The SEC’s Marketing Rule came into force on November 4, 2022, after a nail-biting 18-month transition period. Rumor has it the regulator will be undertaking thematic reviews imminently to establish compliance.

This is not spurious industry rumor, but a firm commitment, cemented by a September 19 Risk Alert from the SEC, which is understood to have put firms on notice. D-Day is here and the regulator will be checking that you’re doing it right.

Rather than allaying fears of investment advisers who have so far struggled to unpick the complexities of the new Marketing Rule, the Risk Alert arguably compounded industry anxiety, the new Rule having gained notoriety as being unduly complex. The criticism generally seems to be that while the new Rule is clear, the application of the Rule is complex and clarifying regulatory guidance is almost non-existent.

Transparent information

In keeping with the general move towards investor-driven transparency, the Marketing Rule is the result of reforms under the Investment Advisers Act of 1940. It is the most substantial amendment to Rule 206(4)-1 in more than 60 years and consolidates existing rules into the “Marketing Rule” in a bid to provide clarity and empower investors with relevant, transparent information.

Yes, though it depends who you ask. The Investment Adviser Association’s 2022 Investment Management Compliance Testing Survey placed the SEC’s Marketing Rule as the biggest worry for investment adviser compliance officers. And 75% of respondents identified advertising/marketing as the “hottest” compliance topic for the second year running.

Less guidance

In short, there is a lot of messaging about what the Marketing Rule is, but there is far less guidance about what it means, or what investment advisers should be doing to ensure their marketing efforts comply with the new rule.

The SEC has made it clear that the new marketing rule sits top of its agenda. Advisers should expect thematic reviews in the near future that will focus on the topics raised in their Risk Alert. Specifically:

• Have you implemented written policies and procedures that will prevent violations and do these include “objective and testable means” designed to prevent violations?
• Do you have a reasonable basis for believing you will be able to substantiate any facts made in advertisements? (This could be a difficult one to prove and firms should look to make a record demonstrating the basis of their belief or create policies, procedures or controls to show how it will be met.)
• Are you complying with the new performance advertising requirements?
• Are you keeping up with new, more strenuous RIA recordkeeping requirements?
• Are you taking steps via training or other methods to show that all employees are cognizant of the new requirements?
• Can you prove how you’re making the necessary changes to comply?

It is hoped that the SEC will take an educational stance when conducting initial reviews and provide constructive feedback rather than punitive measures. As is often the case, the industry is looking for clarity and leniency in the face of complex regulatory reform, with hopes that the regulator will go easy on good faith and unintentional violations.