The Securities and Exchange Commission has issued a risk alert on its new investment advisor marketing rule, highlighting areas of planned examinations.
The rule, adopted in December 2020 and which takes effect November 4, is aimed at updating regulations governing how advisors advertise and market their products and services. The rule eliminates prohibition of the use of testimonials and endorsements while prohibiting practices such as omission of material facts or exclusion of certain performance results.
In the risk alert issued Monday, the SEC said that its exams would focus on written policies and procedures, which the regulator says should include “objective and testable means” to prevent violations.
Another area the SEC plans to review is whether companies have a reasonable basis to substantiate any material statements made in their advertisements.
According to the rule’s original release, “if an adviser is unable to substantiate the material claims of fact made in an advertisement when the Commission demands it, we will presume that the adviser did not have a reasonable basis for its belief.”
Also on the regulator’s radar are the rule’s performance advertising requirements, with an emphasis on prohibitions, the SEC said in the Monday risk alert.
The regulator further plans to examine whether firms are complying with the books and records regulations of the new marketing rule, as well as the information companies provide on their Forms ADV about their marketing practices, according to the risk alert.
“In sharing initial examination review areas for the Marketing Rule, the Division encourages advisers to reflect upon their own practices, policies, and procedures and to implement any appropriate modifications to their training, supervisory, oversight, and compliance programs,” the SEC said.
Few registered investment advisors are ready to implement the rule as they try to grapple with many open questions, lawyers told FA-IQ sister publication Ignites before the most recent risk alert.
The rule is also the top concern for compliance staff at investment advisor firms, according to a recent survey by the Investment Adviser Association.