Recent Marketing Rule Enforcements | Thayne Gould Reacts
Vigilant Insights
Brief Introduction
The SEC recently announced charges against nine (9) firms related to the use of hypothetical performance.
These charges emphasize the SEC’s focus on marketing rule compliance, and how hypothetical performance is expected to bring scrutiny from examiners.
Vigilant Director, Thayne Gould, was quoted in a wealthmanagement.com article discussing his reaction towards the recent SEC charges.
Thayne Gould Insights
In this article, Thayne discussed the importance of seeing the advertisements as a story being told to investors. The story will need documentation to defend any claims made and should have documentation justifying why hypothetical performance is the best fit for telling the story.
If specific clients are asking for hypothetical models or back tested data, then a targeted situation could be justified with the proper disclosures. However, when advertising to the public, which the SEC is mostly concerned about, it can be harder to defend the use of certain advertisement types.
Although recent marketing rule charges did not mention third-party metrics or use testimonials, Thayne says that its mention in the recent marketing rule risk alert makes future enforcements appear as more likely.
Key Takeaways
- Hypothetical performance is any advertisement of performance that did not actually occur for an investor.
- 9 firms were charged a total of $850,000.
- Violations involved the use of hypothetical advertisements disseminated to the general public using data from model portfolios or back tested data.
- The SEC voiced concerns that hypothetical performance can grab attention and therefore has higher risk for scrutiny.
Vigilant’s Conclusion
There is an expectation that marketing rule enforcements are going to increase in their number and scope.
It is vital for firms to establish a well-documented procedure for substantiating and reviewing marketing materials.
With risk alerts announced, and the likelihood of broader enforcements moving forward, firms should take a proactive approach.
Utilizing compliance professionals with deep industry insight can help identify gaps in your compliance program and handle processes to ensure you are prepared if an examination occurs.
For more information about the services we offer regarding the marketing rule, reach out to us today.