Investment Company Communications

NASAA has certain rules regarding the communications broker-dealers and agents who are selling shares in an investment company can make to their clients. Investment companies include unit investment trusts, closed-end funds, open-end funds (mutual funds), and face amount certificates. These rules include:

• • All sales charges that may be associated with purchasing, retaining, or redeeming the shares must be disclosed to clients.
• • Solicitors cannot call a fund “no load” or say it has no sales charge if there is a front-end sales charge, a contingent deferred sales charge, or a marketing or service fee that exceeds 0.25% of the average assets of the fund per year (or for a closed-end fund, any underwriting fees or other offering expenses).
• • All due to breakpoints need to be disclosed.
• • The recommendation of a particular class of investment company shares (A-, B-, or C-shares) must be suitable for the investor.
• • Solicitors should not recommend the purchase of multiple investment company funds that have the same investment objective because the client will end up paying higher fees for no more diversification.
• • Solicitors should not recommend the sale of a client’s current mutual fund for a new mutual f