OCIE Publishes Marketing Risk Alert

Publish Date


Compliance Alert

  • Compliance

On September 14, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a National Exam Program Risk Alert related to Rule 206(4)-1 under the Investment Advisers Act of 1940 (the “Advertising Rule”). The risk alert highlights the compliance issues most commonly noted by the SEC’s examination staff as part of a recent “Touting Initiative.” That initiative, which consisted of reviews of approximately 70 investment advisers, focused on the use of “accolades” in advertising.

The examination staff did not take any new positions with respect to marketing-related compliance issues or advertising practices by investment advisers. However, the alert’s issuance serves as an important reminder that the SEC staff takes compliance with the Advertising Rule seriously. Below are some of the issues specifically highlighted in the alert.

Hypothetical Performance

Back-tested and other hypothetical performance must include sufficient disclosure to explain the methodology used to calculate the performance data that is shown.

It is important not to highlight profitable investments without full compliance with subsection (a)(2) of the Advertising Rule or SEC staff guidance, such as the SEC staff’s no-action letter to this investment adviser.

Gross-of-Fees Performance
Failure to show performance returns on a net basis could be considered misleading. However, showing gross-only returns is generally permitted in the context of a one-on-one presentation if certain additional disclosures are included. (See, for example, SEC staff no-action letters to the Investment Company Institute and the Association for Investment Management and Research.)

When including rankings and awards in an advertisement, the selection criteria must be included. Advisers must also disclose if they paid to be considered for the award and should not show awards and rankings that are dated and, therefore, no longer applicable.

Voluntary Performance Standards
If advisers choose to claim compliance with performance guidelines such as the Global Investment Performance Standards® (“the GIPS standards”), performance results must adhere to those performance standard’s guidelines.

Compliance Program
Ensure policies and procedures are comprehensive and address the firm’s process for (a) reviewing and approving marketing materials, (b) creating and maintaining composites, and (c) ensuring the accuracy of performance data.

Benchmark Comparisons
Advertisements that include a benchmark comparison must include disclosures about the inherent limitations, especially if the advertised strategy materially differs from the composition of the presented benchmark, 

How ACA Can Help

If you have any concerns about whether your firm’s marketing materials are fully compliant with the Advertising Rule, the GIPS standards, or other regulatory requirements, ACA Compliance Group can help. ACA’s Outsourced Marketing Review team assists many advisers in assessing their marketing materials, including presentations, newsletters, pitch books, websites, and social media posts, for compliance with SEC and FINRA regulatory expectations and industry best practices. ACA’s Performance Service’s team assists many advisers with coming into compliance and maintaining compliance with the GIPS standards, offers investment performance consulting, and GIPS verification.