The Investment Program Association, a trade organization representing the direct investment industry, submitted a comment letter regarding proposed amendments to FINRA 2210, which would allow FINRA-affiliated financial professionals to distribute customized hypothetical illustrations that may include projections regarding asset allocations or other investment strategies, so long as they do not use an actual security as part of the illustration.
The IPA said that it strongly supports the amendments, which would allow retail investors to make informed decisions, because in its current form, FINRA 2210 creates an information disadvantage to certain investors with accounts serviced at broker-dealers.
“With the industry trending towards financial professionals who are dual registrants, and which operate as both an investment adviser representative and a registered representative, it is appropriate for FINRA’s proposed rule amendments on projections to be aligned with the SEC rules in order to provide equal benefits to all investors, regardless of their financial professional’s registration or affiliation,” said Anthony Chereso, president and CEO of the IPA.
The IPA suggested modifying the amendment exempting communications made by broker-dealers strictly to “institutional investors” from the rule’s prohibition of projections.
FINRA’s new broker-dealer status for capital acquisition brokers, which are firms that market debt or equity private placements to institutional investors, relieves these firms of several regulatory requirements, the IPA said.
However, firms that distribute both private placements with institutions and offer retail products cannot claim CAB status and take advantage of the associated benefits – including being exempted from using projected returns in the marketing of private placements to institutional investors.
The IPA believes that this would put firms that do not elect CAB status at a competitive disadvantage in the marketing of their offerings.