NASD Pitches New Disclosure Rules

The NASD on Thursday proposed new rules that eventually may force securities firms to tell investors more about how they pay brokers to sell their mutual funds.

The proposals would force firms to spell out two types of compensation that are made to individual brokers and brokerage firms for selling certain mutual fund shares, the security industry’s self regulatory body said.

“We are trying to address two concerns here: a lack of transparency and the potential for conflicts of interest,” said Mary Shapiro, vice chairwoman and president for regulatory policy and oversight at NASD, formerly known as the National Assn. of Securities Dealers.

“These are additional disclosures so the investor really understands what the incentives are that led this firm to offer these funds and led this broker to recommend or sell this particular fund,” she said.

The move also comes less than a month after Massachusetts securities regulators announced an investigation into how investment bank Morgan Stanley sells its mutual funds.

The first type of compensation involves cash payments to brokerage firms in return for offering a certain company’s funds. The second type involves higher compensation fees paid to brokers for selling certain funds.

The information would have to be given to investors in writing at the time an account is opened, NASD said. And the information would have to be published on company Web sites.

Investor advocates have long been pushing for more transparency in the $6.5-trillion mutual fund industry, especially after Wall Street analysts were seen to offer investors tainted stock research. And regulators have been cracking down on companies that use certain tactics.

“We think it’s very good for mutual fund shareholders because it will give them more information about the incentives that brokers may receive when selling mutual funds,” said John Collins, a spokesman for the Investment Company Institute, a mutual fund industry trade group.