September 18, 2021

Volume XI, Number 261

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FINRA Issues Guidance on Sales Charge Discounts and Waivers for Investment Company Products

On March 4, 2021, FINRA issued a regulatory notice relating to the application of investment company sales charge discounts and waivers to investors in circumstances described in applicable offering documents. The notice is intended to remind firms that they are obligated to understand sales charge discounts and waivers available on the products they offer and to apply them to eligible investors. The notice also provides an overview of sales charge discounts and waivers common in the industry, including volume-based sales charge discounts
(i.e., breakpoints) and sales charge waivers; notes certain frequently observed findings from FINRA examinations and enforcement actions; and reviews certain items firms should consider to improve compliance.

In the notice, FINRA identified certain recurring themes encountered in examinations and enforcement actions with respect to sales charge waivers and discounts, including:

  • firms whose systems, controls and written supervisory procedures were inadequate to identify customers eligible for sales charge discounts or waivers;

  • firms that relied on associated persons to identify and apply sales charge discounts and waivers but failed to provide adequate training regarding the availability of those discounts and waivers; and

  • that the foregoing problems were often compounded when associated persons were permitted to sell mutual funds to customers with accounts held directly with the funds’ transfer agents as a result of firms not having adequate systems in place to capture relevant data to supervise direct business transactions.

The notice also includes an extensive list of questions intended to assist firms in evaluating the adequacy of supervisory systems, written supervisory procedures and training programs relating to the application of sales charge discounts and waivers.

FINRA’s notice is available here.

© 2021 Vedder PriceNational Law Review, Volume XI, Number 152
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About this Author

John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Mark Quade Investment Attorney Vedder Price Chicago
Associate

Mark Quade is an associate in Vedder Price’s Chicago office and a member of the firm’s Investment Services practice group.

Prior to joining Vedder Price, Mr. Quade served as a 1940 Act attorney and assistant vice president at a mutual fund service provider in Milwaukee, Wisconsin. There, he provided legal support to a registered open-end multiple series trust and its board of trustees, and he also supported proprietary mutual funds. Among other matters, Mr. Quade facilitated investment advisory agreement approval and renewal processes, prepared and reviewed board meeting materials...

312 609 7515
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