Switching is the selling or redemption of one mutual fund with a sales charge to buy another mutual fund with a sales charge. Recommended switches may not be based on the compensation to be received by the Registered Representative (“RR”) or ESI, and the RR must have a reasonable basis for believing the switch is in the best interest of the customer.
If recommending a mutual fund switch, you must complete and submit a Mutual Funds Purchase Disclosure (“MFPD”) form (ES0539).
MUTUAL FUND PURCHASE DISCLOSURE
Switches between mutual funds that result in potential additional sales charges for the customer (whether front-end or back-end load) require that a MFPD be obtained from the customer acknowledging an understanding of the consequences of the switch. Additionally, the MFPD is required if a mutual fund is being purchased with the proceeds from the redemption of another long-term financial product (such as a variable or fixed annuity, surrender of life insurance, qualified plan proceeds, etc.).
An MFPD is not required in the following instances:
- Assets in an existing account are retitled.
- Intra-fund family transfers/exchanges of the same share class.
- No-load/no-transaction fee transactions within a managed or wrap fee account. However, an MFPD may be required for new assets coming into such accounts, as described above.
- Stocks, bonds or certificates of deposit instruments are liquidated to purchase a mutual fund.
Failure to obtain the required documentation could result in disciplinary action by the Firm. For additional information regarding this requirement, please refer to Section 14.4 (Switching) of ESI’s Written Supervisory Procedures Manual.
QUESTIONS
If you have any questions regarding the Mutual Fund Purchase Disclosure Form, please contact the ESI Suitability Team at 800-344-7437.
TC126252(0422)1