As part of its ongoing surveillance program, ESI monitors client purchases across the various share classes offered in mutual funds. In particular, purchases of Class C shares are subject to specific criteria outlined in the Firm’s Written Supervisory Procedures (“WSPs”) and must be reviewed to ensure compliance with ESI’s policies. Accordingly, ESI will notify clients when their Class C share holdings are near the Firm’s aggregate limits and will take further action once those thresholds are reached.
PURCHASES OF CLASS C SHARES
Registered Representatives (“RRs”) are reminded of ESI’s policies regarding clients’ purchases of class C shares in mutual funds and variable products. Section 15.8.1 of ESI’s WSP states that, when recommending C share purchases, the aggregate value of class C share purchases across all fund families may not exceed $500,000.
In determining which share class is suitable for the client, you should:
– Understand the advantages and disadvantages of different mutual fund share classes.
– Consider these differences based on the customer’s investment objectives, amount to be invested, and the customer’s time horizon for the investment.
– Consider that C shares generally should not be recommended to customers making purchases in large amounts that may qualify for lower costs because of breakpoints, letters of intent, or rights of accumulation available through the purchase of A shares.
NOTIFICATION TO CLIENTS APPROACHING $500,000 IN C SHARE HOLDINGS
Each quarter, ESI will identify clients whose Class C share holdings in any single fund family are approaching $500,000. When a client reaches or exceeds $450,000 in Class C shares within one fund family, they will receive a letter outlining the significant breakpoints typically available through Class A shares, as compared to Class C shares. The Registered Representative(s) assigned to the account will also receive a copy of the letter.
RESTRICTIONS FOR CUSTOMERS WHO EXCEED $500,000 IN C-SHARE HOLDINGS
On a quarterly basis, ESI will also identify clients whose C share mutual fund holdings have reached $500,000 across all fund families. These accounts will be restricted from making additional Class C share purchases. It is the responsibility of Registered Representatives (RRs) to communicate ESI’s policies to their clients, as the home office will not contact clients directly regarding these restrictions.
QUESTIONS
If you have any questions about this requirement, please contact your supervisor or ESI Compliance at 800-344-7437.
TC7915043(0425)1
