In a September 19, 2022 SEC Risk Alert, advisers have been put on notice for compliance with the modernization to investment adviser marketing rules. The title says it all: Examinations Focused on the New Investment Adviser Marketing Rule.

The updated Rule 206(4)-1, a.k.a., the Advertising Rule, was adopted in December of 2020 and has a compliance date of November 4^th this year. In its new form, the Advertising Rule expanded the definition of “advertisement” to accommodate new technologies and routine client communications and also removed flat prohibitions on testimonials and third-party endorsements. It also acknowledges and sets standards for the presentation of performance in adviser marketing.

As we shared previously, elements of these changes consolidate guidance or incorporate standards that had been in effect for decades. In some cases, the rule closely parallels legacy guidance, such as predecessor performance, while in others the standards of the guidance are implied but not explicitly incorporated, such as performance presentation standards established in the Clover Capital no action letter.  The new rule also incorporates a “fair and balanced” standard from other regulatory frameworks.

The Risk Alert highlights some key areas of focus for Staff:

• Have advisers adapted their policies and procedures to ensure compliance with the Rule?

• Can advisers substantiate claims of fact made in advertisements?

• Is performance advertising in compliance with the new standards set forth in the new Rule?

• Are advisers maintaining books and records as required in the Rule?

While the presentation of performance has been a focal point since its adoption, we caution firms not to let the substantiation of claims requirement fall off the radar. Firms can establish a reasonable basis for believing they can substantiate claims of material fact in a number of ways.  This requirement also could represent an overlooked or underrepresented recordkeeping requirement.

If you need support understanding this rule, adopting the necessary changes internally, and /or with training staff, we are happy to help you.