Ropes & Gray Attorneys Discuss FINRA Rule 2210

Washington regulators are weighing new rules that might make it easier for broker-dealers to offer private placements to ultra-wealthy investors and institutions, including FINRA rule 2210.

Asset management partner Brynn Rail and associate Erin Conklin spoke with Private Funds CFO about the rule and its impact on broker-dealers. “I do think it is a step in the positive direction,” Brynn Rail said of the proposal. “We hear from clients that investors want this information, ‘How are we supposed to raise a fund if we can’t tell investors what we’re looking to achieve?’” It just doesn’t make sense. It’s very hard to sell a fund when you can’t tell investors what you hope to achieve.”

The “reasonable basis” standard in the rule proposal might be a little sticky, too, Erin Conklin said.  “The question is, would a broker-dealer that wants to use materials prepared by a private equity manager have to form his or her own reasonable basis, or is that something the broker-dealer could delegate or offload to the manager?” Erin said. “The marketing rule, under the Investment Advisers Act, doesn’t include an explicit reasonable basis standard.”