The U.S. House of Representatives passed the Senate's version of the Fair Access to Investment Research Act of 2017, which would let brokers produce exchange-traded-fund analyses without the reports being considered a sales offer. The bill now goes to President Donald J. Trump for his signature.
A similar safe harbor already exists for other investment products such as stocks, corporate debt, closed-end funds and emerging growth companies.
"During my three decades in the financial industry, I witnessed the explosive growth in the exchange-traded funds (ETF) industry and the lack of available research caused by outdated securities law," said Rep. French Hill, R-Ark., author of H.R. 910, the bill's original version. Rep. French said the bill would remove barriers to investment and encourage capital formation.
Brokers would be able to provide short summaries of ETFs that explain expense ratios and other features. "I don't see how this could be viewed as anything but a positive from an investor's point of view," said Ben Johnson, Morningstar's director of global ETF research. "The greater the number of eyeballs scrutinizing these funds, the more a net positive for the end investor."
However the legislation would provide the safe harbor even if the broker or dealer participates in the registered offering of the investment fund's securities. That could be somewhat problematic, Mr. Johnson said. "As we've seen with sell-side equity research, there's plenty of flattery out there. Typically, if they don't have something nice to say, they won't say it."