The long-awaited SEC Marketing Rule final release has finally arrived, bringing significant changes to the way investment advisers promote their services. This new rule, set to take effect on May 4, 2022, aims to modernize and simplify the regulatory landscape, providing clarity for both advisers and investors.
In a departure from the previous performance advertising rules, the new Marketing Rule introduces a principles-based approach, focusing on the overall presentation of performance information rather than specific disclosure requirements. This shift allows for more flexibility in marketing materials but also places a greater emphasis on the adviser's duty of care.
Key Changes Under the New Marketing Rule
The new Marketing Rule introduces several key changes, including the elimination of the "more than occasional" standard and the introduction of a new "compliance policy and procedures" requirement.
Advisers will now be required to adopt and implement written policies and procedures reasonably designed to prevent violations of the Marketing Rule. This shift towards a compliance-focused approach marks a significant change from the previous rules.
Elimination of the "More Than Occasional" Standard
One of the most notable changes is the elimination of the "more than occasional" standard, which previously governed the use of performance advertising. Under the new rule, advisers can use performance information more freely, provided it is not materially misleading.
However, this increased flexibility comes with a heightened responsibility for advisers to ensure that their marketing materials are accurate, complete, and not misleading. The new rule emphasizes the importance of the adviser's duty of care in presenting performance information.
Introduction of the "Compliance Policy and Procedures" Requirement
The new Marketing Rule requires advisers to adopt and implement written policies and procedures designed to prevent violations of the rule. This requirement reflects the SEC's focus on promoting a culture of compliance within the investment advisory industry.
Advisers must establish policies and procedures that are reasonably designed to ensure that their marketing materials comply with the new rule. This may include regular reviews of marketing materials, training for personnel involved in marketing, and clear lines of responsibility for marketing activities.
New Prohibitions and Definitions
The new Marketing Rule also introduces several new prohibitions and definitions, further clarifying the scope of the rule and the types of conduct that are prohibited.
For instance, the new rule prohibits advisers from making untrue statements of material fact in their marketing materials. It also prohibits the use of misleading performance information, such as cherry-picked or hypothetical performance data.
Prohibition on Untrue Statements of Material Fact
The new rule prohibits advisers from making untrue statements of material fact in their marketing materials. This prohibition is intended to prevent advisers from making false or misleading claims about their services or performance.
Advisers must ensure that all statements in their marketing materials are accurate, complete, and not misleading. This requires a careful review of all marketing materials to ensure that they comply with the new rule.
Prohibition on Misleading Performance Information
The new rule prohibits advisers from using misleading performance information in their marketing materials. This includes the use of cherry-picked performance data, hypothetical performance data, or any other type of performance information that is not fairly presented.
Advisers must ensure that any performance information they use in their marketing materials is accurate, complete, and fairly presented. This may require the use of additional disclosures or other measures to ensure that performance information is not misleading.
As the SEC Marketing Rule final release takes effect, investment advisers must ensure that they understand the new requirements and take steps to comply. The shift towards a principles-based approach and the introduction of new prohibitions and definitions require advisers to review and update their marketing materials and policies and procedures. By doing so, advisers can ensure that they are providing accurate, complete, and not misleading information to their clients and prospects, fulfilling their duty of care and promoting a culture of compliance.