Navigating The SEC’s Marketing Rule: Clarity & Caution For RIAs

The world of investment advisory marketing just got a little clearer, thanks to the Securities and Exchange Commission's (SEC) recent publication of crucial guidance on its amended marketing rule. After industry professionals voiced concerns about the rule's gray areas, the SEC has provided much-needed clarity, offering both leniency and stricter enforcement in key areas.

A Refresher

For those who need a quick recap, the SEC's amended marketing rule, which took effect in November 2022, modernized advertising regulations for registered investment advisors (RIAs). Notably, it lifted the ban on paid and unpaid testimonials and endorsements. However, this came with more rigorous disclosure requirements and heightened standards for performance presentations.

What the New FAQ Reveals

The SEC addressed several critical points, revealing a blend of flexibility and firm directives:

• No Pick-&-Choose:
• The SEC made it crystal clear: advisors cannot selectively comply with parts of the rule. It's an all-or-nothing situation.
• Performance Data Flexibility:
• Good news for advisors! The SEC is allowing a one-month grace period after the calendar year's end to calculate 1-, 5-, and 10-year performance data. This alleviates the pressure of immediate calculations.
• Gross Performance Presentation:
• RIAs can display only gross performance for an extracted period, provided they meet specific conditions. This offers some flexibility in how performance is presented.
• Gross Characteristics & Disclosures:
• The SEC will be lenient on advisors displaying gross characteristics without fee and expense deductions, as long as it's clearly stated, and other presentation conditions are met.
• Consistent Methodology:
• Here's where the SEC is firm: when displaying both gross and net performance, RIAs must use the same methodology over the same time period. Consistency is key.
• Enforcement Is Real:
• The SEC has been actively enforcing this rule. In 2023, the SEC began a targeted sweep related to violations of the amended marketing rule and has since issued hundreds of thousands of dollars in fines to RIAs alleged to be not in compliance.

Industry Response & Implications

The Investment Adviser Association (IAA) had previously expressed hope that the SEC's guidance would "remove impediments to advisers sharing important information with investors and reduce the risk of investor confusion." The new FAQ appears to address some of these concerns, especially regarding gross and net performance and portfolio characteristics.

Key Takeaways For RIAs

• Compliance is non-negotiable: understand that the SEC expects full compliance with all aspects of the marketing rule.
• Transparency is paramount: ensure that all disclosures are clear and comprehensive, especially when presenting gross performance or characteristics.
• Consistency matters: maintain a consistent methodology when presenting both gross and net performance.
• Stay informed: keep abreast of any further SEC guidance or clarifications.
• Document everything: accurate recordkeeping is essential.

Overwhelmed by the SEC marketing rule? AdvisorLaw provides solutions.

The SEC's recent guidance on the amended marketing rule brings much-needed clarity, while it also highlights the significant compliance burden faced by RIAs. From navigating performance presentation requirements, to ensuring meticulous disclosures, staying compliant is a complex and ongoing task.

If the complexities of the SEC's marketing rule feel like too much to handle, you're not alone. AdvisorLaw's compliance team is equipped to help you sift through the complexities and tailor a compliance strategy that suits your specific needs. We can assist in interpreting the nuances of the new guidance so that your marketing practices align with regulatory expectations. Moreover, if you're seeking comprehensive compliance oversight, AdvisorLaw can serve as your chief compliance officer, allowing you to focus on your core business, while we handle the regulatory hurdles.

Contact our team today for more information on how we can help your RIA firm remain compliant with the SEC’s marketing rule.