On May 12, 2015, the staff of the Financial Industry Regulatory Authority (“FINRA”) issued an interpretive letter to Hartford Funds Distributors, LLC (“HFD”) that allows mutual fund distributors to provide certain types of related performance information in fund sales literature to institutional investors and financial intermediaries, subject to certain conditions, without violating FINRA Rule 2210. For purposes of the letter, “related performance information” means actual performance of all separate or private accounts or funds that (i) have substantially similar investment policies, objectives and strategies, and (ii) are currently managed or were previously managed by the same adviser or sub- adviser that manages the fund that is the subject of an institutional communication.
FINRA has taken the position in the past that the presentation of related performance information in communications with the public may be inconsistent with the content standards of Rule 2210. In permitting the conditional use of related performance information in communications only to persons who qualify as “institutional investors” under FINRA Rule 2210(a)(4), the staff noted that such communications do not raise the same investor protection concerns as sales materials provided to retail investors. HFD pointed to the increase in requests from financial intermediaries for related performance information in seeking the interpretive guidance, noting that such intermediaries are seeking additional performance data in connection with their responsibilities to conduct due diligence for their customers. In this regard, HFD stated that related performance information allows financial intermediaries to better assess the capabilities of a fund’s adviser, particularly in circumstances where the adviser has been managing assets in the same strategy as the fund and either the fund is new (i.e., has no track record) or the fund’s performance record is shorter than that of the adviser’s track record.
The conditions for the use of related performance information in institutional communications include, among other things, (i) disclosure of any material differences between the funds or accounts for which related performance information is provided and the fund that is the subject of the institutional communication, (ii) clear labeling as to the communication’s institutional use only, and (iii) for a fund in existence for more than one year, its actual performance must be displayed more prominently than the related performance information.
The interpretive guidance takes effect immediately. A copy of the guidance is available at: https://www. finra.org/industry/interpretive-letters/may-12-2015-1200am