The sales practices and compensation arrangements between a mutual fund that offers securities by way of a prospectus and the dealers that sell those mutual fund securities are subject to certain regulations, outlined in National Instrument 81-105 Mutual Fund Sales Practices.
The regulations establish standards of conduct that aim to minimize the conflicts between the legitimate commercial goals of participants in the fund industry and the fundamental obligations they owe to investors.
Payments and other benefits that can be made by a mutual fund and a “member of the organization of the mutual fund” to a participating dealer and its sales representatives are restricted. For a mutual fund, a “member of the organization of the mutual fund” means the fund’s manager, its principal distributor, its portfolio adviser, any affiliate of the foregoing and a person or company that is organized by a member of the organization of the fund to fund payment of commissions to participating dealers and that has a right to arrange for the distribution of the securities of the fund.
Generally, a “member of the organization of the mutual fund” (and not the mutual fund) can pay participating dealers sales commissions and trailing commissions, as well as the costs of marketing and educational events within prescribed limits. A “member of the organization of the mutual fund” may also organize and present conferences or seminars for the sales representatives of participating dealers provided certain conditions are met. Certain types of sales commissions and trailing commission structures are prohibited.
The promotional items and business promotion activities that a “member of the organization of the mutual fund” can provide to sales representatives as well as other sales practices such as commission rebates and financial assistance, are subject to certain restrictions.
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