FINRA Allows New Mutual Funds to Provide Related Account Information to RIA/BDs
FINRA has issued an Interpretive Letter that allows a mutual fund sponsor to provide related separate account performance information to institutional investors including RIA and broker-dealer intermediaries. FINRA has generally prohibited such information. The Interpretive Letter includes several conditions including: (i) the information cannot be provided to retail investors either directly or through the intermediaries; (ii) the sponsor cannot provide hypothetical or backtested data; (iii) the related performance must relate to separate accounts or funds that are managed substantially similarly by the same adviser; (iv) the performance information must include all related accounts so that the fund sponsor cannot cherry-pick performance; (v) the performance information must show the effect of a model investment management fee; and (vi) actual fund performance must be displayed more prominently if the fund has more than 12 months of performance history.
OUR TAKE: It’s about time! FINRA’s prohibition on the use of related account information limits available information that intermediaries believe is useful. However, firms that want to use related account performance information should implement policies and procedures to comply with the significant conditions described in the Interpretive Letter.