What the SEC Modernized Marketing Rule Means for RIAs
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The Securities and Exchange Commission’s (SEC) Modernized Marketing Rule 206(4)-1 compliance deadline is fast approaching with an expectation that all registered investment advisers (RIAs) be fully compliant with the new rule before November 4, 2022. In trying to digest their obligations under the rule, many advisers have found their existing marketing/advertising programs are far from ready.
In our current environment where the SEC and other regulators are repeatedly emphasizing their focus on marketing and advertisements, many investment advisers are scrambling to update their supervisory frameworks to comply with the new marketing rule before the November deadline.
If you are unsure what this entails or what areas of compliance you should be thinking about for your business, here is a quick refresher.
Rule overview
Updates to the Modernized Marketing Rule were adopted in late 2020 by the SEC. The rule essentially consolidated the old SEC advertising and cash solicitation rules and codified previous guidance and precedent established in hundreds of SEC no-action letters and guidance. The rule also brought about a completely new set of standards, including redefining the definition of an advertisement and expanding it to include investors in private funds. It also includes changes to the way RIAs can advertise performance, utilize testimonials and endorsements, and much more, presenting opportunities for advisers to expand their marketing, advertising and communications to attract more clients and gain a competitive advantage.
Keeping up with regulatory changes is hard.
Many advisers have found their existing programs are far from ready. We can help you get up to speed and stay in compliance.
Written compliance program
The first step in developing an effective compliance program that addresses the SEC’s Modernized Marketing Rule is establishing adequate written supervisory procedures that cover obligations under the rule and that establish content standards, review processes, supervisory obligations, books and records obligations, and other related requirements.
The SEC has been clear on expectations around “tailoring” procedures to the adviser’s specific business and associated marketing practices. Accordingly, investment advisers may want to avoid utilizing a template approach as this is likely to draw regulatory scrutiny.
Supervisory obligations
The SEC’s Modernized Marketing Rule does make clear there are multiple ways an RIA may meet the supervisory obligations outlined in the rule. For example, an adviser may require approval of all materials prior to publication or establish a risk-based review process post-publication. Whatever process you establish, it must be reasonably designed to comply with the rule. This includes multiple nuanced areas, which require certain disclosures and other obligations.
Depending on the investment adviser’s size and extent of advertising efforts, the adviser could establish a manual review process, such as through a marketing review form, or they could opt for a more automated review process.
Training
Training is always a cornerstone to help financial professionals understand and know how to comply with any new rule and become familiar with the policies and procedures established by the investment adviser. Proper training can aid both front-line and back-office professionals in digesting the SEC rule and understanding their obligations going forward.
Special considerations
The SEC Modernized Marketing Rule is robust and nuanced, creating special considerations, disclosures, and other obligations for a variety of compliance areas, including:
- General content standards
- Websites, social media, and other channels
- Testimonials and endorsements
- Promoters (previously known as “solicitors”)
- Displaying performance information
- Past recommendations
- Third-party ratings
- ADV updates
- Recordkeeping obligations
How Kaufman Rossin can help
Keeping up with regulatory changes is hard. Let us take something off your plate. Kaufman Rossin offers investment advisers a turn-key compliance solution, providing complete assistance with building the framework to help you comply with the rule. Our services include:
- Helping you draft and update written policies and procedures (compliance manual)
- Drafting promoter attestations
- Helping you draft template disclosure language
- Draft a marketing review approval form and checklist
- Assist with required ADV updates
- Provide training (sales and back office)
- Consulting support
Kaufman Rossin can also provide ongoing compliance support by conducting advertisement/marketing reviews and providing feedback to supervisory staff prior to or post-publication. Contact me or another member of our risk advisory services team to learn more about how we can help your RIA comply with the SEC’s Modernized Marketing Rule and other regulatory requirements.
Alex Egan, CAMS, is a Broker-Dealer & Investment Adviser Services Director at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.
