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Financial Advisor Responsible For The Sale Of The Mutual Fund Product To The Shareholder

Our recommendation to the Securities and Exchange Commission that, in addition to providing the shareholder Tax Identification Number, intermediaries agree to provide information identifying the financial advisor responsible for the sale of the mutual fund product to the shareholder, when requested by the fund company.

Background: Prior to the exposure of market timing issues, a number of financial intermediaries disclosed little, if any, information on which of their financial advisors, shareholders, or plan participants were executing the trades within the firm’s omnibus or undisclosed accounts. In fact, on some clearing and supermarket platforms, the decision of whether or not to disclose this information was left up to the introducing advisory firm.

These clearing brokers came to recognize that many of the financial advisors who elected not to be disclosed did so because they were market-timing mutual funds. Subsequently, a number of these clearing firms changed their policies and began disclosing more advisor information.

However, the way these clearing brokers and supermarkets provide that advisor information often does not break down the specific trading activities in relation to the accounts those advisors manage. If the introducing advisory firm does not want to disclose how or through whom the product was sold, the question would be why? Currently, as we understand 22c-2, the intermediary is required to provide TINs and transactional information at the request of the fund company.

However, there is no provision within 22c-2 requiring that the intermediary also provide information identifying the financial advisor executing the trade. Proposal: Requiring the disclosure of TINs and transactional information by the intermediary when requested to do so by the fund company is only a partial solution to the transparency issues associated with omnibus accounts. Since financial advisors are acquiring mutual fund products on behalf of their clients, the mutual fund shareholders, and are empowered by them to trade on their behalf, the intermediary should identify these individuals along with the TIN of the shareholder.

We see no reason not to make transparency complete by including all of the information associated with the individuals that manage shareholder relationships and gaining full disclosure of the processes involved in the sale of the product to the end shareholder. The financial advisor has the responsibility to represent the product capabilities to the investor. They are charged by the investor with the authority to act on their behalf, are a party to the transaction, and have a legal duty to conform to all of the rules of the fund. The financial advisor may be compensated directly or indirectly for the sale of the product by the fund, all the more reason why disclosure of all parties to a transaction is appropriate.

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