The Securities and Exchange Commission has finalized the long-awaited revamp of its advertising and marketing rules — allowing advisors to use testimonials and endorsements, which include traditional referral and solicitation activity, subject to certain conditions.
For advisors, the ability to use client feedback is a sea change. ”I… Actually may be able to use testimonials soon? Imagine that. Me actually being able to say people like me,” tweeted Galen Herbst de Cortina, CFP, in response to the news.
On Tuesday, the SEC also adopted related amendments to the investment advisor registration form and to the books and records rule. Form ADV was also amended to require advisors to provide additional information regarding their marketing practices to help facilitate the SEC’s inspection and enforcement capabilities.
Meanwhile, Dalia Blass — director of the SEC’s Division of Investment Management and the individual who spearheaded the ad rule changes — has announced plans to leave the agency in January.
“This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors,” said SEC Chairman Jay Clayton, in a statement.
“The new rule provides for an extended compliance period intended to provide advisers with a sufficient transition period, including to enable consultation with the Commission’s expert staff,” Clayton explained.
More Details on Rule
According to the SEC, the rule replaces the current advertising rule’s “broadly drawn limitations with principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice,” and includes tailored requirements for certain types of advertisements.
For instance, the rule will require advisors to standardize certain parts of a performance presentation in order to help investors evaluate and compare investment opportunities, and will include tailored requirements for certain types of performance presentations, the SEC said.
“Advertisements that include third-party ratings will be required to include specific disclosures to prevent them from being misleading. The rule also will permit the use of testimonials and endorsements, which include traditional referral and solicitation activity, subject to certain conditions,” it noted.
The amendments will create a merged rule that will replace both the current advertising and cash solicitation rules, the SEC explained.
“These amendments reflect market developments and regulatory changes since the advertising rule’s adoption in 1961 and the cash solicitation rule’s adoption in 1979,” the agency said.