Complying With SEC Marketing Rule: Don’t Say What You Can’t Prove

SEC officials and compliance experts say that proving statements of fact should be at the top of advisers’ to-do list under the SEC's new marketing rule.


An expert panel at the Investment Adviser Association’s 2023 Investment Adviser Compliance Conference explained some of the main areas of focus for the Securities and Exchange Commission’s new marketing rule, which came into effect in November 2022. In particular, panelists warned financial advisers to be sure they can substantiate material facts used in their advertising materials.

Mark Perlow, a partner in the Dechert LLP law firm and a former SEC senior counsel, explained that the SEC will be especially interested in stated facts that relate to performance, ratings by outside parties and the newly allowed use of testimonials and endorsements.

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Carlo Di Florio, a partner and global advisory leader at the compliance advisory firm ACA Group, who spoke at a later panel, said SEC officials will be looking closely at marketing materials, including social media posts, in its exams. Regulators will especially be looking at targeted marketing and any references to projected or past investment performance.

Perlow noted that advertising that includes material statements of fact for which the adviser lacks a reasonable basis for believing can be substantiated is the only general prohibition listed in the SEC’s recent risk alert on the marketing rule. In fact, it was the second violation listed in the alert after not maintaining policies and procedures.

The risk alert also says that “if an adviser is unable to substantiate the material claims of fact made in an advertisement when the Commission demands it, we will presume that the adviser did not have a reasonable basis for its belief.” The alert underlined the importance of providing net performance for stated time periods when using gross performance in marketing materials.

The panel also discussed an FAQ published in January by the SEC which said that when advisers market a single fund and a group of investments together, they must show the net performance of both the group and individual investments if they show gross performance. This is intended, in part, to prevent misleading marketing in which underperforming funds are bundled with others to conceal their low performance. Net performance must always be shown alongside gross performance, whether the asset is presented alone or in combination with others.

Thoreau Bartmann, the co-chief counsel at the SEC’s division of investment management, clarified some confusion in the industry about social media interactions that might be construed as an endorsement, which would in turn be covered by the marketing rule. Specifically, he said that merely allowing likes or shares on social media posts does not constitute an endorsement. Also, removing third-party content based on pre-established criteria such as false information or profanity does not automatically make remaining materials, such as comments, an endorsement of their substance.

Danielle Nicholson Smith, vice president and managing counsel at T. Rowe Price, cautioned that comments left on posts from employees of the adviser could be an endorsement and could even turn something that was not intended as an advertisement into an advertisement under the marketing rule. Since employers cannot monitor everything, she said employee training will be key.

She also recommended focusing on substantiating data-based claims rather than claims about an investment’s goals or objectives. Claims on objectives must still be proven, but they are not as tedious to demonstrate. She said advisers should keep separate files on any claims they make that would require substantiation under the rule, so that they can be substantiated and quickly provided to the SEC on demand.

 

 

Advisory M&A

PCIA acquires Cornerstone; Creative Planning adds Telarray Advisors; Heffernan Network acquires Kettering Rose; and more.


Prime Capital Investment Advisors Acquires Cornerstone Comprehensive Wealth Management
 

Prime Capital Investment Advisors LLC has announced its acquisition of Cornerstone Comprehensive Wealth Management, bringing $400 million in assets under PCIA management. 

Cornerstone has 10 employees, including four advisers who will continue to serve approximately 575 households in partnership with PCIA. Cornerstone is based in Reno, Nevada, which will be the first location for PCIA in the state.  

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“I’m excited to expand into Nevada and welcome the team at Cornerstone to the PCIA family,” said Glenn Spencer, CEO of PCIA, in a statement. 

According to a statement, PCIA was impressed by Cornerstone President Christopher Abts’ expertise in marketing and generating leads via his TV show, “Redefining Retirement.” Abts is also a published author on the topic of retirement planning. 

“Partnering with PCIA will enhance our client service capabilities and expand our investment management solutions for our clients and their families,” Abts said in a statement. 

Creative Planning Acquires Telarray Advisors 

Creative Planning LLC has acquired Telarray LLC, also known as Telarray Advisors. Telarray has $1 billion in AUM and brings 18 new employees into the Creative Planning fold. 

Telarray specializes in retirement planning, estate planning, investing, tax management strategies and more. The firm has historically operated as a fee-only fiduciary.  

“We were looking for a firm that aligned with us in planning philosophy, culture, employee opportunities, and that provides an immediate expansion in our service offering for both our existing and future clients. Creative is that partner, and we are excited to be a part of the team,” said Richard Paessler, Telarray president and chief compliance officer, in a statement. 

With its latest acquisition, Creative Planning oversees more than $225 billion in assets across all 50 states and 65 countries. 

“Creative Planning is thrilled to bring on the Telarray team who will help us break deeper into the Tennessee market,” said Peter Mallouk, CEO of Creative Planning, in a statement.  

Heffernan Network Insurance Brokers Acquires Kettering Rose Insurance Services 

Heffernan Network Insurance Brokers announced that it acquired Kettering Rose Insurance Services in January. 

Robyn Kettering, founder and president of Kettering, and 10 of her team members joined Heffernan Network on January 1. The company will operate autonomously as a subsidiary agency of Heffernan Network. 

“We are so excited to join forces with Kettering Rose, bringing Heffernan Network a solid team of insurance professionals in a new region, with big opportunities for growth,” said John Prichard Jr., president of Walnut Creek, California-based Heffernan Network, in a statement. 

San Diego-based Kettering has been family-owned and operated since its founding in 2004. The firm focuses on commercial lines and personal lines clients with a specialty in the public auto sector.  

“This is an exciting announcement for us that will provide important benefits to our clients. We will continue to be run by the same experienced management team that is in place today and continue to provide the best products and level of service to our clients,” Kettering said in a statement. 

Hub International Acquires Glacier Insurance of Libby  

Hub International Limited announced today that it has acquired the assets of Glacier Insurance of Libby, Inc.  

Glacier Insurance of Libby is a full-service independent agency providing commercial and personal insurance to clients in Montana, Idaho and Washington. Owners Kevin and Kim Peck and the Glacier Insurance of Libby team, based in Libby, Montana, will join Hub’s Mountain States division. 

“We are excited to have Kevin, Kim and their team join Hub,” said Brent Irving, president and CEO of Hub Mountain States, in a statement. “They will offer first-rate knowledge and personalized service as we look to continue to grow and provide significant value for clients in the region.” 

“Joining Hub gives us access to additional resources and capabilities so that we can continue to provide the highest quality of service to our clients,” Kevin Peck said in a statement. “We believe the larger and diversity of experiences will provide a very attractive combination for our clients.” 

ARS Investment Partners, Piton Investment Management Join SMArtX Advisory Solutions’ UMA Platform 

SMArtX Advisory Solutions announced it has added 25 strategies to its UMA platform. 

ARS Investment Partners LLC and Piton Investment Management LP are new to the SMArtX platform. Existing platform firms Alpha Vee, Capital Research and Management Company and Principal Global Investors all added new strategies. 

ARS Investment Partners added its ETF- and equity-focused strategies, while Piton is now offering its fixed-income solutions to SMArtX clients for the first time.  

Alpha Vee and Principal Global Investors each deployed one additional strategy in March, but Capital Research was the largest contributor with 17 new strategies. The new American Funds strategies encompass their class F-2 shares, joining another 17 American Funds strategies featuring class F-3 shares. 

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