Although one of SEC’s biggest beefs with the fund industry has been the presentation of outsized short-term returns in fund ads, it is SEC rules that require fund ads to display this data. Under SEC rules, if a fund advertises its performance results, it must provide one-year returns (in addition to five- and ten-year, or since inception, returns).  Even if the one-year returns are potentially misleading -- as they often are -- they cannot be omitted.

For example, a fund that has a stellar one-year return, but which performed abysmally the previous year, does not have to disclose this fact in its ads.  The SEC staff plans to issue a legal bulletin later this year that will "provide more guidance about when omitting this kind of information may violate the antifraud rules under the federal securities laws, says Scheidt.  If the staff issues guidance with real teeth to it, we may see a dramatic shift in the way that mutual funds are advertised.  (View the full text of this article.)