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SEC OVERHAULS MARKETING RULES FOR INVESTMENT ADVISORS

By Robert R. Boeche, Esq. and Andrew Steiger, law clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, January 19, 2021.

After more than a year of review and public comment, the Securities and Exchange Commission (SEC) announced on December 22, 2020 that it had finalized long-awaited reforms to the advertising and solicitation rules under the Investment Advisers Act of 1940.  The rules govern how investment advisory firms are permitted to market to clients and potential investors.  The previous marketing regime survived for over forty years without significant amendment.  The new rules simplify SEC guidance that developed over time through a patchwork of “no action” decision letters.

The new rules will go into effect no sooner than 60 days after publication in the Federal Register, which has yet to be scheduled as of this writing.  Based on past performance, we might expect the SEC to publish the new rules in the Federal Register by early February 2021.  In any event, advisory firms will be allowed a generous transition period to adapt their practice, with a compliance date that is 18 months after the eventual effective date.

The new framework draws from and replaces certain existing advertising and cash solicitation rules with “principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice.”  Select highlights of the adopted changes include the following:

  • The definition of “Advertisement” was broadened to include testimonials and endorsements, which are now permitted forms of advertisement, subject to certain conditions.
  • An adviser that uses testimonials or endorsements must enter into a written agreement with its third-party promoters and oversee their compliance with the SEC marketing rules.
  • Certain parts of performance presentations will have standardized information in order to help investors evaluate and compare investment opportunities.
  • As part of a suite of comprehensive anti-cherry picking provisions, any discussion of an investment’s potential benefits must be accompanied by “fair and balanced” treatment of relevant investment risks and limitations.

The Commission amended Form ADV to require advisers to provide additional information regarding their marketing practices to help facilitate the Commission’s inspection and enforcement capabilities.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Attorney Robert Boeche can be reached in the firm’s San Diego office at (619) 696-9500. 

 

 

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