Mutual Fund Advertising: Improving How Regulators Communicate New Rule Interpretations to Industry Would Further Protect Investors
Highlights
Mutual funds are one of the most widely held investment products by Americans and advertising is one method by which investors may obtain information on funds. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires GAO to conduct a review of mutual fund advertising, focusing on the advertising of past performance information. This report examines (1) what is known about the impact of fund advertisements on investors, (2) the extent to which performance information is included in advertisements, and (3) the regulatory requirements for fund advertisements and how they are administered and enforced. To address these objectives, GAO reviewed existing and proposed Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) rules, conducted a literature review of studies related to mutual fund advertising's impact on investors, and reviewed a random sample of 300 fund advertisements. GAO also met with regulators, fund companies, academics, and industry and investor protection groups.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| United States Securities and Exchange Commission | To help ensure that investors are better protected from potentially misleading advertisements, the Chairman, SEC, should take steps to ensure FINRA develops sufficient mechanisms to notify all fund companies of new interpretations of existing rules that arise during the course of FINRA's regulatory reviews of advertisements. |
Closed – Implemented
In a letter, SEC officials requested that FINRA review its methods for disseminating new interpretations of its fund advertising rules with a view towards enhancing transparency and provide a written report to SEC outlining its results. In response, FINRA conducted a review and adopted the following changes to its advertising review process to improve transparency. FINRA stated it will ensure timely publication of any significant new interpretation of the advertising rules that affects a broad section of the industry and that it will notify industry of new interpretations through notices, email, webinars, and other forms of media.
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