Sales Charge Waiver

Certain load mutual funds allow investors to buy Class A shares without paying the front-end sales load (i.e. they can purchases the shares at NAV) if they buy that fund using proceeds from the sale of shares in a different mutual fund family for which they paid a front-end or back-end sales charge. These transactions are called "NAV transfers".

As a decent adviser, you should never recommend your clients to switch their funds if the only basis for the recommendation is simply to earn a commission from the sale or purchase. If the opportunity of sales charge waiver under NAV transfers is available, you should inform your clients.

NASD has recently imposed fines totaling US$850,000 against four firms - Edward Jones, RBC Dain Rauscher, Royal Alliance Associates and Morgan Stanley - for failing to have adequate supervisory systems and procedures to identify opportunities for investors to purchase Class A mutual fund shares at NAV.

During 2002-2004, many mutual fund families offered NAV transfer programs that eliminated front-end mutual fund sales charges for certain customers. NASD found that each of the firms failed to ensure that customers received NAV pricing when appropriate. As a result, certain investors purchased Class A shares and incurred front-end sales charges that they should not have paid, or purchased other mutual fund share classes that subjected them to higher fees and the potential of contingent deferred sales charges.

Each firm was ordered to provide remediation to thousands of eligible clients who qualified for, but did not receive, the benefit of available NAV transfer programs.

The principle of acting in the best of clients is so wide, which may be breached by either action or inaction.