02-032 C.M.R. ch. 506, § 6 - Disclosures, advertising and physical setting

This section applies to all third party broker-dealer arrangements, whether with a financial institution or a financial institution authorized to do business in this State. In order for a financial institution authorized to do business in this State to qualify for the exclusion from the definition of "broker-dealer" in 32 M.R.S.A. §16102(4), that financial institution authorized to do business in this State must comply with all provisions of this section that are applicable to financial institutions.

1. Separated space. The space utilized by the third party broker-dealer to transact business with the public must be separated, to the extent practicable, from the retail area of the financial institution and in such a manner as to prevent confusion in the public's mind between the financial institution and the broker-dealer. When certain considerations, such as the staffing level, size or design of a particular facility of a financial institution, prevent sales from being conducted in a location distinct from the retail area, the institution shall make every reasonable effort to minimize customer confusion through an appropriate combination of signage, disclosure and physical location within the retail area. In no event, however, may the sale of securities be conducted at the retail deposit-taking stations of an institution (the "teller line" or "teller window").

2. Clarity of signage. Any space utilized by the third party broker-dealer to transact business with the public must be separately identified with signs or other means so that customers of the third party broker-dealer will understand that they are doing business with a broker-dealer and not with the financial institution.

3. Clarity in marketing. The marketing activities of the third party broker-dealer should be designed to ensure that the customer understands the difference between the broker-dealer and the financial institution and the difference between the securities offered by the broker-dealer and the deposit products offered by the financial institution. The broker-dealer may not market any security in a manner which suggests that it is insured by the Federal Deposit Insurance Corporation ("FDIC") or National Credit Union Administration ("NCUA") or guaranteed or endorsed by the financial institution.

4. Securities issued by the financial institution. Unless the transaction is solicited by the customer, the third party broker-dealer may not offer or sell any security issued by the financial institution or an affiliate of the financial institution. This sub-section does not apply to shares in a mutual fund holding in its portfolio securities issued by the financial institution or an affiliate of the financial institution.

5. Advertising. Advertisements prepared by the financial institution must be limited to the availability of services or a list of generic products and may not contain details about specific products. All advertising for securities transactions or services shall be conducted in the name of the third party broker-dealer or a "doing business as" name for the broker-dealer approved by the Office of Securities and in accordance with NASD advertising rules. Prior to using a name that contains a restricted term as defined in 9-B M.R.S.A. §241(9), the Bureau of Financial Institutions shall be consulted.

6. Telephone protocol. If the third party broker-dealer has its own telephone line(s) into the premises of the financial institution or if the broker-dealer regularly receives calls on an extension that is part of the financial institution's telephone system, calls received on said line(s) or extension(s) shall be answered with the name of the broker-dealer or may be answered in the name of its approved "doing business as" name.

7. Written disclosure. The third party broker-dealer shall provide each customer, at the time an account is opened or before the initial securities transaction is effected, whichever comes first, with a written disclosure, to be signed by the customer, acknowledging that the customer has received and understands the disclosures required by this section, and providing the following information:

A. At a minimum, the written disclosure should inform the customer that the securities being offered and sold by the broker-dealer are:

(1) Not insured by the FDIC or NCUA;

(2) Not a deposit or other obligation of, or guaranteed by, the financial institution; and

(3) Subject to investment risks, including possible loss of the principal amount invested.

B. A statement that conveys the following: "The [name of third party broker-dealer] and the [name of financial institution] are separate entities, and when you buy or sell mutual funds or other securities through [name of broker-dealer], you are doing business with [name of broker-dealer] and not with [name of financial institution]. The [name of financial institution] does receive compensation as a result of your purchase or sale of securities or advisory services through [name of broker-dealer]."

The written disclosures should be conspicuous, easy to comprehend and presented in a clear and concise manner. The broker-dealer shall retain a copy of the signed disclosure document for at least six years. Electronic signatures that comply with applicable federal and Maine laws are acceptable.

8. Disclosure in advertising materials. Except as provided in sub-section 9 of this section, the statements set forth in sub-section 7(A) of this section shall be prominently disclosed in all materials utilized by the third party broker-dealer to advertise the availability of its services to the customers of the financial institution. These advertising materials shall also state, in equal prominence to the disclosures required in 7(A) above, that the securities are offered through the broker-dealer.

9. Logo format disclosure. In limited situations, such as visual media (e.g., television broadcasts, ATM screens, billboards, signs and posters) and in written advertisements and promotional materials (e.g., brochures and business cards), a shorter logo format disclosure which includes the following statements is acceptable:

A. Not FDIC/NCUA Insured

B. No Bank/Credit Union Guarantee

C. May Lose Value

These logo format disclosures shall be boxed, set in bold face type, and displayed in a conspicuous manner.

10. Additional disclosures. In addition to providing the disclosures at the times specified in sub-sections 7 and 8 of this section, the minimum disclosures set forth in sub-section 7(A) shall be provided to the customer, either orally or in writing:

A. During any sales presentation; and

B. Whenever investment advice is provided.

Notes

02-032 C.M.R. ch. 506, § 6