NU Online News Service, Jan. 24, 2:57 p.m. –The National Association of Securities Dealers, Washington, has issued a notice telling member companies that sell hedge funds to make sure that customers understand what they are doing.

“Although we are not charged with regulating hedge funds, we will scrutinize carefully the activities of broker-dealers when they sell those products,” Mary Schapiro, the NASD’s head of regulatory policy and oversight, said in a statement about hedge fund sales. “Brokerage firms must fulfill their investor protection obligations when selling hedge funds, including suitability and disclosure.”

The typical hedge fund is an investment fund that gets around U.S. Securities and Exchange Commission restrictions on mutual funds by making shares available to a small number of sophisticated investors with large amounts of investable assets.

Some life insurance company brokerage units and other financial services organizations have been trying to find ways to make hedge funds available to investors with smaller accounts.

The NASD is worried that some member companies may be failing to tell retail customers about all the risks involved or to determine whether hedge funds are suitable investments for specific customers.

Some companies may also be doing a poor job of training the representatives who sell the hedge funds, the NASD says.

A copy of the NASD notice is available at http://www.nasdr.com/pdf-text/0308ntm.pdf