Make Way for Self-Promotion

Art by Sam D’Orazio

This past November, the Securities and Exchange Commission (SEC) voted to propose a set of amendments meant to modernize the advertising rules and restrictions applying to financial advisers under the Investment Advisers Act of 1940.

In a phrase, the SEC is seeking to move from a blanket prohibition-based approach to a more nuanced and modernized principles-based scheme—a meaningful change in policy the financial services industry has long advocated. The extensive rule amendments appear in summary form on the SEC’s website and in full on the Federal Register.

Among other changes, the proposed approach would permit the use of testimonials, endorsements and third-party ratings—subject to certain conditions—and would include tailored requirements for how to present performance results based on an ad’s intended audience. Early industry interpretations of the proposal have broadly been positive. According to Ted Angus, an executive vice president and general counsel at AssetMark, the new proposed rule “flips the advertising standard on its head,” freeing advisers to tell their stories in both traditional and digital media.

Angus and other commentators stress that the SEC, while allowing advisers to do more advertising, is by no means eliminating all pertinent compliance expectations—far from it. Referring to the allowance for such commendatory ads, Angus says, “That’s a big step forward for the industry. At the same time, firms still have to pay careful attention to the advertising they’re doing and keep accurate and comprehensive records. Furthermore, you still can’t make untrue statements or permit the use of any misleading communications. You have to make sure that whatever advertising you do meets the new standards. It’s not a free-for-all, and the new rules don’t significantly change the recordkeeping requirements.”

Sources agree that the SEC’s proposed recordkeeping requirements remain fairly burdensome, especially when it comes to the management and oversight of social media marketing.

Attorneys at Stradley Ronon say the SEC’s separate, but related, proposed amendments to the Solicitor Rule are also significant. Most notably, they say, the revised Solicitor Rule would encompass non-cash compensation arrangements; apply to private fund investor solicitation arrangements; eliminate the current requirement that a solicitor provide a copy of the associated adviser’s Form ADV Part 2A to solicited prospects; ease the solicitor’s brochure delivery requirement in connection with certain mass solicitations; and revise and expand the list of disciplinary events that disqualify a solicitor from receiving compensation.