SEC marketing rule has 'fallen short' of industry expectations

SEC marketing rule has 'fallen short' of industry expectations
Seward & Kissel report finds rule is creating challenges for investment advisors.
JUN 06, 2024

When the Securities and Exchange Commission implemented its Marketing Rule in November 2022, there was caution, but also expectation of modernization and greater flexibility.

But over a year later, a survey of SEC-registered investment advisors by law firm Seward & Kissel LLP has found new challenges for RIAs and that the rule has fallen short of “hoped for” benefits compared to the old advertising rule.

The Marketing Rule was adopted in 2020 and firms were given 18 months to prepare for its implementation, given the effect it was to have on advertising practices. But the survey of 120 RIAs has found that little has changed for many advisors in practice, although their tone has changed according to Paul Miller, the law firm’s Investment Management Group partner and co-lead author of the survey.

“Initially, there was strong support for modernizing the Rule and a cautious optimism about the potential benefits to advisors of those efforts,” he said. “But more than a year in, I mainly hear disappointment over what many view as a missed opportunity and uncertainty about what new guidance may emanate from the regulator.”

In one example from the survey results, replacing restrictive rules around the use of past specific recommendations in advertising in favor of a principles-based policy requiring a ‘fair and balanced’ approach, 70% of advisors said they had not changed their approach to this or do not such references, while just 3% had increased their usage under the new rule.  

RIAs have also not generally changed their use of social media with 86% saying that the Marketing Rule has had no impact in this regard.

Meanwhile, fund managers reported a heavy compliance burden with around one third spending 50 hours or more to ensuring they meet the requirements of the Marketing Rule.

The Seward & Kissel survey also found that:

  • 70% of respondents cited performance advertising as being most affected with advisors finding gross vs. net performance presentations to be the most challenging, followed by extracted performance and hypothetical performance presentations.
  • In some cases, Marketing Rule compliance efforts have reduced access to information through investor letters with 7% of respondents indicating they removed prior investor letters from public access, while 5% said they redacted portions of past letters, and 40% added disclosures to conform to Marketing Rule requirements.
  • Extracted performance presentations have continued to present challenges for 54% of closed-end advisers (private equity & private credit), compared to 45% of open-end/hedge fund advisers, 47% of registered fund/mutual fund advisers, and only 37% of SMA advisers.

Across asset classes, the survey found that private credit managers have faced more challenges in complying with various performance advertising requirements compared to their peers who advise private equity funds, hedge funds, registered funds, and separately managed accounts.

Latest News

Northern Trust names new West Region president for wealth
Northern Trust names new West Region president for wealth

The new regional leader brings nearly 25 years of experience as the firm seeks to tap a complex and evolving market.

Capital Group extends retirement plan services further with a focus on advisors
Capital Group extends retirement plan services further with a focus on advisors

The latest updates to its recordkeeping platform, including a solution originally developed for one large 20,000-advisor client, take aim at the small to medium-sized business space.

Why RIAs are the next growth frontier for annuities
Why RIAs are the next growth frontier for annuities

David Lau, founder and CEO of DPL Financial Partners, explains how the RIA boom and product innovation has fueled a slow-burn growth story in annuities.

Supreme Court slaps down challenge to IRS summons for Coinbase user data
Supreme Court slaps down challenge to IRS summons for Coinbase user data

Crypto investor argues the federal agency's probe, upheld by a federal appeals court, would "strip millions of Americans of meaningful privacy protections."

Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director
Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director

Meanwhile in Chicago, the wirehouse also lost another $454 million team as a group of defectors moved to Wells Fargo.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.