What you need to know about SEC’s new Investment Adviser marketing rule

Jan 22nd '21

The US Securities and Exchange Commission (SEC) has finalized the Advertising Rule (206(4)-1) under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The amendments create a single rule that replaces the current advertising and cash solicitation rules. The final rule is designed to comprehensively and efficiently regulate investment advisers’ marketing communications.
The rule replaces the current advertising rule’s broadly drawn limitations with principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice. It also includes tailored requirements for certain types of advertisements; those that include third-party ratings will be required to include specific disclosures to prevent them from being misleading. The rule will also permit the use of testimonials and endorsements, which include traditional referral and solicitation activity, subject to certain conditions.


Books and records
The SEC adopted amendments to the books and records rule (Rule 204-2) that require advisers to make and keep certain records regarding all advertisements they disseminate, with certain accommodations for complying with this provision in the case of oral advertisements. This expands the current books and records rule, which requires advisers to retain only advertisements sent to 10 or more persons. The SEC clarified that electronic mail archives are an acceptable method of maintaining records of advertisements. Form ADV will require advisers to supply additional information about marketing practices in the filing. Previously, there were no requirements to report marketing and advertising practices on Form ADV.


Social media
The new Marketing Rule provides guidance on social media use by investment advisers and their personnel. The rule recommends that advisers consider:


  • Prohibiting personal social media communications by employees
  • Conducting periodic training and obtaining signed attestations
  • Periodically reviewing content that is publicly available on employees’ social media accounts


Testimonials and endorsements
All advertisements containing a testimonial must include a disclosure stating if the promoter is a client and whether they were compensated. Advisers utilizing testimonials and endorsements must ensure compliance with these provisions. The SEC clarified in the release that an adviser is generally not responsible for third-party social media likes, shares and endorsements if the adviser is not selectively deleting, altering or prioritizing third-party postings, or otherwise involved in their preparation.


How to be compliant with the new Marketing Rule

The compliance date for the new Marketing Rule is 18 months, providing advisers a span of time well into 2022 to update their procedures. Significant compliance and operational oversight will be needed to ensure all the new requirements are fulfilled. Note that early implementation of the new rule is permitted, but advisers should not amend advertising and marketing procedures until they can fully comply with the entirety of the rule.


Overall, the final rule contains many improvements to the benefit of advisers. The amended rule replaces an outdated and patchwork regime. The rule won’t be disruptive to businesses like other regulations but expands current marketing policies to reflect the new Marketing Rule. The new rule will evolve advisers’ marketing principles over time.


Best practices for meeting the new Marketing Rule requirements:

  • Update books and records requirements to ensure all required records are retained
  • Review and amend current policies and procedures addressing advertising and marketing to reflect the new rule
  • Review and update advisers’ social media policies
  • Monitor and preapprove employees’ social media accounts
  • Implement technology systems to ensure compliance with the new rule
  • Review and update disclosures to ensure they meet the expectations of the new rule in substance and presentation
  • Assess the use of compensated testimonials, endorsements and solicitation arrangements
  • Train employees on the new rule


Author & Source: Marianna Shafir Esq. Corporate Counsel, Regulatory Advisor at Smarsh


About Marianna Shafir

Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. With her expertise in financial services industry, compliance and eDiscovery, Marianna counsels Smarsh clients on meeting regulatory obligations, leveraging technology and guidance on best practices related to electronic communications supervision. Prior to joining Smarsh, Marianna worked for BNY Mellon and Invesco where she was an instrumental member on compliance teams.Marianna has also served as an adjunct professor at New York Career Institute where she taught Law Office Management and Real Estate Law. She earned her Juris Doctorate from Nova Southeastern University. She is a frequent speaker at industry conferences and a contributor to various online publications.


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