Mutual Fund Law
Mutual funds are a type of investment where the shareholders combine money to invest in multiple stocks, money market investments, and bonds compared to investing in stock in only one company. Investment laws govern mutual funds.
Through investing in mutual funds, millions of individuals save for retirement and build their financial funds. The federal government controls securities markets through the United States Securities and Exchange Commission, which encompasses mutual funds.
Attorneys at SBEMP (Slovak, Baron, Empey, Murphy & Pinkney) law firm provides professional legal advice and services to clients in Palm Springs, Palm Desert, Rancho Mirage, Inland Empire, Orange County, Coachella Valley, Costa Mesa, San Diego, New Jersey, New York, and surrounding locations.
Mutual Fund Regulations
Rules governing mutual funds date back decades. Many rules were instated during the administration of President Franklin D. Roosevelt following the Wall Street Crash of 1929, which triggered the Great Depression which lasted all the way until World War II because the free market did not like the regulations and tax hikes imposed on them during that decade.
The Securities Exchange Act of 1934 created the SEC and provided it with regulatory control over the mutual fund industry as well as the stock market and brokerage houses.
Other important mutual fund regulations include The Securities Act of 1933. This act requires that investors receive concise information pertaining to securities offered for public sale. This legislation was called the “Truth in Securities Act.”
The main focus of the Investment Act of 1940 is on mutual fund regulations as well as how investment companies are structured, function, and pursue investment goals. This act requires disclosure of the financial health of a company as well as its investment policies
State Mutual Fund Regulations
A majority of states require mutual funds to file annual notices in case shares are sold in the state. In addition, mutual funds must pay annual charges to the state. State securities regulators may ask mutual funds to file periodic reports as well.
Other Regulatory Bodies
The Financial Industry Regulatory Authority monitors securities companies operating in the US. FINRA regulations control the manner in which member firms promote and sell mutual funds.
The Commodity Futures Trading Commission oversees the US options, futures and swaps markets along with the mutual funds investing in these markets. According to the Federal Commodity Exchange Act, mutual fund advisers investing in these markets must become commodity pool operators.
Mutual Fund Marketing
In general, mutual fund shares are marketed to the public through an SEC-registered broker/dealer distributor. Additionally, such distributors are also FINRA members and must follow its regulations. These distributors buy fund shares, and then either sell shares through an intermediary or directly to the public.
As the distributor must follow FINRA regulations, they must consider the suitability of the mutual fund for individual investors. For instance, the broker/dealer should refrain from recommending very high-risk funds for older people seeking safe and secure investments in retirement.
Mutual Fund Advisers
Mutual fund advisors are required to register with the SEC as investment advisers. They must also adopt policies and procedures complying with all SEC rules.
Mutual fund advisors function as fiduciaries, which mean that they must act in the best interest of their customers. These advisors are must file regular reports with the SEC and “seek the best execution” for all portfolio transactions.
Mutual fund advisors are responsible for obtaining shareholder and board approvals of the advisory personnel of the fund.
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