FINRA does not regulate mutual funds directly, but does regulate the broker-dealers and registered representatives that sell mutual funds. In this capacity, FINRA enforces rules on mutual fund point-of-sale disclosure and other sales practices.
FINRA Rule 2210 prohibits firms and registered representatives selling mutual funds from making false, exaggerated, unwarranted or misleading claims in communications with the public. The rule requires firms to file certain communications involving registered investment companies, including mutual funds, and exchange-traded funds (ETFs), with FINRA’s Advertising Regulations Department. Similarly, FINRA Rule 2211 governs this area for institutional sales material and correspondence.
These rules also require disclosure of fees, expenses and standardized fund performance in mutual fund performance sales materials. This requirement improves investor awareness of the costs of buying and owning a mutual fund. It facilitates the comparison of funds and makes the presentation of standardized performance data more prominent in the sales material.
FINRA currently is conducting a retrospective review of its communications rules to determine whether the rules are meeting their intended investor protection. In the ensuing action phase, FINRA staff intends to consider specific rule proposals or other initiatives resulting from its review assessment.
FINRA has highlighted sales practice concerns with certain complex funds products, including alternative mutual funds and non-traditional ETFs. Alternative mutual funds, or alt funds, have seen a significant increase in sales over the past several years. They often are marketed as a way for retail investors to invest in sophisticated, actively-managed hedge fund like strategies that will perform well in a variety of market environments. Many of the funds use various non-traditional asset classes and strategies.
FINRA recommends that firms refer to such funds based on their specific strategies, instead of bundling them under one umbrella category, such as alternative mutual funds. Firms must ensure that their communications about alternative funds accurately and fairly describe how the products work. The descriptions of the funds in sales material must be consistent with the representations in a fund’s prospectus.
FINRA has provided guidance to firms on their sales practice obligations relating to leveraged and inverse ETFs. While these ETFs may be useful in some sophisticated trading strategies, they are typically designed to achieve their stated objectives on a daily basis. They are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.
Recently FINRA sanctioned firms for selling leveraged and inverse ETFs without reasonable supervision and without having a reasonable basis for recommending the securities. FINRA found that the firms had failed adequate due diligence regarding the risks and features of the ETFs.
Learn how mutual fund breakpoint discounts work. FINRA recommends that firms at the time of purchase of a mutual fund or periodically thereafter provide investors with a Written Disclosure Statement explaining the availability of breakpoint discounts.
|Smart Beta—What You Need to Know |
FINRA is issuing this investor alert to help investors better understand smart beta products.
|Target-Date Funds—Find the Right Target for You|
Sometimes referred to as life-cycle funds, target-date funds are a type of investment vehicle investors often see in their employer-sponsored retirement plans. Learn how they work and how to assess whether they’re right for you.
|Take a Deeper Dive: How Mutual Funds Are Structured|
A mutual fund is an investment company that pools money from many investors and invests it based on specific investment goals. Technically known as an "open-end company," a mutual fund raises money by selling its own shares to investors.
|Mutual Fund Breakpoint Refund Interest Calculator|
Interest Refund Calculator helps member firms determine interest due on missed breakpoint discounts.
|Tool / Resource||02-09-2015|
|Frontier Funds—Travel With Care|
"Frontier funds" that invest in securities of companies in countries with developing securities markets—like Argentina, Lebanon, Nigeria, Slovenia and Vietnam—are gaining investor attention. Some see investing in frontier funds as a way to diversify assets—going beyond funds that invest
|Alternative Funds Are Not Your Typical Mutual Funds|
Alternative or "alt" mutual funds are publicly offered, SEC-registered funds that use investment strategies that differ from the buy-and-hold strategy typical in the mutual fund industry. Compared to a traditional mutual fund, an alternative fund typically holds more non-traditional investments and employs more complex trading strategies. Investors considering alternative mutual funds should be aware of their unique characteristics and risks.
Proposed Rule Change to Amend NASD Rule 2711 to Conform with the Requirements of the Jumpstart Our Business Startups Act and Related Changes
|Regulatory Notice 12-02|
FINRA Provides Guidance on Application of Communications Rules to Disclosures Required by Department of Labor
|Regulatory Notice 11-49|
FINRA Provides Guidance on Advertising Regulation Issues
|Treasury's Guarantee Program for Money Market Mutual Funds: What You Should Know|
Money market mutual funds play an important role in America's financial markets, offering a relatively lower-risk alternative for investors who seek stability and liquidity.
|Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors|
The SEC staff and FINRA are issuing this Alert because we believe individual investors may be confused about the performance objectives of leveraged and inverse exchange-traded funds (ETFs).
|Systematic Investment Plans—Educate Yourself Before You Enlist|
Investing money each month is a great way to build a nest egg-but not all monthly investment programs are created equal. For a specific type of systematic investment plan-sometimes referred to as a "contractual plan" or "periodic payment plan"-an investor must make a long-term commitment of 10 or 15 years.
| Class B Mutual Fund Shares: Do They Make the Grade?|
Buying mutual funds through a broker or other investment professional usually means choosing among different mutual fund classes. The only differences among these classes is how much you will pay in expenses and how much your broker will be paid for selling you the fund.
|Understanding Mutual Fund Classes|
As an investor, you may have read about "Class A," "Class B," Class C", or other classes of mutual fund shares. If you are thinking about choosing one of these classes, it is important for you to understand the differences between them. FINRA regulates broker/dealers and their registered representatives, and we provide investors with information about securities products and services.
|Funds of Hedge Funds—Higher Costs and Risks for Higher Potential Returns|
Before you consider investing in a registered fund of hedge funds, you should understand the features of these investments, how they are regulated, what risks are involved, and how you can get more information on them.
Proposed Rule Change to Amend NASD Rule 2711 and NYSE Rule 472
|Regulatory Notice 07-36|
FINRA Clarifies Guidance Relating to SEC Regulation S-P under Notice to Members 07-06 (Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products)
|Notice to Members 06-48|
SEC Approves Amendments to NASD Rules 2210 and 2211 to Require Disclosure of Fees and Expenses in Mutual Fund Performance Sales Material
|Notice to Members 07-06|
Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
|Remarks at the SIA Soft Dollars and Institutional Brokerage Conference|
Good afternoon. Thank you, Don [Kittell, SIA Exec. VP], for the introduction. I am, as always, grateful to the SIA for inviting me to speak.
|NASD Foundation Funds CFA Project to Increase Investor Knowledge of Mutual Funds|
Wednesday, April 13, 2005 Washington, D.C.— The NASD Investor Education Foundation has awarded a grant of $73,000 to the Consumer Federation of America (CFA) to learn more about what average investors know about mutual funds and how they receive- and prefer to receive- fund information. The one
|NASD Endorses Concise, Web-Based Point of Sale Mutual Fund Disclosure|
Monday, April 4, 2005 Nancy Condon 202-728-8379 Herb Perone 202-728-8464 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
|Report of the Mutual Fund Task on Mutual Fund Distribution|
Report of the Mutual Fund Task on Mutual Fund Distribution Report of the Mutual Fund Task Force: Mutual Fund Distribution NASD formed the Mutual Fund Task Force (“Task Force”) to consider issues relating to soft dollars, mutual fund portfolio transaction costs and distribution arrangements. The
|Report / Study||03-29-2005|
|Task Force on Mutual Fund Distribution- John Doe Fund|
Task Force on Mutual Fund Distribution- John Doe Fund This bar chart shows the Fund’s change in value for the past 10 years. It illustrates how returns can differ from one year to the next. This chart shows the average change in value, with maximum sales charges, of the Fund over the past 1, 5 and
|Task Force on Mutual Fund Distribution- Research Report|
Task Force on Mutual Fund Distribution- Research Report MUTUAL FUND POINT OF SALE DISCLOSURE INVESTOR RESEARCH FINDINGS PREPARED FOR NASD BY APPLIED RESEARCH & CONSULTING LLC MARCH 23, 2005 1 4 9 W o o s t e r S t. • T h i r d F l o o r • N Y, N Y 1 0 0 1 2 T e l: 2 1 2. 2 2 6. 1 0 0 7 • F a x: