Investor complaints about the difficulty of transferring proprietary products to another firm have prompted the Mutual Fund Dealers Association (MFDA) to issue a regulatory bulletin. If proprietary investments can not be transferred, the MFDA says this should be disclosed at account opening.
In a bulletin released late last month Ken Woodard, the MFDA's Director of Communications and Membership Services, revealed that the regulator has received complaints from investors who were unaware that certain mutual funds could not be moved to another dealer.
In some cases Woodard says clients ended up having to pay redemption fees to move their securities. In other instances, clients also had to face tax consequences: since they were unable to make an in-kind transfer, they were forced to sell, realize taxable gains, and then move their money in cash.
"Where Members offer proprietary mutual funds or other investment products that cannot be transferred to other dealers, Members should, at a minimum, clearly disclose this to clients at account opening in their relationship disclosure document," reads the bulletin. "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."