Advisory firms are encountering more competition than ever when it comes to building their client base. Many firms would make an additional spend on marketing and advertising strategies (including use of solicitors and social media to attract younger clients) but often are concerned about SEC regulatory scrutiny and limitations imposed on registrants.
To help modernize the advertising rules and restrictions applying to advisers under the Investment Advisers Act, the SEC has proposed a sweeping set of amendments detailed in summary form on the SEC’s website https://www.sec.gov/news/press-release/2019-230 and available in full on the Federal Register.
The proposed amendments to the advertising rule reflect market developments since the rule’s adoption in 1961. The proposed amendments to the solicitation rule update its coverage to reflect regulatory changes and the evolution of industry practices since we adopted the rule in 1979. The SEC also is proposing amendments to Form ADV that are designed to provide the Commission with additional information regarding advisers’ advertising practices.
What's New: Testimonials, Endorsements, and Third-Party Ratings
Historically, there have been broad prohibitions on advertising, which often made It challenging for advisers, who turn to SEC No-Action Letters for guidance. Firms often have defaulted to not doing any marketing or advertising whatsoever. And when they have done advertising, they have been very cautious.
Advancements in technology and communications have drastically changed the ways in which financial advisers engage clients and prospective clients. Today, consumers are in a much better place to evaluate information coming from their advisers.
Based on the marketing needs for today's adviser, the SEC has proposed to amend the Advertising Rule, Rule 206(4)-1. The proposed changes would for the first time permit the use of testimonials and provides additional guidance for the use of endorsements and third-party ratings, subject to certain limits. The proposal also Includes tailored requirements for the presentation of performance results based on an advertisement's intended audience.
The New Definition of "Advertisement"
The SEC’s proposed rule significantly expands the definition of “advertisement” to include any communication disseminated by any means (including third-party communications disseminated “by or on behalf of” an adviser and private fund marketing materials) that offers or promotes the adviser's services or seeks to retain advisory clients or investors in a private fund managed by the adviser. As noted by the staff, the proposed revision would change the scope of the rule to encompass all promotional communications regardless of how they are disseminated, with certain exceptions.
The staff emphasized that the dissemination of communications with clients and prospects and be, “through emails, text messages, instant messages, electronic presentations, videos, films, podcasts, digital audio or video files, blogs, billboards, and all manner of social media, as well as by paper, including in newspapers, magazines and the mail.”
Don’t Have Time to Read all 505 Pages?
Let Jacko Law Group help your firm evaluate the impact of the most sweeping changes to the SEC’s advertising rules in almost 60 years. Keep in mind that firms still must pay careful attention to the current advertising standards to help ensure that what they are doing complies with current standards, including maintenance of accurate and comprehensive records.
How to prepare? "Evaluate all the different modes of communication you are using to communicate with clients about your services," says Michelle Jacko, Managing Partner of JLG. "Furthermore, you will need to ensure that your compliance reviewer is knowledgeable about the new standards in order to fulfill competency requirements set forth by the staff." JLG can help train, evaluate and recommend internal controls to help you prepare. For more information, contact our team of attorneys today.
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers securities, corporate, real estate and employment law counsel to broker-dealers, investment advisers, investment companies ...
Add a comment
- The Advantages of Outsourcing Your General Corporate Counsel
- The Many Recent Signals that Foreshadow a More Aggressive SEC in Terms of Enforcement Action and Stiffer Penalties for Wrongdoers
- New SEC Climate Change and ESG Task Force to Enhance Investor Protection by Red Flagging Examples of Corporate Greenwashing
- What Investment Advisers Must do to Qualify for the DOL’s Prohibited Transaction Exemption for IRA Rollovers
- SEC Division of Examinations Cites Enhanced Focus on Business Continuity Processes, Protection of Retail Investors and ESG-Related Risks Among its 2021 Priorities
- FINRA Report Suggests Growing Need for Enhanced Risk Management in Cybersecurity and Outside Business Activities
- Deadline Approaching: Considerations for Your Form ADV
- Leveraging JLG's Latest Service: Real Estate
- Safeguarding Your Firm Against Fraudulent or Improper Recognition of Revenue
- New Advisers Act Advertising Rule to Undergo Further Review
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Regulatory Examinations
- Policies and Procedures
- Due Diligence
- Social Media Marketing
- Transition Services
- California Consumer Privacy Act (CCPA)
- Aging Clients
- Advisers Act
- Virtual Currency
- Dodd-Frank Act
- Ponzi Scheme
- Office of Compliance Inspections and Examinations (OCIE)
- Broker Protocol
- Securities Law
- Form U5
- Private Equity
- Private Funds
- Hedge Funds
- Regulation Best Interest
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo