SEC Marketing Rule Update: Approaching Deadline of 4 November 2022

The amended Marketing Rule will significantly impact a RIA’s marketing materials and other investor communications, performance calculations and related disclosures as well as existing and new placement agent arrangements. In addition, RIAs will need to review and update their Form ADV, compliance policies and procedures and recordkeeping practices.

SEC Risk Alert

The SEC’s Division of Examinations published a Risk Alert on September 19 underlining the importance of the November 4 compliance date.  The Division of Examinations reminded advisers of their upcoming obligations under the revised Marketing Rule and highlighted their intent to conduct broad marketing rule exam initiatives.

The Risk Alert noted that the SEC will generally focus examinations in the following areas:

• policies and procedures
• whether an investment adviser is able to substantiate statements of material fact in an advertisement (when required to do so by SEC staff)
• performance advertising
• the Rule’s amendments pertaining to recordkeeping and Form ADV disclosures¹.

Next steps for new SEC marketing rules

As the compliance date approaches, Advisers should consider taking the following steps:

• amend marketing policies and procedures to reflect the revised Marketing Rule requirements
• ensure all “advertisements” disseminated on or after the compliance date adhere to the requirements of the amended Marketing Rule
• ensure all “advertisements” adhere to the substantiation requirement
• ensure all “advertisements” that include performance comply with the various performance reporting requirements, as applicable, for example; net performance, related performance, extracted performance, hypothetical performance and predecessor performance
• update recordkeeping practices and ensure that all policies and procedures are updated to reflect the requirements of the amended Marketing Rule and related amendments to Rule 204-2
• ensure that endorsement or testimonials, including placement agent and other solicitation agreements, comply with the requirements of the amended Marketing Rule
• consider any Form ADV amendments that may need to be made, in order to reflect new disclosure requirements.

How can Waystone Compliance Solutions help?

The complexity of the Rule, together with imminent SEC scrutiny of marketing practices, means that RIAs should now be fully engaged in finalising their implementation of the Rule. Our experience managing SEC regulatory compliance programmes gives us a clear insight into how to meet the challenges of this complex rule.

If you would like more information on this topic or have any questions, please reach out to our US Compliance Solutions team today.

¹ References:
1. Adopting Rule Release No. IA-5653 – https://www.sec.gov/rules/final/2020/ia-5653.pdf [sec.gov]
2. Marketing Compliance Frequently Asked Questions –
https://www.sec.gov/investment/marketing-faq [sec.gov]
3. Rule 206(4)-1 – https://www.ecfr.gov/current/title-17/chapter-II/part-275#275.206(4)-1 [ecfr.gov]