Mutual fund dealers that sell proprietary products must give clients up front disclosure of the costs and tax implications of one day moving firms, the Mutual Fund Dealers Association of Canada (MFDA) says.

In a bulletin published on Thursday, the MFDA reports that it has received complaints from clients that were unaware that they could not move certain funds with them to a new dealer because they are proprietary products.

“In some cases, these investors incurred redemption fees to redeem their securities. There may also be tax consequences to a redemption and transfer in-cash versus a transfer-in-kind,” the MFDA notice says.

As a result of these issues, fund dealers that offer proprietary mutual funds, or other products that can’t be transferred to a new dealers, “should, at a minimum, clearly disclose this to clients at account opening in their relationship disclosure document.”

For firms that offer specific funds or products that can’t be transferred to a new dealer, this fact “should be specifically disclosed at the point of sale,” the notice says.

It adds that these disclosures “should include a specific discussion of any potential fees or tax consequences that may result from a redemption and transfer in-cash.”

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