SEC risk alert concerns marketing compliance reviews

On Monday, the Securities and Exchange Commission issued a risk alert that provides the latest information on “upcoming review areas during reviews” related to its new marketing rule.

As of the November 4 compliance date, the alert says, investment advisers can no longer choose to comply with previous advertising and cash solicitation rules, and any advertising on or after that date will be subject to the marketing rule. Additionally, he notes that the SEC’s examinations division is withdrawing certain staff statements related to the previous rules.

Advisors should consider whether they should update or revise their written policies and procedures “to ensure that they are reasonably designed to prevent violations by advisors and their supervisees of the Marketing Rule,” says the alert. Investment advisers will also be required to “establish and retain certain records, such as records of all advertisements they serve, including certain internal working papers, performance information and records for oral advertisements. , testimonials and endorsements”.

The risk alert, which is meant to represent the views of staff in the Examinations Division, states that staff “will conduct a number of country-specific initiatives, as well as in-depth review throughout the review process. review, to comply with the Commercialization Rule.” This will include, but not be limited to, the following areas:

Marketing Rules Policies and Procedures

The alert states that staff will review whether investment advisers have adopted and implemented written policies and procedures that are reasonably designed to prevent violations by advisers and their supervisees of advisers law and rules that ensue, including the marketing rule.

Substantiation requirement

Staff will consider whether investment advisers have a reasonable basis to believe they will be able to support statements of material fact in advertisements, the risk alert says. The Marketing Rule prohibits advertisements that “[i]include a material statement of fact that the counselor has no reasonable basis to believe will be able to substantiate upon request by the Commission. »

Performance Advertising Requirements

Alert States staff will also review whether investment advisers comply with performance advertising requirements in the Marketing Rule, including prohibitions on including the following in an advertisement:

  • Gross performance, unless net performance is also provided;
  • All performance results, unless provided for specific time periods;
  • Performance results for a subset of investments extracted from a portfolio, unless performance results for the total portfolio are provided;
  • hypothetical performance; Where
  • Previous performance, unless further disclosures are made.

Books and records

The alert says the SEC has adopted changes to the Books and Records Rule and will review those requirements to comply. Additionally, the agency amended the Form ADV to require advisers to provide additional information regarding their marketing practices and “reminds advisers of their obligations to accurately answer these questions in their next annual Form ADV amendment.” .

Lance B. Holton