SEC Risk Alert | Marketing Rule Compliance
SEC Releases
Introduction
On the heels of last week’s SEC announcement of 5 RIAs being charged for Marketing Rule Violations, on Wednesday, April 17th, the Division of Examinations (the “Division”) released a Risk Alert related to the Marketing Rule.
The Risk Alert shared the SEC’s observations to encourage the accurate completion of the Marketing Rule items contained in Form ADV and to promote compliance with the Advisers Act Rules:
- 206(4)-7 (Compliance Rule);
- 204-2 (Books & Records); and
- 206(4)-1 (Marketing Rule’s General Prohibitions)
See the below summary of the Risk Alert.
Marketing Rule Observations (Deficiencies Identified)
- Rule 206(4)-7 (Compliance Rule)
- Some Advisers had gaps in their Policies and Procedures to implement the Marketing Rule. The following examples below of the issues identified were provided by the Division:
- General descriptions and expectations.
- Applicable Marketing Channels (i.e., Website, Social Media) were not addressed.
- Informal rather than in writing.
- Certain applicable Marketing topics were not fully updated or completed.
- Advisers’ specific advertisement procedures were not address in a tailored and specific manner.
- Preservations and maintenance of advertisements were not properly addressed.
- For some, everything was updated for the Marketing Rule, but there was a failure of implementation.
- Some Advisers had gaps in their Policies and Procedures to implement the Marketing Rule. The following examples below of the issues identified were provided by the Division:
- Rule 204-2 (Record Keeping)
- Copies of Questionnaires were not maintained.
- Copies of information posted on Social Media were not maintained.
- Advertisements with Performance Claims did not maintain documentation to support them.
- Marketing Rule’s General Prohibitions
- Untrue Statements of Material Fact.
- Unsubstantiated Statements of Material Fact.
- Certain advertisements included “Free of Conflicts” when they actually existed.
- Inaccurate Materials Facts about the Advisers’ business.
- Awards being advertised that were not actually received.
- Omission of Material Facts or Misleading Influence.
- Fair and balanced treatment of material risks or limitations.
- References to specific investment advice that were not presented in a fair and balanced manner.
- Inclusion or exclusion of performance results or time periods in manners that were not fair and balanced.
- Disclosures were presented in an unreadable font on websites or in videos.
- Form ADV
- Some Advisers advertisements were reported inaccurately on Form ADV Part 1 that included the following below:
- Performance Results;
- Third-Party Ratings; and
- Hypothetical Performance.
- Outdated language in the Form ADVs referencing provisions of the prior Cash Solicitation Rule.
- Some Advisers advertisements were reported inaccurately on Form ADV Part 1 that included the following below:
Vigilant’s Conclusion
The SEC has shown continued focus on Investment Advisers marketing usage since the rule came into effect well over 1 year ago.
Recently, we have seen a number of SEC enforcement actions, including 5 RIAs being charged for Marketing Rule Violations last week. It is clear that this will continue to be a focus of the SEC and with much of Firm marketing being publicly available, Advisers should continue to focus on its resources and expertise available in reviewing marketing materials to ensure compliance with the SEC Marketing Rule.
If you need a Gap Analysis of your Compliance Program or heightened support for review of your Advertising and Marketing materials, please contact us.