NASD to crack down on ETF, separates sales

Oct 3, 2005 @ 12:01 am

By Bruce Kelly

NEW YORK - NASD soon might be taking a hard look at how broker-dealers and their registered representatives sell exchange traded funds and separate accounts, as well as other investment products.

Robert Glauber, NASD chairman, in New York last month for a Securities Industry Association meeting, said that regulators need to look at the spectrum of investments "to ensure that investors are as well protected from abuses when they buy those as they are when they buy mutual funds."

"Product recommendations that brokers make ought to be based, first and foremost, on the customers' needs and desires, not on how easy the products are to sell," said Mr. Glauber, who was speaking at the New York- and Washington-based SIA's soft-dollar and institutional-brokerage conference.

Beyond insurance

"So to level the playing field, I think we need to start looking at fixed annuities, variable annuities and equity-indexed annuities, exchange traded funds and perhaps some other products, such as separately managed accounts," he said.

Washington-based NASD re-cently has examined insurance-oriented products. In August, it sent to its broker-dealer members a notice "suggesting that registered reps would do well to treat [equity-index annuities] as securities, even though it's not clear that they are in every case," Mr. Glauber said.

His mention of exchange traded funds and separately managed accounts caught some in the industry off guard. NASD officials recently have told the organization's broker-dealer members that it has been slowing down on sweeps, observers noted.

"Those are surprising comments to me," said David Spinar, chief compliance officer with Securities America Inc. in Omaha, Neb. "I haven't heard anything, I haven't seen anything, I haven't read anything about ETF sales practices."

ETFs have been frequently praised as a low-cost investment that provides diversification. They also have been hot sellers, and NASD sometimes uses that simple criterion in determining the investments about which to gather information.

Net inflows into the exchange traded fund industry totaled $18 billion year-to-date as of Aug. 31, according to Barclays Global Investors in San Francisco, and assets in U.S. ETFs stood at $251.7 billion.

Mr. Glauber's inclusion of separately managed accounts in his laundry list of investments also came as somewhat of a shock, industry lawyers said.

At Securities America, as with many independent-contractor broker-dealers, separately managed accounts are on a firm's investment advisory platform, not the broker-dealer platform, Mr. Spinar said.

Industry lawyers also said that NASD had last given formal guidance about separately managed accounts in two notices to members from 1994 and 1996.

"I've wondered when they were going to exert authority over investment advisory activities" said one lawyer, who asked not to be named.

NASD is looking to help broker-dealers, Mr. Glauber said in his speech.

"I know that there is a perception within the industry that we, as regulators, live to regulate - that we get out of bed in the morning and say: 'What can we do today to make our members' lives more difficult?'" he said.

That simply is not true, Mr. Glauber said

NASD's "passion is for protecting investors," he said.

Lightening the load

"To relieve some of the cost and burden on firms, NASD is prepared to play a role in creating and maintaining an online-database utility to host the point-of-sale documents for all mutual funds," Mr. Glauber said.

"NASD understands that regulation imposes costs, and we believe we have a responsibility to bear some of those costs."

NASD also is "putting the finishing touches" on a website that provides information to reps and investors about mutual fund breakpoint discounts, Mr. Glauber said.

The site will be launched in the next few weeks, and NASD is "bearing the cost of this website," he said. "This is the proper role for us," Mr. Glauber said.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 22

Conference

San Francisco Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Connecting with teachers key to adviser impact on literacy

Advisers can help with curriculum if they don't have the bandwidth to visit classrooms.

Latest news & opinion

Morgan Stanley rides wealth management train to solid first quarter

Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.

Fate of New Jersey fiduciary standard could come down to politics, court

With strong support from N.J. Gov. Phil Murphy, the proposal has momentum out of the gate.

Growing wealth fuels demand for family offices

The market for serving wealthy families may be bigger than some data suggest.

FPA backs away from controversial plan to merge chapters

The group is no longer seeking to dissolve local chapters as separate legal entities.

RIA succession plan takes the long view

The transfer of ownership over 22 years leverages company shares as an employee reward-and-retention tool.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print