FINRA may be looking into whether new disclosure requirements should be adopted to discourage investors from relying too heavily on past performance information in fund ads.
SEC Rule 482 under the Securities Act requires performance ads to advise that “past performance does not guarantee future results.” But some academics, as revealed in a recent GAO report to Congress on fund advertising mandated by the Dodd-Frank Act, believe that this language should be toughened to warn that “high fund returns generally do not persist.”
The GAO notes that FINRA’s Office of Investor Education “has been considering conducting research to determine if disclosures can be used to encourage investors not to overly rely on past performance information” and that such research “could help inform regulatory change.”
The GAO report stops short of actually recommending any such regulatory change. The only recommendation that the GAO makes is that the “SEC should take steps to ensure FINRA develops sufficient mechanisms to notify all fund companies about changes in rule interpretations for fund advertising.”
The GAO report includes a letter from SEC Chairman Mary Schapiro stating that she has asked the staff “to consider the GAO’s findings as part of the staff’s ongoing oversight of FINRA.” However, the Chairman’s letter says nothing about changing the advertising rules.`