Compliance and Regulatory Alerts | 04-05-21
Update on New SEC Marketing Rule: It’s All or Nothing
The SEC’s new marketing and advertising rule will impose considerable oversight, recordkeeping and disclosure requirements affecting “100 percent” of investment advisers. (Although the rule is often referred to as the “New Marketing Rule”, it also contains changes to the current cash solicitation rule. See prior Bates coverage for details.) Related amendments to investment adviser registration Form ADV and the books and records rule also impose obligations on advisers that will require them to provide information on marketing practices that would be subject to examination by the agency. Given the anticipated broad impact on policies, programs and procedures, the SEC provided for a long compliance transition period. This provision is intended to give advisers time to review their current advertising and solicitation policies, to adjust their performance presentations and disclosures, to ensure effective supervision, and to set in place new policies and procedures for testimonials and endorsements.
There was some question as to whether there might be a delay or even a re-review of the new rule, given the late date (December 22, 2020) of issuance, the new administration, and the President’s Executive Order freezing agency regulation pending review (though there is some question as to whether the Order applies to independent agency rulemaking). These concerns mostly evaporated when the rule was published in the Federal Register on March 5, 2021, an action that set an effective date of May 4, 2021 and a compliance date of November 4, 2022. Shortly after that official publication, SEC staff issued guidance related to those dates.
On March 18, 2021, the SEC Division of Investment Management staff posted its first FAQ on the new marketing and advertising rule. In it, staff stated that advisers may choose to comply with the new rule, but only “in its entirety,” at any time after the May 4, 2021 effective date. Until the adviser chooses to comply fully with the new rule, the adviser must continue to comply with the previous advertising and cash solicitation rules and related staff positions on them. As phrased in the question: an adviser may not “choose to comply with some of the new rule requirements before the compliance date, but not comply with others.”
On this “all-or-nothing” approach, staff revealed their primary concern, stating: “an adviser may not cease complying with the previous advertising rule and instead comply with the amended marketing rule but still rely on the previous cash solicitation rule.”
In the FAQ, staff reminded advisers that during this 18-month transition they should be reviewing, revising and preparing to implement compliance procedures and policies to prevent potential violations of the new rule. Further, staff reminded advisers to maintain copies of all compliance policies and procedures in effect at any time within five years, including a clear record of when policy or procedure changes are implemented.
The new marketing rule is intended to address technological advances (e.g. social media and mobile communications) under a principles-based approach to supervision and regulation. The SEC expects a full transition to the new framework and is giving advisers the time to address it. As with other large-scale transitions, there will be more guidance forthcoming as firms begin to make the necessary internal changes in earnest.
Bates Compliance provides tailored compliance consulting solutions to financial services clients. In anticipation of the compliance transition for the new marketing rule, Bates Group has formed a team to address investment adviser concern and support efforts to conform oversight, recordkeeping and disclosure requirements under the new rule.
Our compliance team includes senior compliance staff and former regulators, with expertise in the development of policies, procedures, supervisory processes, and best practices to enhance compliance and supervisory systems.