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SEC Warns Advisors on Ad Rule Compliance

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What You Need to Know

  • The new marketing rule replaces rules on advertising and cash solicitation.
  • Until firms transition to the amended marketing rule, they need to stay compliant with both previous rules.
  • The new SEC FAQ lacks clarity, a lawyer says.

The Securities and Exchange Commission’s Division of Investment Management has released guidance on when advisors should start complying with the new Investment Adviser Marketing rule.

In a recent FAQ, the SEC fielded a question on whether advisors can comply with “some of the marketing rule requirements” before the Nov. 4, 2022 compliance date, which is 18 months after the rule’s effective date, “but not comply with others.”

The SEC responded: “No. An adviser may choose to comply with the amended marketing rule in its entirety any time starting on the effective date, May 4th, 2021. Until an adviser transitions to the amended marketing rule, the adviser would continue to comply with the previous advertising and cash solicitation rules and look to the staff’s positions under those rules.”

SEC staff, the IM division said, “believes an adviser may not cease complying with the previous advertising rule and instead comply with the amended marketing rule but still rely on the previous cash solicitation rule.”

The new ad rule creates a single rule that replaces the current Advertising and Cash Solicitation Rules.

Advisors, the SEC continued in its response, “are reminded that they should review their compliance policies and procedures in light of regulatory developments, including the adoption of the amended marketing rule.”

IM said that when advisers transition to the amended marketing rule, they’ll “need to implement any revisions to the written compliance policies and procedures necessary so that they are reasonably designed to prevent violations of the amended marketing rule.”

The SEC also reminded advisors that “they are required to maintain a copy of all compliance policies and procedures in effect at any time within the previous five years, and that it should be clear when those policies and procedures were in effect.”

James Lundy, partner at Faegre Drinker’s Chicago office, told ThinkAdvisor Thursday in an email that it’s “interesting that they start off the answer to the FAQ with the word ‘may’ which contributes to this FAQ lacking some clarity.”

That being said, “one of the key takeaways” is the IM staff advising “that until firms transition to the amended marketing rule that they would need to remain compliant with the previous advertising and cash solicitation rules.”

Thus, Lundy added, “firms planning for this transition should develop and implement documented plans to convert to being compliant with the amended marketing rule if they want to comply with the new rule after the May 4, 2021 effective date and before the Nov. 22, 2022 compliance date.”

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