© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1 Current Trends and Topics for Investment Company Communications Thursday, October 5 11:30 a.m. – 12:30 p.m. Join FINRA staff and industry panelists as they discuss advertising compliance issues concerning registered investment companies, including mutual funds, ETFs and closed-end funds. The panel includes discussions on current trends, changes to FINRA Rule 2210 and recent regulatory interpretations, including related performance. The panelists also share tips to strengthen the marketing and compliance relationship when developing compliant communications. Moderator: Derek Ashworth Associate Director FINRA Advertising Regulation Panelists: Darrian Hopkins Director and Compliance Officer TIAA Lynn Lawson Associate Manager FINRA Advertising Regulation Danielle Nicholson Smith Vice President and Legal Counsel - U.S. Communications and Digital Services T. Rowe Price Investments Services, Inc. I. Introduction II. Discussion of Advertising Review Process A. T. Rowe Price Process B. TIAA Process C. Advertising Department Process III. Recent Regulatory Updates Affecting Investment Companies A. Rule 2210 Amendments (Exemptions from filing requirement) B. Related Performance C. SEC – Money Market Fund Disclosure (effective October 2016) D. DOL Rule IV. Themes in Communications – What are investment company communications discussing? A. Common discussions (e.g., active vs. passive debate, hunt for yield, new investment strategies) B. Concerns (e.g., comparisons, accurate descriptions, risks)
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© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 11:30 a.m. – 12:30 p.m. Join FINRA staff and industry panelists as they discuss advertising compliance issues concerning registered investment companies, including mutual funds, ETFs and closed-end funds. The panel includes discussions on current trends, changes to FINRA Rule 2210 and recent regulatory interpretations, including related performance. The panelists also share tips to strengthen the marketing and compliance relationship when developing compliant communications.
Moderator: Derek Ashworth Associate Director FINRA Advertising Regulation Panelists: Darrian Hopkins Director and Compliance Officer TIAA Lynn Lawson Associate Manager FINRA Advertising Regulation Danielle Nicholson Smith Vice President and Legal Counsel - U.S. Communications and Digital Services T. Rowe Price Investments Services, Inc.
I. Introduction
II. Discussion of Advertising Review Process A. T. Rowe Price Process B. TIAA Process C. Advertising Department Process
III. Recent Regulatory Updates Affecting Investment Companies
A. Rule 2210 Amendments (Exemptions from filing requirement) B. Related Performance C. SEC – Money Market Fund Disclosure (effective October 2016) D. DOL Rule
IV. Themes in Communications – What are investment company communications discussing?
A. Common discussions (e.g., active vs. passive debate, hunt for yield, new investment strategies)
B. Concerns (e.g., comparisons, accurate descriptions, risks)
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
C. Product space (e.g., mutual funds, exchange-traded funds, closed-end interval funds, digital investment advice)
D. Risk Disclosure for Current Market Conditions (SEC Guidance Update, March, 2016)
V. Communication Mediums A. Successes and challenges of creating communications for different mediums
(disclosure) B. Social media parameters (how do firms determine what to use)
VI. Strengthening the Marketing, Legal and Compliance Relationship
A. T. Rowe Price – Agile process B. TIAA – Collaborative process C. FINRA – How FINRA can contribute
VII. Q&A and Wrap Up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
Current Trends and Topics for Investment Company Communications Panelist Bios: Moderator: Derek Ashworth is Associate Director in FINRA’s Advertising Regulation Department. The department protects investors by ensuring broker-dealer members of FINRA use communications that are fair, balanced and not misleading. Mr. Ashworth’s primary responsibility is managing staff members dedicated to the routine review of member firm communications. Mr. Ashworth also participates in the Department’s outreach efforts including serving as a panelist in prior FINRA conferences and presenting during selected FINRA Compliance Boot Camps. He has been with the Advertising Regulation Department for 17 years. Prior to joining FINRA, Mr. Ashworth was a program manager for a business and education partnership at Nova Southeastern University in Fort Lauderdale, FL. Previous to this role, he was a specialty banker and registered representative with First Union in West Palm Beach, FL. Mr. Ashworth received his bachelor’s degree from Stetson University and completed his M.B.A. at Johns Hopkins University. Panelists: Darrian Hopkins is Director and Compliance Officer responsible for leading TIAA’s Marketing Compliance and Oversight Program. This team leads all oversight activities for TIAA’s marketing review program to ensure compliance with applicable advertising laws, rules and regulations. Mr. Hopkins joined TIAA in February 2006 from FINRA, where he was an Associate Supervisor in the Advertising Regulation Department. Mr. Hopkins spent nine and a half years in the Department and, prior to that, he spent five years with the U.S. Securities and Exchange Commission also in Washington, DC. While at FINRA, Mr. Hopkins was a frequent speaker on various panels at FINRA’s annual Advertising Regulation Conference. Mr. Hopkins is a graduate of the University of South Carolina. Lynn Lawson is an Associate Manager in FINRA’s Advertising Regulation Department. Her primary responsibilities include training and mentoring assigned staff and conducting reviews of complex communications for compliance with applicable advertising rules. She is also the Department’s Training Committee Coordinator and has been a speaker at FINRA’s Advertising Regulation Department annual conference since 2011. Prior to joining FINRA, she worked as a contract attorney and in the financial services industry. She holds Series 7, 24 and 63 registrations. Ms. Lawson is also a graduate from The Catholic University of America, Columbus School of Law and earned a B.A. in English from Spelman College. She is also holds the designation of a Certified Regulatory and Compliance Professional from the FINRA Institute at Wharton and is a member of the District of Columbia Bar. Danielle Nicholson Smith is Legal Counsel for U.S. Communications and Digital Services and Vice President of T. Rowe Price Investment Services, Inc. She joined T. Rowe Price in 1992. Most of her 25 years in the industry have been spent on the application of FINRA and SEC Advertising Rules to communications with the public. Ms. Smith oversaw the principal review and filing with FINRA of all of the firm’s mutual fund advertising and sales materials for over 15 years. She serves on the Advertising Rules Committee of the Investment Company Institute and has been a speaker on regulation of social media at the FINRA annual conference. Ms. Smith holds a bachelor’s degree from Smith College and a law degree from the University of Maryland School of Law.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Derek Ashworth, Associate Director, FINRA Advertising Regulation
Panelists
Darrian Hopkins, Director and Compliance Officer, TIAA
Lynn Lawson, Associate Manager, FINRA Advertising Regulation
Danielle Nicholson Smith, Vice President and Legal Counsel - U.S.
Communications and Digital Services, T. Rowe Price Investments
Services, Inc.
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,
Select the day,
Choose the Current Trends and Topics for Investment
Company Communications session,
Click on the polling icon:
2
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Segment Topics
Advertising Review Process
Regulatory Updates Affecting Investment Company Communications
Trends in Investment Company Communications
Creating Communications for Different Media
Strengthening the Marketing, Legal and Compliance Relationship
Questions & Answers
3
Agenda
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Understanding the Communications Review
Procedure
TIAA
T. Rowe Price Investment Services, Inc.
FINRA
4
Advertising Review Process
Communication AnalysisComplies or
Needs Revisions
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Tips for Filing Submissions with FINRA
Indicate if the communication is promoting a new product or represents a new marketing campaign
Explain how the communication will be used and describe necessary context
Provide supporting documents (e.g., prospectus)
Clarify if the communication will be preceded or accompanied by a prospectus
Indicate if previous versions of the communication have been filed
Identify the landing page or relevant ‘linked’ content for digital communications
5
Advertising Review Process
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Rule 2210 Amendments – Filing Exclusions
Investment company shareholder reports
Generic investment company communications
Templates
– Expanded to include non-predictive narrative content
Backup material for investment company performance
rankings & comparisons
6
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. What filing exclusion has had the most impact on
your firm’s communications?
a. Investment company shareholder reports
b. Generic investment company communications
c. Templates (expansion to include non-predictive narrative content)
d. Back-up material for investment company performance rankings &
comparisons
e. All of the above
7
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Guidance for Related Performance in Institutional
Communications
Use of related performance for continuously offered closed-end
funds is permitted – consistent with conditions in June 9, 2017
Interpretive Letter
Related performance can be net of fees of the subject mutual fund
(Interpretive Guidance Question, March 9, 2017)
Related performance guidance can apply to actively managed
ETFs (Interpretive Guidance Question, March 9, 2017)
8
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Money Market Fund Reforms (October, 2016)
Amendments to the disclosure statements that must appear in
money market fund communications
DOL Fiduciary Rule
Firm preparation and response
9
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Themes in Discussions
Great Debate: Active or Passive Management
Hunt for Yield
Benefits of Multi-factor Strategies
Protection from Managed Volatility Strategies
10
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Potential Discussion Concerns
Fair and balanced comparisons
Accurate description of investment or strategy
Explanation of risks
Consideration of the audience
11
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Product Considerations
Closed-end funds
– Interval funds
Alternative funds
– Floating-rate loan funds
–Unconstrained bond funds
– Long/short funds
–Multi-currency funds
Digital investment advice tools
12
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Disclosure Practices
Consider market conditions and the impact on fund risks
Assess whether current risk disclosure is adequate
13
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Challenges of Responsive Web Design Technology
Web content used in other device formats (smartphones or
tablets)
Presentation of disclosure (clarity, proximity and prominence)
Considerations for Social Media Presence
Identifying audience and channel(s)
Incorporating compliance in strategy
14
Creating Communications for Different Media
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
15
Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. How would you characterize the collaboration
including responsiveness between the compliance,
marketing and legal teams/staff at your firm when
creating communications?
a. Extremely responsive
b. Very responsive
c. Somewhat responsive
d. Not so responsive
e. Not at all responsive
16
Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
Collaboration
Agility
FINRA feedback
17
Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
Questions & Answers
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 11:30 a.m. – 12:30 p.m. Resources General Guidance (Communications With the Public) Notices
FINRA Regulatory Notice 17-18, Guidance on Social Networking Websites and Business Communications (April 2017)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf
FINRA Regulatory Notice 16-41, SEC Approves Amendments to Rules Governing Communications With the Public (October 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-41.pdf
FINRA Regulatory Notice 15-50, SEC Approves Rule Requiring Members’ Websites to Include a Readily Apparent Reference and Hyperlink to BrokerCheck (December, 2015)
www.finra.org/sites/default/files/Notice_Regulatory_15-50.pdf
FINRA Regulatory Notice 15-17, Guidance on Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-17.pdf
FINRA Regulatory Notice 15-16, FINRA Requests Comment on Proposed Amendments to Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-16.pdf
FINRA Regulatory Notice 13-03, FINRA Provides Guidance on New Rules Governing Communications With the Public (January 2013)
www.finra.org/sites/default/files/NoticeDocument/p197615.pdf
FINRA Regulatory Notice 12-29, SEC Approves New Rules Governing Communications With the Public – Effective Date: February 4, 2013 (June 2012)
www.finra.org/sites/default/files/NoticeDocument/p127014.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Regulatory Notice 11-49, Advertising Regulation: FINRA Provides Guidance on Advertising Regulation Issues (October 2011)
www.finra.org/sites/default/files/NoticeDocument/p124925.pdf
FINRA Regulatory Notice 11-39, Guidance on Social Networking Websites and Business Communications (August 2011)
www.finra.org/sites/default/files/NoticeDocument/p124186.pdf
FINRA Regulatory Notice 10-06, Guidance on Blogs and Social Networking Web Sites (January 2010)
www.finra.org/sites/default/files/NoticeDocument/p120779.pdf
Miscellaneous
Podcast, Communications with the Public Rule Amendments (January 9, 2017)
www.finra.org/industry/podcasts/communications-public-rule-amendments
Podcast, Communications With the Public Consolidated Rule – Part 2 (February 26, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-2
Podcast, Communications with the Public Consolidated Rule – Part 1 (February 12, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-1
Advertising Regulation Frequently Asked Questions (FAQ) Frequently asked questions related to advertising regulation (January 8, 2017)
www.finra.org/industry/issues/faq-advertising
FINRA Information Notice Use of FINRA Logo (January 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Information-Notice_010816.pdf
Mutual Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 08-82, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to Cash Alternatives (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117559.pdf
FINRA Regulatory Notice 08-81, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to the Sale of Securities in a High Yield Environment (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117558.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
NASD Notice to Members 06-48, SEC Approves Amendments to NASD Rules 2210 and 2211 to Require Disclosure of Fees and Expenses in Mutual Fund Performance Sales Material (September 2006)
www.finra.org/sites/default/files/NoticeDocument/p017302.pdf
NASD Notice to Members 06-05, SEC Approves Permanent Rules Concerning Bond Mutual Fund Volatility Ratings – Effective Date: December 27, 2005 (January 2006)
www.finra.org/sites/default/files/NoticeDocument/p015873.pdf
NASD Notice to Members 04-86, Investment Analysis Tools (November 2004)
www.finra.org/sites/default/files/NoticeDocument/p012413.pdf
NASD Notice to Members 00-21, NASD Regulation Reminds Members of Their Responsibilities When Advertising Recent Mutual Fund Performance (April 2000)
www.finra.org/sites/default/files/NoticeDocument/p004122.pdf
NASD Notice to Members 98-107, NASD Reminds Members Of Their Obligations To Disclose Mutual Fund Fees (December 1998)
www.finra.org/sites/default/files/NoticeDocument/p004929.pdf
Miscellaneous
SEC Guidance Update, Fund Disclosure Reflecting Risks Related to Current Market Conditions No. 2016-02 (March 2016)
www.sec.gov/investment/im-guidance-2016-02.pdf
FINRA Interpretive Letter, The use of related performance information in institutional communications, subject to specific conditions, is consistent with the applicable standards of FINRA Rule 2210. (May, 2015)
www.finra.org/industry/interpretive-letters/may-12-2015-1200am
Podcast, Cash Alternatives (March 16, 2009)
www.finra.org/industry/podcasts/cash-alternatives
Regulatory & Compliance Alert, Inaccurate Performance Graphs Result in Formal Action (Summer 2000), Page 9
www.finra.org/sites/default/files/RCA/p002377.pdf
Regulatory & Compliance Alert, Sudden Performance Changes May Require More Information (Summer 1999), Page 16
www.finra.org/sites/default/files/RCA/p002381.pdf
Investor Alerts
Investor Alert, Updated: Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio (March 6, 2017)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 4
Investor Alert, Frontier Funds – Travel with Care (Last Updated: September 11, 2014)
www.finra.org/investors/alerts/frontier-funds
Investor Alert, Alternative Funds Are Not Your Typical Mutual Funds (Last Updated: June 11, 2013)
www.finra.org/investors/alerts/alternative-funds-are-not-your-typical-mutual-funds
Investor Alert, Duration – What an Interest Rate Hike Could Do to Your Bond Portfolio (Last Updated: February 14, 2013)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
Investor Alert, The Grass Isn’t Always Greener—Chasing Return in a Challenging Investment Environment (Last Updated: November 16, 2011)
www.finra.org/investors/alerts/grass-isnt-always-greener
Investor Alert, Class B Mutual Fund Shares: Do They Make the Grade? (Last Updated: October 11, 2008)
www.finra.org/investors/alerts/class-b-mutual-fund-shares-do-they-make-grade
Investor Alert, Understanding Mutual Fund Classes (Last Updated October 6, 2008)
www.finra.org/investors/alerts/understanding-mutual-fund-classes
Investor Alert, Funds of Hedge Funds – Higher Costs and Risks for Higher Potential Returns (Last Updated: October 6, 2008)
www.finra.org/investors/alerts/funds-hedge-funds-higher-costs-and-risks-higher-potential-returns
Investor Alert, Mutual Fund Breakpoints: Are You Owed a Refund? (Last Updated: November 3, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-are-you-owed-refund
Investor Alert, Principal-Protected Funds – Security Has a Price (Last Updated: March 27, 2003)
www.finra.org/investors/alerts/principal-protected-funds-security-has-a-price
Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking (Last Updated: January 14, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-break-worth-taking
Exchange-Traded Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 09-31, FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged and Inverse Exchange-Traded Funds (June 2009)
www.finra.org/sites/default/files/NoticeDocument/p118952.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 5
Miscellaneous
FINRA Interpretive Letter, Additional Guidance Regarding the Use of Pre-Inception Index Performance in Institutional Communications (April 22, 2013)
www.finra.org/industry/interpretive-letters/april-22-2013-1200am
SEC Fast Answers, Exchange-Traded Funds (ETFs) (Modified: November 8, 2013)
www.sec.gov/fast-answers/answersetfhtm.html
Podcast, Non-Traditional Exchange-Traded Funds (July 13, 2009)
www.finra.org/industry/podcasts/non-traditional-exchange-traded-funds
FINRA Guidance, Non-Traditional ETFs Frequently Asked Questions
www.finra.org/industry/non-traditional-etf-faq News / Alerts
Investor Bulletin: Exchange-Traded Funds (ETFs) (August 10, 2012)
https://investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-exchange-traded-funds-etfs
Investor Alert, Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors (Last Updated: August 18, 2009)
www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors
News Release, FINRA, SEC Warn Retail Investors About Investing in Leveraged or Inverse ETFs (August 18, 2009) www.finra.org/newsroom/2009/finra-sec-warn-retail-investors-about-investing-leveraged-or-inverse-etfs
Regulatory & Compliance Alert, Exchange-Traded Fund Performance (Fall 2001), Pages 12 & 13
www.finra.org/sites/default/files/RCA/p002372.pdf
Closed-End Funds
FINRA Interpretive Letter A member firm may include related performance information in institutional communications concerning continuously offered closed-end funds, subject to the stated conditions discussed in the letter. (June, 2017)
www.finra.org/industry/interpretive-letters/june-12-2017-1200am
Investment Company Institute, Frequently Asked Questions About Closed-End Funds and Their Use of Leverage (May 2017)
www.ici.org/cef/background/faqs_closed_end
Investment Company Institute, A Guide to Closed-End Funds (May 2017)
www.ici.org/cef/background/bro_g2_ce
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 6
SEC Fast Answers, Closed-End Fund Information (Modified: January 16, 2013)
www.sec.gov/fast-answers/answersmfclosehtm.html
NASD Notice to Members 03-07, NASD Reminds Members of Obligations When Selling Hedge Funds (February 2003)
www.finra.org/sites/default/files/NoticeDocument/p003358.pdf
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