BE CAREFUL ON SERIES 6 EXAM ABOUT RULES FOR USING INVESTMENT COMPANY PERFORMANCE RANKINGS

Plan on taking the Series 6 Exam? Yes? Then be prepared for questions about requirements for advertising rankings of investment companies or mutual funds. Why do I say this? Answer—because FINRA's Content Outline for the Series 6 Exam includes Section 1.1 that requires knowledge of "product specific advertisements and disclosures on investment company products and variable contracts."

FINRA Rule 2212 defines a "Ranking Company" as an entity not controlled by or affiliated with but independent of an investment company, and whose rankings are not ordered or paid for by the investment company. Or in other words, the Ranking Company has no ties to the investment company in any way. Therefore, the general rule is that a registered rep may not use or send out rankings of an investment company that are self-created or created by the investment company itself.

Bob Eder in his Study for the Series 6 Exam talks about Investment Company Performance Rankings in his Chapter One on Communications with Customers. Here is a sample of Bob Eder's discussion:

Investment Company Performance Rankings                                                           (1.1)

FINRA Rule 2212 says that a broker/dealer may not use rankings unless they are created by a "Ranking Entity," a business which is independent from any investment company, and whose services are not procured by an investment company to purchase a rating. The one exception is where the ranking is created by an investment company or affiliate, but based on the numbers and information provided by a Ranking Entity.

Filing with FINRA Before Use                                                                                   (1.1)

FINRA Rule 2210 says that if an investment company itself or its management company has created its own performance ranking, comparing its performance to other funds, or if the ranking is not generally published, then FINRA requires that a brokerage firm that wishes to distribute retail communications that incorporate these rankings file the communications at least 10 business days prior to use. Furthermore, FINRA warns the brokerage firm not to send out the piece until FINRA has responded with comments, changes, or approval. Performance rankings include comparisons of investment companies (including ETF's, variable insurance products, closed-end funds, and unit investment trusts) with other investment companies. 

Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Study for the Series 6 Exam on Amazon.

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For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, or about Investment Company Performance Rankings, simply email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

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