SEC warns industry against marketing rule pitfalls

Advisors and firms wrestling with the SEC’s marketing rule now have a little more clarity. The agency has released a summary of findings from examinations related to its marketing rule, revealing both progress and significant missteps by financial advisers in adhering to the guidelines.

The risk alert from the Securities and Exchange Commission's Division of Examinations shows that while many advisers strive to comply with the rule, several concerning practices persist.

The findings point to numerous instances of noncompliance, ranging from unsubstantiated claims to misleading advertising tactics, raising concerns about the transparency and accuracy of information available to investors.

"Advisers generally included Marketing Rule processes in their compliance policies," the SEC noted, acknowledging the efforts made by many firms to follow the rule.

However, the division also reported common shortcomings in policies and procedures around marketing rule compliance. These gaps include using broad descriptions rather than specific guidelines, a lack of coverage for all marketing channels, and policies that the regulator said were overly informal or outdated.

The alert also raised alarms on untrue statements and misleading information within advertisements. Among several examples, the SEC pointed to advisors claiming to be "free of all conflicts" when actual conflicts existed, and misrepresentations about the advisors' qualifications and services.

Some advisors also went offside by playing up the nature of their investment processes or services, the regulator said, with claims that they adhere to nonexistent ethical standards or falsely stating that they follow ESG investment mandates.

The SEC flagged cases of firms misusing its logo and taking its name in vain, with advertisements that went “beyond factual statements [about an advisor’s] registration status ... to imply that SEC registration was representative of a particular level of skill or ability.”

The alert emphasized deficiencies related to the preservation of advertisement-related documents, with some advisors “not [maintaining] copies of information posted to social media," and "not [maintaining] documentation to support performance claims included in advertisements.”

The examinations also revealed deficiencies in Form ADV filings, specifically around advisors’ advertising practices, including failing to disclose their use of third-party ratings to promote themselves, and not declaring when they used hypothetical or actual performance results in their marketing materials and ads.

“The [Division of Examinations] 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 SEC said.

The SEC has made compliance with the marketing rule a regulatory priority, sending a strong signal to the industry last week with an enforcement sweep that caught five firms.