According to a survey from Wealth Management, 78% of advisors listed advertising and marketing as the “hottest compliance topic” of 2022. Of course, as a registered investment advisor (RIA), you already understand the importance of staying up to date with SEC compliance. Although “compliance” is one of the least fun topics when it comes to business, the good news is that it’s relatively easy to develop a compliant marketing plan. As yoHOMEu build your brand and seek new clients, here are a few SEC marketing rule insights for advisors to keep in mind.

What Is the SEC Marketing Rule?

The SEC’s Advertising Rule 206(4)-1 dates back to 1961. But, with the advent of web-based technologies and digital marketing platforms, the advertising landscape has changed dramatically since then. As we all know, the need for a major update to the rule became increasingly evident, and SEC created the Marketing Rule in response.

The Marketing Rule merges the Advertising Rule with the Cash Solicitation Rule, 206(4)-3, eliminating the fragmented quality of the previous outdated regulations. Specifically, the new rule clarifies the policies and regulations surrounding digital content and grants financial professionals access to greater marketing channels.

This regulation was enacted on May 4, 2021, and the 18-month deadline recently passed on November 4, 2022. We all know that adherence to the new rule is mandatory, and with great avail, most RIAs worked with urgency to adapt and embrace the recent changes.

Where Does the Marketing Rule Apply?

The amended rule has expanded the definition of an advertisement. An advertisement is any direct or indirect communication made by an RIA that does one of the following:

  • Offers the RIA’s services or advice regarding securities to prospective or current clients
  • Contains an endorsement or testimonial for a service for which the RIA receives compensation

These rules clarify that an advertisement is any direct or indirect endorsement of an investment or of any service for which an RIA is compensated, regardless of whether that compensation is direct or indirect. The marketing rule applies to several different marketing and social media channels, including:

  • Social media posts
  • Blogs
  • Podcasts
  • Google Ads
  • Endorsements and client testimonials
  • Third-party reviews or rankings
  • Third-party solicitors (includes placement agents)
  • Employee training materials
  • Third-party marketing materials to promote the RIA’s services

It also includes performance disclosures that relate to the following:

  • Gross and net performance
  • Asset-level performance
  • Hypothetical modeling
  • Targeted, related, extracted, or predecessor performance

These rules ensure that RIAs abide by established standards regarding content creation and distribution as it relates to their advisory or investment services.

General Prohibitions

On October 26, 2022, the Securities and Exchange Commission (SEC) proposed a new rule that would impose specific due diligence and monitoring requirements on RIAs who choose to outsource certain functions of their business to service providers. While many RIAs may be tempted by the thought of outsourcing their book-keeping, this new proposed rule is important to consider.

The SEC’s Marketing Rule contains seven general prohibitions. RIAs cannot produce material that:

  • Includes fact-based statements without substantiation
  • Includes untrue or misleading statements (or omissions of facts or data)
  • Includes untrue implications or inferences
  • Selectively includes performance results in a way that is unfair or unbalanced
  • Deliberately misleads readers
  • Does not treat material risks or limitations in a fair and balanced manner
  • Does not provide investment guidance in a fair and balanced manner

What does this mean for RIAs? Financial advisors have the freedom to explore more marketing channels than ever before, but now also bear a greater responsibility when it comes to validating their claims.

Advertising rules require RIAs to provide data to support any claim regarding their performance, which means that they will have to carefully maintain their data to back up any claims made in their marketing materials.

Ensuring Compliance

How can RIAs learn to navigate the new landscape? Many advisory firms are assigning these responsibilities to a dedicated compliance officer. Firms that cannot afford a new employee can invest in a consulting service or a securities attorney.

With that, it’s important to keep in mind that on October 26, 2022, the Securities and Exchange Commission (SEC) proposed a new rule that would impose specific due diligence and monitoring requirements on RIAs who choose to outsource certain functions of their business to service providers. While many RIAs may be tempted by the thought of outsourcing, this new proposed rule is important to consider.

You might consider signing up for risk alerts through the SEC’s Office of Compliance Inspections and Examinations (OCIE). The office provides periodic alerts that can help you discover compliance deficiencies and stay within regulations.

Bridgemark Strategies is your Consultant when making a change

We hope you enjoyed reading about these SEC marketing rule insights for advisors. As a leading M&A, recruiting, and consulting firm, Bridgemark Strategies is here to equip and empower financial professionals with the information to make a more informed decision when considering leaving their broker-dealer and starting or joining another RIA. To learn more,