NASD: Yer outta dere!

With criticism on the rise about mutual fund advertising, the gatekeepers who review those ads want investors to know that they are pounding the beat.

Officials at the National Association of Securities Dealers say that at least a third of the ads they see are bounced back to fund companies for failing to meet standards.

“Omission of material information, primarily risk disclosure,” is the biggest reason for rejecting an ad, says Tom Pappas, director of advertising regulation for the association, which is responsible for reviewing virtually all mutual fund ads — print, web-based, radio, TV or otherwise.

“Before material is filed with us, it must be reviewed internally at the member firm by a registered principal, who signs off on the ad with the representation that it is in compliance, to the best of their knowledge,” Mr. Pappas says.

The remaining ads that pass muster, he says, are “either acceptable in that they’re fully compliant or any type of change is minor.”

Of the 70,000 ads that the association reviews each year, about 80% are for mutual funds; another 10% are for variable annuities and other forms of security-based insurance, and the rest are generally voluntary filings for other investments.

Rules governing mutual fund advertising require that new member firms file the ad with the NASD prior to its use. Fund firms that have been members for more than a year are allowed to file within 10 days after it first runs.

Regardless of when the ad is filed, the association responds in writing to every ad to indicate whether it’s acceptable, needs revision or should be stopped.

It enforces rules for the Securities and Exchange Commission, which expects to propose changes to advertising regulations before July.

The NASD, too, is modifying its own advertising rules as part of its effort to update what it calls “member communications with the public.” Any proposed changes must be approved by the SEC.