noted on the order receipt.

Please refer to MFDA MR-0078; MFDA Rules 2.4.4 Transaction Fees or Charges and 5.1(b)(iv) Requirement for Records for further guidance and clarification in respect of the disclosure and record-keeping requirements.

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