Investment Advisory firms that are eagerly awaiting the revisions recently adopted by the U.S. Securities and Exchange Commission (SEC) to the archaic Advisers Act Advertising Rule previously anticipated to become effective this spring, will have to wait a bit longer. The Advertising Rule prepared and approved under the former Trump Administration is now required to undergo review by the newly installed Biden Administration.
On December 22, 2020, the SEC adopted amendments to Rule 206 (4)-1 and Rule 206(4)-3 of the Investment Advisers Act of 1940 (the ’40 Act), to modernize the guidelines that govern investment adviser advertisements and compensation to solicitors. The amendments were to have been published in the Federal Register earlier this year and become effective 60 days after publication.
The amendments to the Rules that have not been updated in more than 40 years, are designed to a create a single rule to replace the current Rule 206(4)-1 and Rule 206(4)-3 to "comprehensively and efficiently" regulate advisers' marketing communications and cash solicitation rules.
On January 20, 2021, his first day in office, President Joseph Biden issued an executive order in a memorandum entitled Regulatory Freeze Pending Review that prompted marketing departments of financial advisory firms and broker-dealers to adhere to and continue to comply with all aspects the current Advertising Rule – first drafted in 1961 – until further notice. Notably, the executive order was among a total of 28 that President Biden signed in his first 2 weeks in office; the most of any incoming president since Franklin D. Roosevelt in 1933.
But President Biden’s executive order serves as a pause button for all regulations that have not yet become "effective" through the standard process of publication in the Federal Register followed by the requisite waiting period.
The executive order directs all agencies to confer with the Director of Office of Management and Budget (OMB) before renewing any regulatory activity. “This action will allow the Biden Administration to prevent any detrimental so-called ‘midnight regulations’ from taking effect, while ensuring that urgent measures in the public’s interest can proceed,” the White House said.
While no specific timetable for the review has been made, advisers should expect a substantial wait. The revised Advertising Rule cannot receive final approval until approved through another vote by SEC Commissioners. And such vote cannot be held until such time as President Biden's nominee Gary Geisler, former chairman of the Commodities Futures and Trading Commission (CFTC), is approved by the Senate as the new SEC Chairman, a process likely to take months.
An interesting sidebar to the Rule’s pending review is the fact SEC acting Chair Allison Herren Lee and SEC Commissioner Caroline Crenshaw both criticized the revisions to the Rule at the time of its adoption last December for, among other things, “eliminat(ing) important safeguards for investors” and the inclusion of “unjustifiable carveouts” for the Rule’s compliance requirements applicable to certain communications of hypothetical performance. It is not clear how the new Administration and SEC Commissioners will further revise, expand, or restrict the Advertising Rule during this time.
A Final Word
Jacko Law Group, PC will monitor timely information as it becomes available over the next several months during the new review process for the Advertising Rule. Meanwhile, financial advisers and broker-dealers should continue to follow the current regulatory guidelines in place as they relate to advertising and compensation to solicitors. To schedule a needed consultation, contact us at 619.298.2882 or at www.jackolg.com.
- Jr. Partner
Jennifer Trowbridge, Esq. serves as Jr. Partner at Jacko Law Group, PC (“JLG”) where she provides corporate and regulatory counsel to clients with diverse business models and various backgrounds. Within her practice, Ms ...
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