Issued by the Ontario Securities Commission and other local securities commissions in March 2022, the Blanket Orders set out how mutual fund companies and order execution only (OEO) dealers like RBC Direct Investing will be permitted to handle trailer-paying mutual funds that are held in client accounts, and help facilitate the implementation of the rule change announced by the Canadian Securities Administrators (CSA) in September 2020.
Rebates that are paid to a client by RBC Direct Investing, equal to the amount of the trailers that are paid by the applicable mutual fund company to RBC Direct Investing while the client holds a trailer-paying mutual fund in their RBC Direct Investing account on or after June 1, 2022.
When a mutual fund is switched from a trailer-paying class or series to a non-trailer paying class or series of the same fund, where the only difference is a lower management fee for the non-trailer paying class or series, and where there are no tax consequences for effecting this type of switch.
When a mutual fund is switched by the mutual fund company from a trailer paying class or series to a non-trailer paying class or series of the same fund, where the only differences are a lower management fee for the non-trailer paying class or series, and a difference in distribution policy and/or currency, and where there are no tax consequences for effecting this type of switch.
Management Fee Rebates
Rebates received by a client from the applicable mutual fund company, equal to the amount of the trailers that would otherwise be paid by the applicable mutual fund company to RBC Direct Investing while the client holds the trailer-paying mutual fund in their RBC Direct Investing account on or after June 1, 2022.
A trailing commission, or trailer, is an ongoing fee paid to an investment firm related to a client’s mutual fund holding by the mutual fund company, which is part of a mutual fund’s management expense ratio (MER).
Starting March 18, and before June 1, trailer-paying mutual funds that you hold will be converted by the applicable mutual fund company to an equivalent fund that does not pay a trailing commission, where available. There is no action required on your part – the conversion will be automatic and no commission will be charged to you.
Back in September 2020, the Canadian Securities Administrators (CSA) announced an end to online brokerages accepting mutual fund trailing commissions effective June 1, 2022.
In order to facilitate the implementation of the rule change, in March 2022, the Ontario Securities Commission and other local securities commissions issued blanket orders which set out how mutual fund companies and order execution only (OEO) dealers like RBC Direct Investing will be permitted to handle trailer-paying mutual funds that are held in client accounts.
A switch that is carried out as a Like-for-Like or Like-for-Similar Switch, as under the definitions laid out in the Blanket Orders (see above), effects no tax consequences.
Please note, however, that RBC Direct Investing does not provide tax advice. You should discuss with a tax professional before you take any action on your own to buy, sell or switch your mutual fund holdings.
In the majority of cases, the switches will happen automatically, without action required or notification. Promptly after a switch, you will receive a trade confirmation which will set out the name of original trailer-paying fund that you held, the name of the non-trailer paying fund it was switched into, and the date of the switch. The switch will also appear on your next account statement, sent to you by mail or available in PDF format under View & Manage Documents if you have selected eDocuments.
You can find more information on the non-trailer-paying fund that your trailer-paying fund was switched into by reviewing the fund facts document (“Fund Facts”) of the particular class or series of the fund. The Fund Facts can be found on the SEDAR website at www.sedar.com(opens to external site) or on the website of the applicable mutual fund company. A Fund Facts will not be delivered to you unless you request it specifically.
If you hold a trailer-paying DSC fund that goes through an automatic switch before the fund’s redemption schedule has run its course, the automatic switch should not cause you to be charged any redemption fee. It is anticipated that mutual fund companies will waive any redemption fee that may be triggered by an automatic switch.
No, you will not be charged for any automatic switches effected by applicable mutual fund companies, nor for any Management Fee Rebates or Dealer Rebates provided to you as a result of you holding trailer-paying funds in your RBC Direct Investing accounts.
Note that if you choose to switch a fund on your own, you will be charged a commission and there may be tax consequences.
Stocks and ETFs are bought and sold on stock exchanges; mutual funds are not. For that reason, the commission structure is different. There is a commission when buying and selling stocks and ETFs. A commission will apply only on mutual fund buys and switches, not when selling.
Each investor’s situation is different, and the answer depends on the fund you hold, its current trailing commission, the amount invested and how long you hold it. To find this information, refer to the fund’s Fund Facts document or the trailing commission amount listed under “Compensation we received from third parties” on your annual charges and compensation report(s). Clients can also see a quick view of a fund’s fees and expenses by looking under the “Fees and Expenses” section of its detailed quote.
High Interest Savings products are not subject to the trailing commission ban. As such, fees for these products are not changing. RBC Direct Investing will not charge a trade commission when HISA products are purchased on any of our platforms or over the phone with an Investment Services Representative.
No, there is no commission on reinvested distributions.
No. You will not pay two sets of fees on each of your mutual fund holdings between March 14th and June 1st and RBC Direct Investing will not receive two sets of fees per mutual fund holding during the same period.
Effective March 7, 2022, RBC Direct Investing will no longer offer for purchase any mutual funds that pay trailing commissions. This means that any new purchases of mutual funds you make through RBC Direct Investing after March 7, 2022 will not pay any trailing commissions.
Purchasers of mutual funds as of March 14, 2022 will only pay an upfront trading commission on their new mutual funds purchases and switches.
Trailer-paying mutual funds held after March 14 may continue to pay trailing commissions until June 1, 2022 but clients will only pay an upfront trading commission on any new mutual fund purchases and switches.
Management Fee Rebates will appear as an increase in the number of units of the applicable fund in your account. When a Management Fee Rebate has been provided to you by an applicable mutual fund company, it will be clearly identified on your Transactions page.
When RBC Direct Investing has provided you with a Dealer Rebate, it will be clearly identified on your Transactions page.
There is no complicated calculation to determine the amount of Dealer Rebates paid. RBC Direct Investing will simply rebate you the amount of the trailer it is paid by the applicable mutual fund company in relation to the applicable trailer-paying fund holding. RBC Direct Investing will pay Dealer Rebates to you on at least a quarterly basis.
If you transfer-in a trailer-paying mutual fund to RBC Direct Investing after the automatic switches have taken place, the fund will not be automatically switched. Starting June 1, you may be provided with Management Fee Rebates from the applicable mutual fund company or Dealer Rebates from RBC Direct Investing, as the case may be, while you hold the trailer-paying fund in your RBC Direct Investing account. These rebates may be provided until at least 45 days after June 30, 2023 or such earlier date that a switch, if available, may be effected; or, if a switch is not available, at least until November 30, 2023, when temporary exemptions provided by the securities regulators expire. There is no action required on your part in respect of either of these outcomes.
Note that you will not be able to purchase more units of any trailer-paying mutual fund that you hold in your RBC Direct Investing account.
We may communicate with you separately, as necessary, if there is some exceptional circumstance in which your funds need to be sold or redeemed.