SEC 2023 Priorities and the Marketing Rule – How Important is a Retrospective Review?

 

SEC 2023 Priorities and the Marketing Rule – How Important is a Retrospective Review?

With the release of the SEC Division of Examinations 2023 Examination Priorities, newly registered advisers and other SEC registered investment advisers, undergoing an examination, have begun to receive exam requests from the newest addition to the Division’s core examination review - the Advisers Act Rule 206(4)-1 (Marketing Rule).It is critically important for Advisors to ensure that they have adopted and implemented written policies and procedures reasonably designed to prevent violations of the Marketing Rule. New and existing Advisors, must be prepared to have the Division request these policies and procedures, and request samples of active/currently used client communications pieces along with their corresponding reviews and approvals. On June 8, 2023 the SEC released the Risk Alert: Examinations Focused on Additional Areas of the Adviser Marketing Rule reiterating it’s primary areas of focus during exams:

• Policies and Procedures
• Substantiation Requirement
• Performance client communications Requirements
• Books and Records

“The Division encourages advisers to review their websites and other marketing materials for compliance with the Marketing Rule, including ensuring that they have a reasonable basis for believing they will be able to substantiate material statements of fact and that their performance client communications, including extracted performance and hypothetical performance, complies with the requirements of the Marketing Rule.”

The Staff is also conducting focused examinations, as well as broad reviews, on such topics as Testimonials and Endorsements and Third Party Rankings, Rating, and Awards. Please click here for examples of questions AdvisorAssist has seen during examinations regarding the Marketing Rule. As a reminder, an Advisor should treat any form of communication to Clients that is designed to solicit or maintain advisory service (“Client Communications”) as covered by regulations under Securities Laws. This includes written communications on a one-to-one basis to existing, or prospective, advisory Clients designed to offer advisory services, or maintain the existing Client, are subject to the general prohibitions under the Marketing Rule. It is imperative that client communications that were approved PRIOR to the rule’s compliance date (or Advisor’s implementation date), do not receive any level of grandfather clause regarding compliance with the Marketing Rule or the Advisor’s newly published policies and procedures.

As a reminder, an Advisor should treat any form of communication to Clients that is designed to solicit or maintain advisory service (“Client Communications”) as covered by regulations under Securities Laws. This includes written communications on a one-to-one basis to existing, or prospective, advisory Clients designed to offer advisory services, or maintain the existing Client, are subject to the general prohibitions under the Marketing Rule. It is imperative that client communications that were approved PRIOR to the rule’s compliance date (or Advisor’s implementation date), do not receive any level of grandfather clause regarding compliance with the Marketing Rule or the Advisor’s newly published policies and procedures.

ACTION ITEMS:

• Compile a list of active/current client communications and re-review content against the standards now set forth within the Marketing Rule,
• Being sure to evidence this review through the Firm’s client communications/marketing review procedures stated within their compliance manuals, and record keep the review accordingly.
• Place an emphasis on enhanced requirements of the rule, such as reviewing their current marketing material to ensure that they can substantiate material statements of fact for such items as testimonials/endorsements, third party ratings, and performance client communications.
• If Advisors can not substantiate the data within their client communications, they should either obtain evidence for substantiation immediately or deactivate that client communication. 
• Keep in mind that active and current client communications can mean your website, social media pages, brochures, stationary, performance marketing, article copies, newsletters, etc.
• Review the advertisement violates any of the general prohibitions, taking into consideration the facts and circumstances of the advertisement, the nature of the audience to which the advertisement is directed, the form and content of the advertisement, and whether the Advisor can substantiate any and all claims within the piece. We urge you to review our Marketing Rule 206(4)-1 General Provisions fact sheet regarding these General Prohibitions.
• Pull all performance marketing, client communications that contain specific investment advice, and any pieces which contain third-party ratings, rankings, and awards as they each have additional review components outside of the general prohibitions.
• Evidence their retrospective review based on their policies and procedures for marketing reviews, being mindful to adequately notate these new rule components into their review and how it aligns with the Advisors implemented policies and procedures. 

Please note, this process will assist the Advisor in adequately answering the ADV questions under 5L. We have included AdvisorAssist’s Marketing Fact Sheets to assist you in this endeavor:

• Marketing Rule 206(4)-1 Performance 
• Marketing Rule 206(4)-1 Testimonials, Endorsements and Third Party Rankings 

AdvisorAssist would like to remind Advisors that it is prudent to ensure the Firm’s process of record keeping is consistent with the requirements of the Advisers Act. The record keeping obligation does not differentiate between various media, including paper and electronic communications, such as emails, instant messages, and other Internet communications that relate to the adviser’s recommendations or advice. As the Division starts its first year of exams with the new Marketing Rule components, and Advisors continue to navigate the Rule and take advantage of its newer components (such as utilizing testimonials and endorsements) AdvisorAssist urges Advisors to keep an eye on the Marketing Rule FAQ for updates. Should you have any questions, please contact your AdvisorAssist Consultant for further information.

 

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