SEC Announces Expanded Scope of Marketing Rule Compliance Exams for Investment Advisers
From the desk of Jim Eccleston at Eccleston Law
The Securities and Exchange Commission (SEC) recently released a risk alert announcing that examiners now will broaden their focus when reviewing firms' compliance with a marketing rule that took effect in November. The rule was intended to modernize the SEC's former advertising and cash solicitation rules.
The Commission will add three new focus areas for examiners: testimonials and endorsements, third-party ratings, and Form ADV filings. The SEC will continue to look for deficiencies highlighted in a September marketing examination risk alert, according to AdvisorHub. The September risk alert highlighted whether firms have compliance policies and procedures and were properly marketing performance track records.
The SEC's risk alert informed investment advisers to ensure that they are clearly disclosing who is leaving a testimonial and if they were delivered by a client, investor, or someone who was paid to do so according to the alert.
SEC examiners are now paying close attention to how firms disclose third-party ratings. They want to make sure that firms properly identify who is providing the ratings and if there are any conflicts of interest. Additionally, firms and advisers must be careful when using surveys or questions to obtain ratings, ensuring they are not biased to only generate positive responses. Lastly, the Commission is ensuring that firms have updated Form ADVs to “provide additional information” on marketing practices to meet the new requirements.” The staff will review whether advisers accurately completed those questions in their annual Form ADV amendments.
Eccleston Law LLC represents investors, investment advisers, and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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