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Vedder Thinking | Articles FINRA Issues Guidance on Sales Charge Discounts and Waivers for Investment Company Products

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On March 4, 2021, FINRA issued a regulatory notice relating to the application of investment company sales charge discounts and waivers to investors in circumstances described in applicable offering documents. The notice is intended to remind firms that they are obligated to understand sales charge discounts and waivers available on the products they offer and to apply them to eligible investors. The notice also provides an overview of sales charge discounts and waivers common in the industry, including volume-based sales charge discounts
(i.e., breakpoints) and sales charge waivers; notes certain frequently observed findings from FINRA examinations and enforcement actions; and reviews certain items firms should consider to improve compliance.

In the notice, FINRA identified certain recurring themes encountered in examinations and enforcement actions with respect to sales charge waivers and discounts, including:

  • firms whose systems, controls and written supervisory procedures were inadequate to identify customers eligible for sales charge discounts or waivers;
  • firms that relied on associated persons to identify and apply sales charge discounts and waivers but failed to provide adequate training regarding the availability of those discounts and waivers; and
  • that the foregoing problems were often compounded when associated persons were permitted to sell mutual funds to customers with accounts held directly with the funds’ transfer agents as a result of firms not having adequate systems in place to capture relevant data to supervise direct business transactions.

The notice also includes an extensive list of questions intended to assist firms in evaluating the adequacy of supervisory systems, written supervisory procedures and training programs relating to the application of sales charge discounts and waivers.

FINRA’s notice is available here.



Professionals



John S. Marten

Shareholder



Nathaniel Segal

Counsel



Jacob C. Tiedt

Shareholder



Mark Quade

Associate