finra

FINRA

FOR RELEASE:
CONTACTS:


Friday, November 21, 2003
Nancy A. Condon 
202-728-8379
Michael Shokouhi 
202-728-8304



 

NASD Proposes Disclosure Rule for Mutual Fund Expenses in Performance Advertising

Washington, DC – NASD proposed today to require disclosure of mutual fund expenses in advertisements and other sales material that promotes the fund's performance. The proposals are designed to improve investor awareness of mutual fund costs, facilitate comparisons among funds and make standardized performance more prominent.

 

"Mutual fund fees and expenses affect an investor's return. When a mutual fund promotes its performance, it needs to give a balanced picture by disclosing fees and expenses," said Robert R. Glauber, Chairman and CEO of NASD. "With the balanced information mandated under our proposal, investors have a better chance to make the right mutual fund purchase decision.

 

"Today's announcement is an important part of a comprehensive review of mutual fund sales practices of securities firms by NASD. We will continue to develop new initiatives to make sure investors have the information they need and that they receive fair treatment when they invest in mutual funds."

 

NASD's heightened scrutiny in the area of mutual funds and variable annuities has resulted in over 200 disciplinary actions since the beginning of 2001. Most recently, NASD proposed better disclosure of compensation paid to members for the sale of mutual fund shares. In July, the Report of the Joint NASD/Industry Task Force on Breakpoints recommended a number of reforms to ensure that investors purchasing mutual fund shares with front-end loads receive the discounts to which they are entitled.

 

NASD's latest proposal would require that all fund advertisements, sales material and correspondence that includes performance information include a prominent text box that sets forth the fund's:

  • Standardized performance information (i.e., 1, 5 and 10-year returns);
  • Maximum sales charge; and
  • Annual expense ratio.

The proposal would require that the standardized information in the text box be presented in at least as large type size as the nonstandardized performance.

 

NASD intends to request public comment on the proposal. Details of the proposal will be made available in a Notice to Members.

 

A part of its ongoing effort to educate investors, NASD has issued a number of alerts outlining the costs involved in purchasing various mutual fund classes and how to determine which share class may be appropriate. Most recently, NASD issued an alert titled, Mutual Fund Breakpoints: Are You Owed a Refund? NASD also has issued Class B Mutual Fund Shares: Do They Make the Grade?. Also of interest are the mutual fund breakpoint Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking and the Task Force Breakpoint Report.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.