Mutual Fund Sales Incentives

GN-3100-21-002
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
Distribute internally to:
Institutional
Internal Audit
Legal and Compliance
Operations
Registration
Senior Management

Contact:

Member Regulation Policy
Email:

Executive Summary

Effective Date: December 31, 2021

The purpose of this Guidance Note is to provide IIROC staff’s view on mutual fund sales incentives.

Section 3117 of the IIROC Rules1  prohibits Dealer Members (Dealers) or employees from accepting non-cash sales incentives in connection with the sale or distribution of mutual fund products. It further prohibits Members from paying such non-cash incentives to its employees in connection with the sale of mutual funds. In forming our guidance on the situations posed below, we have also considered subsection 2551(7) which prohibits Dealers' Approved Persons from accepting payment from any person other than the Dealer.

  • 1In this Guidance, all rule references are to the IIROC Rules unless otherwise specified.
  1. Educational Conferences/Trips

Section 3117 prohibits Dealers and their employees from participating in educational conferences/trips offered by mutual fund companies in connection with sales of their mutual funds.

A practice has developed in which some firms solicit contributions from mutual fund managers toward defraying expenses of a firm-sponsored educational conference. While such cash contributions are permitted, selection of employees for attendance at such conferences based on sales of the contributing company's funds is prohibited.

  1. Due Diligence Visits

Due diligence visits are visits to the offices of a mutual fund manager for educational purposes. For such a visit to be permissible under the rules, the cost of the visit must be paid by the Dealer or the employee. In the event that the Dealer pays, selection of employees to participate cannot be made based on sales of the funds of that fund manager.

  1. Marketing Allowances

‘Marketing Allowance' or `Bonus Commission' is cash compensation paid for individuals selling more than set amounts of a particular fund or groups of funds. They are cash compensation and the eligibility for such programs should be described in the Prospectus. They are not prohibited by section 3117 but payments are required to be made to the Dealer, which can, at its discretion, then allocate the payments to the appropriate individuals.

  1. Co-operative Advertising/Trades Shows and Seminars

These are cash payments made by fund sponsors to assist firms in promotion. As cash payments, they are not affected by section 3117. However, we remind firms of their responsibilities under section 3603, especially the requirement that all advertising be pre-authorized by the Dealer.

  1. Reciprocal Commissions

Reciprocal commissions are commissions paid to Dealers for trades that the Dealers do on behalf of mutual funds. These are permitted under section 3117.

  1. Trailing Commission or Service Fees

These are specifically permitted under section 3117.

  1. Charitable Donations

Donations may be made `in honour of' an individual, however, the tax receipt must be issued to, and in the name of, the mutual fund company, not the individual.

  1. Road Shows

Attendance at promotional road shows put on by mutual funds is permitted, provided that the event is in close proximity to an investment advisor's workplace or residence, or that travel costs are not paid by the fund manager.

  1. Reasonable Business Promotion Activities

These include tickets to sporting events or theatre, luncheons, etc., which take place in the locale where the recipient is employed or resides. Such activities, to the extent they are reasonable, are permitted by the IIROC Rules.

  1. Applicable Rules

IIROC Rules this Guidance Note relates to:

  • subsection 2551(7)
  • section 3117.
  1. Previous Guidance Note

This Guidance Note replaces Notice C-62 - Mutual Fund Sales Incentives.

  1. Related Documents

This Guidance Note was published under Notice 21-0190 - IIROC Rules, Form 1 and Guidance.