We Anticipate Regulatory Scrutiny and Follow-up Enforcement Actions Around the SEC Advertising Rule. What Are the Risk Areas Surrounding the Adoption and Implementation of the New Rule?
- Testimonials and endorsements
- Social media, blogs, podcasts, etc.
- Third-party solicitors, including placement agents
- Third-party rankings
- Processes for reviewing and retention of marketing materials
- Adoption and/or entanglement of third-party marketing materials to promote the firm’s advisory services
- Performance disclosures specific to gross and net performance; asset-level performance; hypothetical modeling; targeted, related, extracted and/or predecessor performance
- Employee training
How Has the Definition of “Advertisement” Expanded Under the SEC Marketing Rule?
The definition of “advertisement” will be amended to reflect two aspects, including any direct or indirect communication an investment adviser makes that:
- Offers the investment adviser’s services regarding securities to prospective clients or private fund investors or offers new investment advisory services with regard to securities to current clients or private fund investors advised by the adviser
- Includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly
The SEC Replaced the Previous Four Specific Prohibitions With Seven New General Prohibitions. What Are the Seven New Principles-based General Prohibitions Included in the SEC Marketing Rule Guidance?
Investment advisers may not disseminate any advertisement that:
- Includes untrue statements and omissions
- Includes unsubstantiated material statements of fact
- Includes untrue or misleading implications or inferences
- Fails to provide fair and balanced treatment of material risks or material limitations
- Fails to present specific investment advice in a fair and balanced manner
- Cherry-picks performance results or otherwise presents performance in a manner that is not fair and balanced
- Is materially misleading
The principles place a higher burden of proof on advisers, requiring them to maintain sufficient documentation to back up their claims.
How Can Kroll’s Financial Services Compliance and Regulation Team Help?
Kroll’s team of compliance experts can help you navigate the SEC’s new Marketing Rule options and requirements and help you prepare for the rapidly approaching November deadline. We will develop and update tailored policies and procedures that are compliant and practical for your firm, address any implementation concerns, train your employees and assist with crafting appropriate and customized disclaimers to prepare you for the SEC's follow-up enforcement actions and exams.
To learn more about the new Marketing Rule and to prepare your firm for these upcoming changes, contact one of our experts.