Applicability of NASD rules to a member's use of a translator for group retirement plan enrollment presentations.
November 26, 2001
Re: Use of Translators
This letter responds to your letter of March 26, 2001, in which you requested an interpretation of how the NASD Rules would apply to a member firm’s use of a translator for group retirement plan enrollment presentations. In particular, you have asked whether the Rules would impose on a member firm the responsibility of ensuring the quality of the translation regardless of whether the member firm or the group plan sponsor provides the translator.
Your letter provides that [Broker/Dealer], an NASD member broker/dealer, is broker of record for a program known as the ________ Program (the "Program"). Under the Program, [Broker/Dealer] offers shares of mutual funds and participation in an [Affiliate] fixed group annuity to tax-qualified retirement plans and deferred compensation plans. [Broker/Dealer] will offer to plan sponsors a turn-key program in which [Broker/Dealer] representatives will provide all materials necessary for employees to enroll in a retirement plan. [Broker/Dealer] may provide to each plan sponsor a listing of mutual funds that the employer may select as investment vehicles for plan participants. [Affiliate] will then make on-site presentations to employees at which time employees will be permitted to enroll in the retirement plan. After the enrollment process is complete, [Affiliate] will provide record keeping and other administrative services either directly or through a subcontractor. We understand from speaking with you that any presentation concerning products or services offered by [Broker/Dealer] will only be made by properly registered representatives of [Broker/Dealer].
Your letter indicates that securities offered through the Program are generally limited to mutual funds, but that in the near future all Program participants will be able to open self-directed brokerage accounts allowing participants to engage in equity trading. The broker/dealer that will offer these self-directed brokerage accounts is not affiliated with [Broker/Dealer].
You state that [Broker/Dealer] will provide Program participants with prospectuses, advertisements and sales literature only in English and not in any other language. It is possible that certain generic educational materials may be distributed in a language other than English. These non-English materials would, for example, describe the benefits of saving for retirement or explain the concept of compounding, but would not mention any securities product or class of securities product.
You state that [Broker/Dealer] is now encountering situations in which employers are requesting that a translator be used in conjunction with enrollment presentations. You have described two scenarios in which translators would be used. In the first scenario, the plan sponsor would provide the translator, either by hiring an outside translator or using someone on the sponsor’s own staff. It is possible that the plan sponsor would request [Broker/Dealer] or [Affiliate] to reimburse the sponsor for the translator’s costs. You have represented, however, that [Broker/Dealer] would not recommend any particular translator to the sponsor, and all Program presentations would make clear that the translator is provided by the sponsor and is in no way affiliated with or approved by [Broker/Dealer]. You are of the opinion in these circumstances that [Broker/Dealer] should not be held responsible for the translator’s qualifications or the quality of the translation.
In the second scenario, [Broker/Dealer] would provide the translator itself by engaging the services of an outside consultant or using the services of a [Broker/Dealer] employee who is fluent in the foreign language. It is contemplated that these translators would not be registered representatives of [Broker/Dealer] or another member firm. However, [Broker/Dealer] would screen all translators to ensure that they have sufficient knowledge of English and the appropriate foreign language, as well as knowledge of basic securities terms and concepts so that the translator can provide an adequate translation of the sales presentation. We understand from speaking with you that any unregistered translator would not be compensated based on securities transactions executed by the plan sponsor or its participants. You state that you understand that the NASD Regulation staff would expect [Broker/Dealer] to be responsible for the quality of the translator under these circumstances.
In the first scenario described above, the retirement plan sponsor would provide a translator for the Program presentation, either by hiring an outside translator or by using one of its own employees, and [Broker/Dealer] could reimburse the plan sponsor for the translator’s costs. In the second scenario, [Broker/Dealer] would provide the translator, either by hiring an outside translator or using one of its own employees. Under either scenario, however, we believe that [Broker/Dealer] has a responsibility to ensure that the translator is qualified so that investors are protected.
In this regard, NASD Rule 3010 requires members to establish and maintain supervisory systems to ensure that the activities of their registered representatives and associated persons comply with applicable laws and regulations. Additionally, NASD Rule 2110 requires members to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. Finally, Rule 2210(d)(1)(C) requires members and their associated persons to meet the standards of Rule 2210(d) and (f) regarding content and use of a member’s name when participating in a public appearance.
In order to meet these standards, [Broker/Dealer] must take steps necessary to ensure that the translation of its presentation is accurate, regardless of whether it or its client provides the translator. [Broker/Dealer] should ensure that the translator is qualified, either by receiving such assurances from the plan sponsor if the sponsor hires the translator, or by investigating the translator’s qualifications itself if [Broker/Dealer] hires the translator. [Broker/Dealer] also should instruct the translator that he or she should only translate the information that [Broker/Dealer] is providing or questions from the audience, and should not provide information or answer questions about [Broker/Dealer]’s products or services independent of the information provided by [Broker/Dealer] representatives.
I hope that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds only to the issues you have raised based on the facts as you have described them, and does not address any other rule or interpretation of the NASD, or all possible regulatory and legal issues involved. In particular, this letter does not address any issues that may be raised under the federal securities laws, or the rules, regulations and interpretations of the Securities and Exchange Commission thereunder.
Joseph P. Savage
Investment Companies Regulation