Packaged Securities - Compliance

This is an important topic because investment companies are considered the instrument of choice for the least sophisticated, and therefore most vulnerable, investors. Investment company distributions must comply with far more oversight than those of any other form of security.

  • Neither you as a registered representative nor your firm can accept any special gift, prize or any other consideration (beyond a standard 7% sales charge and a free lunch) that might give you the incentive to sell the funds of one mutual fund over another.

  • Further, your firm cannot buy shares of a mutual fund on its own account in the expectation that the share price will rise. Mutual fund shares can only be purchased to fill an immediate order from a client.

  • There is another restriction on your activities relative to how you sell mutual fund shares: the fund sets the share price. You cannot take a smaller commission, discount the selling price, and take market share away from a competitor. That sort of race-to-the-bottom is frowned upon by the SEC.

The following table summarizes the differences among closed-end funds, mutual funds, UITs and hedge funds:

IPO Exchange-traded SEC-regulated Price setter Redeemable Investment Advisor
Closed-end Yes Yes Yes Market No Yes
Open-end (mutual) No No Yes NAV Yes Yes
UIT Yes Yes Yes Market Yes No
Hedge Yes or no No No NAV Yes No

Net Asset Value (NAV)
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