With the deadline looming for discount brokers to stop collecting trailer fees from mutual funds, securities regulators are introducing temporary provisions to help firms implement the ban.
The Ontario Securities Commission (OSC) published a blanket order on Friday that allows fund managers and discount brokers to comply with the new rules that take effect on June 1 banning the payment of trailers to discount brokers. Regulators adopted the ban to address concerns about firms that don’t provide advice collecting fees that are paid, in part, for ongoing advice.
To implement the ban, many firms will seek to transfer their clients into non-trailer-paying versions of their existing fund holdings or comparable funds with no trailer. The temporary relief aims to address situations where simple switches aren’t available.
Under the OSC order, firms will be temporarily exempt from the ban to facilitate dealer rebates for clients who can’t have their trailer-paying funds easily transferred into a comparable fund series that doesn’t pay trailers.
That way, investors in funds with no easy non-trailer substitute can continue holding trailer-paying funds in their discount brokerage accounts, but the trailers that have historically gone to the dealer will instead be rebated to the investor.
The order also provides a 45-day exemption from the ban to enable firms to process transfers into discount brokerage accounts from clients. If a client moving into a discount brokerage account has funds that pay trailers, the discount broker can temporarily hold those funds during the transfer process.
The Canadian Securities Administrators indicated that other provincial regulators will be introducing similar relief shortly.
The OSC’s order, which takes effect alongside the new rules on June 1, will expire on Nov. 30, 2023.