OSC seeking changes to rules for deferred sales charges on mutual funds

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TORONTO — The Ontario Securities Commission is proposing to restrict the use of deferred sales charges in the sale of mutual funds as every other jurisdiction across the country moves to ban them.

The provincial regulator wants to limit the circumstances in which mutual funds with the DSC option may be sold and give clients greater flexibility to redeem their investments without penalties.

Deferred sales charges are fees clients pay when they fail to retain a mutual fund for a given time period, usually between five and seven years. The move by Ontario comes as other provincial and territorial securities regulators across the country move to ban the fees.

The proposed rule changes in Ontario would prohibit the sale of mutual funds with the DSC option to clients who are aged 60 and over or who have an investment time horizon that is shorter than the DSC schedule.

The regulator says the proposed change would also prohibit sales to clients who intend to use borrowed money to finance their purchase and would impose a $50,000 threshold for maximum account size.

The changes would also shorten the maximum term of the DSC schedule to three years, compared with current industry practice where the maximum term can be up to seven years.

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