January 12, 1994
TO: SEC RULES COMMITTEE NO. 5-94
STATE LIAISON COMMITTEE NO. 5-94
SUBCOMMITTEE ON ADVERTISING NO. 1-94
UNIT INVESTMENT TRUST COMMITTEE NO. 3-94
RE: UPDATE ON NASAA SALES PRACTICES COMMITTEE'S PROJECTS
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As you may recall, the North American Securities Administrators Association
("NASAA") formed a new committee in 1992 to study various issues relating to the
sale of investment company securities. (See Memorandum to SEC Rules Committee
No. 94-92, State Liaison Committee No. 45-92, Unit Investment Trust Committee No.
71-92 and Subcommittee on Advertising No. 16-92, dated December 22, 1992.)
The Chair of the Investment Company Sales Practices Committee recently
provided the Institute with the following list of the Committee's projects for
this year:
1. identify specific problems and develop recommended solutions
concerning current state and federal regulation regarding sales
practices of investment companies, including preventing unsuitable
sales, curbing manipulative practices and deceptive sales techniques
and prevent sales by untrained personnel. Assess whether special
problems exist when sales are made through affiliated broker-dealers
or through agents who primarily operate as insurance professionals
in non-branch settings;
2. monitor complaints regarding investment companies which are filed
with the states, SEC or NASD for purposes of identifying areas of
concern which may require regulatory action;
3. identify specific problems and develop recommended solutions
concerning current state and federal regulation of advertising
practices of investment companies including the use of rankings in
mutual fund sales literature;
4. evaluate current disclosure requirements for sales incentives for
mutual funds. Determine whether current disclosure guidelines are
sufficient and, if not, determine whether further regulatory action
is justified;
5. evaluate whether suitability requirements are necessary for certain
types of mutual funds, such as junk bond mutual funds;
6. establish a working relationship with the NASD for the purpose of
periodically assessing the efficacy of the Series 6 examination to
ensure that the exam reflects current regulatory developments and
industry practices;
7. consider the desirability of requiring that front-end sales loads be
disclosed on mutual fund confirmations; and
8. consider the desirability of requiring that periodic account
statements disclose the current value of mutual fund shares held in
the account and any rule 12b-1 fees charged during the period
covered by the statement.
The following individuals have been appointed to serve on the Committee:
Richard S. Cortese, Chair (Vermont); William Mohr, Vice-Chair (New York); J.B.
Cassidy (Colorado); Linda M. Cohen (Rhode Island) and Don Raschke (Texas).
The Institute has provided the Committee with information relating to
certain of the above projects and will meet with the Committee later this month
to further discuss these issues.
We will keep you advised of developments.
Patricia Louie
Associate Counsel