Compliance Memo

Compliance Memorandum 2011-04; Disclosure of fees and charges

For more information, contact:

Compliance Team

Date Issued:

June 2, 2011

On February 22, 2011 the MFDA issued notice MR-0078; MFDA Rules 2.4.4 Transaction Fees or Charges and 5.1(b)(iv) (Requirement for Records) to provide further guidance and clarification in respect of the disclosure and record-keeping requirements under Rules 2.4.4 and 5.1(b)(iv).

Rule 2.4.4 states; Prior to the acceptance of any order in respect of a transaction in a client account, the Member shall inform the client of any sales charge, service charge or any other fees or charges to be deducted in respect of the transaction.

While financial advisors have been aware of the requirement to disclose commissions to clients for some time, this rule broadens the requirements to include fees and charges that are not related to compensation and in many cases requires greater specificity.

Fees that are required to be disclosed include withholding taxes, DSC charges, LL charges and all transaction based fees related to a transfer in cash.

To the extent possible, fees are to be disclosed as exact amounts. Where the amount cannot be known precisely due to, for example, market fluctuations, fees should be disclosed in a reasonable estimation of the fee in dollars or as a percentage.

As an example, when a financial advisor opens an account for a new client that intends to transfer their current holdings in cash (redeeming current holdings to cash) from the previous dealer, the financial advisor would be expected to provide a reasonable estimation of the fees (DSC, LL and all transaction based fees related to the transfer in cash) that may be incurred. The financial advisor must record notes of the conversation where fees were discussed. All “Transfers in Cash” should be accompanied by a financial advisors meeting notes where the estimation was provided.

An example of notes, “Client agreed to transfer in cash due to poor performance of existing holdings; client indicated their account value was (approximately) X dollars. We discussed that since they had held for Y years at former dealer, the DSC fee would be approximately [Z% of X] or around Z dollars.”

As always, if you have any questions or comments, contact the Compliance Department by email at