At the end of 2020, the Securities and Exchange Commission (SEC) finalized its reforms to the Investment Advisers Act, particularly as it applies to advertising and marketing. Since dubbed the “New Marketing Rule,” these changes were made in an effort to modernize the rulings and better address today’s marketing communication channels and opportunities.
While launched in 2017, the SEC Marketing Rule gave advisors an 18-month period to comply before enforcing the regulation in November 2022. The new rule replaces the SEC’s previous advertising and cash solicitation rules from 1940—which were broadly limiting and obviously outdated—with more specific marketing-focused provisions for advisors and firms. With a “principles-based approach” as the SEC puts it, the intention is for this ruling to continue accounting for future changes in technology and marketing. Today, it’s able to help advisors navigate new opportunities that weren’t available when the original advertising rules were created—social media, online reviews, and a wider array of investment solutions.
So what, exactly, has changed?
Here are a few of the key provisions made in the New Marketing Rule:
- The term “advertisement” now refers to two categories: The first is to direct or indirect communication that offers the advisor’s services to prospects, current clients, or private fund investors—specifically in regards to securities. The second definition includes endorsements or testimonials that were provided in exchange for compensation (cash, reduced fees, etc.).
- Ethical advertising practices: The new ruling shares some explicit guidelines regarding advertising practices in an effort to ensure all advertisements are fair, balanced, true, and not misleading. For example, advisors are not allowed to include information “that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning a material fact relating to the adviser.”
- Using testimonials and endorsements: Advisors are allowed to incorporate testimonials and endorsements if they meet all disclosure, oversight, and disqualification provisions. Namely, it must be clearly disclosed whether a piece of advertisement is a testimonial or endorsement, as well as if they were compensated. Anyone considered to be a promoter must enter into a written agreement with the advisor, and they can’t be considered a “bad actor.”
And if you’d like to learn more about how Smartria can support your firm in complying with the SEC’s latest regulations, book a demo today.
