4.9. Investment Company Communications

NASAA has certain rules regarding communications that broker-dealers and agents selling investment company shares can have with their clients. Investment companies include unit investment trusts, closed-end funds, open-end funds (mutual funds), and face amount certificates. The rules associated with communications related to investment companies include:

• All sales charges that may be associated with purchasing, retaining, or redeeming investment company 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. This is because when such a recommendation occurs, the client will end up paying fees on purchases that do nothing to diversify her portfolio.

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