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Compliance and Regulatory Alerts  |  11-07-19

SEC Proposes Changes to Investment Adviser Advertising and Solicitation Rules

The SEC is seeking comment on a newly issued proposal to amend two rules on investment adviser advertising and solicitor compensation.

The proposal on advertising would replace existing Investment Advisers Act (“IAA”) Rule 206(4)-1, by moving from its “broad limitations” toward a more “principles-based” approach. Generally, the new rule (i) contains prohibitions on general practices and tailors restrictions on particular practices applicable to all advertisements, (ii) tailors requirements for the presentation of performance results directed at retail investors to prevent fraud, (iii) permits—subject to disclosure requirements—testimonials and endorsements, and (iv) updates definitions (and exclusions) in order to be more flexible and to align with technology developments and the “changing profiles” of registered investment advisers. The new rule would also require firms to designate an employee to review and approve, in writing, all advertisements prior to dissemination.

Proposed amendments to the SEC cash solicitation rule (IAA Rule 206(4)-3) would expand (i) coverage over all forms of compensation (e.g. directed brokerage, awards, free or discounted services), (ii) tailor required disclosure (particularly around conflicts) by solicitors to both investors and prospects, and (iii) strengthen provisions concerning disqualifying disciplinary events. Further, barring specific exemptions, the proposal requires a written agreement between an adviser and a solicitor which spells out the solicitation activities, the compensation, and the disclosures (including delivery to investors) as required under the IAA.

The proposal also amends investment adviser registration Form ADV and the books and records rule (IAA Rule 204-2) to reflect the related changes.

Comments are due 60 days after publication of the proposal in the Federal Register. Bates Group will continue to keep you up to date throughout the administrative rulemaking process.

How Bates Compliance Can Help You:

Bates Compliance provides tailored compliance consulting solutions to financial services clients. Our compliance team includes senior compliance staff and former regulators, who test policies, procedures, supervisory and compliance processes, against industry standards, recommending changes and best practices to enhance compliance and supervisory systems, and to assist in the remediation of regulatory findings.


For more on Bates Compliance consulting services, please give us a call at (503) 670-7772 or contact: 

Robert Lavigne, Managing Director, Bates Compliance

Email:   Phone: 508-868-6741

Rory O'Connor, Director, Business Development

Email:   Phone: 860-671-7270