Marketing Rule: A Glimpse of What to Look Forward To

Published on September 7, 2021 by Mary Fernandez

SEC has recently published Marketing Rule 206(4) that applies to investment advisors. Through this article, we bring to light the reforms and modernization of existing guidelines taking into consideration the impacts and changes that technology has on traditional rules.

Here we list out potential effects of this rule and some resulting thoughts around it.

Background of the rule:

The Investment Advisers Act 1940 is a body that regulates companies involved in investing, reinvesting and trading in securities. After a decade of long standing rules the organization has decided to reform and amend the existing rules on December 2020. The Act came into effect on May 4, 2021 by merging the rules that govern investment adviser advertisements and payments to solicitors into one single rule known as the “Marketing rule” to regulate investment advisers marketing communications.

Time period to comply:

The Act was published in the U.S Federal Register on 4th March, 2021 and will be given an 18 month transition period for compliance which lapses on 4th November, 2022.

Changes that led to reformation:

1. Advancements in technology and mode of communications

2. Changes in the expectations of investors seeking advisory services

3. Diversification of profiles in the investment advisory industry

There are broadly three categories that these can be broken down into: Category 1: Advertisements

Additions to existing rules:

  • Due to rapidly growing technological advancements and increasing dependence on electronic communications there is an inclusion to regulate both direct and indirect forms of communications with existing and new investors along with clients for new products and services

Must haves:

  • The statements made in an advertisement should be true and not misleading and should not omit any details that are material and required to be provided

Excludes:

  • Spontaneous communications between investors and clients on topics not related to investment products

Category 2: Testimonies and Endorsements

Must haves:

  • An advisor that uses testimonials and endorsements in advertisements should abide and comply with the marketing rule

Excludes

  • Registered broker-dealers who solicit individuals that are investing for personal, family or household purposes, and certain investment adviser personnel, are generally excluded from the disclosure requirements for testimonials and endorsements

Category 3: Third Party Disclosures

Must haves:

  • The marketing rule instructs advisors that use third party ratings in advertisements provide appropriate disclosure that the methods of obtaining the foresaid ratings like questionnaires and surveys are fair and not bias

Excludes

  • The rule prohibits the use of third-party ratings in an advertisement, unless the adviser provides disclosures and satisfies certain criteria pertaining to the preparation of the rating.

Firms such as Acuity Knowledge Partners can partners with you to handle and review all the marketing related contents keeping all the changing and latest regulation in mind. Acuity Knowledge Partners is an influential player in the global market, offering compliance expertise and a wide array of other services. We enable our compliance clients to manage increasing demands on their teams by providing customized managed services solutions, based on specialized skills and technology, and by delivering operational efficiency, resilience, and significant cost savings. We believe our offering is even more relevant in the post-COVID-19 economic and operating environment, where compliance teams have seen a significant increase in workload in tasks such as trade surveillance, communications surveillance, distribution compliance and virtual client on-boarding and transaction monitoring. Please refer to Acuity’s compliance offerings in details here.

Originally published at https://www.acuitykp.com.

About the Author

Mary Ann Fernandez is an analyst and has been associated with Acuity Knowledge Partners for about a year. At Acuity Knowledge Partners she is part of the corporate and forensic compliance team where she monitors and surveils electronic communication for a client. She is a graduate who specialized in Finance and Accounting and holds a Bachelor’s degree from Christ University, Bangalore.

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/