On September 19, 2022, the Securities and Exchange Commission (“SEC”) increased pressure on private funds to comply fully with new marketing rules (Rule 206(4)-1) within the next month . half. The SEC originally published a new rule in March 2021, with a compliance date of November 4, 2022. rice field.
The SEC has now sent out a risk alert titled “Investigation Focused on New Investment Advisor Marketing Rule,” announcing that the SEC intends to immediately begin investigating and enforcing the new marketing rule.
While one of the SEC’s rules is expected to come into force, such a focus and announcement ahead of the marketing rule’s mandatory compliance date has surprised the review department. It suggests that
Broad and layered new marketing rules affect most communication between investment advisors and their investors. If fund managers have not already done so, policies and procedures to ensure compliance should be put in place immediately.
Focus areas of the investigation highlighted in the SEC’s September 19, 2022 Risk Alert include:
- Marketing rules policies and procedures – The SEC staff will review whether investment advisors have adopted and implemented written policies and procedures reasonably designed to prevent violations of new marketing rules. Investigators look for compliance controls through objective and testable means, such as “internal pre-screening and approval of advertisements, risk-based sample screening of advertisements, or pre-approval of templates.”
- Demonstration requirements – The SEC staff wants to have in place an evidence “locker” or file that contains backups of all material factual statements that investment advisors provide to investors/potential investors. increase. The SEC refers to this as being able to establish “reasonable grounds” for all material factual claims made in the advertisement. on demand. To that end, the SEC staff refers to backing up “as you use it.”
- Performance advertising requirements – The SEC staff determines whether investment advisors comply with new marketing rules, including:
- Total performance: We never list gross performance unless the ad also shows net performance with the same penetration.
- Standard period: Performance information for non-private funds must include 1-year, 5-year, and 10-year (or applicable shorter) periods.;
- SEC approval: Do not state or imply that the SEC has reviewed or approved any performance information.
- selective past performance: Selected historical performance instead of listing performance results from all portfolios with investment policies, objectives, and strategies substantially similar to the portfolio offered in the ad, with limited exceptions Avoid using .
- Hypothetical performance: We never state hypothetical performance (including target performance and strategy performance). provided, however, that the Advisor has adopted and implemented compliance policies and procedures reasonably designed to ensure that its performance is related to the anticipated financial situation and investment objectives of the intended subject. Excludes.certain additional information; and
- predecessor performance: The primary person responsible for achieving the previous performance managed an Ad Advisor account, and the account managed by the previous Ad Advisor representative is sufficiently similar to the account managed by Ad Advisor Never list previous performances unless otherwise. In addition, advertising advisors must clearly and conspicuously include all relevant disclosures in all advertisements.
- books and records – The SEC staff will determine whether an investment advisor complies with the new amendments to Rule 204-2. The SEC staff has suggested that investment advisors hope to consider revising their compliance policies and procedures to ensure at least the following: provided or provided under the hypothetical performance information provisions of the Rules (including identification of the intended audience of each communication) and in connection with the performance of predecessors, oral advertisements, testimony, endorsements, or third parties; Document evaluation of the questionnaires or surveys used.
- Form ADV – Amendments to the Investment Advisory Form ADV must comply with the new section on Advertising and Marketing.
The content of this article is intended to provide a general guide on the subject. You should seek professional advice for your particular situation.