MUTUAL FUNDS IN CANADA Flashcards
Under NI 31-103, a dealer must be registered by the securities administrator or provincial regulator in one or more of the following categories:
Under NI 31-103, a dealer must be registered by the securities administrator or provincial regulator in one or more of the following categories:
Investment dealer
Scholarship plan dealer
Restricted dealer
Exempt market dealer
Mutual fund dealer
INVESTMENT DEALER
Investment dealers can deal in any type of security. The primary business lines of investment dealers are investment banking, private client and discount brokerage.
SCHOLARSHIP PLAN DEALER
The scholarship plan dealer deals in securities including scholarship plans, educational plans or educational trusts.
TWO TYPES OF SCHOLARSHIP PLANS?
Scholarship plans are offered by scholarship plan dealers, banks and other financial institutions. There are generally two types of plans:
Individual, or self-directed, plans AND Group plans
RESTRICTED DEALER?
ANSWER
**Restricted Dealer Restricted dealers are limited by registration conditions. They are limited to trading in a specified security, class of security or the securities of a class of issuers. An example of a restricted dealer is a dealer specializing in real estate securities.**
EXEMPT MARKET DEALER?
Exempt Market Dealer:
An exempt market dealer or underwriter trades or advises in the exempt market.
This market largely consists of the underwriting and sale of securities to the following investors:
Institutional investors (such as pension funds) Accredited investors
Investors whose minimum purchase is $150,000
Exempt market dealers typically deal in securities that are _ _ _ _ _ _ _ _
Exempt market dealers typically deal in securities that are prospectus exempt.
TRUE OR FALSE?
Exempt market dealers can also deal in securities that are prospectus qualified, such as mutual funds.
ANSWER: TRUE
Types of securities sold in the exempt market dealer category include?
ANSWER:
Private placements
Real estate syndications
Mortgage investments
Structured products
Hedge funds
MUTUAL FUND DEALER?
ANSWER: In Canada, a mutual fund dealer is a company registered with the provincial securities commissions to distribute mutual funds to Canadian investors.
TRUE OR FALSE?
The mutual fund dealer and the mutual fund company that manufactures, manages and administers mutual funds are two separate entities.
However, some companies may be part of the same ownership group as mutual fund dealers.
ANSWER: TRUE
Mutual fund companies are registered and regulated directly by ________________ — not by the MFDA.
ANSWER: Mutual fund companies are registered and regulated directly by the provincial securities commissions—not by the MFDA.
SALES FEES
ANSWER:
These fees are paid by investors to the financial advisors and dealers who sell the funds on behalf of the mutual fund companies.
Front-end load fees are paid upon purchase.
Back-end load, or deferred sales charge, fees are paid upon redemption.
Generally, sales fees are negotiable between the client and the advisor. Some mutual fund dealers do not charge sales fees, offering no-load funds
MANAGEMENT FEES?
ANSWER:
Management fees:
These fees pay for the management and operation of funds, as well as ongoing dealer or advisor compensation.
These are separate from sales fees. They are usually expressed as a percentage of a fund’s net asset value. They are known as management expense ratio (MER).
The mutual fund dealer typically receives approximately 40% of the MER.
The dealer’s share of the MER is often referred to as a trailer fee, which is paid to the dealer for its ongoing services.
The dealer retains a portion of the fees, and pays the rest to the representative responsible for the sale.
The remainder of the MER (60%) goes to the mutual fund company, divided as follows: 40% to investment management services and 20% to administrative costs.
MERs have largely declined over the past ten years. Currently, they fall in the range of 1% to 2.5%, depending on the type of fund.
TRUE OR FALSE?
The number of mutual fund dealers (MFDA member firms) has been declining in recent years.
ANSWER: TRUE