The much-anticipated SEC Marketing Rule went into effect in 2021, though many financial professionals are still testing the waters when it comes to implementing previously unavailable marketing strategies. With the new marketing ruling came some major changes to how advisory firms are able to navigate the digital landscape and attract new clients with social media marketing, the use of testimonials and endorsements, and advertisements.
While the SEC has provided registered advisors newfound freedom to market and advertise, they’ve also laid out important guidelines regarding recordkeeping, endorsements, and misleading language or data sets. And in a recent crackdown on recordkeeping violations, the SEC has made it clear they’re serious about enforcing the New Marketing Rule and doling out penalties to those who violate it.
In August 2024, 26 financial institutions, including large broker-dealers and investment advisors, were hit with a combined $393 million in fines for violating off-channel messaging guidelines established in the new marketing rule. Essentially, these firms engaged in conversations with clients or prospects on messaging platforms, such as WhatsApp, and didn’t maintain appropriate records.
While it’s nerve-wracking to see even the biggest institutions with robust compliance departments get slapped with hefty penalties, that doesn’t mean you should shy away from taking full advantage of the advertising and marketing opportunities available as a result of this updated ruling. Rather, it’s a reminder that the SEC is watching closely, and full compliance with these recent regulations is a must.
How to Boost Your Compliance Efforts
RIAs need to get serious about protecting themselves against future fines and penalties. Because the new marketing rule is still a fairly recent (and sizable) overhaul, it’s possible your firm hasn’t managed to fully align your compliance policies and procedures with these evolving requirements. Here are three steps to revamping your compliance program in order to continue serving in the best interest of your investors and avoiding SEC penalties.
1. Reevaluate Processes
First and foremost, what are your compliance policies and processes for adhering to the new marketing rule? Firms were required to achieve full compliance by the end of 2022, but if your firm has been slow to adopt any new marketing practices (like establishing a social media presence or incorporating testimonials into marketing materials), it’s possible you haven’t changed much within your existing compliance program.
Here are a few ways to update your compliance procedures in accordance with the new marketing rule:
- Communications: Identify any communications that may qualify as an advertisement (anything that directly or indirectly offers investment advisory services or solicits new clients).
- Procedures: Write down or update your written policies and procedures to ensure they address how your firm prepares, reviews, and distributes advertisements.
- Advertisements: Your advertisements cannot include untrue statements of material facts or omit facts that make them misleading.
- Testimonials and endorsements: Any use of testimonials or endorsements will require certain disclosures, including if the provider was compensated and if there’s a potential conflict of interest.
- Recordkeeping: Maintain records of all advertisements including documentation of the substantiation for facts and anything relating to performance calculations or presentations.
2. Follow the Most Up-to-Date Guidance
The SEC moves quickly, and unless your Chief Compliance Officer (CCO) or compliance team is following closely, it’s possible to fall behind the curve in adopting appropriate procedures and policies. Overall, you must be able to demonstrate your compliance procedures and commitment to ongoing firm-wide compliance, especially in the event the SEC comes knocking. As demonstrated by their recent round of penalties and fines, it’s clear they aren’t allowing firms to get away with outdated or out-of-compliance practices.
3. Promote a Culture of Compliance
Perhaps most importantly of all, consider what you’re doing internally to promote awareness with the new marketing rule. Building a culture of compliance can better ensure firmwide buy-in to compliance procedures by promoting transparency, honesty, and commitment to the investors’ best interests. Establishing and upholding a culture of compliance takes commitment from your firm’s leaders—because if they don’t take it seriously, others may feel less compelled to prioritize it too.
Offer ongoing training, provide robust resources, and make sure your compliance professionals are available to answer questions as they arise. Over time, your firm will likely need to evaluate the effectiveness of its policies and make adjustments, which should again be communicated quickly and clearly with all team members.
Learn More About the SEC Marketing Rule
If you’re interested in learning more about how the SEC Marketing Rule has impacted wealth managers and RIA firms in recent years, we recommend checking out our free Smartria SEC Marketing Rule webinar now. You’ll learn directly from our compliance professionals while walking away with actionable insights designed to help amplify your firm’s compliance efforts.
