Tuesday, July 4, 2017

Transferring Accounts can be unpleasant

It should be no surprise there's an increase in the number of Canadians looking to transfer their accounts away from expensive, conflicted and abusive firms. Scandals like double dipping, expensive products, high fees, conflicted advice, risky Off book sales and even misappropriation of assets are key drivers. Investors are looking for trustworthy fee- only advice , fiduciary advisors, low cost robo -advisors and even discount brokers for those who want to control their own financial destiny. But transferring an account isn't that simple. There may be hefty account transfer fees and a lot of stalling before your account is transferred.

Virtually anyone who has ever transferred an account from one dealer to another is aggravated as to why the process takes so long. We would argue that it takes so long because there are no enforced regulatory requirements around maximum timelines and basic corporate behaviour is such that a dealer is slow to transfer out client money since that directly impacts firm revenue. To facilitate this, the MFDA, IIROC and the CSA should consider regulations regarding account transfers including maximum transfer times and apply fines for non-compliance.

Further,there is the potential for client harm resulting from delays in the transfer of accounts . And perhaps worst of all, restrictions of the type of securities that can be transferred.

In 2016 the MFDA asked all Members who sell proprietary investment products whether they permit clients to transfer those investments in-kind to other registered dealers or if instead clients are required to redeem the positions and transfer in-cash.  Several Members stated that some or all of their proprietary mutual funds or other investment products are exclusively distributed by the Member and therefore cannot be transferred in-kind. The MFDA has received complaints from investors who were unaware that certain mutual funds could not be transferred to another dealer.  In some cases, these investors incurred early redemption penalty fees to redeem their securities and convert to cash. There may also be tax consequences to a redemption and transfer in-cash versus a transfer-in-kind. Non-transferable assets deters mobility of consumers and therefore hinders competition for consumers business.

Kenmar feel that dealers that offer proprietary mutual funds or other investment products that cannot be transferred to other dealers, should, at a minimum, clearly disclose this to clients at account opening in their relationship disclosure document.  Where only certain specific funds or investment products cannot be transferred in-kind this should be specifically disclosed at the point of sale of the particular investment product.  In both instances, the disclosure should include a specific discussion of any potential fees or tax consequences that may result from a redemption and transfer in-cash. We’ve asked the MFDA an IIROC to issue Investor ALERT Bulletins on the issue.

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