Does your firm have a Mutual Fund Suitability Guidelines Manual?

Abstract

Purpose

To describe the need and suggest guidelines for a formal, written manual that provides a firm, its registered representatives, and its supervisory principals a line of defense against costly repercussions from sales practice violations.

Design/methodology/approach

Discusses regulations concerning the suitable sales of securities to customers, the legal basis for reasonable supervision, why a brokerage firm's business model should guide it in building its manual, contents of a prototype manual, how investment objectives and risk tolerance should be considered, how performance information is disclosed so it is understandable to the customer, both justifiable reasons and dangers related to switching a customer from one fund to another, commission savings issues (including breakpoints, letters of intent, rights of accumulation, and reinstatement privileges), and home office supervision of reps and supervisory principals.

Findings

Regulators are concerned with an investment firm's culture of compliance, including its written supervisory procedures and evidence of supervisor training and compliance performance. To support principals charged with supervising registered reps and investment adviser reps, a firm should have a formal training program that starts out with a well‐thought‐out mutual fund suitability guidelines manual.

Originality/value

A hands‐on guide for writing an important manual by a specialized investment compliance lawyer.

Citation

Cascarelli, J.C. (2005), "Does your firm have a Mutual Fund Suitability Guidelines Manual?", Journal of Investment Compliance, Vol. 6 No. 1, pp. 42-58. https://doi.org/10.1108/15285810510634696