Policy on Commission Rebating to Clients

Staff Notice

The Securities Commission of Newfoundland and Labrador wants to be sure that all dealers and representatives are following the rules regarding the rebating of commissions to clients. It has come to the Commission's attention that this practice is becoming more and more popular as agents change dealers and clients follow their representatives. The rules for rebating of commissions are covered under National Instrument 81-105 Mutual Fund Sales Practices. The relevant portion of 81-105 (section 7.1) is linked.

For example, a mutual fund dealer (agent) is allowed to rebate fees when a client redeems a DSC type of mutual fund and the proceeds are placed into another fund in another fund company. However, the dealer may not repay more than the commissions paid by the client in the redemption.

Representatives choosing to engage in this practice should be made aware that it is very important that the proper disclosure form(s) are filled out and signed by the client prior to redeeming/transferring the client's funds. The disclosure document(s) (see section 7.1 subsection 2) would: clearly inform the client of possible tax consequences associated with moving their money to a new company; give an estimate of the fee or commission being paid by the participating dealer on the redemption; and provide a reasonable estimate of the amount and percentage of the redemption charges related to the assets being redeemed/transferred. A dated copy of the disclosure document(s) should be given to the client and an additional copy be placed in the client's file

The Securities Commission of Newfoundland and Labrador expects full compliance to these regulations. Violators of these regulations will be sanctioned accordingly. For further information please contact the Securities Commission at (709) 729-4189.