Mutual Funds

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.

Complex Products

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.

Breakpoints

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.

Titlesort descendingTypeDate
FINRA Orders an Additional Five Firms to Pay $18 Million in Restitution to Charities and Retirement Accounts Overcharged for Mutual Funds
FINRA announced today that it has ordered five firms to pay restitution estimated at more than $18 million, including interest, to affected customers for failing to waive mutual fund sales charges for eligible charitable organizations and retirement accounts.
News Release10-27-2015
Smart Beta—What You Need to Know
FINRA is issuing this investor alert to help investors better understand smart beta products.
Investor Alert09-23-2015
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.
Investor09-18-2015
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.
Investor07-28-2015
Mutual Fund Breakpoint Refund Interest Calculator
Interest Refund Calculator helps member firms determine interest due on missed breakpoint discounts.
Tool / Resource02-09-2015
5 Things You Need to Know About Mutual Funds
Mutual funds are a popular way to invest in securities. Some people find they offer certain advantages over buying individual stocks and bonds. But not all mutual funds are the same. And—as with any security—mutual fund investments involve risks, like the possibility you may lose money. So before you invest in a mutual fund, take time to understand them. We’ve put together a list of five things you need to know about investing in mutual funds.
Podcast01-21-2015
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
Investor Alert09-11-2014
FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid to Retirement Accounts and Charities Overcharged for Mutual Funds
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, in addition to $64.8 million the firm has already repaid to harmed investors.
News Release06-16-2014
What You Need to Know About Mutual Fund Fees
All mutual funds charge fees. The higher the fees you pay while owning a mutual fund, the lower the return you can make from your fund shares. Even a small percentage difference in the fees among funds can add up to a big difference in the dollars you can make. It's important to be aware of all the fees associated with a mutual fund investment.
Podcast04-16-2014
Alternative Funds Are Not Your Typical Mutual Funds
Compared to a traditional mutual fund, an alternative fund typically holds more non-traditional investments and employs more complex trading strategies. If you're considering an alternative fund, you should be aware of their unique characteristics and risks.
Podcast07-24-2013
FINRA Issues New Investor Alert, Alternative Funds Are Not Your Typical Mutual Funds
FINRA is re-issuing this Alert to remind investors that while munis have historically been considered relatively conservative investments, they do, like all bond investments, carry risk.
News Release06-11-2013
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.
Investor Alert06-11-2013
SR-FINRA-2012-045
Proposed Rule Change to Amend NASD Rule 2711 to Conform with the Requirements of the Jumpstart Our Business Startups Act and Related Changes
Rule Filing10-01-2012
Regulatory Notice 12-02
FINRA Provides Guidance on Application of Communications Rules to Disclosures Required by Department of Labor
Notices01-13-2012
Regulatory Notice 11-49
FINRA Provides Guidance on Advertising Regulation Issues
Notices10-27-2011
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.
Investor Alert07-09-2010
Learning to Invest, Part 14—Mutual Fund Loads and Fees
When it comes to investing in mutual funds, minimizing fees can add up to big savings, especially after decades of compounding.
Podcast07-07-2010
Learning to Invest, Part 6—Mutual Funds
Does researching and buying a broad mix of stocks and bonds sound too difficult and expensive? Then consider mutual funds for instant diversification.
Podcast02-16-2010
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).
Investor Alert08-18-2009
FINRA Fines Bank Broker-Dealers $1.65 Million for Supervisory Failures in Variable Annuity, Mutual Fund and UIT Transactions
The Financial Industry Regulatory Authority (FINRA) announced today that it fined five bank broker-dealers a total of $1.65 million for deficient supervision and procedures related to variable annuity, mutual fund or unit investment trust (UIT) transactions.
News Release07-23-2009
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.
Investor Alert10-13-2008
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.
Investor Alert10-11-2008
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.
Investor Alert10-06-2008
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.
Investor Alert10-06-2008
SR-FINRA-2007-011
Proposed Rule Change to Amend NASD Rule 2711 and NYSE Rule 472
Rule Filing09-12-2007

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