SEC warns of impending Marketing Rule exams

29 September 2022 | Americas | Articles

The SEC’s recent Risk Alert warns advisers of its plans to focus examinations on compliance with the new Marketing Rule and gives a useful indication of which areas it is most likely to investigate.

Issued on September 19, 2022, the Division of Examinations’ Risk Alert outlines plans for examinations focused on the new Investment Adviser Marketing Rule (Rule 206(4)-1 of the Investment Advisers Act of 1940 (the “Advisers Act”)).

It serves as a reminder to advisers of the effective date of the rule and provides preliminary focus areas for the initiative. These included the staff reviewing:

• Marketing Rule Policies and Procedures – Whether advisers have adopted and implemented written policies and procedures reasonably designed to prevent violations in accordance with the new Marketing Rule.
• Substantiation Requirement – Whether advisers have a reasonable basis for believing they will be able to substantiate material statements of fact in advertisements.
• Performance Advertising Requirements – Whether investment advisers comply with performance advertising requirements in the Marketing Rule, including the seven prohibited activities.
• Books and Records – Whether investment advisers follow recordkeeping obligations under the new Marketing Rule, and that Item 5 of the firm’s Form ADV Part 1 is accurate and complete.

The Risk Alert encourages advisers to reflect upon practices, policies and procedures and to implement any appropriate modifications to their training, supervisory, oversight and compliance programs related to the new Marketing Rule.

Advisers currently working on a transition to the new Marketing Rule should prioritize the areas listed above in order to minimize comments from the SEC during one of these focus examinations. Policies and procedures should reflect the requirements of the new rule along with advertising materials used after November 4, 2022. Advisers should also create new training programs for staff and updated marketing review checklists for review. A well-documented approach to the transition will demonstrate your firm’s commitment to compliance.

How we can support you

If your firm is struggling with adapting to the new Marketing Rule, Bovill can help. Contact us for assistance with policies and procedures, training materials and advertising review best practices.