FINRA Proposes Point-of-Sale Disclosure of Mutual Fund Revenue Sharing
As part of its rule consolidation project, FINRA has proposed enhancing disclosure of revenue sharing between fund companies and broker-dealer distributors. New Rule 2341 would replace NASD Rule 2830 and would require point-of-sale disclosure of all revenue sharing arrangements, other than loads and service fees disclosed in the prospectus. Under the proposal, the BD would be required to disclose the “nature of any … cash payments received in the past 12 months” and identify the name of each payor. The disclosure would be listed “in descending order based upon the amount of compensation received from each offeror.” The disclosure would be required at the time of opening the customer’s account and updated at least semi-annually.
OUR TAKE: This proposed Rule looks very similar to the requirements of Rule 206(4)-3 under the Advisers Act, which requires advisers to disclose all solicitation payments to end clients. We think FINRA needs to clarify what it means by the “nature of any … cash payments.” Does this mean the BD has to disclose the amount, the method of calculation, both, or neither?