New U.S. Securities and Exchange Commission (SEC) marketing rules for investment advisors now impact the way Registered Investment Advisors (RIAs) advertise and market their services to clients and prospects. The message is clear that the Commission will not accept excuses from RIAs who fail to adapt accordingly.
The new rules were approved in December 2020 and effective May 4, 2021. From that point, RIAs had until Nov. 4, 2022, to fully adhere to the updated regulations.
The New Rules of Engagement
Amidst the possibility of increased regulatory scrutiny, the SEC now says it is willing to allow advertising and marketing via new channels provided enhanced disclosures are included, especially concerning performance. The proliferation of new digital channels and technological advancements are the basis for these new rules. Print and television are no longer the primary outlets for RIA advertising as electronic communications play an increasingly important role.
As a prelude to understanding the new rules and how they affect your firm, it’s important to note what the SEC considers advertising. Two areas are highlighted as examples – that which 1) offers services regarding securities to existing or prospective clients; or 2) includes any endorsement or testimonial for which an advisor provides cash or noncash compensation.
Specifically, advertising includes testimonials and endorsements; social media, blogs, and podcasts; third-party rankings and solicitors such as placement agents; marketing materials and collateral; performance disclosures. The SEC will also monitor employee training in these areas.
Truth in Advertising
Overall, the SEC’s emphasis is on ensuring that investment advisors do not market or advertise their services in any way that is untrue, omits information, includes unsubstantiated material statements of fact, has false or misleading implications or inferences, fails to provide fair and balanced treatment of material risks or material limitations, fails to present specific investment advice in a fair and balanced manner, cherry-picks performance results or otherwise presents performance in a way that is not fair and balances, and/or is materially misleading.
Investment advisors must have specific proof of every claim, and the burden of proof is on them to archive and retain supporting marketing documents in a compliant format.
The future of marketing holds exciting possibilities for RIAs, but the bottom line is that adherence to SEC requirements is not optional.
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