Published on Sep 12th, 2023 |

9 Marketing Rule Violations | SEC Charges

SEC Releases

Brief Introduction

On September 11th, the SEC announced charges against nine Registered Investment Advisers (“RIAs”) for violations of the Marketing Rule.

All involved Firms had violations involving hypothetical performance, and two of the Firms also had recordkeeping failures.

The Firms agreed to settle the charges and pay a combination of $850,000 in fines.

The Relevant Marketing Rule

The Relevant Marketing Rule

As a reminder:

  • Hypothetical performance is defined as performance results not actually achieved by any portfolio of the investment adviser including, but not limited to:
    • Performance derived from model portfolios.
    • Performance that is back tested by application of a strategy to data prior to time periods when the strategy was not actually used.
    • Target or projected performance returns with respect to any portfolio or to the services provided in regard to securities offered.
  • RIAs are prohibited from including any hypothetical performance in their advertisements unless, among other things, the adviser implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience.
  • The Commission has observed that advisers would not be able to include hypothetical performance in advertisements directed to a mass audience or intended for general circulation.

What Happened?

What Happened?

  • All nine Firms published materials determined to be advertisements on their websites.
  • These Firms failed to create written policies and procedures reasonably designed to ensure advertising material would be relevant to the investment objectives of their intended audience.
  • Firms used hypothetical performance derived from model portfolios or from performance that was back tested; some firms used both.
  • The website publications were intended for a mass audience that included new prospective customers and current customers that would be obtaining additional adviser services.
  • Two Firms also failed to maintain proper records of their advertising material:
    • One Firm failed to ensure that their outside service provider archived relevant marketing material.
    • Another Firm made revisions to their webpage, but failed to maintain records of the originals.

Vigilant's Conclusion

Vigilant’s Conclusion

With the Marketing Rule sweeps continuing, it would be prudent for RIAs to consider partnering with an experience Outside Compliance Consulting Firm.

The SEC’s Director of the Division of Enforcement, Gurbir S. Grewal, made it very clear in his statement the importance of implementing policies and procedures to ensure compliance with the Marketing Rule. Being able to maintain and properly update those policies and procedures in a timely manner is going to be a crucial component as part of this current regulatory environment.

Whether it is Limited Support or Outsourced CCO Services, Vigilant is here to help keep your Firm abreast of the new rules and regulations coming into effect and maintaining an effective compliance program custom tailored to the needs of your business utilizing over 370+ years of experience at the Director level.

As a second important layer of these SEC Charges, for Firms that have lots of marketing materials, consider utilizing an outsourced advertising and marketing review team for assistance. At Vigilant, we utilize industry leading technology to review all required marketing materials and maintain documentation of the process for any potential examinations.

By providing crucial feedback involving disclosures, advertising materials, performance advertising, testimonials, and any other material that would be requested during an examination, our in-house team of trained reviewers take on the perspective of a regulator so you can focus on your business goals.

Be on the lookout for upcoming releases from the SEC as it relates to the Marketing Rule and reach out to us today if we can be of any assistance.

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