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Lawyers Release SEC Marketing Rule Checklist as Advisor Questions Linger

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What You Need to Know

  • The compliance date for the SEC's Marketing Rule is Nov. 4.
  • One question advisors have about compliance: Is a model portfolio fact sheet that advisors show to clients an advertisement?
  • The checklist is designed to help advisors navigate the complexities of the new regulation.

The law firm Eversheds Sutherland released Friday a checklist for advisors to use as they prep for the Nov. 4 compliance date for the Securities and Exchange Commission’s Marketing Rule.

“Legal and compliance personnel at advisory firms who are tasked with making sure their firms are in compliance with the new rules have a big job ahead of them over the next few months,” Cliff Kirsch, partner and Head of the Investment Services practice group at Eversheds, said in releasing the checklist.

The checklist is designed to help advisors navigate the complexities of the new regulation for advertisements and other forms of marketing.

Since the rule went into effect in last May, compliance experts have been cautioning advisors to tread carefully when using testimonials and endorsements before Nov. 4.

Registered investment advisors viewed the new marketing and advertising rule as the hottest compliance topic in 2021, according to an Investment Adviser Association poll.

“Over the past two years we have been advising many clients on compliance with the new rule and have had discussion with the SEC staff regarding a host of implementation issues,” Kirsch said. “As we get closer to the rule’s compliance date, we still see advisers dealing with a myriad of open issues regarding the rule’s requirements.”

Issa Hanna, partner in Eversheds Sutherland’s Investment Services practice, told ThinkAdvisor Friday in an email that advisors are grappling with the following issues around marketing rule compliance:

  • When should we treat a cross-referral arrangement between a financial advisor and some other professional (like a lawyer or accountant) as a compensated endorsement/testimonial arrangement for purposes of the rule?
  • When are we deemed to adopt or become entangled with reviews on popular websites like Google Reviews, Yelp, etc.?
  • How do we establish that a retail investor has the requisite levels of resources and expertise to receive hypothetical performance information?
  • Is a model portfolio fact sheet that we show to our clients our advertisement?
  • Do we have to deduct our own fees from third-party adviser’s/model provider’s fact sheets to comply with the rule’s net of fees requirement?

The SEC released a FAQ on the rule last April, warning that the agency didn’t “want firms to partially comply with this rule” before November, Amy Lynch, founder and president of FrontLine Compliance, told ThinkAdvisor in a previous interview.

The use of testimonials and endorsements “before the firm is fully compliant and updating its compliance [policies and procedures] … that is a huge risk to the firm,” Lynch said.


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