Unilateral Mutual Fund Substitutions 

GN-3900-21-005
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
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Effective Date: December 31, 2021 

  1. Same-family mutual funds

Many same-family mutual funds are made available to investors that are in all other respects identical, except for differences such as their respective commission loads (e.g., deferred loads, front-end loads, low-loads, no-loads, etc.) and “trailer” fee payouts.

IIROC reminds Dealer Members (Dealers) that – for all their other similarities – each fund type remains a separate and distinct security: one may neither replace nor be substituted for the other except at a client’s express direction, and not without triggering all the recordkeeping and client notification requirements that accompany any other normal course, non-automatic mutual fund transaction.

Dealers are also reminded to implement robust internal controls, policies and procedures to guard against registrants unnecessarily switching from one type of fund to another in client accounts. This would include making recommendations or soliciting the switching from one type of fund to another where there is no business reason or advantage to the client to do so.

This guidance is not directed at automatic conversion programs where a mutual fund has made full disclosure of the required information in the fund prospectus. It is also not directed at re-org type situations, such as where one class of a particular fund is being replaced by another.

  1. Applicable rules

IIROC Rules this Guidance Note relates to:

  • section 3102, and
  • section 3904. 
  1. Previous guidance note

This Guidance Note replaces MR0361 – Unilateral Mutual Fund Substitutions.

  1. Related documents

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