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Big changes are coming in 2022 for do-it-yourself investors who hold mutual funds through an online broker, but the time to start preparing is now.

Securities regulators have announced that as of June 1, 2022, online brokers will no longer be able to sell mutual funds with fees that include payments to cover investment advice and service. Online brokers are strictly in the order-taking business, so they’re not really entitled to those advice commissions. Nevertheless, these brokers have been selling funds paying them these commissions for decades.

Check your account if you’re a DIY fund investor – you should be holding Series D funds, with trailing commissions for advice mostly eliminated. If you hold Series A or B funds, check to see whether a D version is available and consider a “switch transaction.”

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A check with TD Direct Investing confirmed that switch transactions are available at no cost to the investor. In addition, because such a switch isn’t deemed a sale of the fund, it would not trigger a capital gains tax in a non-registered account. “A mutual fund switch within the same family of funds is generally considered to be a non-taxable event,” TDDI said in an e-mail. “As an example, a switch from an A-Series to D-Series of the same fund fits into this category as both would be considered part of the same family of funds.”

Many mutual fund families have Series D funds, but not all. If you can’t switch from a Series A or B fund in your online brokerage account, consider your exit strategy. In a sense, there’s an argument for selling, in the fact that you own a fund with 0.5 to one percentage point of its management expense ratio paying for advice you do not and cannot receive. Selling and moving to a more cost-efficient investment such as an exchange-traded fund or low-cost mutual fund could make sense.

For clients with Series A or B funds with no Series D equivalent to switch into, TD said it will work with industry partners to find the most investor-friendly process to comply with the new regulatory rules. The challenge for brokers and investors is that some investors may realize taxable capital gains if they sell their Series A funds and would prefer not to. It remains to be seen what options will be available to people who would prefer to stay in their Series A or B fund for whatever reason.

It’s worth pointing out that TD and other brokers have provided notices in the past couple of years to investors about the availability of Series D funds. If you missed that, now’s the time to check your account statement to see what type of mutual funds you own and, where required, plot an exit strategy.

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