Interpretive Letter to Therese Squillacote, ING Financial Advisers, LLC
The posting to a Web site of performance information as required by California state law does not constitute an advertisement under NASD Rule 2210.
November 29, 2004
Chief Compliance Officer
ING Financial Advisers, LLC
151 Farmington Avenue, TS31
Hartford, CT 06156-1492
Re: Interpretative Request Regarding California Education Code 25100
Dear Ms. Squillacote:
This responds to your letter of September 20, 2004, in which you request interpretive guidance on the application of NASD Rule 2210 to 403(b) program performance information posted on a Web site as required by California law. Based on the facts that you have represented, and subject to the provisos set forth below, the staff of NASD would not consider posting such information to be an advertisement under NASD Rule 2210.
Your letter sets forth the following relevant facts:
The California Education Code recently was amended to require that the California State Teacher's Retirement System (CalSTRS) create an online information bank of 403(b)1 program vendors and products offered to California state education employees.2 To comply with the statute, CalSTRS is developing a Web site, www.403bCompare.com, that includes a list of registered vendors. These vendors must provide certain performance information for the products they offer to 403(b) participants, including (1) the investment's average annual total return for a period of not less than a year, as measured by a rating service selected by CalSTRS and (2) a fee table showing the total cost in dollars that would be incurred by an investor based on an initial $10,000 investment and assuming a 5% return for time periods of one, five, ten, fifteen and twenty years. The table must also include a disclaimer that the assumed returns are not predictive of future results. The performance information can be no more recent than the previous calendar year end. Finally, vendors must provide electronic links to prospectuses for their products.
According to the CalSTRS Web site, the purpose of the law is to provide eligible California state employees with "a bank of objective information about various 403(b) vendors and the products they offer." The site further states that CalSTRS and its officers and employees are not responsible for, and may not be held liable for, the adequacy of the information provided by participating vendors.
NASD Rule 2210 subjects member advertisements and sales literature to certain content, approval and filing requirements. Rule 2210 includes within the definition of "advertisement" any material, other than an independently prepared reprint or institutional sales material, that is published or used in any electronic media, including any Web site.
In an analogous context, NASD staff previously concluded that the inclusion of a hypothetical illustration in a policy summary required by Indiana law to be provided to individuals seeking to replace an existing life insurance policy would not constitute sales literature under Rule 2210.3 That policy summary was intended by the state to provide greater transparency and better inform customer investment decisions. The California legal requirements have a similar investor benefit purpose. As such, NASD staff is of the view that posting to the CalSTRS Web site the performance information required to implement the California law would not constitute an advertisement under NASD Rule 2210.
This interpretation applies only to the use of the performance information required by California law and only for the purposes of compliance with that law. Any additional use of that same information in another medium or context would require compliance with Rule 2210 and related interpretive materials. Moreover, as CalSTRS does not verify the accuracy of the performance information provided, this interpretation is conditioned on the assumption that all information provided by a member for inclusion on the CalSTRS Web site is truthful, accurate and not misleading. The communication of this information therefore remains subject to all other NASD rules and the federal securities laws, including NASD Rules 2110 and 2120 and the federal anti-fraud statutes.
I hope this letter is responsive to your inquiry. This letter responds only to the issues you have raised based on the facts as you have described them. It does not address any other rule or interpretation of NASD or all of the possible regulatory and legal issues involved. Further, please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by NASD's Board of Governors.
Very truly yours,
Philip A. Shaikun
Tom Pappas, Advertising Regulation, NASD
Fred McDonald, District Director - Boston District Office
1 26 U.S.C. § 403(b) (2003); I.R.C. § 403(b) (2003).
2 California Education Code 25100 et seq.
3 Letter dated September 30, 2002, to Sally Krawczyk, Esq., Sutherland, Asbill & Brennan, LLP from Philip A. Shaikun, Assistant General Counsel, NASD.