SEC unveils new marketing rule for Investment Advisers

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‘Twas three nights before Christmas and all through the house…WAIT!!!

While you may have been out celebrating the holiday week and preparing to ring in a healthy new year, the Securities and Exchange Commission (SEC) was hard at work. Just before the Christmas break, regulators churned out a more than 400-page missive outlining a new rule governing how investment advisers advertise and market their investment advisory services and products.

In announcing the updated, modernized marketing rule on December 22nd, SEC Commissioner Elad L. Roisman salted his applause for the final marketing rule with concerns about its implementation over time.

What is new for investment adviser marketing?

According to Roisman, the new marketing rule in its final form adds several improvements to the advertising rule proposed one year ago. That proposal’s one-size-fits-all “pre-review” requirement, he acknowledged, “was flagged as unworkable by commenters to the proposed rule change. And as such, it was eliminated from the current final rule. Instead, he says, the updated rule will permit advisers to comply with its requirements in a manner that is appropriate to their own firms.

The new final rule also more specifically defines what constitutes an advertisement. “The definition encompasses only communications that ‘offer’ services,” says Roisman, and explicitly rejects “the inclusion of communications that merely ‘promote’ the adviser or ‘seek to obtain’ new clients.”

Roisman further notes that the final rule only governs offers made for investment advisory services “with regard to securities,” not to the advertising of services outside the context of securities. This distinction, he says, ‘eliminates any confusion that the rule will only apply to offers of securities-related products and services.” By staying within the SEC’s remit and expertise, it “should help us with oversight and enforcement, [and] should help advisers with implementation.”

What marketing media are included in the new SEC rule?

The new marketing rule will apply to advisers’ communications regardless of the media or technology. The rule also permits advisers to advertise using testimonials and endorsements, unlike the current rule.

Moreover, with certain limitations, the new rule is expected to bring the advisory industry more in line with the many other industries which already facilitate their customers “telling a friend” or showing that they “like” a company on social media.

What about the new marketing rule makes Commissioner Roisman nervous?

“I would be remiss,” he says, “not to mention that, unlike the current advertising rule, this rule will explicitly extend to communications made by private funds advisers to private fund investors.” It sets forth prescriptive requirements for how these advisers must describe their funds’ performance, including potentially in private placement memoranda (PPMs). This last raised issues with several commentors to the rule, Roisman says. They noted ‘that PPMs are not advertisements, but legal documents reviewed by sophisticated and well-resourced parties.  While the final rule carves out offering information discussed in PPMs, other information in a PPM may be captured.  So, to me, this aspect of our rule goes beyond its purported focus on advertising.”

Roisman also expressed concern about how the rule’s impact on PPMs will change the dynamics of private fund investing in practice.  From the comment file, he says, “it’s clear that some institutional investors are interested in having access to more information from private fund advisers managing potential investments for the institutions. Yet, it does not seem intuitive that adopting rules which may make it more expensive and difficult for private fund managers to communicate with potential limited partners will encourage them to do so broadly.”

What will the new SEC marketing rule do for chief compliance officers?

Add an additional layer of responsibility, most likely. And that’s where Patrina’s marketing materials solution can help. For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, comprehensive, 8-module compliance solution, compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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