SEC Adopts New Marketing Rule for Investment Advisors
According to the SEC, this approach is designed to balance the commission’s goals of protecting investors from misleading advertisements and solicitations, while accommodating current marketing practices and their continued evolution.
Importantly, the compliance date for the Marketing Rule is November 4, 2022. Any advertisements disseminated on or after the compliance date are subject to this rule.
The Marketing Rule prohibits advertisements that “[i]nclude a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission.” Each material and factual statement provided by an investment advisor to an investor or potential investor will need substantiation for the reasonable basis behind the statement. This substantiation needs to be contemporaneous with use.
The Marketing Rule provides several modifications to the previous rules:
- Ad Definition. The new rule will encompass an investment advisor’s marketing activity for investment advisory services with regard to securities, while retaining the current exclusion of one-on-one communications (except with regard to compensated testimonials and other specific categories).
- Testimonials. An advisor’s ad may include testimonials but will require disclosures, advisor oversight, and compliance, including a written agreement for certain promotions and sometimes disqualification provisions.
- Advisor approval. The new rule will not require investment advisors to review and approve their ads before dissemination.
- Performance Ads. Performance ads will require presentation of net performance information whenever gross performance is presented. Certain requirements will also apply to related performance, extracted performance, hypothetical performance, and predecessor performance claims.
- Form ADV. Investment Advisor Form ADV amendments will need to comply with the new rule.
Advisors should take a look at their written policies and procedures and confirm that they are compliant with and reasonably designed to prevent violations of the new rule.
We are closely watching changes in SEC regulations. Please reach out to any member of the firm’s Corporate & Securities Group with questions on how to anticipate and timely meet obligations under the proposed rules.
- Related Practices