FINRA is conducting a review of corporate systems and procedures to provide clients with exemptions and discounts available through reinstatement fees1 (RoR) when purchasing mutual funds. A financing contract product requires a lump sum investment that is paid to the seller, which then provides the buyer with a fixed return over a period of time, often with the LIBOR-based return, which has become the world`s most popular benchmark for short-term interest rates. Breakpoint discounts are volume discounts on the initial selling expense charged to investors who purchase Class A mutual fund shares. The amount of the discount depends on the amount invested in a particular family of funds. FINRA Rule 2342 prohibits the sale of mutual fund units in an amount less than a breakpoint if the sales are made ”to share higher selling costs.” FINRA has highlighted concerns about the practice of selling certain complex fund products, including alternative mutual funds and non-traditional ETFs. While there is no standard definition of alternative mutual funds, if a fund`s strategy includes non-traditional asset classes, non-traditional strategies, or illiquid assets, the fund can be considered an alternative fund. Alternative investment funds or wealth funds have seen a significant increase in their turnover in recent years. They are often marketed as a way for retail investors to invest in sophisticated, actively managed hedge fund-like strategies that work well in a variety of market environments. Many of these funds use a variety of asset classes and non-traditional strategies. FINRA does not directly regulate mutual funds, but regulates dealer-dealers and registered agents who sell mutual funds.

As such, FINRA applies rules relating to the promotion of mutual funds, sales practices, including selling expenses that dealer dealers may calculate, incentives for registered representatives, and the execution of mutual fund portfolio transactions. FINRA`s regulatory jurisdiction includes the following areas: We may terminate your participation in the transactions provided for in this paragraph and in the Network Agreement at any time if you do not meet any of the conditions set out herein or, with respect to the accounts of an originator company, the termination of our merchant or investment fund contract with that company, or in any case or in connection with accounts with written notice from 30 Aube. FINRA reminds members that compensation agreements must never undermine a member`s obligation to adequately monitor its registered representatives or a registered agent`s obligation to provide only appropriate recommendations to clients. Members shall adopt and implement procedures appropriately designed to ensure that all written or oral communications from their representatives registered on the products of investment companies are fair and balanced. When recommending an investment firm, registered agents must disclose all material information, including the fund`s expenses and selling fees, investment objectives and risks. FINRA members and their registered agents are compensated for the sale of mutual fund units in a variety of ways, and the disclosure investors receive depends on the respective compensation agreement. For example, member compensation deducted from the initial investment or fund assets, such as selling expenses and fees under Rule 12b-1, is set out in the table of fees in the mutual fund`s prospectus. Other forms of member remuneration, such as. B payments by an investment fund advisor for ”storage space” should also be disclosed. A company`s procedures should include training employees involved in the sale of Class A shares of initial mutual funds. FINRA offers an overview of training that includes important breakthrough topics that companies should address in their training.

FINRA has also developed a checklist and worksheet that companies can use to gather the information needed to ensure clients receive their breakpoint discounts. FINRA also recommends that companies provide investors with a written statement explaining the availability of breakpoint discounts at the time of purchase or shortly thereafter. Financing contract products are similar to capital guarantee funds or guaranteed investment contracts, as both instruments also promise a fixed return with little or no capital risk. In other words, guarantee funds can generally be invested without risk of loss and are generally considered risk-free. However, like certificates of deposit or annuities, financing agreements generally offer only modest returns. NasD established the Mutual Fund Working Group (”Task Force”) to examine issues related to low dollars, transaction costs for mutual fund portfolios, and distribution agreements. The Task Force was established as a result of discussions between the Securities and Exchange Commission (”SEC”) and NASD staff to provide advice to the SEC on these matters. In addition, the rule prohibits companies from accepting cash compensation in connection with the distribution of mutual funds, unless the remuneration agreement is specified in the prospectus.

In a letter dated January 15, 2003 to NASD President and Chief Executive Officer Robert R. Glauber, former Chairman of the Securities and Exchange Commission (”SEC”), Harvey L. Pitt, requested NASD, as well as the Securities Industry Association (”SIA”) and the Investment Company Institute (”ICI”), to convene a working group to recommend industry-wide changes. correct errors and missed opportunities, provide discounts in the calculation of the selling burden when buying units of mutual funds that bear an initial selling burden. Funding contracts and similar types of investments often have liquidity limits and require advance notice – either from the investor or from the issue – for early repayment or termination of the agreement. As a result, agreements are often aimed at institutional and high-net-worth investors with significant capital for long-term investments. Mutual funds and pension plans often purchase funding arrangements because of the security and predictability they provide. FINRA Rule 2341(d) prohibits companies from selling mutual funds if their selling expenses are deemed ”excessive.” The rule sets different limits for initial and deferred selling fees, depending on whether the fund charges an asset-based ongoing selling fee or a service fee, e.B. a commission under Rule 12b-1, and whether the fund offers accumulation rights or volume or ”breakpoint” discounts. Rule 2341(d) also limits current fund service fees and other asset-based ongoing selling expenses. Once the lump sum investment is made, the Omaha Mutual`s financing agreement allows for termination and redemption for any reason by the issuer or investor, but the terms of the agreement require that 30 to 90 days before the last day of the interest period be announced in advance by the issuer or investor. According to FINRA Rule 2210, companies must ensure that their communication with the public about investment funds is based on the principles of fair trade and good faith, is fair and balanced, and provides a solid basis for assessing the facts about a particular security or type of security, of industry or service.

No broker-dealer may omit material facts or restrictions if, given the context of the documents submitted, the omission would result in deception of communications. No broker-dealer may make false, exaggerated, unjustified, orderly or misleading statements or allegations in any communication with the public, or publish, distribute or distribute any communication that the broker-dealer knows or has reason to know contains a false statement about a material fact or that is otherwise false or misleading. Mutual of Omaha provides a platform for financing contract products available to institutional investors. These refinancing agreements are marketed as conservative products paying interest with stable income payments and offered at fixed maturities with fixed or variable interest rates. The deposited funds will be held as part of the General Assets Account of United of Omaha Life Insurance Company. .