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Rating:SEC-Mandated Lingo in Fund Ads is 'Completely Ineffective,' Study Finds Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, April 19, 2010

SEC-Mandated Lingo in Fund Ads is 'Completely Ineffective,' Study Finds

News summary by MFWire's editors

It has been six and a half years since the SEC required fund firms to include the "past performance is not an indicator of future performance" disclaimer in their fund advertisements. Is that warning effective?

A study set to be published this fall tackled that question. In the study, particpiants were shown an ad trumpeting a stock fund that outperformed its peers in the past, and participants were asked about their inclination to invest in that fund and expecations about its future returns. Some participants were shown a version of the ad with the SEC's warning, others were shown an ad without it.

"We found that the SEC's warning is completely ineffective," wrote Ahmed Taha, law professor at Wake Forest University and one of the study's authors, in an article on Forbes.com on Friday. "Participants who saw the ad with the warning were just as likely to invest in the fund, and had the same expectations regarding its future returns, as participants who saw the ad without the warning."

The study's authors suggest that the SEC come up with a warning that "better informs investors of the futility of this chase." 

Edited by: Armie Margaret Lee

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