The requirement to deliver mutual fund prospectuses to clients has been burdensome and costly. It has also resulted in frustration from clients as they are deluged with prospectuses they’d rather not receive because they have authorized an investment adviser to manage their accounts on a discretionary basis.
As a result, the Division of Corporation Finance of the Securities Exchange Commission (SEC) provided guidance that a broker-dealer may rely on “constructive delivery” to satisfy its mutual fund prospectus delivery obligations by delivering prospectuses to investment advisers in managed account programs on behalf of their clients.
Key Elements of Constructive Delivery
The guidance indicates that the broker-dealer must establish actual knowledge of the investment adviser's authority to manage the client’s account on a discretionary basis and to accept delivery of mutual fund prospectuses on behalf of the client through:
- Knowledge that the investment advisory relationship between the client and the investment adviser includes authorization to receive prospectuses
- Obtaining representations from the investment adviser that it has the authority to manage the client’s account on a discretionary basis and receive prospectuses on behalf of the client
- Confirming with the client that the client’s investment adviser has the authority to manage the client’s account on a discretionary basis and to receive prospectuses on behalf of the client
Similarly, broker-dealers may wish to review, and if necessary, amend, their standard documentation and agreements to insure they are able to take advantage of the new guidance.
How Mediant Can Help
Mediant helps brokers take advantage of constructive delivery to reduce costs and document overload. We use suppression logic to ensure post-sale documents are only sent to the investment manager, which decreases distribution costs. In addition, our MIC technology enables brokers to easily track and identify suppressed transactions. Mediant also bundles multiple notices into a single email, reducing the flood of correspondence individuals receive.
For more information about constructive delivery, contact us.