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94 Cards in this Set
- Front
- Back
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Mutual Fund Distribution
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mutual funds usually dont sell their own shares directly to investors.
-distribution of shares is usually the responsibility of the underwriter |
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Mutual Fund Underwriter(aka)
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sponder or distributor
-sponser adds a sales charge to the net asset value of the fund, -then sells the shares to investors at the public offering price |
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Net asset value
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what the customer sells for shares
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Public Offering Price
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what customer pays for shares
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Sales charge
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how public institutions and distributors make money
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NAV(Net Asset Value)
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similar to bid on stock, net value of a mutual fund after deducting all its liabilities
- mutual funds have to calculate NAV at least once per business day |
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No Load Funds
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do not charge a sales charge to investors who invest in the mutual fund
-because no sales charge fund can sell shares directly to investors at NAV |
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Mutual Fund Summary Prospectus(4 pieces of info included on prospectus)
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-official offering document for open end mutual fund
-must be presented to all purchasers of the fund - includes all info to make a good decision, full and fair disclosure of what fund is - Funds Objective -Sales Charge(max of 8.5%) - Management Expenses -Fund Services Performance data for the past 1,5,10(or for life) of the fund |
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Full Service Mutual Fund( 3 specific things that make it Full Service)
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Must be full service if want to charge 8.5% sales charges
- break points -rights of accumulation - reinvestment of dividends at NAV |
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Statement of Additional Infor (Mutual Fund Prospectus additional info)(5 things)
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more detailed info about the fund available upon request-Funds securities holdings
- balance sheet - income statement - portfolio turnover data - Compensation paid to the board of directors and investment advisory board |
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Mutual Fund Prospectus( time period requirements for fund)
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should be updated every 12 months
- must be updated every 13 months - may be used by a rep for up to 16 months - must be discarded after 16 months |
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Mutual Fund Portfolios(5)
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literally thousands of mutual funds
-Equity funds -Bond Funds -Sector Funds - Index Funds - Money Market funds |
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Equity Funds(Mutual Funds)
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- invest in all kinds of common stock, perferred stock, ADR's
- want to see growth an capital appreciation - stocks outperform other investments so best bet for capital growth |
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Bond Funds(Mutual Funds)
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- income funds
corp bond funds(highest Yield) gov bonds( lowest yield, safest) muni bond funds( tax relief, tax free dividends |
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Sector Funds(Mutual Funds)
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fund that invests at least 25% in one industry or area
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Index Funds(Mutual Funds)
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-portfolios that mirror a particular market index
ex. S&P 500 wonderful for low transaction costs(not alot of maintenence to do) |
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Money Market Funds(Mutual Funds)
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money market securities
- high quality debt with one year of less till maturity - highly liquid funds |
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Valuing Mutual Funds
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- use forward pricing
- at end of day they price share(usually but at least once per day) Assets-Liabilities= NAV NAV/ outstanding shares= NAV per share Price Per Share+ sales charge = Public Offering Price(ask on stock) |
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Causes for Changes in NAV of Mutual Fund
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Increase:
- value of securities in portfolio increase - portfolio receives investment income, such as interest payments from bonds Decrease in NAV: - value of securities in the porfolio fall in value - fund distributes dividends or capital gains to shareholders No Changes in NAV: - investor purchases and redemptions - portfolio purchases and sales of securities -Sales charges |
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Mutual Fund Sales Charge
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no load fund: doesnt charge sales charge, but do have expenses that get passes down
Loaded Funds: max is 8.5% of Public Offerinc Price(POP) Closed end Investment Company: may be priced above or below the funds NAV - can also charge commission |
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Calulating Fund Sales Charge (formula for percent of sales charge)
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Formula for Percent of Sales Charge
POP-NAV= Sales Charge$ SC$/POP= SC% SC%= (POP-NAV)/ POP |
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Finding POP using NAV and SC%
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POP= NAV/(100%-SC%)
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Dollar Cost Averageing
-average price -average cost |
-strategy of investing a fixed sum of money on a regular basis into a fluctuating market price
-over time dollar cost averaging should result in the investor having an average cost that is lower than their average price ex: avg price= total of purchase prices / # of purchases avg cost= Total Dollars invested / total # of shares |
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Assesing Sales Charges(4)
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-Front End Load: sales charge paid by investors in open end mutual funds, which is paid at the time of purchase
-Back end Load: aka contingent deffered sales charge -- assessed upon the redemption of shares -- amount of sales charge assessed decreases the longer the shares are held Level Load- mutual fund share that charges a flat annual fee 12 B-1 Fee- an asset based distribution fee -- assessed annually and paid out quarterly -- covers advertising and distribution costs -- must be fair and reasonable and cant be used to compensate sales ppl |
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Ways to reduce sales Charges(5)
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1) breakpoints( quantity discounts) more they buy less they pay in sales charge
- ***breakpoints are not available to investment clubs, nor investors and their adult children investing in separate accounts - Can sign a letter of intent --in order to take advantage of breakpoints -- must come up with additional investment money within 13 months -- can backdate up to 90 days to include prior purchases, then 13 months start from backdate -Rights of Accumulation: reduced sales charge on future sales charges on subsequent investments by taking into condiseration value of investors account including growth -- no time limit -Combination Priveledge: customer can combine the simultaneus purchase of two different portfolios to reach a breakpoint sales charge reduction -Conversion or Exchange Priveledges: allows investor to move money from one portfolio to another, offered by same fund company, without paying another sales charge --*** still tax consequences |
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Other Mutual Fund Benefits(2)
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Automatic Reinvestment of Distributions
- allows investor to use distributions to purchase more shares at NAV -- must be offered by full service funds charging 8.5% sales charge but offered by others as well 30 Day Emergency Withdrawal - provide investors option to liquidate shares in times of unexpected financial needs, and then reinvest equal sum of money at portfolio NAV if they reinvest within 30 days |
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Mutual Fund Sales Violations(2)
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-Breakpoint sale: entice investor to get in under breakpoint to maximize sales charge for fund
-Past Performance is no indication of future performance -- violation for agent to recommend a mutual fund based on a sales contest, or based on the frim receiving order execution business from the funds portfolio - cannot base recomendation on past performance |
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Mutual Fund Expenses
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Expense Ratio- amount of mutual fund expenses relative to its assets
-- higher the expense ratio the lower the investors return -- expense ratio tells investor how efficiently a mutual fund operates Investment Advisor is the largest expense of a mutual fund(makes porfolio decisions) Custodian Bank(safekeeping funds assets) Transfer Agent(canceling old and issuing new shares) Board of Directors( makes mgmt decisions) |
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Taxation of Mutual Funds
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- Mutual Funds classified under IRS Code, Subchapter M as a conduit for investment income
-- classification allows mutual funds to avoid paying taxes on the income it distributes to investors( as long as 90% of net investment income is distributes to investors --If mutual fund doesnt distribute 90% of net investment income, taxed at 100% of its net investment income |
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Selling Mutual Fund Shares( 3 options)
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when investor sells shares of mutual funds, they will redeem the fund shares at the NAV this is next calculated after the order is received
--FIFO, first in first out, has highest tax consequence, sell first shares that were bought first, highest cost because those shares had the most time to appreciate -- LIFO, last in first out, least tax consequence because those shares had less time to appreciate in value -- Average Cost, use average cost of all shares, use that to assess taxes |
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Opening Customer Accounts
- specific form |
New Account Form is required
-Info Required -- Customers full legal name, address, phone # -- Customers Social security # or tax id # -- Employer, occupation, employers address, phone # -- Whether the customer is employed by a member firm (further rules apply) -- Whether the customer is of legal age (minors cant open) -- Citizenship -- officer, director, or 10% plus shareholder in public company -- Customers investment objective -- Annual income/ net worth ( customer doesnt have to sign new account firm, info must be verifired and signed by the rep) -- |
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Types of Customer Accounts(11)
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-Individual
-Transfer On Death(TOD) -Joint Tennant With Rights of Survivorship(JTWROS) -Joint Tennant in Common(JTIC) -Corporate Account -Partnership -Fiduciary Accounts -Uniform Gift to Minors Act(UGMA) - Uniform Transfers to Minors Act(UTMA) -Numbered Accounts - Option Accounts |
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Individual Customer Accounts(2)
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Individual= 1 person listed on the account
-- no one else can make decisions without a Power Of Attourney signed by the customer --If death, account reverts to their estate Transfer OnDeath = an individual account, if customer dies, account revert to a named beneficiary -- while alive beneficiary has no control |
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Joint Customer Accounts(2)
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Joint Accounts
Joint Tennant With Rights of Survivorship(JTWROS) -- 2 or more persons listed on account -- one dies, their ortion reverts to the survivors on the account Joint Tennant in Common(JTIC) -- 2 or more persons listed on account -- ownership of the account is not necessarily equal -- if one dies, their portion goes to the estate (need a joint account agreement signed by everyone) |
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Corporate Customer Accounts(2)
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Corporate Account
-- require a copy of the corporate resolution -- copy of the corporate charter and bylaws are required for corporate margin accounts Partnership Account -- require a copy of the partnership agreement -- documentation must state margin is permitted for a partnership |
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Fiduciary Customer Accounts(4)
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Fiduciary Account
-- 1 person acting on behalf of another -- Use "Prudent Man Rule" ---Trading Authorization : need to determine full or limited Power of Attourney --- Guardianship : must be opened within 60 days of court order appointing the guardian --- Discretionary : Registerd Rep(RR) has the authority to trade in the customers account ::: need POA, valid for 3 years, need yearly reconfirmation ::: account must be reviewed frequently by principal(more frequently than normal accounts) --- Trust : need copy of the trust agreement : margin is only allowed if specifically permitted by the trust |
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Custodial Customer Accounts(2)
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UGMA= account created for a minor
- no limit to the number of donors or how much each can donate - irrevcable gift - account registeres in childs name, custodian for account sets it up - custodian must act prudently, (no margin, short sales, uncovered options) - if minor dies, goes to minors estates Taxation of UGMA: Gains over $1500 -- under 14 yrs old= taxed at parents rate -- older than 14 yrs= taxed at childs rate UTMA= account registered in the childs name between age of majority and age of 25 - custodian decides at what age child gets money |
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Other Types of Customer Accounts(2)
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Numbered Accounts= customers name is replaced with a number to protect identity
- ok with permission from customer Option Accounts= require additional approval - branch manager may grant initial approval - ultimately account must be approved by the ROP/ROSFP(option Principle), within a reasonable amount of time |
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Customer Accounts for Employees of other members
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- Firm will notify the employer of the employees intent in writing
- the rules for both cash and margin accounts are : FINRA- requires notification only, duplicate statements, confirmations be sent to the employer uopon their request :MSRB- requires notification only, duplicate statements, confirmations be sent automatically : NYSE- requires prior written permission before the account can be opened, duplicates automatically sent |
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Holding Customer Securities(4)
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Transfer and Ship= certificates are made out in the customers name and sent to the customer
Safe Keeping= certificates are made out in the customers name and kept in the B/D's vaule( can charge a holding fee) Street Name= certificates are made out in the B/D's name with customer as beneficial owner * street name only for margin accounts Delivery vs Payment(DVP) or Receipt vs payment(RVP) = usually institutions = A COD account whereby instructions are given to deliver securities before cash is received |
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Account Transfer
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Automatic Customer Account Transfer(ACAT)=
- customer completes ACAT form, listing securities held at the old B/D - Form sent to the carrying(old) BD - carrying B/D has 1 business day to validate the positions, then account is frozen - Carrying B/D has an additional 3 business days to complete transfer ** during the transfer process, all transactions are placed with the new B/D, important for test, will ask where transactions take place |
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Suitability
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-all recomendations must be suitable based on the customers financial situation, needs, objectives, experience
- reps may not guarentee a profit, or guarentee against loss - reps may not make false or misleading statements or omit material facts - reps may not make unfair comparisons - reps may not imply that past perormance is any indication of future performance - reps must abide by all firm rules, SRO rules, state and federal laws |
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Who is the Customer(things firms must do)
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anti money laundering rules require firms implement a customer identification program(CIP) to ensure that the firm knows the true identity of their customers
Firms must: - receive customer social security #, date of birth - ensure customer is not on the OFAC watch list |
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Anit Money Laundering Procedures
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all members must reort any currency receipt of $10,000 or more from one customer on a single day
- firm must fill out Form 4789 to the IRS within 15 days of the receipt of the currency - multiple deposits totaling $10,000 or more will also require firm to file Currency Transaction Report(CTR) - Also, firm is required to maintain a record of all international wire transfers of $3,000 or greater |
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U.S. Patriot Act
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requires broker dealers to have written policies and procedures desigend to detect suspicious activity
- firm must designate a principal to ensure compliance and train firm personnel Firm required to file Suspicious Activity Report for any transaction more than $5,000 that is questionable Money Laundering process begins with the placement of the funds Second step of the laundering process known as layering. The layering process consists of multiple deposits in amounts less than $10,000 Up to 20 years in prison and $500,000 fine if convicted |
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Customer Privacy
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regulation S-P requires the firm maintain adequate procedures to protect the financial info of their customers
- firms must guard against unauthorized access to customer financial info and must employ policies to ensure its safety -Regulation S-P was derived from the privacy rules of the Gramm-Leach-Bliley Act -- firm must deliver and initial privacy notice to customers when the account is opened -- must deliver annual privacy notice to all customers |
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Prohibited Practices(12)
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Blanket Recommendations
-- no one investment is suitable for all investors Churning -- excessive trading in a customers account(more frequent than normal, higher commisions, even if profitable for customer) Selling Dividends -- enticing customer to buy just before a dividend distribution is prohibited, creates unnecessary tax consequence Unauthorized Trading -- customers permission or a POA is needed to trade in an account Capping -- holding down the price of a stock Pegging -- forcing the price of a stock to rise Painting the Tape -- creating the illusion of activity in a stock Front Running -- placing a firm's order before a customers order Trading Ahead -- placing a trade just before the release of a research report(with prior knowledge of the release) Disclosure of Client Info -- without consent of customer or court order Borrowing from of Lending to a Client -- unless client is a bank Overall lying, cheating, stealing |
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Knowing Your Customer
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Requires RR needs to know enough about customer to make a suitable recommendation
-Inquire about --investment objectives/experience --financial statut/ income -- tax bracket -- current investments -- expenditures-current and future -- Attitude toward investing Also Ask Customer -- how old are you -- are you married -- do you have children -- how long have you been and your current job -- are you planning to retire/when? |
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Investment Objectives and Recommendations(6)
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Income= customer wants current stream of income
-- corp bonds -- preferred stock -- bond funds -- preferred stock funds Growth= customer wants capital appreciation --common stock -- stock funds Safety= customer does not want to be exposed to undue risk --T-bonds, T-notes, T-bills -- Highly rates corp & muni bonds -- Money Market Funds Liquidity= customer wants to be able to sell quickly -- money market funds -- common stock -- mutual funds Tax Relief= customer wants tax advantages -- muni bonds -- munid bond funds Speculation= customer wants high risk high reward -- penny stocks -- junk bonds -- Small cap stocks |
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Risks(9)
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Capital Risk= investor may lose their investment
Market Risk(systematic risk)= investor loses because the market as a whole loses value Non-Systematic Risk= customer only has one investment and loses because lack of diversification Legislative Risk= investor loses because regulatory body passes or repeals a rule or law Call Risk= investor loses because their investment is bought back early, cant get same interest/return rate on new investments Reinvestment Risk= investor loses because they cant reinvest principal or interest at the same rate as before Credit Risk= investor loses becuase company they've invested in fails Timing Risk= investor loses because they buy high and sell low Liquidity Risk= investor loses because they are unable to sell quickly |
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SIPC
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Securities Investors Protection Corporation= created by Securities Investors Protection Act
-- protect investors in case broker dealer failure -- customers are not protected from market losses -- Maximum covers $500,000 per separate customer -- Up tp $100,000 of covered amount can be cash -- Person with individual and joint accounts with joint having another name on account both would be covered -- Same person multiple accounts only covered once -- Has to be two separate names involved with different accounts for both accounts to be covered |
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Qualified plans vs Non qualified Retirement Plans
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Qualified plans are funded with pretax dollars
NonQualified plans are funded with after tax dollars --qualified approved by IRS, non qualified not approved by IRS |
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Individual Retirement Accounts
IRA(fees, qualities) |
Traditional IRA= qualified account, funded with pre tax dollars
-Max contribution 100% of earned income up to annual limit Penalties:: -Excess Contribution= 6% on excess -Early Withdrawal= 10% under 59 1/2 -Insufficient Distribution= 50% after 70 1/2 of what they say you should have taken out Roth IRA= funded with after tax dollars - amount contributed to a traditional IRA will reduce amount that can be contributed to a Roth IRA by an equal amount |
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Rollover Vs Transfers
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Investor may rollover their IRA once per year
-- in a rollover the investor receives the funds as a distribution and may spend the money -- investor has 60 days to deposit funds in another qualified account or will be subject to taxes and penalties -- transfer is trustee to trustee, investor does not receive the money and the account is usually transferred by an ACAT -Investor can transfer IRA as often as they like |
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Corporate Retirement Plans
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self employed unincorporated
-Keogh(hr-10 plan) -contribution limits, lesser of 20% of gross income or up to IRS limit -Must make contributions for all eligible employees at the same rate as employers Pension Plans -- defined benefit: employee receives defined benefit regardless if employer grew assets enough to cover payments --defined contribution: employer contributes a certain amount which appreciates and emploee receives whatever that appreciated amount is Profit Sharing: based on corp profit, no profit means no required employer contributions 401K plans: employee makes pretax contributions which is match by company money up to a certain percent |
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ERISA
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Employee Retirement Income Security Act(1974)
Eligibility: must be same for everyone, basic =21 yrs and full time Funding: must be same in percentages Reporting: disclosure on begining plan and annual report Beneficiary: employee has right no name own beneficiary Vesting: employees right to the employers contribution --immediate vesting, once money is in its the employees --gradual vesting, every year employee owns greater portion of employer contributions --cliff vesting, certain number of years up to 3, before cliff employee owns none of employer contribution, once they hit year limit they own 100% of employers contribution Fiduciary Responsibility: Employers have resonsibility to act in the best interest of their employees, cant act in their own best interest |
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Annuities
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non qualified plan, dont have to make annuities available to all employees eqully
- annuity is a contract between an insurance company and an individual Fixed: similar to a bank CD, insurance company pays fixed rate of return, if customer wants money early they have to pay a penalty Variable: allows investor to buy a portfolio of securities, money grows in separate account, have 10% premature withdrawal penalty before 59 1/2 age considered a security Combination: little fixed little variable, guarenteed min return, if separate account does better they have possibility of better return |
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Fixed Annuities
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Guranteed Rate of Return
- no investment risk to individual - investment risk absorbed by the company/ general account - mortality risk absorbed by the company/general account - operating risk absorbed by companey/ general account -**Purchasing power risk absorbed by client |
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Variable Annuities
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Investment risk absorbed by the individual
- mortality risk absorbed by the company/separate accoutn - operating risk absorbed by the company/ separate account |
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Annuity Purchase Options
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Single Payment deferred annuity
-- lump sum invested into an annuity, payments dont begin until retirement age, hopefully sum grows enough to take out more than they put in Single Payment Immediate Annuity: -- large lump sum, immediate payments start being made Periodic Payment Deferred Annuity: -- most common, periodic investments made to annuity, deferred payments |
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Annuity Payout Options
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Life Only: insurance company make those payments available as long as you live
- insurance company keeps whatever is left if you die early Life with Period Certain: monthly check as long as you are alive, insurance pays beneficiary if person dies early for certain period Joint with Last Survivor: money gets paid out over annuitants lifetime and lifetime of beneficiary Unit Refund: value of units get paid to beneficiary |
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Accumulation Units and Annuity Units
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Accumulation Units= accumulation/deferred stage
-- what we buy, purchase in pay in phase of annuity -- number and value may vary Annuity Units= Payout Stage -- fixed number, but value may vary |
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Separate Annuity Account
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Direct Investment
-- stocks and bonds -- registration as an open end investment company Indirect Investments -- mutual fund shares -- registration as a unit investment trust(UIT) |
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Annuities Vs Mutual Funds
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Variable anuities similar to mutual funds
-- mutual funds dont give you tax deferrel -- variable annuity allows money to grow tax deferred |
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Annuitizing the Contract
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when an investor moves from the pay in to pay out phase the contract accumulation units are exchanged for annuity units
When investor annuitizes the contract the company sets an assumed interest rate or AIR |
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The Assumed Interest Rate
AIR |
Insurance company sets a benchmark(AIR) for the separate accounts performance
- AIR is not a guarenteed rate, only used to adjust value of the annuity units up or down, based on actual performance of the separate account If performance of separate account exceeds AIR, investors payment will increase from previous month If performance is below the AIR in separate account investors monthly payment will decrease from previous month |
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Size of Annuity Payment Factors(5)
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Account Value
Payout Option selected Age Sex Account Performance vs Assumed interest rate(AIR) |
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Option for Withdrawals From Annuities(4)
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Lump Sum
-- only growth is taxed when lump sum taken out Random -- only taxed on growth Annuitizing -- entitled to exclusion ratio -- every annuity made up of growth and principal Exclusion Ratio -Random Withdrawals and lump sum distributions are both done on a LIFO basis -Withdrawals prior to 59 1/2 are subject to a 10% penalty |
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Types of Life Insurance
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Whole Life
-- Universal Life Variable Life Universal Variable Life |
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Deductions from Premiums
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State premium tax
-- paid from what customer pays Sales Tax Administrative Fee |
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Deductions From Separate Account
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Management Fee
Mortality Risk Fee Expense Risk Fee |
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Variable Death Benefit
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Varaible death benefit will change according to the separate accounts performance relative to the AIR
Outperform AIR= death benefit increases Under Perform AIR= death benefit decreases |
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Valuing Life Policies
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Policy Holders cash value calculated every month
Since they technically own stock, they get voting rights as shareholders -- 1 vote per 100 cash value, fractional votes for fractional amounts Loans to policyholders -- can take out a loan from cash value of searate account -- must allow policyholder to take loan after 3 years -- interest must be charged on loan -- at least 75% of cash value needs to be available for loan -- If account goes negative, 31 days to repay enough to bring back to positive net worth -- Loans reduce the death benefit |
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Sales charges(life insurance)
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max sales charge over life of policy is 9%
-- charges are much higher early on, up to 50% year one |
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Secuities and Exchange Act of 1934(people Act)
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Regulates secondary market, broker/dealers, and industry participants
-- Created the SEC Mandated companies must file -- 10k's: annual reports -- 10q's: quarterly reports -- 8k's: news reports Form 13D: filed by any owner of 5% of a company -- used to notify SEC, Issuer, Exchange or FINRA within 10 days SEC may: -- suspend trading in a security for up to 10 trading days -- Suspend trading on an exchange for up to 90 days but must notify president of U.S. |
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Membership in SEC
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Securities Act of 1934 requires registration by b/d's
-- members must pay dues based on OTC transaction revenue -- all non members and suspended members are treated as general public -- members of FINRA may not use the membership to imply endorsement |
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Agent Registration
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Individuals need to submit
-- U4 form -- fingerprint card -- 10 year employment history -- 5 year residency history Individuals convicted of securities or money related crime within last 10 years -- no registration Upon Termination, employing firm submits U5 to FINRA via CRD within 30 days of reps termination from firm Rep must receive copy of U5 from old firm to move to new firm Agents who leave the business for more than 2 years must re-qualify by exam |
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Who is a Registered Rep
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anyone who handles orders or supervises a member buisness
Agents can dual register if approved by both firms All reps must be assigned to a principal who is responsible for their conduct |
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Who can supervise Reps
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individual who is engaged in the management, or training at member firm must register as a principal of the firm with FINRA
- has to pass principal exam within 90 days Properly registered principal is required at each office of supervisory jurisdiction(OSJ) |
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Who is an Investment Advisor
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Is a Firm***
Advisor Reps are people Investment Act of 1940: - sets forth guidlines for buisness requirements and activities of investment advisors Defined as: -- gives advice -- engaged in the business of advising on investment matters -- Receives compensation for advice Person may be considered an advisor if they hold themselves out to be in the business of providing for a fee Advisors are not(LATE) -- lawyer, accountant, teacher, engineer |
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Regulatory & Firm Element of CE
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Regulatory:
-- once pass exam have to do CE module within 2 year -- every 3 years thereafter Firm: --required to assess needs of agents annually -- required to administer and track results of the Firm Element CE plan based on needs of employees |
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Selling Away
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any recommendation to a customer involving an investment product not offered by employing firm
-- must have written prior approval to engage is private security transactions -- if agent is receiveing compensation for the transaction, comission has to run through the employing firm to the agent and firm has to supervise transaction |
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Outside Employment
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In order to ensure firm employees dont engage in selling away
-- firm agents must follow strict guidlines regarding outside employment or business activity FINRA member employees must notify employers NYSE: have to have prior permission for any outside employment ** only if being compensated |
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Can I work From Home?
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Yes with restrictions
-- no sign identifying the location with the member's name -- reside at location alone or with immediate family -- securities and funds are not received -- there is no stationary with the firms name and return address -- all emails sent through firms system -- agents still assigned to branch office -- no meetings with clients may take place |
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Advertising and Sales literature
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Advertising uses mass media
-- TV, Radio, Public Websites, Newspapers Sales Literature -- targeted communication -- research reports, market circulars, email distributions lists Correspondence: -- either paper of electronic communication sent to fewer than 25 prospects in a 30 day period Ads and Sales Lit needs prior approval from principal General Correspondence doesnt require approval unless sent to more than 25 people within 30 day period |
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Advertising & Sales Lit Filing
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Broker Dealers need to prefile 10 days prior to use if:
-- less than one year old --have not advertised in the past If not Post file 10 days after first use Firms using testimonials must disclose credential and compensation relating to testimonial Special Requirments for Option and CMO ads -- all must be files 10 days prior to use Mutual Funds -- may file ads 10 days after first use |
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Excluded from Ad and Sales Lit(4)
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internal memos
single email prospectus tombstone ads(announcement) |
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Communicating in the Internet Age
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Rep in a chat room is considered public appearance
Public Website is advertising -- Password Protected website is Sales Lit Emails or IM's to more than 25 people are sales lit |
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The 5% Mark Up Policy
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sales charge, commision, markup or down
--guidline,not a rule -- markups need to be fair and reasonable Factors -- Price, higher priced usually have lower percentage mark up -- value of transaction -- type of security -- value of member services(full service can charge more) -- execution expenses Exempt From Rule: -- issues sold user a prospectus --Private Placements --Governments and Municipal Securities |
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Insider Trading Act of 1988
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sets guidlines and controls for use of non-public material info
-- non public info is info not known by people outside the company --material info is info regarding a situation or development that will materially affect the company in the present or future Insider trading is using/giving this non-public info as basis for transaction Info becomes public when released to the public through a nationally recognized news source 10% of the amount recoverd may be paid to informants or whistle blowers |
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Uniform Practice Code
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Regulates how members conduct business with other members
Settlement Dates Good Delivery -- have to have certificates makeable or breakable into 100's ExDividend Dates: -- always 2 days before record date |
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The Code of Procedure
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Code of procedure regulates how FINRA investigates complaints and violations
-- regulates dicovery phase of alleges violations or fules of fair practice -- not concerned with money, only rules violations Minor Violations --resolved through summary complaint procedure Max Fine -$5,000 for first offense -$10,000 for second Larger Issues -- hearing may be held --respondent will be notified and have 25 days to answer -- second opportunity to respond offered giving 14 days additional notice -- after that if no responce it is deemed an admission of guilt |
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Mediation
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informal attempt by 2 parties to try and resolve dispute prior to entering into formal arbitration process
2 parties meet, dicuss issue, dialog monitored by mediator -- mediator is neutral person with industry knowledge suggested by FINRA -- any settlement confidential -- if mediation fails, goes to arbitration |
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Code of Arbitration
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similar to civil court
provides forum to resolve disputes -- provides final and binding resolution to disputes involving members and: ---- Another Member ---- Registered Agent ---- Bank ---- Cutomer(if customer agrees, customers not forced to arbitrate Simplified Arbitration: for amounts up to $25,000 no hearing No appeals for arbitration Up tp 7 arbitors on a case If money awarded, party has 30 days to pay |
