While November might seem lightyears away, the deadline for the Securities and Exchange Commission’s (SEC) new marketing rule – November 4, 2022 – is just around the corner. Last week, at the NRS 2022 Spring Conference, we polled the audience at our session “Countdown to New IA Marketing Rules” and found that approximately 50% of attendees have not yet begun implementation of the rule.
A statistic which seems to be in line with the general public according to a recent FA magazine article which stated, “The vast majority of SEC-registered RIAs are not yet operating under the new rule, according to Brian Thorp, founder and CEO of Wealthtender, a consulting firm and advisor search engine for advisors and individuals. For months, advisors have expressed concern about complying with the new rules.”
While the session moderators fielded a host of questions and comments from the audience, we’ve aggregated the top questions regarding the new SEC marketing rule.
Top five FAQs on the new SEC marketing rule
Q: Is there a de minimis amount of compensation that can be provided for promotional activities without triggering the rule?
A: The rule does not specifically contain a de minimis amount of compensation.
Q: Can one-on-one presentations continue to contain only gross performance information?
A: No, any duplicated inserts and communications are required to show net performance information.
Q: Do required disclosures have to be presented on the same page as the testimonials and endorsements?
A: Yes, this element of the rule follows a strict four-corners test. Disclosures must be made on the same page and be as prominent as the testimonial or endorsement itself.
Q: Can hypothetical performance ever be distributed to retail clients?
A: It is unlikely that hypothetical performance is relevant to retail clients since those clients typically lack the financial sophistication and acumen to understand its limitations and assumptions. If ever shown to retail clients, sufficient documentation must be retained to rebut that assumption.
Q: Can case studies be shown to prospects?
A: Case studies are subject to the fair and balanced standard. Advisers should be careful to not include investments that have performed well while omitting those that have not.
Have more questions? Looking for additional support as you implement the new SEC marketing rules? Let’s talk about how NRS can help!
About the Authors
Max joined NRS in 2007 as a Consultant in the Investment Adviser Services Department and is based in our Massachusetts branch office. Max delivers comprehensive compliance solutions to all types of investment management firms, with special emphasis on private fund advisers, including hedge funds, funds of funds, private equity and debt funds, venture capital funds, real estate funds and other pooled investment vehicles.
Max earned his Juris Doctor degree Cum Laude from Boston College Law School in 2002. He is a member of the State Bar of Massachusetts.
After graduating from law school, Max accepted a corporate associate position with Choate Hall & Stewart LLP. During his tenure at Choate Hall, Max specialized in secured financing transactions, mergers and acquisitions, and bankruptcy litigation.
Max received his Bachelor of Arts degree Summa Cum Laude, graduating Phi Beta Kappa from Tufts University with majors in International Relations and Eastern European Studies.