Investment Company Products

Many investment companies provide sales charge discounts and waivers on their products for customers in certain circumstances described in their product offering documents (e.g., prospectuses or statements of additional information). These include volume-based discounts, such as breakpoints and waivers, on mutual fund exchanges. Failure to apply these discounts or waivers correctly may adversely affect customers’ rates of return on their investment and contravenes firms’ obligations under FINRA rules.

FINRA is issuing this Notice to:

•   remind firms of their obligation to understand and, as appropriate, apply sales charge discounts and waivers for eligible customers;
•   provide an overview of common sales charge discounts and waivers;
•   share frequently observed findings in examinations and enforcement matters; and
•   note considerations firms should review to improve their compliance programs.

FINRA Regulatory Notice 21-07 (March 4, 2021): FINRA Provides Guidance on Common Sales Charge Discounts and Waivers for Investment Company Products


Fund of Funds Arrangements 

The SEC adopted a new rule under the Investment Company Act of 1940 to streamline and enhance the regulatory framework applicable to funds that invest in other funds (“fund of funds” arrangements). In connection with the new rule, the Commission rescinded rule 12d1-2 under the Act and certain exemptive relief that has been granted from sections 12(d)(1)(A), (B), (C), and (G) of the Act permitting certain fund of funds arrangements. Finally, the Commission adopted related amendments to rule 12d1-1 under the Act and to Form N-CEN. The rule became effective on January 19, 2021.

SEC Release No. 33-10871 (October 7, 2020), 85 FR 73924 (November 19, 2020): Fund of Funds Arrangements (Final Rule)


FINRA Topic Page:   Mutual Funds