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SEC Allows Broker-Dealer Fund Research Reports

 The SEC has adopted a new rule allowing third party broker-dealers to publish mutual fund research reports, so long as the reports include standardized performance information.  The new rule (139b) provides that a research report prepared by a broker-dealer unaffiliated with the mutual fund manager or sponsor will not result in an unregistered offering, and the research report will not constitute a prospectus.  The rule requires several conditions including: (i) the subject fund must have met all reporting requirements during the prior 12 months, (ii) the fund must have a net asset value of at least $75 Million, and (iii) any performance information must comply with Rule 482, which requires performance information to be presented in a standardized format.  The SEC initially proposed the rule in May.

The only controversy here is whether performance information should need to comply with Rule 482.  To keep performance information consistent probably makes life simpler for investors, broker-dealers, and the staff at the SEC and FINRA.  Regardless, we still believe that the SEC should take a fresh look at Rule 482 given the proliferation of investment products beyond open end funds investing in publicly-traded securities. 

SEC Proposes New Fund Research Reports

The SEC has proposed a new rule that would allow third party broker-dealers to publish research reports about registered investment companies without having to comply with current performance presentation requirements.  Proposed Rule 139b would allow a broker-dealer that is not affiliated with the fund’s adviser to publish research reports that meet certain presentation requirements even where the broker-dealer participates in the offering.  A similar safe harbor already exists for other issuers.  The SEC seeks comment about whether performance information should be required to comply with Rule 482’s performance presentation requirements currently applicable to fund advertising.

OUR TAKE: We would go a step further and rewrite Rule 482 to allow more flexibility for all fund materials.  Then, the SEC would not have to wrestle with whether to allow different types of fund reports depending on the preparer, which could result in more confusion.

http://www.sec.gov/rules/proposed/2018/33-10498.pdf