The Language of Expected Returns | Bernadette Murphy Insights
VIGILANT INSIGHTS
Introduction
Under the SEC’s Marketing Rule, firms are prohibited from advertising hypothetical performance unless it is for a targeted audience and all material information is disclosed relating to hypothetical performance.
FundFire published an article discussing the use of the term “fixed” when describing what is usually defined as target returns. Vigilant Managing Director, Bernadette Murphy, MSL, was quoted in this article to provide some insight into the compliance concerns such language creates.
Bernadette Murphy Insights
The fund in the example operates under the 506(c) exemption, so it is permitted to broadly advertise if the individual investors are confirmed to be eligible.
Bernadette reminds us that while the fund may have certain exemptions under the statute, they have the same requirements under the Marketing Rule as everyone else. She highlights that all claims made by the fund in the advertisement would require substantiation if investigated by the SEC, and promissory language is prohibited. The use of it can be considered misleading and deceptive.
As an experienced Compliance Consultant, Bernadette would have even more questions (i.e., Are the fixed returns gross or net? What does “stable” and “robust” mean?).
Vigilant’s Conclusion
All firms should have established policies and procedures in place to ensure marketing material is reviewed prior to distribution. It is best practice to have trained compliance professionals reviewing materials prior to their distribution.
Vigilant provides Advertising and Marketing Review Services through our developed and tailored review process to meet your business needs. Speed to market with your unique messaging is critical to reaching prospects and maintaining existing relationships. We can provide on-going reviews of materials in timely fashion and/or provide training to your staff in how to best advertise/market your firm without creating costly compliance headaches.