Mutual funds ad guide

Consumer protection is gaining currency in Pakistan. Recently, the specialised companies division of SECP has put on the map certain advertising guidelines for Asset Management Companies (AMCs). Thats a first in the mutual funds industry in Pakistan.
Sources told BR Research that MUFAP has been in negotiations with the regulator for some years. A proposal was sent to the SECP in 2008, following which the industry and the regulator underwent extensive debates.
Thats too long a time for negotiations, which may have put unsuspecting consumers at a disadvantage. During this time, the AMCs smartly took the benefit by cherry-picking presentation formats on what suited them the most. For instance, claiming to be the best fund in a particular year where in fact it had been performing poorly in remaining years, only leads to misleading potential investors.
Thus, in order to thwart this practice, the guidelines are aimed at protecting investors by portraying a whole-length picture. Finally, some progress has been achieved after those six-year-long deliberations.
With these guidelines in place, the time required to take regulatory approvals will be significantly reduced. Previously, AMCs had to go through an approval process that consumed the time and efforts on both ends. Also, with no standard principles in place, delays and interpretation issues led to slowing down the process further.
Now, the regulator will have considerable time to focus on other important issues on policymaking and its implementation.
Although this is a good initiative taken by SECP, a little birdie told BR Research that some areas still need improvement. The source urged that disclaimers should be category-specific and not general.
For instance, money market funds and equity funds are poles apart from each other. Equity funds are long-term instruments whereas money market funds are short-term investments. The current disclaimer says that the investments are subject to market risks. However, in the case of money market funds, interest rate risk is more applicable than market risk. Also, while talking about market risk, people tend to think of stock market, which does not take into account the whole risk.
In any case, this is a belated but right step taken by the regulator. One expects that the SECP will show more zeal in enforcement of these guidelines for consumer protection.

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Important features of advertisement guidelines for AMCs

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General Principles

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1  Adequate risk disclosures, including standard risk disclosure statement

2  Citing risks involved while presenting returns

3  Refrain from using technical terminologies

4  Cannot claim to be "best" performing or "first" unless attributed by an

    independent source

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Performance Presentation

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1  Presenting returns versus the benchmark in offering document

2  Balanced presentation while presenting returns

3  Performance based on actual data and not forecasts/simulations

4  Category of funds to be stated

5  Fair, accurate and relevant performance comparison

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