As someone who has been heavily involved in the implementation of the Marketing Rule for her clients, and being an attendee at several recent SEC roundtables, Donna highlighted the following below as it relates to the Risk Alert and the Rule as a whole:
- Since the Marketing Rule’s approval in late 2020 by the SEC, two years would be given to Firms to prepare for the rule changes. Shockingly, two years later, as the effective date of November 4th, 2022, rapidly approached, many Firms throughout the industry were still not prepared and were left scrambling at the last minute.
- Shortly after the November 4, 2022, compliance effective date, the SEC began a Marketing Rule specific review of 400 Firms. The findings indicated that approximately half of these Firms had not properly complied in some way with the new Rule.
- Surprisingly, the SEC found that many Firms had not updated their policies and procedures to meet the requirement of the Marketing Rule, and in some cases, while the policies were updated, important aspects of the Rule, such as the Testimonial and Endorsement requirements, were omitted, despite the fact that the Firm was using Testimonials and Endorsements in their Advertisements.
- Donna stated, “This has been out there now for more than two years and some firms are still deficient in the areas of not having the appropriate policies and procedures, which is compliance 101.”
- Additionally, deficiencies were noted in the areas of performance calculations and presentation, as well as with predecessor and hypothetical performance.
- These findings resulted in the SEC implementing a plan to get information about their findings out to the industry. The SEC has been conducting a series of Regional Roundtables to alert the industry of the deficiencies noted in their initial Advertising reviews. These Roundtables have highlighted the specific areas of the Rule where issues where found.
- Donna believes that one advantage of the new Marketing Rule is better alignment between the SEC and FINRA’s advertising Rules. Donna stated, “This is important because FINRA had one set of rules and the SEC another, but now they are actually back in the same fold.” This is important to Advisers who are registered with the SEC but distribute products like ETFs and Mutual Funds, and have to also comply with FINRA rules.
- The SEC’s Risk Alert, along with the Regional Roundtables, should serve as a wake-up call for Firms to get in compliance. This is an opportunity for the industry to get their house in order. There is no doubt that the SEC’s focus on the Marketing Rule will continue.
- From a long-term outlook, Donna warns that the Marketing Rule will not be the one and only thing to shock the compliance world. “The SEC has also been active in rule making this year, with approximately 56 new rules in the pipeline. The Marketing Rule is leading the way as to what is to come.”
Keeping up with the SEC and their rule changes/additions is crucial for all Firms to stay on top of.
Regularly reading applicable SEC press releases and attending certain roundtables surrounding the SEC and FINRA are a few of the many ways to help prevent your Firm from falling behind.