NASD Board Approves Proposal to Allow Use of Investment Analysis Tools
Washington, D.C. — NASD's Board of Directors approved the publication for comment of a proposal that would allow NASD-regulated brokerage firms to provide their customers with interactive "investment analysis tools." Investment analysis tools process a range of information supplied by investors, such as their age, financial situation and investment objectives, and statistically develop outcomes, such as meeting a financial goal, based on that information.
Although today brokerage firms are prohibited from providing customers direct access to such tools, other financial advisors and institutions have offered public access to similar automated tools for some time. With appropriate disclosures and other safeguards, NASD believes that these tools could assist customers in making judgments about how an investment strategy might perform. NASD is soliciting comment on, among other matters, whether and to what extent members should be permitted to provide these tools directly to their customers. The proposal makes it clear that to the extent that these tools make investment recommendations, NASD's suitability rule would apply.
NASD is proposing requirements for firms' use of the tools with their customers, including:
- Disclosure of the entire range of possible outcomes, giving both downside risk and upside gain.
- Disclosure of the universe of investments considered and a statement that other investments not considered might have characteristics similar to those that the tools analyze.
- Explanation of all material assumptions in a clear and understandable manner.
- Disclosure of whether the tools search, analyze or in any way favor certain securities and the reasons for such selectivity.
NASD would review the tools prior to their use by a brokerage firm.
NASD is requesting public comment on the proposal, which can be viewed in a Notice to Members on http://www.nasdr.com/pdf-text/0251ntm.pdf. Approval by the Securities and Exchange Commission is required before any proposal becomes final.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors 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 member firms. For more information please visit www.nasd.com.