(Dow Jones) Mutual funds may need to come with a blunt warning label just like a pack of Lucky Strikes.

In their quest to recruit Main Street investors seeking above-market returns, fund companies have long relied on newspaper and magazine ads to showcase portfolio managers' best work. Difficult as that task seemed a year or two ago, the recent bull market has given these firms new opportunities to brag.

"Global Stock Fund Ranked No. 1 Performer," reads one example in last week's Barron's, citing returns over two- and three-year spans. "Results Speak Louder than Words," says another in Financial Advisor magazine, referring to three- and five-year numbers. While such ads always come with a disclaimer that future results aren't guaranteed, a new study by three professors from Wake Forest and Arizona State Universities argues those warnings aren't strong enough to prevent investors from making misinformed decisions.

The study recommends a sterner warning, and the two members of the trio who teach law say they lean toward an even more drastic option: banning mutual funds performance ads altogether as an inherent threat to investors' financial health.

The problem, the critics say, is that performance ads broadly give the false impression that a fund's past returns should be an important consideration. In fact, strong-seeming returns are almost always attributable to luck, so funds' past performance is largely irrelevant, unlike other factors, such as investment fees, that do reliably influence long-term results.

Academics and professional investors typically acknowledge that seemingly counter-intuitive dynamic. But small investors, confronted with marketing campaigns that foster the opposite impression, have been slow to catch on.

"Ads appear in bull markets," says author Ahmed Taha, who teaches law at Wake Forest. They're "really encouraging bad investment behavior."

Mutual fund ads will be part of the debate over the new financial reform bill currently wending its way through Congress. The Senate's version of the bill, assembled by Banking Committee Chair Sen. Christopher Dodd (D., Conn.) calls for a study of fund advertising by the Comptroller General and singles out questions about how ads use performance data.

The Investment Company Institute, the fund industry's trade group, says mutual funds already are "the most regulated and transparent products available" and notes marketing materials are overseen by both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, the brokerage industry's regulator. The fund industry supported the last update of the rules which took place in 2003, the ICI says. (The SEC and Finra declined to comment.)

Still, the basic disclaimer that emerged from that round of rule-making, the commonly heard refrain, "past performance is no guarantee of future results," may be ineffective, the new study shows. The study of more than 500 business, law and undergraduate students from two universities found the disclaimer made would-be investors no less likely to discount past performance than an ad with no disclaimer at all.

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