SEC Issues Risk Alert on Marketing Rule Compliance
On April 17, 2024, the U.S. Securities & Exchange Commission (“SEC”) Division of Examinations (“Exam Division”) published a Risk Alert on Rule 206(4)-1, also referred to as the “Marketing Rule”. Below is a link to the Alert:
The Marketing Rule became effective on May 4, 2021, but provided an 18-month transition period for advisers to comply, with a final compliance date of November 4, 2022. In the Risk Alert, the Exam Division compiles a useful set of observations that resulted from their examination of investment advisers’ compliance with the Marketing Rule since it became effective.
The Marketing Rule applies to investment advisers that are registered with the SEC. While the Marketing Rule does not apply directly to Exempt Reporting Advisers, or other investment advisers that are not registered for other reasons, application of the standards included in the Marketing Rule may constitute a best practice and useful risk mitigant against potential liability under Rule 206(4)-8. That Rule, which applies to all investment advisers to pooled investment vehicles, regardless of whether they are registered with the SEC, prohibits false or misleading statements made, for example, to existing investors in account statements as well as to prospective investors in private placement memoranda, offering circulars, or responses to “requests for proposals,” electronic solicitations, and personal meetings arranged through capital introduction services.
The Risk Alert provides observations of deficiencies related to the following: (1) maintaining compliance policies and procedures for the Marketing Rule; (2) maintaining books and records associated with the Marketing Rule concerning advertisements, pitch-decks, websites, social media posts, et. al.; and (3) completing the Form ADV questions that were included in connection with the Marketing Rule.
The Risk Alert then provides a detailed description of pitfalls under the Marketing Rule’s so-called “General Prohibitions”, including: (a) use of untrue statements of material fact and unsubstantiated statements of material fact; (b) omission of material facts or misleading inference; (c) fair and balanced treatment of material risks or limitations; (d) references to specific investment advice that were not presented in a fair and balanced manner; and (e) inclusion or exclusion of performance results or time period in manners that were not fair and balanced.
All investment advisers, regardless of whether they are registered with the SEC, would be well served to ensure they have well developed written policies and procedures for supervising marketing efforts, and that the Risk Alert’s guidance on common deficiencies is built into those policies and procedures. Marketing and advertising efforts also should be supervised for compliance by competent personnel. If you need assistance with your compliance policies and procedures, or review of materials, please contact Sadis & Goldberg LLP.
