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FINRA

 

 

FOR RELEASE:
CONTACTS:
Monday, April 4, 2005
Nancy Condon 202-728-8379
Herb Perone 202-728-8464

 

 

NASD Endorses Concise, Web-Based Point of Sale Mutual Fund Disclosure

Washington, D.C. - NASD is recommending that the Securities and Exchange Commission improve point of sale disclosure to mutual fund investors by mandating Internet disclosure of a new  "Profile Plus" - a two-page document providing basic information about a mutual fund, including its investment objectives, risks, performance, fees and expenses, and information about potential conflicts of interest.

 

NASD is also recommending that every broker-dealer be required to post a Profile Plus for each mutual fund it sells on the broker-dealer's website, with hyperlinks to the fund's prospectus and to a dealer disclosure statement with more information about the broker-dealer's potential conflicts of interest.  Investors would also have the option of requesting paper delivery of the document.

 

Profile Plus is the chief recommendation of NASD's Mutual Fund Task Force in Mutual Fund Distribution, its second and final report to the SEC. NASD Chairman and CEO Robert R. Glauber endorsed the task force's recommendations in the NASD's comment letter regarding an SEC rule proposal on point of sale disclosure requirements and confirmation requirements in mutual funds, college savings plans and other securities.

 

"The SEC proposal is an excellent effort that properly focuses on getting more, better and clearer information to investors at the most important time - prior to purchase. Good point of sale information is crucial for investors, and Profile Plus would build on the SEC's proposal by adding information about investment risks, objectives and performance - three of the most important things investors need to consider when purchasing a mutual fund," Glauber said.

 

"Using the Internet for point-of-sale disclosure moves us into the 21st Century, so that investors have an alternative to more piles of paper," Glauber said. "Giving investors a concise disclosure document with access to more detailed information through hyperlinks, a web-based Profile Plus would allow them to review as much or as little detail about a fund as they wish. And it would make comparing all funds offered by a particular broker-dealer much easier."

 

The task force's Profile Plus recommendation was guided by the results of focus groups with investors, who indicated a strong preference for website delivery of disclosure and a high level of enthusiasm for the format of Profile Plus.

 

Chaired by Glauber, the task force's 20 other members represent a cross-section of the broker-dealer and investment company industries. The task force was named in May 2004 to help inform SEC rule proposals regarding mutual fund cost disclosure and distribution arrangements.

 

"I am grateful to the members of the task force, who spent a great deal of time working through these important issues," Glauber said. "They have developed an innovative approach to meeting our common objective of helping investors make informed decisions."

 

In its report, the task force also recommended that the SEC:

  • Update and modernize the findings that a fund board must make in approving and continuing a Rule 12b-1 plan;
  • List Rule 12b-1 fees in the prospectus fee table solely in a manner that describes their purpose, e.g., as "distribution and shareholder servicing fees," without reference to a rule number that may be confusing to many investors;
  • Mandate better disclosure to investors about the costs of Class B shares and, along with NASD, consider other regulatory issues concerning Class B shares; and
  • Reconsider the unified fee proposal previously set forth by the SEC staff.

The work of the task force proceeded in two phases.  Last November, the Task Force submitted its recommendations on Phase I in The Report of the Mutual Fund Task Force on Soft Dollars and Portfolio Transaction Costs. In Phase II, the task force focused on distribution arrangements, including 12b-1 fees and revenue sharing. Its recommendations are detailed in Report of the Mutual Fund Task Force - Mutual Fund Distribution.

 

Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through NASD's BrokerCheck.  NASD makes BrokerCheck available at no charge to the public.  In 2004, members of the public used this service to conduct nearly 3.8 million searches for existing brokers or firms and requested more than 190,000 reports in cases where disclosable information existed on a broker or firm.  Investors can link directly to the program by going online to http://www.nasdbrokercheck.com/.  Investors can also access this service by calling 1-800-289-9999.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.  NASD touches virtually every aspect of the securities business-from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms.  For more information, please visit our Web Site at http://www.nasd.com/.