The Mutual Fund Dealers Association
of Canada (MFDA) found that a “reasonable” amount of its members complied with CRM2 requirements but that some bundled together Deferred Sales Commissions and trailing fees.
The Association began assessing compliance last year, including a review of members integrated with affiliated fund managers, which they called the “CRM2 Sweep”.
On the subject of disclosing DSC commissions, the MFDA report said: “The majority of members reviewed adequately disclosed DSC commissions on their Report on Charges and Other Compensation. However, we noted once instance where the member earned DSC commissions and did not report the amount on the Charges and Compensation Report.
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“We also noted a few instances where members combined DSC commission and trailing commissions into one amount rather than report them separately.”
The report also highlighted some instances where the trailing commission definitions provided to clients were ambiguous.
It read: “We noted some instances where different terminology was used for trailing commissions throughout the Report on Charges and Other Compensation, which could lead to client confusion. We also identified instances where the member did not use the required definition for trailing commissions.”
MFDA also assessed account statements and whether they complied with regulatory requirements. In general, the review was positive, although there were instances where an account statement did not contain:
- The definition of book cost;
- The market value of all cash and investments in the account at the beginning of the period;
- The cost of each investment position presented on an average cost per unit or share basis or on an aggregate basis at the end of the period;
- The total cost of all investment positions as at the end of the period;
- The name of the party that holds or controls each investment and a description of the way it is held;
- The definition of the term “DSC”;
- Adequate disclosure of the market value of exempt securities where the market value was determinable. Specifically, book cost was used rather than disclosing that the market value was “not determinable”.
On fee-based accounts, members generally disclosed the full amount that was deducted from the client’s account. There was one instance, however, where an integrated member charged the client a combined fee for fund management and dealer services, and rather than disclose the combined amount deducted from the client’s account, the member estimated an amount attributed to dealer operations.
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