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The SEC has now released their final Marketing Rule, designed to “comprehensively and efficiently regulate investment advisers’ marketing communications.” Advisers should take note of the changes and prepare for a shift in the way their services can be promoted.
Thirteen months after proposing to modernize the advertising and cash solicitation rules under the Advisers Act, the SEC released “the Rule” in late December. The single rule replaces the current advertising (Rule 206(4)-1) and cash solicitation rules (Rule 206(4)-3).
There is a lot of unpack from the 400-plus page Final Rule Release. Here are the several of the key takeaways.
- The Rule applies to all investment advisers registered, or required to be registered, with the SEC. It does not apply to advisers not required to register with the SEC, such as exempt reporting advisers (ERAs), who are covered by different rulesets and/or more general anti-fraud provisions.
- The Rule replaces the previous specific “per se” prohibitions with principles-based provisions that now apply to discussions of investment performance, specific investments, and market commentary, among other topics.
- More flexibility has been given for the use of hypothetical performance, related performance, and extracted performance, which the Proposed Rule had considered in aggregate and applied broad prohibitions without regard to the distinct differences in purpose and use.
- Clarity and guidance have been provided for use of social media.
- The Rule includes a more flexible framework for the use of testimonials, endorsements, and third-party ratings, and provides examples of what does or does not meet the criteria for those designations.
- The Rule covers solicitation activity for cash and non-cash compensation, requiring both disclosure and adviser oversight of these activities.
The Rule takes effect 60 days after its publication in the Federal Register (pending), with an 18-month transition period thereafter.
Undoubtedly, in the coming months, as people dig into the detail in the Rule there will communication with the SEC on specific application. For now, take note of the upcoming changes and begin to prepare for a wholesale change in the way advisers promote their services to potential clients and investors.
How we can help
Bovill can help you understand the Marketing Rule’s requirements and changes, and design and implement processes needed to comply with the Rule. Eighteen months may sound like a lot of time for implementation, but experience tells us the date will be here sooner than anticipated and early preparation is key to success. Furthermore, peers may implement the rule earlier giving them a leg up in potential investor and client conversations.
