On July 26, 2011, the Government Accountability Office (the “GAO”) submitted a report to Congress on mutual fund advertising, as required by the Dodd-Frank Act. Specifically, the report focused on (1) the known impact of mutual fund advertisements on investors; (2) the extent to which performance information is included in advertisements; and (3) regulatory requirements and enforcement for fund advertisements. The report found evidence is mixed regarding whether investors are harmed by advertisements emphasizing superior past returns. The report also concluded that FINRA has not, in all cases, effectively communicated its new interpretations of existing advertising rules to the industry. The GAO also found that the FINRA process of communicating rule interpretation changes through formal comment letters to individual funds that submitted affected materials is limited. The report also noted that developing effective communication mechanisms will decrease the potential for investors to be misled and the potential for some funds to have an unfair competitive advantage over others that use inappropriate advertisements.

The GAO report recommends that the SEC takes steps to ensure FINRA develops appropriate mechanisms for notifying the mutual fund industry about changes in rule interpretations regarding mutual fund advertising. SEC Chairman Schapiro and FINRA Executive Vice President of Regulatory Policy Thomas Selman both supported these suggestions in comment letters included in the report. Specifically, Chairman Schapiro stated that uniform dissemination of regulatory positions enhances compliance, which furthers investor protection. She assured the GAO that the SEC will work with FINRA to ensure enhanced transparency in its new interpretations. Mr. Selman‟s letter stated that FINRA intends to publish through notices any significant new interpretations of the advertising rules that affect a broad section of the industry, as well as develop a mechanism to provide a regular summary and interpretation of advertising issues and rules.