7 Advertising Donts Under New SEC Marketing Rule

7 Advertising Donts Under New SEC Marketing Rule

The Securities and Exchange Commission has updated RIA's advertising and brokerage rules (known as the "New Marketing Rules"). The new marketing rule is spelled out in rule 206(4)-1, but rule 206(4)-3 (which deals with legal fees) has been repealed.

The new marketing rules were approved in December 2020 and take effect on May 4, 2021. Consultants are given an 18-month transition period to develop policies and procedures regarding the new marketing rules, accounting requirements, and updates to the ADV form.

Starting November 4, SEC-registered companies must comply with all provisions of the Trading Rules. State-registered RIAs should remain vigilant to determine if and when states will follow the SEC lead and implement similar changes.

SEC added 5.L. For ADV Module Part 1A. This section requires information about advertising and advisory performance presentations, including links to specific investment recommendations, hypothetical results, past performance, reviews, endorsements, or third party evaluations.

Article 5.L. It also requests information on monetary and non-monetary compensation related to the use of third party certificates, endorsements and qualifications. Consultants will be invited to update their responses to point 5.L. in the annual change of updates. However, we recommend that RIA companies consider making appropriate changes to the ADV form before November 4th to avoid possible regulatory oversight.

The SEC changed the definition of "advertising" to include direct or indirect communications from more than one person offering securities advisory services to prospective clients or investors from private funds recommended by the RIA. C'รจ un'eccezione . When hypothetical performance material is presented, advertising is defined as communication with one person.

The definition of advertising also includes messages offering new consulting services to existing clients or private fund investors. This definition explicitly excludes various elements, including face-to-face communication with individuals or households (if the communication does not contain hypothetical information about job performance).

Second, this definition generally includes approvals or certifications granted by consultants, directly or indirectly, monetary or non-monetary compensation (for example, referrals, bonuses, or reductions in fees and other consulting fees).

In particular, the marketing rules allow the use of testimonials (customer statements about RIA services that serve to support the consulting business and are intended to encourage business referrals to consulting firms) and endorsements (such as customer statements encouraging prospects). ) interacts with RIAs).

Use of testimonials and sponsorships requires a variety of disclosures, including disclosure of material information about compensation agreements (direct or indirect) and conflicts of interest.

Consultants should be aware that lead generation companies, referral programs and other platforms that offer consultants and serve to direct business to consultants may be considered intermediaries.

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