The National Association of Securities Dealers is cracking down on potentially misleading advertisements that urge bank depositors to transfer funds to uninsured investments.
The NASD has already taken some disciplinary actions related to such ads, said Edward G. Newton, its coordinating analyst for advertising. He declined to provide details.
Slogans such as "CD rates got you down?" and "Lowest rates in 20 years" unaccompanied by explanation of investment risks can mislead investors, Mr. Newton said. He spoke this week at a Bank Securities Association meeting in Chicago.
Further Steps Possible
More enforcement actions may be taken apinst dealers who fail to rein in the rhetoric, he added.
Chartered by Congress, the NASD plays a key role in setting and enforcing business and ethical guidelines for securities professionals. Many banks selling securities and mutual funds are members of the organization.
"We're looking for a little more stringent disclosure right now, with interest rates so low," Mr. Newton said. The NASD is urging banks and others to include in their ads more information on the risks of stocks, bonds, and mutual funds.
The NASD's initiative is the latest example of the growing concem in regulatory circles about a massive migration into uninsured investments.
The worry is that many first-time investors don't fully understand the markets' workings. If interest rates rise, bond mutual funds - which have been popular with savers in search of higher yields - could lose value.
The association has been turning up the heat on advertising practices for several months. In a notice to members, issued in March, the NASD warned members that ads may be deemed misleading if they do not comply with its Rules of Fair Practice.
Caria Romano, associate district director in the NASD's Chicago office, said the association also has found misleading statements in brochures, form letters, and telephone sales scripts.
Banks can avoid headaches by submitting these collateral marketing materials to the NASD for review, Ms. Romano added.
"A large number of unsophisticated investors are going into the stock market and mutual funds," she said. "I think you have to be a realist and realize they may not understand it."
A Question of Balance
In addition to disclaimers in ads, the NASD wants brochures to carry explanations of risk, Mr. Newton said
He maintained that sales materials should be as balanced as prospectuses, the contents of which are tightly controlled by the Securities and Exchange Commission. But just sending a prospectus along with the other sales materials is generally not adequate, he added.