Published on May 17th, 2022 |

Brief Introduction to the SEC’s Marketing Rule Priorities in 2022

With the SEC Marketing Rule becoming effective November 4th, 2022, it is important to revisit the Marketing Rule as it has been over a year since it was announced.

Initial Takeaways from the SEC’s New Marketing Rule

Vigilant’s Chief Operating Officer, Chuck Martin, was quoted on ignites shortly after the announcement where he provided his initial insights towards the new Rule that can be found here.

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Below is how the amendments to Rule 206(4)-1 replace from the drawn limitations in the past

Definition of Advertisement

One that governs solicitation activities and one that captures communications traditionally covered by the advertising rule

General Prohibitions

The marketing rule will prohibit advertising practice that can be found HERE.

Testimonials and Endorsements

The Marketing rule prohibits the use of testimonials and endorsements in an advertisement, unless the adviser satisfies certain disclosure, oversight, and disqualification provisions

Third-Party Ratings

Unless the adviser provides disclosures and satisfies certain criteria to the rating, this rule will prohibit the use of third-party ratings in an advertisement

Performance Information Generally

The rule prohibits any advertisement which can be seen in this image HERE for greater detail

Additional Important Takeaways to take Note of from this SEC Release

  • The Commission also adopted amendments to the books and records rule
  • The Commissions amended Form ADV to require advisers to provide additional information regarding their marketing practices to help enforce capabilities and facilitate the Commission’s inspection
  • No-action letters will be withdrawn from the staff of the Division of Investment Management

Current Industry Feedback Towards the Rule

1. 72% of survey respondents have begun updating or implementing their policies and procedures towards the new Marketing Rule.

  • Those that answered no stated that they are still reviewing the Rule or have a limited amount of Marketing and Advertising.
  • If you do a lot of Marketing and Advertising, Vigilant recommends that you begin starting this process now to stay ahead whether that is done in-house or utilizing Outsourced Compliance for assistance.

2. For those that answered yes to the first takeaway above, 63% of respondents are utilizing Compliance to assist them.

3. Performance is a top priority (72.7%) that people throughout the industry would like to see more SEC guidance on.

  • Testimonials and Endorsements (45.5%) was the next focus the industry wants more guidance on.

4. Interpreting Fair and Balanced (45.5%) was deemed to be the most challenging to ensure Compliance with.

5. Hypothetical Performance and Related Performance/Related Portfolios were leaders for new performance requirements that will have the greatest impact on the way you Create, Present, or Review Performance Information.

6. The Rule will take more than 6 months to transition to Compliance for 45% of the respondents.

  • Vigilant tends to align closer to 3-6 months pending on the volume of Marketing and Advertising materials.

Additional Information about the Rule

We also received the following comments from our respondents below.

  • The Rule is difficult to interpret for Fintech RIA Firms.
  • More surveys requested to see what the industry is doing.
  • Trying to determine if carving out performance would be considered hypothetical.
  • Awaiting more guidance on the SEC regarding the new Rule.

Vigilant’s Final Conclusion

It is clear that Performance, Testimonials, and Endorsements are very strong factors when it comes to the new Marketing Rule, and it will be important to stay up to date with future SEC Releases regarding the new Rule.

The Marketing Rule is of the utmost priority for Firms, as it takes effect on November 4th, 2022. Setting aside a budget to focus on the Rule and complying with it is going to be essential for 2022, especially for Firms that have a high volume of Marketing and Advertising.

Vigilant offers Marketing Rule Review Services, where we provide full gap analysis and implementation support to help your Firm comply with the Rule. Are you prepared for these changes that are on the horizon?

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