Rules & Regulations Tips

Registering Your Investment Club with the SEC

Most investment clubs don't need to register with the SEC, but a few do. To get a detailed list of the scenarios that require SEC registration, visit the SEC Web site at www.sec.gov. Also contact your state securities regulator to find out about regulations that are specific to your state.

As long as all people in the investment club contribute to choosing the securities investments, the investment club doesn't issue shares to its members, and the investment club is limited to fewer than 100 people, it shouldn't have to register with the SEC.

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529 Plan Regulations

529 College Investment Plans are regulated by the Municipal Securities Rulemaking Board (MSRB). Because 529 plans have the same characteristics as mutual funds, the rules and regulations concerning them are similar to those that regulate mutual funds. In fact, the MSRB works closely with the NASD to ensure that 529 plan regulations and mutual fund regulations resemble each other as much as possible. One rule that applies to 529 plans but not to mutual funds is that your broker must inform you about any tax benefits or other benefits of investing in your own state's 529 plan when you make your investment. If you were unaware of this information when you purchased your 529 plan, contact the MSRB to file a complaint.

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Mutual Fund Regulations

The SEC closely monitors mutual funds and their managers. Both mutual funds and mutual fund managers must be registered with the SEC. They are then required to provide a variety of reports including a prospectus that details the fund's objectives, risk level, earnings, and more.

One of the required informational documents for mutual funds is a Statement of Additional Information (SAI). The SAI expands on items mentioned in the prospectus that are not crucial information for investors, but that some investors use to help them evaluate a fund. The SAI must be provided free to investors. To access any mutual fund documents required by the SEC, contact the fund directly and request them.

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The NASD

After other methods fail, go through the NASD to settle any disputes you have with your broker. The NASD, formerly known as the National Association of Securities Dealers, is a private organization charged with the responsibility of creating and enforcing rules for the people and firms in the securities industry.

All brokers and brokerage firms much be registered with the NASD and all past violations are kept on file with the NASD. For this reason, the NASD is an excellent resource for gathering information about brokers.

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Late Trading

After the market closes at 4:00 pm Eastern Time, mutual fund trading must cease until the next day. Investors who trade mutual funds after the close of the market are engaging in "late trading," which is illegal. Late trading is considered unfair because the trader is able to act on market movement information before other investors can participate.

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Mutual Fund Breakpoints

Find out if you are getting the mutual fund breakpoint discount that you're entitled to. The NASD requires that investors be given a discount on front-end mutual fund loads if they invest larger amounts of money. Different amounts of money entitle you to greater load discounts. The investment amounts at which the discount changes are called "breakpoints."

Ask your broker for a breakpoint schedule to determine whether you received the breakpoint discount that you deserved. If you didn't, you should get a refund from your broker.

The NASD also prohibits brokers from pushing you to invest just below a breakpoint in order to earn more of a commission from you.

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Your Rights to Information

The Securities and Exchange Commission (SEC) oversees the securities market and holds companies to high standards of public disclosure. The commission reviews informational documents from each company such as annual reports, 10-K reports, and supplemental investor information packages in order to determine if the company is being transparant enough for investors. The goal of the SEC is to ensure that investors have access to good information about a company.

Of course, you will only benefit from the SEC's dilligence if you take time to look over the investor materials given to you by the companies you hold stock in. The SEC doesn't guarantee that the information you receive will be accurate, but it does give you a way to fight back in the event that a company gives you bad information.

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Cold Calling Rules

The NASD places strict regulations on cold-calling practices by brokers. Cold callers may only call you between 8 a.m. and 9 p.m. When they call, they must give you information about themselves including their name, the name and contact information for the firm they work for, and a notification that they are calling to sell you an investment. They must not harass you or lie to you and they are required to get written permission from you before taking money from your bank account. Cold callers must also put you on their "do not call" list if you ask them to. If they call you after you request them not to, or if they harass you in any other way, contact the SEC to file a complaint.

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