The SEC’s New Marketing Rule: All Change Please
At this year's Regulatory Horizon 2022: Preparing for the Challenges of Tomorrow conference, we examined key governance, risk and compliance challenges that firms face in 2022, and beyond. A whitepaper has now been developed, capturing key takeaways and benchmarking polls from the event.
This blog features one of the nine chapters in the paper. Click here to view the full paper and access on demand recordings of panel sessions embedded throughout.
- The changes created by these new marketing requirements are substantial, and so firms should familiarise themselves with the requirements now
- Nearly 35% of firms in the event’s poll said they were planning to hold off on adopting the new requirements until compliance is mandatory
- Firms should take steps today to begin to implement these new compliance obligations, as several pieces of the work will take time and require resources
The SEC’s New Marketing Rule: All Change Please
The U.S. SEC’s new Marketing Rule (Rule) is the long-awaited modernisation of the rules governing the advertising and cash solicitation practices of SEC-registered investment advisors. The Rule was approved in December 2020 and came into effect in May 2021.
The final compliance date is November 4, 2022. Even though this is just a few months away, more than one-third of the firms surveyed during the event said that they intend to hold off on implementation activities until compliance is mandatory. Given the changes and potential work that many firms will need to do to comply with these new rules, it is important that registered investment advisors are beginning to take the relevant steps now to understand the new Rule and how it will impact their current marketing materials.
The new Rule contains many changes, including:
- A two-pronged definition that expands “advertisement” to cover both traditional advertising and compensated testimonials and endorsements, or solicitation. This now explicitly includes private fund investors as well.
- New requirements for performance advertising, such as including both gross and net performance, designated performance time periods, definitions of what is deemed hypothetical performance, and rules around portability. This is the first time the SEC is really prescribing performance rules.
- Definitions of testimonials and endorsements, and requirements around the sourcing and use of third party ratings.
- General principles-based standards that apply to all advertising – including that an advertisement may not include any untruestatements or omissions, unsubstantiated material or facts, or misleading implications or inferences.
- Since social media was not invented when the original rules were drafted, the Rule’s Adopting Release provides some guidance around the use of social media. For example, editing, deleting or in any other way manipulating third-party comments would be deemed advertising.
Firms should begin to familiarise themselves now with the requirements of the new Marketing Rule.
Steps to take today
While the update of the advertising and cash solicitation rules is welcomed by the industry, implementation of the new Marketing Rule by November 4, 2022 will require considerable planning and work by registered investment advisers. Steps firms need to take include:
- Review the firm’s policies and procedures against the new SEC requirements
- Conduct a gap analysis and refresh those policies and procedures to bring them up-to-date
- Evaluate all of the firm’s marketing materials, as these need to be compliant by the November 4 deadline. Nearly one-third of respondents to the event poll said that the potential revisions to the firm’s client facing pieces containing performance data were their biggest concern.
- Provide training on the new Rule to all staff. It’s particularly important for the nearly 70% of firms in the event’s survey are either starting to use social media a bit more or who actively use social media, to train staff on its use.
- Update the firm’s books and records retention to include the new books and records requirements. Firm’s will also need to prepare to provide further Form ADV disclosures to comply with the new Rule.
Firms are clearly concerned about the quantity of work required – more than 35% of poll respondents during the event said that updating the ADV updating performance material on collateral, and understanding the rules around testimonials and endorsements combined were keeping them awake at night. And yet nearly 35% intend to hold off on implementation work until compliance is mandatory. Compliance with the new Rule will be a substantial undertaking so it is of utmost importance firms begin planning for implementation today.
On Demand Webcast
Click here to watch a recording of the panel discussion on which this article is based.
ACA can help you understand the requirements of the SEC Marketing Rule as they relate to your business and help you prepare for new regulation – wherever you are located.
- Marketing Rule Gap Analysis and Implementation Support assists your firm in navigating the evolving regulatory landscape while considering the complexity of your unique compliance requirements.
- ComplianceAlpha Marketing Review Solution helps your marketing and legal teams easily manage workflows for submitting, reviewing, approving, and archiving marketing and advertising materials. Schedule a demo to see how our regulatory technology solution can help your organization digitize and transform its compliance program.
- Marketing and Advertising Review Assistance allows your firm to significantly reduce the amount of time and resources devoted to the marketing and advertising review process. ACA can step in during periods of high volume or assist with enhancing collateral review workflows and protocols.
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