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.


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.

Titlesort descendingTypeDate
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FINRA is issuing this investor alert to help investors better understand smart beta products.
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Interest Refund Calculator helps member firms determine interest due on missed breakpoint discounts.
Tool / Resource02-09-2015
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Rule Filing10-01-2012
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FINRA Provides Guidance on Advertising Regulation Issues
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Investor Alert07-09-2010
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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
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
Proposed Rule Change to Amend NASD Rule 2711 and NYSE Rule 472
Rule Filing09-12-2007
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
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NASD Foundation Funds CFA Project to Increase Investor Knowledge of Mutual Funds
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News Release04-13-2005
NASD Endorses Concise, Web-Based Point of Sale Mutual Fund Disclosure
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News Release04-04-2005
Report of the Mutual Fund Task on Mutual Fund Distribution
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Task Force on Mutual Fund Distribution- Research Report
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