The SEC warned investment advisers Monday that it will launch a national examination initiative to probe their compliance with a marketing regulation set to go into force in November.
The Securities and Exchange Commission approved a rule in December 2020 that would for the first time in more than 60 years update requirements governing how advisers advertise to develop new business. One of the biggest changes is that the regulation allows advisers to use testimonials.
The rule became effective in May 2021, and the compliance deadline is Nov. 4. Advertising disseminated after that date must comply with the marketing rule. Preparing for that day been a top concern for advisers. Many of them have been waiting for guidance from the SEC about how it will interpret the rule.
The SEC partially answered that question in Monday’s risk alert. The agency said it would review advisers’ advertising materials to determine whether they can “substantiate material statements of fact in advertisements,” the agency said in the risk alert.
The SEC will examine whether advisers are following rules related to performance advertising. The rule allows advisers to mention past performance when touting their practices as long as they follow several restrictions.
The agency will look at whether advisers have adopted written policies and procedures to comply with the rule, as well as whether they kept certain records, such as copies of all their ads and internal documents related to them.
“In sharing initial examination review areas for the marketing rule, the [Examinations] Division encourages advisers to reflect upon their own practices, policies and procedures, and to implement any appropriate modifications to their training, supervisory, oversight, and compliance programs,” the risk alert states.
It’s not clear how stringent the SEC will be in initial examinations. SEC officials said at an Investment Adviser Association conference earlier this year that they did not intend to charge out of the gate and immediately write up advisers for compliance lapses.
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