The same sentence can be fine in a fund ad and a violation in an options flyer. Each product sets its own disclosures, its own approver and its own filing clock.
A fund can't attach its prospectus to every ad. So Securities and Exchange Commission (SEC) Rule 482 lets a fund advertise if it meets fixed conditions. Each ad must tell investors to read the prospectus carefully before investing. It also tells them to weigh the fund's objectives, risks, charges and expenses, and says where to get a copy.
Returns are easy to cherry-pick, so performance must be standardized. An ad that shows performance gives 1-, 5- and 10-year average annual total returns, computed by the SEC formula with the maximum sales charge deducted. A newer fund uses its life to date for any period it hasn't reached. The returns must be current to the latest calendar quarter ended before the ad is submitted for publication.
The Financial Industry Regulatory Authority (FINRA) adds Rule 2210(d)(5). Investment company retail communications that show performance must also show the maximum sales charge and the gross expense ratio.
Common mistakes
- Filing variable annuity or fund ads before use. They go to FINRA within 10 business days after first use. Bond fund pieces with volatility ratings are filed after use, not before.
- Mixing up day counts. FINRA filings use 10 business days. A pre-ODD options piece needs 10 calendar days. Research waits 10 days after an IPO and three days after a managed or co-managed secondary offering.
- Delivering the ODD with the first recommendation. It is due at or before options account approval.
Bottom line
- Rule 482 fund ads tell investors to read the prospectus and show standardized 1-, 5- and 10-year returns after the maximum sales charge.
- FINRA Rule 2210(d)(5) adds the maximum sales charge and the gross expense ratio, boxed in print ads.
- Fund, variable product and registered CMO retail pieces are filed with FINRA within 10 business days after first use.
- Rankings in categories that aren't generally published, and security futures pieces, are filed 10 business days before use.
Exam shortcut
Work each question in three moves: Name the product, because it picks the rulebook. Rules 482 and 2210 cover funds, 2211 covers variable products, 2220 and 9.15 cover options, G-21 covers munis, 2216 covers CMOs and 3160 covers bank branches. Set the clock. FINRA filing defaults to after use, so a "before use" answer needs a specific trigger. "Calendar days" points to options.
The full lesson (about 3,535 words, 24 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- A2
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