The organization that markets (sells) mutual funds must be licensed in the province where it offers these products.
In addition, the person working for the licensed organization must also be licensed under either:
MFDA (Mutual Fund Dealers Association)
IDA (Investment Dealers Association)
In order to qualify for licensing, the individual must complete an accredited course of studies, have completed a supervised 90 day training program and have satisfied the accrediting body of their personal integrity through a thorough background check. For example:
the MFDA will expect you to have completed the Canadian Investment Funds Course through the Investment Funds Institute of Canada, or the Investment Funds in Canada Course through the Institute of Canadian Bankers or the Canadian Securities Course through the Canadian Securities Institute .
A mutual fund is a financial organization that accepts funds from numerous investors, pools these funds and invests them in bonds, stocks, real estate precious metals and other investments. It then issues shares or units to investors in proportion to the funds each investor contributes.
Conceptually, it is not a stock or bond, it’s a way of investing.
A series of organizations and individuals responsible for the day to day administration of the mutual fund, its investment strategies, the safe keeping of unit holders’ contributions and investments held by the fund and the selling and redemption of fund units.
Mutual Fund Complex FUND Trustees or (Board of Directors) (Officers) Management Company and/or Investment Adviser General Distributor Custodian (Provides physical safekeeping of fund assets) Pays management fee to Provides administration research and investment supervision C o n t r a c t Contract Contract Sells shares/units to investors either through investment dealers or through own direct sales organization/employees Net asset value (price of shares/units)
Behind every mutual fund is a series of organizations and individuals that are responsible for the day-to-day administration of the fund, its investment strategies, the safekeeping of ‘unitholders’ contributions and investments held by the fund, and the selling and redemption of fund units.
Together, we refer to this series of organizations and individuals as a mutual fund “complex.” A typical fund complex consists of:
Mutual funds may be organized as either a unit trust or as a corporation .
Some funds may operate in isolation, while others are part of a “family” of funds that includes a variety of mutual funds that specialize in different financial markets or have different investment objectives.
Corporate Form of Organization
an incorporated fund is subject to the Canada Business Corporations Act or similar provincial legislation.
Certain types of income (e.g. interest income) earned by an incorporated fund may be taxable first as income to the fund, and then in the hands of investors in the fund.
is the most common form of open-ended mutual fund organization today (largely because of a 1972 change in tax laws which permitted income earned by unit trusts to flow through to investors without being taxed in the hands of the trust.)
organizational structure formed by a declaration of trust and is subject to trust laws
the right to vote on certain matters concerning the fund is guaranteed in the legislation under which the fund is created, through National Policy Statement No. 39
a trustee or a number of trustees act as the governing body.
Trustees may be individuals or a corporate entity that has the power to act as a trustee (such as a trust company)
Trustees are responsible for the supervision of the fund’s operations and adherence to its investment policies. They have the power to enter into contracts on behalf of the fund for any required services.
The Mutual Fund Complex The Fund Manager and Portfolio Advisor
Regardless of organizational structure, directors and trustees are ultimately responsible for the management of a mutual fund’s investment portfolio as well as the day-to-day operations of the fund.
To assist with this latter task, the directors or trustees of the fund may enter into a contract with a management (investment) company to provide management services, rather than hiring staff to perform day-to-day administration. A firm that provides these services is commonly known as an administrative manager. Trustees and managers are often the same company.
To protect investors and as a part of internal control mechanisms, the administrative and custodial functions of mutual funds are kept separate.
The custodian is responsible for the safekeeping of all the fund’s investments.
National Policy Statement No. 39 requires that a mutual fund’s cash and securities be deposited with, and held by, a custodian.
The custodian must be a Canadian chartered bank, a Canadian trust company having shareholder’s equity of not less than $10 million, or in some cases a subsidiary of a Canadian Chartered bank or trust company that meets prescribed financial qualifications.
The custodian also holds all income earned by the fund until it is reinvested or distributed by the fund. The custodian makes all payments for the fund’s investments.
The distributor is the sales and marketing arm of the mutual fund organization.
It is responsible for bringing in assets to the fund in the form of new fund units.
Securities laws require each mutual fund to designate a principal distributor to assume the distribution responsibilities, usually under contract with the fund’s administrative manager.
In many cases, the administrative manager will assume the role of principal distributor, and will distribute or arrange for distribution by carrying out its distribution responsibilities through its employees or by subcontract with one or more of the following distribution channels:
Proprietary (in-house) selling organizations that market only the funds offered by one mutual fund group. (eg. Investors Group)
Mutual fund specialists employed by a mutual fund dealer who is not aligned or affiliated with any particular fund.
Stockbrokers employed by investment dealers.
Employees of financial institutions such as banks, trust companies, credit unions, and caisses populaires or their securities subsidiaries.
Employees of mutual fund groups that deal directly with the public and exclusively market their proprietary funds.
The Mutual Fund Complex The Registrar and Transfer Agent
This entity carries out two duties:
Registrar : the role of the Registrar is to safeguard against excess distribution of units or shares which would dilute the value of the fund. This is particularly important when share or unit certificates are reissued. Since issuance of share or unit certificates is now the exception rather than the rule, the role of the registrar is decreasing in importance.
Transfer Agent: maintains the register of owners of units or shares of the fund and records all transfers of ownership of units. This register is constantly changing as investors buy and redeem units. The transfer agent may also provide dividend distribution services.
These functions are usually provided by a trust company or other third-party service provider. In many cases, the same trust company that acts as the fund’s custodian will perform these duties.
Segregated Funds are an insurance product, combining a mutual fund-like investment with the protection of an insurance policy. As with mutual funds, an investor's money is pooled with the contributions of other investors to purchase a portfolio of securities. The value of the units purchased is based on the value of the underlying securities and will change in response to market conditions.