SEC’s New Investment Adviser Marketing Rule

The SEC has finalized the Advertising Rule (206(4)-1) under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The amendments create a single rule that replaces the current advertising and cash solicitation rules. The final rule is designed to comprehensively and efficiently regulate investment advisers’ marketing communications.

The rule replaces the current advertising rule’s broadly drawn limitations with principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice. It also includes tailored requirements for certain types of advertisements; those that include third-party ratings will be required to include specific disclosures to prevent them from being misleading. The rule will also permit the use of testimonials and endorsements, which include traditional referral and solicitation activity, subject to certain conditions.

Books and records
The SEC adopted amendments to the books and records rule (Rule 204-2) that require advisers to make and keep certain records regarding all advertisements they disseminate, with certain accommodations for complying with this provision in the case of oral advertisements. This expands the current books and records rule, which requires advisers to retain only advertisements sent to 10 or more persons. The SEC clarified that electronic mail archives are an acceptable method of maintaining records of advertisements. Form ADV will require advisers to supply additional information about marketing practices in the filing. Previously, there were no requirements to report marketing and advertising practices on Form ADV.

Social media
The new Marketing Rule provides guidance on social media use by investment advisers and their personnel. The rule recommends that advisers consider:

• Prohibiting personal social media communications by employees
• Conducting periodic training and obtaining signed attestations
• Periodically reviewing content that is publicly available on employees’ social media accounts

Testimonials and endorsements
All advertisements containing a testimonial must include a disclosure stating if the promoter is a client and whether they were compensated. Advisers utilizing testimonials and endorsements must ensure compliance with these provisions. The SEC clarified in the release that an adviser is generally not responsible for third-party social media likes, shares and endorsements if the adviser is not selectively deleting, altering or prioritizing third-party postings, or otherwise involved in their preparation.