Lesson Introduction to mutual funds

Mutual fund trailer fee restrictions

Learn more about mutual fund trailer fee restrictions

The Canadian Securities Administrators (CSA) announced that, as of June 1, 2022, order execution only firms like Questrade should no longer hold mutual funds that pay a trailer fee.

In response to this regulatory change, mutual fund companies have switched funds that pay trailer fees to funds that do not pay these fees.

What is a trailer fee?

A trailer fee is a percentage-based commission that the mutual fund pays to an advisor, salesperson, or institution. Since Questrade doesn’t provide advice for our self-directed accounts, we have been refunding these fees since 2009 through our Mutual Fund Rebate program.

Due to the CSA regulatory change, this rebate program has been discontinued. However, this will not affect any rebates you are entitled to receive for trailer-paying mutual funds you may continue to hold.

Can I still buy mutual funds with trailer fees?

As of March 7th, 2022 we no longer allow the purchase of mutual funds with trailer fees in self-directed accounts.

Which mutual funds have trailer fees?

Typically, mutual funds without trailer fees are classified as F-Series (though there are also some D-series funds that don’t have trailer fees either). Most other series of mutual funds have trailer fees.

You can see whether a mutual fund pays a trailer fee by checking the mutual fund’s fact sheet or prospectus, which is available on the mutual fund company’s website or the SEDAR website.

What happens if I’m currently holding mutual funds with trailer fees?

If you're currently holding a trailer-paying mutual fund, one of these situations could occur:
  • If available, the trailer-paying mutual fund will be switched to a non-trailer–paying class or series of the same mutual fund.

    The only difference is a lower management fee for the non-trailer-paying class or series. This is a like-to-like switch.

  • If a like-to-like switch is not available, the trailer-paying mutual fund will be switched to a non-trailer-paying class or series of the same mutual fund.

    The only differences for the non-trailer-paying class or series are a lower management fee and a different dividend distribution policy and/or currency. This is a like-to-similar switch.

    Note: for both like-to-like and like-to-similar switches, the switch will be done automatically without any instruction required

  • If neither switch is available, you may continue to hold a trailer-paying mutual fund in your account after the June 1 deadline.

    In this case investment fund manager (IFM) will provide a management fee rebate. This will be typically rebated in the form of additional units in the fund.

  • If none of the above options is available for your mutual fund and the trailer-paying fund remains in your account, We cannot direct these rebates to another account.

Where the rebate is for a fund held in a registered plan such as an RRSP or TFSA, the rebate payment is not considered to be a contribution to the plan.

For other taxation questions related to rebates, please consult a tax advisor.

What happens if, after June 1, I transfer an account to Questrade that holds trailer-paying mutual funds?

If, after June 1, you transfer an account to Questrade with trailer-paying funds, these will be handled in one of the following ways:
  • If available, the trailer-paying mutual fund will be switched to a non-trailer–paying class or series of the same mutual fund.

    The only difference is a lower management fee for the non-trailer-paying class or series. This is a like-to-like switch.

  • If a like-to-like switch is not available, the trailer-paying mutual fund will be switched to a non-trailer-paying class or series of the same mutual fund.

    The only differences for the non-trailer-paying class or series are a lower management fee and a different dividend distribution policy and/or currency. This is a like-to-similar switch.
    Note: for both like-to-like and like-to-similar switches, the switch will be done automatically without any instruction required.

  • If neither switch is available, you may continue to hold a trailer-paying mutual fund in your account after the June 1 deadline. In this case investment fund manager (IFM) will provide a management fee rebate. This will be typically rebated in the form of additional units in the fund.
  • If none of the above options is available for your mutual fund and the trailer-paying fund remains in your account,

Where the rebate is for a fund held in a registered plan such as an RRSP or TFSA, the rebate payment is not considered to be a contribution to the plan.

For other taxation questions related to rebates, please consult a tax advisor.

Note: if the trailer-paying mutual fund is subject to a Deferred Sales Charge (DSC), once the DSC schedule has expired, the fund will be switched, following the above process.

When one or more of your trailer-paying mutual funds is switched to a non-trailer-paying fund, we'll email you with the details.

Will I continue to receive mutual fund rebates?

Our mutual fund rebate program has been discontinued as of June 1, 2022. However, you may continue to hold a trailer-paying mutual fund in your account after June 1 if a like-to-like switch or a like-to-similar switch to a non-trailer-paying fund is not available. In this case, you would receive a rebate as follows:
  • The investment fund manager will provide a management fee rebate which will be typically rebated in the form of additional units in the fund, or
    • If the above rebate option is not available, you will receive a dealer rebate,

      equal to the full amount of the trailer fee, which will be paid in cash quarterly to the account where the mutual fund is held.

    Note that you do not have a choice as to which form of rebate you will receive. This is determined by which rebate option is available, with a rebate by the investment fund manager being the first option.

    For more information, contact us at 1.888.783.7866.

    Are there tax implications if I'm switched over to a like or similar mutual fund?

    A switch from a trailer-paying mutual  fund to a non-trailer-paying fund may be a like-to-like switch or a like-to-similar switch. These are defined as follows:
    • A like-to-like switch means a switch, initiated by an investment fund manager or order execution only (OEO) dealer,

      of a mutual fund held in an OEO dealer account from a trailer-paying class or series to a non-trailer-paying class or series of the same mutual fund, where the only difference is a lower management fee for the non-trailer-paying class or series, and where there are no tax consequences for effecting such switch.

    • A like-to-similar switch means a switch, initiated by an investment fund manager or an OEO dealer,

      of a mutual fund held in an OEO dealer account from a trailer-paying class or series to a non-trailer-paying class or series of the same mutual fund, where the only differences are a lower management fee for the non-trailer paying class or series, and a difference in distribution policy and/or currency, and where there are no tax consequences for effecting such switch.

    Please note that Questrade, as an order execution only (OEO) dealer, does not provide tax advice. Please consult with a tax professional for more information.

    How can I get confirmation about the switch and details about the new mutual fund?

    If a switch is made in your account, you will receive a trade confirmation and will be able to see the details about the switch by logging in to your account and going to REPORTS > Account activity. It will also appear in your next monthly statement, which is found in REPORTS > Statements. These pages and documents will help you determine which mutual fund you were switched to. 

    To obtain the Fund Facts for the new fund, visit the SEDAR website, or go directly on the fund company’s website.  Please note you will not receive Fund Facts as a result of this switch; however, you may contact us to request them.

    What happens if I sell a mutual fund I'm holding?

    There are no restrictions to selling your mutual funds. If you wish to sell, the standard sell commission would apply. If your mutual fund is subject to a Deferred Sales Charge (DSC), you may incur this as a back-end sales charge, depending on how long you have been holding the fund. Unlike other sales charges, the amount that you have to pay for a DSC will decrease over time, eventually reaching zero if you hold the fund long enough.

    Note: The information in this blog is for information purposes only and should not be used or construed as financial, investment, or tax advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.

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