The Mutual Fund Dealers Association of Canada is proceeding with its proposed rule requiring firms to advise clients of any sales charges, fees, or other transaction costs, before completing a trade.

The MFDA proposed the rule earlier this year, and received six comments on it. On Tuesday, the regulator said that it will proceed with the proposed new rule requiring upfront fee disclosure, and amendments requiring firms to keep a record of the fact that clients were informed about fees associated with a trade.

The changes will be brought forward for member approval at the association’s annual meeting in December. Additionally, the MFDA intends to publish a notice providing additional guidance on the application of the new rule, once the amendments are approved.

In response to some of the concerns from the industry, the MFDA notes that the proposed amendments largely codify existing industry practice and are “intended to address the significant number of investor complaints received where investors have advised staff that they were not informed of fees and charges” before their order was accepted, and only found out about these transaction costs when they received their trade confirmation or account statement.

“The proposed amendments have a clear regulatory objective and respond to a clearly identified regulatory need that is based on numerous client complaints received in respect of the particular issue. Moreover, as noted, the proposed amendments do not introduce novel requirements, but rather codify and standardize existing industry practice,” the MFDA says.

“The basic objective of the proposed amendments is to assist investor decision making through the timely provision of information and not to impair the timely execution of client transactions,” the MFDA says, and it notes that this discosure requirement can be met either in writing or verbally.

The MFDA says that the forthcoming companion notice will clarify that the proposed amendments are not intended to impair timely execution of client orders, and that it understands that in certain situations, it may not be possible to provide detailed fee information. In such situation, firms and reps would be expected to provide a reasonable estimate of the fees.

In the notice, the MFDA also explains that disclosure would not be expected where a client contacts a fund company directly to make a redemption request, and the rep isn’t aware of the order until after it’s executed. For unsolicited, online trades where it may be impractical to provide detailed, specific information, firms can comply with the rule by notifying clients of the types of fees and charges that may apply and advising them to contact the dealer if they want more information before they trade. In situations where a client places an unsolicited order and is unreachable, firms and reps “would be expected to use reasonable efforts” to contact the client and advise of the transaction fees and charges, notes.

IE