Changing the Rules of The Game


FINRA recently under went a retrospective review of their communications with the public rule and issued a proposed rule that would allow broker-dealers, under a limited set of circumstances, to use projected performance.  While this is certainly a step in the right direction, those of us involved in the sale of alternative investment strategies would certainly argue that this proposal has not gone far enough.  

When considerting alternative investments, investors not only seek to understand the strategy they are investing in but also, the targeted performance of the strategy.  Currently, under FINRA rules, registered representative offering interest in these funds are prohibited from discussing projected performance with any investors - even institutional ones.  

For this reason, 3PM's Regulatory Committee put pen to paper and drafted a response to FINRA's request for comments regarding FINRA Proposed Rule 17-06.  In the opening paragraphs of its comment letter, 3PM states "We do also believe, however, that with respect to RN 17‐06 and the amendments contemplated under this notice, that FINRA has not fully and appropriately updated the Communications with the Public standards to properly reflect the realities occurring in the marketplace."

A review of the other comment letters submitted by the industry show that 3PM is not alone in its belief that the rule needs to be extended to allow the use of projected performance with institutional investors.  Wells Fargo, Credit Suisse, the NYS Bar Association and SIFMA were amongst the other commenters that also argued for the rule to be extended.  

While the jury is still out as to whether or not FINRA will amend the rule, 3PM's Regulatory Committee has made its views known and is fulfilling its mandate to its membership.  

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