NexGen Financial LP has received regulatory approval to pay a special benefit to investors and dealers.

According to the current issue of the OSC Bulletin, NexGen received an exemption from a section of the mutual fund sales practices rule allowing it to offer a “founders benefit” to both dealers and investors. The benefit is a temporary measure and the amount paid to dealers is subject to limits.

In addition to the standard sales commissions and trailer fees, investors who purchase the regular, loyalty, high net worth, ultra high net worth front load series or deferred load series of certain funds will be eligible to receive the benefit. “The benefit will entitle such investors and their participating dealers to receive from NexGen a payment equal to a portion of the value of NexGen at the end of the seven year vesting period from the date of purchase,” it explains.

The decision notes that the benefit does not share the attributes of a standard trailing commission because it is not derived from the application of a fixed commission rate to the balance of NexGen Fund units held by the investor. “The benefit is calculated based upon the growth of NexGen, as manager of the NexGen Funds, and is contingent upon the performance of NexGen. Also, the benefit, if paid, will be paid in a lump sum at the end of the seven year vesting period rather than periodically,” it says.

Investors and their dealers are entitled to receive one benefit payment for each 100 securities of NexGen Funds that the investor holds for seven years. The value of a payment is equal to the fully diluted value of one NexGen common partnership unit, less an initial base price of $1 per benefit, and less a compounding inflator of 8% per annum applied in respect of the initial base price. NexGen will pay half of the benefit to investors in the form of additional units of the funds, and the other half to dealers in cash. The benefits are also subject to certain limits.

The regulators granted approval for the plan, providing: the funds disclose the benefit in each renewal simplified prospectus and annual information form; NexGen discloses the value of the firm for purposes of the calculation of the benefit in the prospectus and AIF; that it ceases to offer the benefit no later than seven years after the date of the funds’ first final prospectuses; the total cash payment to dealers is subject to maximums; that the firm provides each dealer with a copy of the decision and specifically refers each dealer to a paragraph stressing that they must ensure the funds are suitable for investors; and, that the firm pays at least one half of the value of the benefit to investors.