SEC Announces Marketing Rule Compliance as Exam Priority

Author

Julia Reyes, Matthew Shepherd

Publish Date

Type

Article

Topics

  • SEC
  • SEC Marketing Rule
  • Compliance

With just over six weeks until the Marketing Rule goes into effect, the SEC does not seem inclined to provide any more guidance or FAQs for investment advisers. This has not stopped the Division of Examinations (EXAMS), however, from issuing a Risk Alert putting advisers on notice that compliance with the Marketing Rule will be an exam priority. Although adherence to all sections of the Marketing Rule is required by November 4, 2022, the Alert indicates that examinations will be focused on the following areas:   

  1. Marketing Rule Policies and Procedures – Although this may seem the most straightforward of the new requirements, compliance teams should ensure that the policies and procedures they adopt reflect their firm's practices. It may be worth a fresh review to ensure the new policies and procedures can be implemented and tested.    
  2. Substantiation Requirement – Advisory firms may be tired of hearing "substantiation," but it is worth another reminder. The Marketing Rule requires that if an advertisement includes a material statement of fact, the firm should have documentation to support it. An inability to substantiate a fact to the SEC upon demand will result in a negative presumption about the adviser's practices.  
  3. Performance Advertising Requirements --   It is no surprise that EXAMS intends to focus on all components of performance in the first round of examinations post-Marketing Rule adoption. Performance calculation remains one of the biggest challenges for some advisers due to a lack of either internal resources or systems to implement the necessary changes. As a result, some advisers may have to adopt interim solutions until they can fully comply with the rule's requirements. Advisers should be prepared to discuss and support the various performance data used within all advertisements with SEC Staff.   
  4. Books and Records – Many of the substantive requirements of the new Marketing Rule are accompanied by record-keeping requirements laid out in amendments to Adviser Act Rule 204-2 ("Books and Records Rule"). Compliance with these requirements should not be an afterthought. 

We encourage you to read through the four-page Risk Alert.  

How we can help 

Whether you are 80% of the way there and have a few remaining questions or are just starting to look at the new rule, ACA can help. We are uniquely positioned to help firms comply with the new rule because we are the only compliance consulting firm that also has a performance practice. Each engagement is staffed with expertise from both an SEC regulatory perspective and the performance perspective.  

ACA assists clients in assessing the gaps between current marketing and advertising practices as well as existing policies and procedures against the new Marketing Rule 

  • The areas where we are seeing firms struggle the most include: 
  • When a one-on-one presentation is considered an advertisement 
  • Calculation of net of fees performance on hypothetical or extracted performance 
  • Use of appropriate model fees 
  • The new cash solicitation rules 
  • Rules for related account performance 

If you have any additional questions about how to prepare for the new rule, please contact your ACA consultant or contact our team here to learn more about how we can help.

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