FINRA recognizes an institutional customer as one that has at least $10,000,000 in assets. The agent’s or member’s suitability determination can be met if the customer:

  • Can independently evaluate the investment risks and merits.
  • Can independently make their own investment decisions.

If the customer meets the above criteria, the member or agent may recommend almost any investment to the customer and allow the customer to determine if it is suitable.

Recommending Exchange Traded  Funds/ ETFs

A representative recommending an exchange traded fund should ensure that the fund’s investment objective meets the customer’s investment objective. If the fund company or broker dealer distributes communication regarding the ETF the following should be disclosed:

  • The fund’s current yield based on dividends only
  • Graph performance of the fund vs. a broad based index
  • The performance of the fund for 10 years or the life of the fund, whichever is less
  • Not imply that a fund is safer than other investments
  • Source of graphs and charts

Exchange Traded Fund Current Yield

When advertising or recommending an ETF, any statement of claim regarding its current yield must be based solely on the annual dividends paid by the fund and may not include any capital gains distributions. .

Example:

ABC fund an ETF is trading at $10 and has paid dividends totaling $1 and has distributed $.75 in capital gains distributions. What is the funds current yield?

Current yield = annual income / current price

CY  =  $1 / $10  = 10%

If the capital gains distributions were included, it would make the current yield look much higher than 10%. If the capital gain distribution of $.75 were included, the current yield would have been quoted at 17.5%.

 

Information Obtained From An Issuer

Related Articles
  1. Investing

    Making Your Investments Pay: Equity Income ETFs

    The flight to extreme quality has reduced treasury yields to non-inflation beating instruments. Income ETFs are now ripe for the picking.
  2. Investing

    ETF for FTSE High Dividend Yield Index (VYM)

    Discover a high dividend yielding exchange-traded fund (ETF) that almost perfectly mimics the performance and behavior of the FTSE High Dividend Yield Index.
  3. Financial Advisor

    Top 5 American Funds for Retirement Diversification in 2016

    Discover five mutual funds from industry leader American Funds with high yields that are perfect for retirement savings diversification.
  4. Investing

    4 Best Dividend-Paying Global Equity ETFs (YYY, KBWD)

    Review these global equity ETFs to learn more about opportunities for robust dividends. These funds provide some of the highest yields.
  5. Investing

    3 Issues With International Dividend Yield ETFs (DWX, IDV)

    International dividend yield funds are designed to track indexes that consist of high dividend yielding international companies. Here are three factors to consider while evaluating such funds. ...
  6. Investing

    9 Fund Favorites for Income Investors

    Historically low interest rates have created challenges in recent years for investors seeking yield. For those who want to generate income, several leading MoneyShow.com contributors highlight ...
  7. Investing

    The 10 Best Income-generating International ETFs

    A look at ten income-generating international ETFs.
  8. Investing

    Advantages and Disadvantages of ETFs

    You've probably heard that ETFs are better than mutual funds, but you need to consider all aspects before investing. Learn them here.
  9. Investing

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  10. Investing

    Mutual Fund Vs ETF: Which is Right For You?

    Want to invest but don't understand the difference between investment products? Here we explain ETFs vs. Mutual Funds and which is right for you.
Trading Center