The Independent Bankers Association of America said a proposal to allow investors to buy mutual funds as described in advertisements without first being sent a prospectus would not adequately protect investors' interests.

In a letter to the Securities and Exchange Commission, which proposed the change and is now reviewing comments, IBAA president James R. Lauffer said the change would not serve consumers well and would increase the flow of funds from community banks to mutual funds.

"Permitting the use of off-the-page prospectuses will not ensure that consumers have adequate information to understand their investment choice," Mr. Lauffer wrote.

But Erick Kanter, a spokesman for the Investment Company Institute, which strongly supports the change, said all the key information that consumers use would be in the advertisements.

He likened the situation to buying a car. You don't need to see the owner's manual when you're looking at a car, he said.

The SEC said the proposed change would lower the marketing costs for some funds. It would also level the disparity between direct-marketed funds, which must now send a prospectus before selling shares to an investor, and brokers who may sell without providing a prospectus in advance.

The IBAA doesn't see a disparity because customers can ask questions of brokers before buying a fund, Mr. Lauffer said. But, he added, "The better way to achieve parity between direct-marketed and broker-sold funds is to require both to provide a prospectus before the investment is made."

The proposal would in the flow of funds from community banks to mutual funds, which would hurt small businesses seeking loans, Mr. Lauffer said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.