In its notice the MSRB said the proposed interpretation “strengthens and clarifies dealers’ obligations to provide important disclosures to customers investing in out-of-state 529 college savings plans and to undertake active suitability analyses for recommended transactions in 529 college savings plans based on appropriately weighted factors.”
Under the proposed interpretation, dealers selling out-of-state 529 college savings plan interests are required to disclose to the customer, at or prior to the time of trade, that:
- depending on the laws of the home state of the customer or designated beneficiary, favorable state tax treatment or other benefits offered by such home state may be available only if the customer invests in the home state’s 529 college savings plan;
- state-based benefits should be one of many appropriately weighted factors to be considered in making an investment decision; and
- the customer should consult with his or her financial, tax or other advisor about how such state-based benefits would apply to the customer’s specific circumstances and may wish to contact his or her home state or any other 529 college savings plan to learn more about their features.
The MSRB reminded dealers that disclosure statements must not be false or misleading. In addition, the proposed interpretation reminded dealers that providing disclosures to customers does not relieve them of their suitability duties – including their obligation to consider the customer’s financial status, tax status and investment objectives – arising in connection with recommended transactions.
Dealers must have and enforce written supervisory procedures reasonably designed to ensure compliance with this obligation for every recommended transaction, the notice said.
Due to restrictions on the MSRB and SEC on mandating certain other disclosures, the MSRB advocates centralized Web sites providing direct access to official issuer disclosure materials for the entire universe of 529 college savings plan offerings, together with understandable educational information and tools allowing for side-by-side comparisons of different 529 college savings plans.
In response to this, The College Savings Plan Network (CSPN) is taking steps to upgrade its existing Web site to provide a comprehensive centralized Web-based utility for the 529 college savings plan market. CSPN has also recently published its Disclosure Principles Statement No. 2 (“DP-2”), which updates its baseline disclosure standards designed to assist the states in improving the quality and comparability of their 529 college savings plan disclosures in the program disclosure document. CSPN’s DP-2 is here .