SEC Cautions Advisors Over Marketing Rules Compliance
The Securities and Exchange Commission (SEC) on Tuesday issued a risk alert advising registered investment advisors (RIAs) on marketing rule compliance.
“In sharing these staff observations, the Division encourages advisers to reflect upon their own practices, policies, and procedures and to implement any appropriate modifications to their training, supervisory, oversight, and compliance programs,” the SEC wrote in the alert.
The SEC announced that advisor testimonials and endorsements in advertisements are prohibited unless the advisors satisfy “certain disclosure and oversight conditions,” noting that SEC exam staff had observed advisors using testimonials and endorsements that “did not appear to comply with all of some of the requirements for both compensated and uncompensated testimonials and endorsements.”
Endorsements or testimonials that were found to be non-compliant did not include the proper disclosures at the time of distribution. “Such testimonials or endorsements were often presented on advisers’ websites, including websites using alternative business names of their supervised persons [‘d/b/a’ websites],” the SEC stated.
At other points, advisors did not include disclosures that verify whether the promoter, or the person providing the testimonial or endorsement, “was a current client or investor in a private fund advised by the investment adviser, and, if applicable, whether the promoter was paid cash or non-cash compensation and/or had a material conflict of interest.”
The federal agency said it also saw advisers using lead-generation firms, social media influencers, and adviser referral networks to provide “refer-a-friend” programs to current clients for “de minimis,” or minimal, compensation.
The SEC exam staff also provided context on third-party ratings in advertisements, which is states are prohibited unless “an adviser has a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party ratings meet certain criteria and discloses certain information related to the ratings.”
The staff said it saw advisors utilizing these ratings without complying with all or some of the requirements needed. These ratings were often used on advisors’ websites (including d/b/a websites), social media accounts, marketing brochures or pitchbooks, press releases, newsletters, and blogs, among others.
“While the staff observed that many advisers utilizing third-party ratings in advertisements updated their compliance policies and procedures to address this practice, others had not,” the SEC wrote. “Some of the advisers that did not update their policies, as well as advisers that had updated their policies and procedures but did not implement them, disseminated advertisements that did not appear to comply with the Marketing Rule.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.