MFDA extends suspension of commission payment rule

(February 19, 2004) The payment of mutual fund commissions to personal corporations will be permitted until at least the end of 2006. Earlier this month, the MFDA’s board of directors agreed to further suspend a rule that would prohibit such a business arrangement.

MFDA rule 2.4.1 requires that all commissions be paid by fund dealers directly to sales representatives. However, the rule has never actually been in force. When the MFDA began operating in 2001, it agreed to temporarily suspend the rule to allow the industry to further study the issue and come up with a solution.

A three-year transition period was implemented, but it appears the industry needs more time to solve the problem.

“We’re hoping the securities commissions will work to some compromise on this issue and that’s why we’re extending the transition period to give them sufficient time,” says Laurie Gillett, the MFDA’s manager of membership services.

Gillett says since all the provincial regulators have not yet approved the extension of the rule suspension, the MFDA has not yet issued a bulletin to members on the topic. “We’re just waiting for all the regulatory approvals, which we are hoping will be soon.”

Ontario and Nova Scotia have approved the rule suspension, Gillett says.

“Changes to the framework applicable to the relationships amongst mutual fund dealers and their salespersons are necessary to address the issues raised by the mutual fund industry regarding business structures,” said the Nova Scotia Securities Commission in a notice released yesterday.

“The [Nova Scotia] commission acknowledges that staff of the various securities commission together with the MFDA and industry representatives are working to develop proposed solutions.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com