The Securities and Exchange Commission (SEC) is expanding its examination focus regarding investment advisers’ compliance with its new marketing rule.
The SEC’s Division of Examinations issued a risk alert Thursday reiterating its initial areas of review for marketing rule compliance while also noting three additional areas of exam focus. The agency in September flagged its initial review focuses, which included policies and procedures, substantiation requirements, performance advertising requirements, and books and records.
The new alert adds testimonials and endorsements, third-party ratings, and Form ADV as aspects of the rule the agency will be scrutinizing.
The marketing rule, which carried a November 2022 compliance date, established new requirements that govern investment adviser advertisements and payments to solicitors. It allows certain types of marketing, advertising, endorsements, and testimonials that were previously either prohibited by the SEC or so difficult to comply with that they were effectively banned.
Under the rule, investment advisers are required to substantiate material statements of fact made in all advertisements, which must be backed up with documentation.
Regarding testimonials and endorsements, SEC staff is reviewing whether required disclosures are being provided, oversight conditions are being met, written agreements are being entered into, and ineligible persons are being compensated. In the latter case, the agency is examining whether advisers know or reasonably should have known a person was ineligible, the alert said.
For use of third-party ratings in advertisements, disclosures must provide the date the rating was given, which third party recorded the rating, and, if applicable, whether compensation has been provided.
SEC staff will also review whether advisers are accurately providing information regarding their marketing practices in their annual Form ADV amendments.
“In sharing additional 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 alert concluded.