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BULLETIN #0455-P
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Contact: Paige
Ward
BULLETIN #0455 – P
Director, Policy & Regulatory Affairs
November 23, 2010
Phone: 416-943-5838
E-mail: pward@mfda.ca

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm

Proposed New MFDA Rule 2.4.4 (Transaction Fees and Charges) and
Proposed Amendments to MFDA Rule 5.1 (Requirement for Records)

On June 25, 2010, proposed new MFDA Rule 2.4.4 (Transaction Fees and Charges) and
proposed amendments to MFDA Rule 5.1 (Requirement for Records) were published for a 90-
day comment period that expired on September 23, 2010. Proposed Rule 2.4.4 will require that,
prior to the acceptance of an order, the Member inform the client of any sales charge, service
charge or any other fees or charges to be deducted in respect of the proposed transaction. The
proposed amendments to Rule 5.1 would require the Member to maintain evidence that the client
was informed of all fees and charges in accordance with Rule 2.4.4. The proposed amendments
will be brought forward for Member approval at the December 2010 Annual General and Special
Meeting of Members (“AGM”).

Six comment letters were received with respect to the proposed amendments. A summary of
comments received, with MFDA staff responses, is attached as Schedule “A”. To provide further
clarification and guidance to Members with respect to the application of the proposed
amendments, MFDA staff has drafted a companion Member Regulation Notice, which has been
reviewed by and incorporates comments received from the MFDA Policy Advisory Committee.
The draft companion Member Regulation Notice, which will be issued once the requisite
approvals of the proposed amendments are obtained, is attached as Schedule “B”.

DOCs# 232794


Schedule “A”

Summary of Public Comments Respecting Request for Comment on Proposed
New MFDA Rule 2.4.4 (Transaction Fees or Charges) and Proposed Amendments
to MFDA Rule 5.1 (Requirement for Records)

On June 25, 2010, the British Columbia Securities Commission published proposed new MFDA
Rule 2.4.4 (Transaction Fees or Charges) and proposed amendments to MFDA Rule 5.1
(Requirement for Records) (the “Proposed Amendments”) for a 90-day public comment period
that expired on September 23, 2010.

Six submissions were received during the public comment period:
1. Canadian Foundation for Advancement of Investor Rights (“FAIR”)
2. Desjardins
3. IGM Financial (“IGM”)
4. The Investment Funds Institute of Canada (“IFIC”)
5. Kenmar Associates (“Kenmar”)
6. Primerica Financial Services Limited (Canada) (“PFSL”)

Copies of comment submissions may be viewed on the MFDA website at: www.mfda.ca.

The following is a summary of comments received together with the MFDA’s responses.

1. General
Comments

Kenmar and FAIR expressed support for the Proposed Amendments. Kenmar indicated that it
has also received a significant number of complaints similar to those outlined in the Publication
Notice. In addition, Kenmar noted related suitability issues, including the sale of DSC funds in
Registered Retirement Income Funds (“RRIFs”) and to individuals over 75 years of age, the sale
of money market DSC funds where a client’s time horizon was known to be months or weeks,
and exposure to capital gains tax when funds are sold towards the calendar year end. FAIR
expressed the view that it is essential that investors be provided with complete information with
respect to fees and charges prior to execution of a transaction, both at the time of initial trade and
at redemption, and expressed strong support for the objective of ensuring that redemption fees
and charges are properly disclosed prior to a firm’s acceptance of any redemption order.

IFIC and PFSL expressed support for the objectives and intent of the Proposed Amendments,
while raising operational and financial concerns.

IGM and Desjardins also raised operational and financial concerns, but were of the view that the
Proposed Amendments should not proceed. IGM expressed the view that the Proposed
Amendments ignore that the specific interaction with clients in a particular case and the
documenting of the nature and content of the contact is dependant upon the facts. IGM further
stated that the difficulty with the approach taken in the Rule change, with its sweeping scope, is
that it does not reflect these considerations. IGM and Desjardins were also of the view that,
Page 2 of 14

depending upon the full implications of the proposed changes, there is a high likelihood that
these requirements could cause interruptions in the flow of transactions desired by clients and
prevent them from occurring in a timely fashion.

Desjardins expressed the view that the current regulation with respect to fee disclosure is
sufficient, noting that an Approved Person who fails to discuss fees with a client is not fulfilling
his or her responsibilities to the client and does not comply with existing Rules with respect to
general business conduct, Know-Your-Client and Know-Your-Product. Desjardins commented
that, with respect to such Approved Persons, the issue is non-compliance rather than deficient
regulation and the Proposed Amendments are unlikely to affect it. Desjardins recommended that,
rather than proceeding with the Proposed Amendments, the MFDA, in a Member Regulation
Notice, provide examples of complaints it received with respect to fee disclosure and clarify
what constitutes inappropriate conduct, as well as provide guidance with respect to fee disclosure
when the Client Relationship Model amendments become effective. PFSL indicated that more
industry consultation is required prior to the implementation of the Proposed Amendments.

PFSL suggested that clients should be counseled to ask for an estimate of potential sales charges
at the time they are considering selling their funds and that their representatives are willing to
providing such information upon request. Desjardins referenced similar regulations of the United
Kingdom Financial Services Authority (“FSA”), and noted that the FSA regulation mandates
disclosure only if requested by the client.

MFDA Response

Staff acknowledges comments supporting the Proposed Amendments and notes that there is
currently no requirement under MFDA Rules to provide fees and charges disclosure at the time
of the transaction. When the issue of disclosure of transaction fees or charges has arisen in the
context of client complaints, Members have often stated that there is no regulatory obligation to
provide this disclosure under current MFDA Rules. Member Regulation Notice MR-0035 –
Recording and Maintaining Evidence of Client Trade Instructions clarifies requirements under
Rule 5.1(b) and recommends, as a best practice, that the record of client instructions include
confirmation as to the discussion regarding fees or charges that will or may apply on the
transaction.

With respect to comments raising operational and financial concerns, staff notes, generally, that
the Proposed Amendments codify existing industry practice and are intended to address the
significant number of investor complaints received where investors have advised staff that they
were not informed of fees and charges resulting from a particular transaction prior to the
acceptance of their order and only became aware of such information when they received their
trade confirmation or account statement.

The basic objective of the Proposed Amendments is to assist investor decision making through
the timely provision of information and not to impair the timely execution of client transactions.
The disclosure required under Rule 2.4.4 is intended to give clients a reasonable idea of fees and
charges that will apply at the time of the transaction. In meeting the requirements of Rule 2.4.4,
Members and Approved Persons are expected to act reasonably and in the best interests of
clients, and provide the most current and accurate information in respect of fees and charges that
Page 3 of 14

can be reasonably provided in the circumstances. Further, we note that the requirements of the
Proposed Amendments may be satisfied either through the provision of a document or by having
a discussion with the client.

With respect to allowing fees and charges information to be provided on request, staff notes that
clients who are counseled in advance to ask for such information on future transactions may not
subsequently remember to do so. Accordingly, given the importance of fees and charges
information to client decision making, it is appropriate to require its disclosure at the time of the
transaction.

The Proposed Amendments have a clear regulatory objective and respond to a clearly identified
regulatory need that is based on numerous client complaints received in respect of the particular
issue. Moreover, as noted, the Proposed Amendments do not introduce novel requirements, but
rather codify and standardize existing industry practice.

These matters will be clarified in a forthcoming companion Member Regulation Notice.

2. Specific
Comments

Provision of Fee Disclosure More Appropriate at Time of Purchase

IFIC and PFSL expressed the view that a disclosure and discussion of fees is most valuable to
the investor at the time that he or she is purchasing their mutual fund units. PFSL was of the
view that most complaints related to sales charges are caused by a failure to understand such
charges at the time of purchase rather than by an absence of disclosure at the time investments
are being redeemed. IFIC added that the disclosure of redemption fees at the time of a switch or
redemption will not assist investors in selecting a fee structure, as that decision has been made
with full disclosure at the time of purchase.

MFDA Response

The disclosure and discussion of fees and charges at the time of purchase is valuable to clients
and the Proposed Amendments are intended to complement such disclosure. However, clients
typically have multiple interactions with their advisors over time and may not remember a
meeting or conversation in which such fees were discussed. In addition, as clients often purchase
a combination of products to which different fees or charges may apply, they may not recall the
fees and charges that apply to a specific product. Where a significant period of time has elapsed
between a client’s purchase of mutual fund units and their next transaction in the account (e.g.
transfer or redemption request), investors may have forgotten the point of sale disclosure, or may
not recall it in sufficient detail to meaningfully inform their present decision making and, as
noted, may not remember to ask what the fees and charges associated with their present
transaction are prior to the transaction. This position is supported by the number of investor
complaints that have been received on this issue and the fact that the proposed disclosure is
already provided as an industry practice.

Page 4 of 14

Proposed Amendments are Duplicative of Existing and Proposed Requirements

Desjardins, IFIC, IGM and PFSL noted that a highly regulated framework already exists for the
sale of mutual funds and referenced:

• Existing and proposed suitability requirements and other Member and Approved Person
obligations under securities legislation and self-regulatory organizations’ Rules,
including the Client Relationship Model amendments, prospectus requirements that
prescribe full, true and plain disclosure of all material facts related to a particular mutual
fund, as well as information in respect of risks related to the investment, objectives and
fees; and

• The Canadian Securities Administrators’ (“CSA”) proposed Point of Sale amendments to
National Instrument 81-102 Mutual Funds (“NI 81-102”), including the proposed Fund
Facts document.

IFIC was of the view that the MFDA should wait to assess the impact of the CSA Point of Sale
project rather than introducing overlapping and potentially inconsistent regulation.

FAIR disagreed with the view that the current regulatory structure sufficiently addresses the
intended objective of the Proposed Amendments, noting that MFDA Members can offer products
that are not necessarily covered by the CSA Point of Sale initiative, which is aimed at indirect
fees and charges and does not contemplate such disclosure on redemption.

MFDA Response

The Proposed Amendments were developed with consideration of existing and proposed
requirements under securities legislation and SRO Rules regarding disclosure of fees and charges
and are intended to avoid duplication of disclosure. As noted by a commenter, disclosure of fees
and charges under the Point of Sale initiative would only be provided to the client at the time of
purchase and does not contemplate the provision of information on a redemption. Proposed
requirements with respect to relationship disclosure under Rule 2.2.5 are intended to provide
clients with general information regarding how the Member is compensated and are not specific
to a transaction. As noted, the number of investor complaints that staff has received on this issue
point to a regulatory need for the provision of fees and charges information at the time of the
transaction
and the Proposed Amendments are intended to respond to this need.

Types of Fees and Charges Contemplated by Proposed Amendments

Commenters also sought clarification on the types of fees and charges contemplated under the
Proposed Amendments. In particular, whether disclosure of withholding tax on RRIF and
Registered Retirement Saving Plan (RRSP) accounts, chargeback of Registered Education
Saving Plan (“RESP”) grants, Labour Sponsored Investment Fund (“LSIF”) tax credit claw-
backs and fees for accounts held at intermediaries would be required.

Page 5 of 14

MFDA Response

Rule 2.4.4 requires disclosure of direct fees and charges deducted from either the proceeds to be
received or the amount to be invested by the client at the time of the transaction that would be
reflected on the trade confirmation. This would include sales charges, redemption fees, switch
fees, or applicable withholdings related to the order (including taxes and clawbacks deducted
from proceeds to be paid to the client at the time of the transaction). Fees or charges that are not
related to an order (for example, account administration fees including trustee fees or account
transfer fees) or that are not deducted at the time of the transaction would not be subject to the
proposed Rule as their disclosure is required under other MFDA requirements.

Availability of Information re: Transaction Fees and Charges

IFIC, IGM and PFSL sought clarification of the following issues with respect to the availability
of information with respect to fees and charges.

• Fund managers have the information required to determine DSC charges accurately and
levy short-term trading fees at their discretion. As a result, dealers would have to contact
fund managers directly at the time of redemption to obtain accurate information in
respect of such fees and charges, thereby delaying timely execution of the transaction;
and

• Redemption charges are determined based on the net asset value of the fund, which is set
at the end of the day on which the transaction is executed. As a result, such information
may not be determinable at the time of redemption.

IFIC and PFSL noted that the Publication Notice clarifies that investors may be provided with a
reasonable idea or an estimate of transaction fees and charges, where it is otherwise difficult to
provide specific information and suggested that the Proposed Amendments be amended to reflect
such flexibility.

Desjardins and IFIC expressed the view that even when an approximate charge is disclosed to an
investor, it will only lead to varied investor expectations and may result in complaints once the
exact charges are deducted from the investor account.

FAIR suggested that proposed Rule 2.4.4 be amended to specifically require that fees and
charges be provided in dollars and cents unless impractical due to unavailable information. FAIR
also recommended that the Rule be amended to require that where specific information in respect
of transaction fees and charge is not available, as much accurate and detailed information as
possible be provided such as by providing an estimate. FAIR also suggested that if MFDA
Members or their representatives are unable to determine the fees and charges associated with a
particular transaction, perhaps a more transparent means of calculating such fees and charges in
the mutual funds industry is warranted, having regard to the impact of fees and charges on fund
performance and the importance of such information to investor decision making.

Page 6 of 14

MFDA Response

As noted, a forthcoming companion Member Regulation Notice will clarify that the Proposed
Amendments are not intended to impair timely execution of client orders. In such circumstances,
Members and Approved Persons are expected to provide as much accurate and detailed
information as can reasonably provided in the circumstances without delaying the transaction.

We also note that the complaints we have received relate to situations where a client was not
informed that there would be any fees or charges in relation to the transaction, rather than cases
where the specific amount was not provided. MFDA staff is aware that, in specific
circumstances, the provision of detailed information with respect to fees and charges may not be
possible. In such situations, Members will be expected to comply with the basic objectives of the
Proposed Amendments, as noted above and, in doing so, act reasonably and in the best interests
of the client. For example, where more current or accurate information is not available or
obtainable in a timely manner, Members and Approved Persons could provide an estimate,
expressed as a percentage or in dollars, of the fees and charges that would apply on a transaction.

MFDA staff recognizes that disclosure of the exact amount of short-term trading fees may be
difficult as complex calculations may be required in addition to the fact that short-term trading
fees are applied at the discretion of the fund company. Accordingly, Members and Approved
Persons may comply with the requirements of Rule 2.4.4 by advising the client in circumstances
where a short-term trading fee may apply.

Requests for Clarification

Commenters also sought clarification as to the application of the Proposed Amendments in the
following circumstances:

• transactions executed directly with a fund company (where the dealer does not become
aware of the transaction until after the redemption);

• where clients fax in letters of direction to their advisor to request a redemption but
provide no contact information for the purpose of fees and charges disclosure;

• online transactions; and

• transactions in automatic withdrawal plans (where fees and charges vary by transaction).

IFIC also requested clarification regarding whether the transaction would have to be delayed in
situations where the client is unreachable for fee disclosure.

MFDA Response

Where a client contacts the fund company directly to make a redemption request, and the
Member and its Approved Persons do not become aware of the redemption until after the order
has been accepted/redemption has occurred, they would not be expected to provide the
disclosure.
Page 7 of 14

With respect to online, unsolicited (i.e. client-initiated) transactions, given that an Approved
Person is not involved in accepting the order, it may be impractical to provide detailed, specific
information with respect to transaction fees and charges. Accordingly, with respect to such
transactions, Members may comply with the requirements of Rule 2.4.4 by notifying clients of
the types of fees and charges that may apply and advising them to contact the Member if they
wish to obtain further details on applicable fees and charges prior to proceeding.

In respect of automatic plans, staff would expect Members and their Approved Persons to
provide as much current and accurate information about fees and charges as is available at the
time that the plan is being established, but would not expect such disclosure to be provided on
each subsequent transaction.

With respect to delaying transactions where clients are unreachable for timely fees and charges
disclosure, we note that in the majority of circumstances, there is direct interaction between the
Member and its Approved Persons and the client. In the rare situation where a client places an
unsolicited order and is unavailable or unreachable for disclosure regarding fees and charges on a
transaction, Members and Approved Persons would be expected to use reasonable efforts to
contact the client and advise of the transaction fees and charges. This may involve sending a
communication back to the client (via e-mail, fax or phone) to advise that fees or charges will
apply to the transaction and notifying the client that if they do not respond within a specified
time period, the transaction will be executed in accordance with the client’s instruction.

Received “In Good Order” Requirements

PFSL noted that redemption requests are forwarded to fund companies for processing if they are
received “in good order”. If the proposed disclosure becomes part of such “in good order”
requirements, orders received from clients by fax or mail would not be “in good order”. This
would require changes to processing procedures that would result in significant delays in
processing client transactions.

MFDA Response

The disclosure obligations contemplated under the Proposed Amendments are not intended to
form part of such requirements (i.e. they would not form part of the instructions to the fund
company/the transaction order between the dealer and the fund company).

Requirement for Records (Rule 5.1)

IFIC expressed the view that the requirement under proposed Rule 5.1 to include evidence that a
client was informed of all redemption fees and charges is not information that is considered part
of the normal books and records of a dealer. IFIC noted that dealers have less control over
compliance with disclosure by registrants in the field than over accounting items recorded in the
books and records of the firm. IFIC submitted that non-compliance with the books and records
requirement of the Rule is of a different order of magnitude than non-compliance with a
disclosure requirement, and proposed that subsection 5.1(b)(iv) instead be included as an
amendment to Policy No. 2 Minimum Standards for Account Supervision.
Page 8 of 14

IGM indicated that Approved Persons are already under an obligation to document client
instructions, which, in particular situations, may include recording discussions regarding fees and
charges. IGM was of the view that where such a discussion has taken place but, for whatever
reason, is not documented, the Rule, as proposed, will create a presumption that the issue was not
covered with the client, whereas in the current situation, the Approved Person would simply be
at an evidentiary disadvantage.

MFDA Response

Rule 5.1 requires Members to maintain such books, records and other documents that are
necessary for the proper recording of its business transactions and financial affairs (i.e. any
record created, used or maintained as part of Member business). As a result, this requirement is
not limited to accounting records but would include client files, communications with clients and
records of trade orders and client instructions (which would include the evidence of disclosure
requirements contemplated under the Proposed Amendments).

The Proposed Amendments do not create any new presumptions against the Member or its
Approved Persons. Rule 5.1(b) currently requires Members to keep an adequate record of each
order and of any other instruction given or received for the purchase or sale of securities. In the
absence of such a record (i.e. client notes), Approved Persons would presently leave themselves
open to allegations of having engaged in unauthorized or inappropriate trading, without any
documentary proof to substantiate a contrary position. The disadvantage created by this failure to
comply with existing MFDA requirements is not impacted by the Proposed Amendments.

Costs

IFIC and Desjardins expressed the view that the Proposed Amendments will generate significant
costs by requiring dealers to develop new forms and systems to store information and track and
monitor compliance, as well as requiring additional compliance resources. Desjardins noted that,
given the potential for generating trivial complaints if the Proposed Amendments become
effective, dealers will be compelled to expend significant resources both in monitoring Approved
Person compliance and developing information systems in order to generate the most precise
estimates of fees.

MFDA Response

The Proposed Amendments codify and standardize existing industry practice and provide
flexibility as to how clients can be made aware of the required information. As noted, the
disclosure requirements of the Proposed Amendments may be satisfied either through the
provision of a document or by having a discussion with the client. For the purpose of complying
with the recording keeping requirements of proposed 5.1(b)(iv), Members may use the current
methods that they employ to evidence client orders and instructions for example, maintaining
detailed notes to file, taping telephone conversations or maintaining copies of client
acknowledgements prior to the acceptance of the client order. Members may augment their
existing compliance control environments by making back office changes; however, staff notes
that achieving such compliance controls through a manual process would also be acceptable.
Page 9 of 14

Method of Providing Information re: Transaction Fees and Charges

Kenmar, noting that the proposed disclosure may be provided by way of verbal or written
communication, recommended, where evidence of disclosure is obtained telephonically and
taped, that the investor be advised that the conversation has been taped and will be retained on
file. Both Kenmar and FAIR indicated that disclosure should be in plain language, in dollars and
cents (to the extent practicable), avoid industry jargon, abbreviations, and acronyms, and be
presented in a way that is meaningful to individual investors.

MFDA Response

Members that tape client telephone calls are currently required to provide clients with disclosure
of this practice under existing privacy legislation. Members and Approved Persons are expected
to provide the disclosure required under the Proposed Amendments in a manner that is clear, not
misleading and consistent with its basic objectives, as noted above.

Page 10 of 14

Schedule “B”



Contact: Paige
Ward
MR-00XX

Director of Policy and Regulatory Affairs
Date XX, 2010
Phone:
(416)
943-5838

Email:
pward@mfda.ca

DRAFT

MEMBER REGULATION NOTICE

MFDA RULES 2.4.4 (TRANSACTION FEES OR CHARGES) and 5.1(b)(iv)
(REQUIREMENT FOR RECORDS)

MFDA Rule 2.4.4 (Transaction Fees or Charges) requires that, prior to the acceptance of any
order in respect of a transaction in a client account, the Member inform the client of any sales
charge, service charge or any other fees or charges to be deducted in respect of the transaction.
Rule 5.1(b)(iv) requires the Member to maintain evidence that the client was informed of all fees
and charges in accordance with Rule 2.4.4.

The purpose of this Notice is to provide further guidance and clarification in respect of the
disclosure and record-keeping requirements under Rules 2.4.4 and 5.1(b)(iv).

Background

The MFDA has received a significant number of complaints where clients have advised staff that
they were not informed of the fees and charges resulting from a particular transaction prior to the
acceptance of their order and only became aware of such information when they received their
trade confirmation or account statement. In particular, many of these complaints relate to
situations in which clients were not informed of a deferred sales charge at the time of the
redemption. The objective of Rule 2.4.4 is to assist investors in making decisions with respect to
transactions in their account by requiring Members to inform investors of transaction fees and
charges prior to acceptance of their order.

Types of Fees and Charges

Rule 2.4.4 requires disclosure of direct fees and charges deducted from either the proceeds to be
received, or the amount to be invested by the client at the time of the transaction, which would be
Page 11 of 14

reflected on the trade confirmation. This would include sales charges, redemption fees, switch
fees, or applicable withholdings related to the order (including taxes and clawbacks deducted
from proceeds to be paid to the client at the time of the transaction). Fees or charges that are not
related to an order (for example, account administration fees including trustee fees or account
transfer fees), or that are not deducted at the time of the transaction, would not be subject to the
required disclosure. The Rule would also not apply to indirect fees or charges such as
Management Expense Ratios or trailing commissions.

Level of Detail Required

The disclosure required under Rule 2.4.4 is intended to give clients a reasonable idea of fees and
charges that will apply at the time of the transaction and is not intended to impair the timely
execution of client orders. In meeting the requirements of Rule 2.4.4, Members and Approved
Persons are expected to act reasonably and in the best interests of clients, and provide the most
current and accurate information in respect of fees and charges that can be reasonably provided
in the circumstances. There may be circumstances where specific information (such as an exact
dollar figure) may not be available at the time of the transaction. For example, with respect to
redemption fees determined based on the net asset value of the fund, which is set at the end of
day on which the transaction is executed, Members and Approved Persons could provide an
estimate, expressed as a percentage or in dollars, of the fees and charges that would apply on the
transaction. To the extent that the client requests more specific information, the Member or
Approved Person may obtain the client’s instruction to delay the execution of the transaction
until more detailed information regarding applicable fees and charges can be provided.

In monitoring and assessing compliance with the Rule, staff will consider whether the Member
has acted reasonably, in the best interests of the client, and in a manner that is consistent with the
fundamental objectives of the Rule. The use of standard blanket disclosure for all transactions
(for example disclosing that "additional fees and charges may apply") would not comply with the
objective of the Rule.

Application in Specific Situations

Staff is aware that the provision of detailed information with respect to transaction fees and
charges may be difficult in certain circumstances and has provided further guidance below in
respect of specific situations.

Short Term Trading Fees

Disclosure of the exact amount of short-term trading fees may be difficult as complex
calculations may be required in addition to the fact that short-term trading fees are applied at the
discretion of the fund company. Accordingly, Members and Approved Persons may comply with
the requirements of Rule 2.4.4 by advising the client in circumstances where a short-term trading
fee may apply.

Page 12 of 14

Withholding Taxes

Withholding taxes may vary depending on the specifics of the transaction and, as a result, it may
not be possible to provide specific detailed information with respect to such taxes. In such
circumstances, it would be sufficient for the purposes of complying with Rule 2.4.4 to advise
clients where a withholding tax may apply as a result of the transaction.

Account Transfers

A transfer of a client account “in cash” (in whole or in part) to another Member would be
considered an order to which the requirements of Rule 2.4.4 would apply. Where the Approved
Person at the receiving Member is aware that mutual funds may be redeemed as part of the
transfer, the Approved Person would be expected to advise the client that deferred sales charges
may apply on the redemption. If the client requests further information respecting the fees and
charges that may apply on the transfer, the Approved Person may direct the client to the
delivering Member.

Automatic Plans

In respect of automatic plans, staff would expect Members and their Approved Persons to
provide as much current and accurate information about fees and charges as is available at the
time that the plan is established, but would not expect such disclosure to be provided on each
subsequent transaction.

Clients Transacting Directly with the Fund Company

Where a client contacts the fund company directly to make a redemption request, and the
Member and its Approved Persons do not become aware of the redemption until after the order
has been accepted/redemption has occurred, they would not be expected to provide the
prescribed disclosure.

Online Transactions

MFDA staff recognizes that with respect to online, unsolicited (i.e. client initiated) transactions,
given that an Approved Person is not involved in accepting the order, it may be impractical to
provide detailed, specific information with respect to transaction fees and charges. Accordingly,
with respect to such transactions, Members may comply with the requirements of Rule 2.4.4 by
notifying clients of the types of fees and charges that may apply and advising them to contact the
Member should they wish to obtain further details on applicable fees and charges.

Where Client Unavailable/Unreachable for Disclosure of Fee/Charges

In the majority of circumstances, there is a direct interaction between the Member, its Approved
Persons, and the client, which will allow for timely disclosure of the required information. In the
rare situation where a client places an unsolicited order and is unavailable or unreachable for
disclosure regarding fees and charges on a transaction, Members and Approved Persons would
Page 13 of 14

be expected to use reasonable efforts to contact the client and advise of the transaction fees and
charges. This may involve sending a communication back to the client (via e-mail, fax or phone)
to advise that fees or charges will apply to the transaction and notify the client that if they do not
respond within a specified time period, the transaction will be executed in accordance with the
client’s instruction.

Method of Disclosure

Disclosure requirements under Rule 2.4.4 may be satisfied at the time of the transaction either by
having a discussion with the client or through the provision of a document. For the purpose of
complying with the recording keeping requirements of Rule 5.1(b)(iv), and as noted in Member
Regulation Notice MR-0035 – Recording and Maintaining Evidence of Client Trade
Instructions
, Members may use the current methods that they employ to evidence client orders
and instructions, for example, maintaining detailed notes to file, taping telephone conversations,
or maintaining copies of client acknowledgements prior to the acceptance of the client order.

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