More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
The Securities and Exchange Commission has published a prototype "summary prospectus" for mutual funds, and has asked for public comment from investors. The proposed streamlined prospectus would let investors quickly learn key information about a mutual fund.
The Commission voted unanimously on November 15 to propose rule amendments that would enable investors to view a concise, plain English summary of key facts about a mutual fund. The SEC says in a release that it is seeking public comment on the proposed rule amendments, including the summary prospectus, which is available online at www.sec.gov/investor/enhanceddisclosure.htm, along with additional information to help investors understand and participate in the comment process.
The Commission is proposing that the following information be included in a mutual fund summary prospectus:
- Investment objectives
- Principal investment strategies, risks, and performance
- Top 10 portfolio holdings
- Identity of investment advisers and portfolio managers
- Brief purchase, sale, and tax information
- Information about broker compensation and conflicts
The SEC says it is seeking investor input about what improvements would make the summary prospectus easier to read and understand, and what key information investors would like to see included. "The Commission also is seeking comment on its proposal for mutual funds to provide investors the summary information while making the full prospectus available online or in paper copy upon request," according to the SEC. Comments should be received no later than February 28, 2008.