The National Association for Securities Dealers board of governors has proposed a rule that would require its member representatives to disclose whether they receive greater compensation for selling certain funds, and for its broker/dealer members to disclose money they receive for promoting funds.
Members would have to disclose these arrangements to all new customers or existing customers making new purchases. They would also have to update this information and publish it on their Web sites.
Member firms would have to disclose that they receive cash payments from fund companies other than the fees disclosed in their fee table, and list fund companies that make such payments to the company in descending order of payments.
NASDs proposals would apply to mutual fund companies, as well. The regulatory body wants funds to disclose soft-dollar arrangements in their prospectuss statement of additional information.
A similar proposal in the House, the Mutual Funds Integrity and Fee Transparency Act, would require fund companies to reveal soft-dollar and other compensation, as well as money they pay broker/dealers for preferential "shelf space."
"When buying mutual funds, investors have the need and right to know about incentive compensation received by a member firm and its registered representatives, which often differs from fund to fund," said Robert R. Glauder, Chairman and CEO of NASD.
The NASD intends to request public comment on the proposal, which typically lasts 30 to 45 days. After the board reconsiders these recommendations, they will send a final proposal to the Securities and Exchange Commission.