In 2016 the MFDA asked all Members who sell proprietary investment products whether they permit clients to transfer those investments in-kind to other registered dealers or if instead clients are required to redeem the positions and transfer in-cash. Several Members stated that some or all of their proprietary mutual funds or other investment products are exclusively distributed by the Member and cannot be transferred in-kind.
The MFDA has received complaints from investors who were unaware that certain mutual funds could not be transferred to another dealer. In some cases, these investors incurred redemption fees to redeem their securities. There may also be tax consequences to a redemption and transfer in-cash versus a transfer-in-kind.
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. 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.
