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Wednesday, October 07, 2009

Ruling on Mutual Fund Ads is Not Effective, Study Finds

by: Daniel Tovrov

A university study was recently conducted to determine the effectiveness of a 2007 Financial Industry Regulation Authority ruling that requires mutual fund advertisements to include expense information and references to past fund performance. The Associated Press picked up on the study's findings.

Furman University and Radford University professors showed 33 graduate students and university staff 18 fabricated print ads containing information on fictional funds' expense ratios and one- and three-year returns. They offered funds from two companies, one with the real-name Fidelity Investments, the other from fictional fund company Pinnacle.

The study, which was published in the Journal of Consumer Policy, found that participants preferred funds with strong recent performance, but few paid attention to cost. The researchers concluded that the FINRA guidelines may not lead to more-informed customer decisions, as intended, and suggests that FINRA or ad agencies should reevaluate their advertising requirement. 

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