What You Need to Know
- The SEC sent the email to all registered investment advisors on Monday, but more guidance is likely needed.
- Expect targeted sweeps and exams to be a priority upon the Nov. 4 compliance date, says consultant Amy Lynch.
- Advisors should take this email reminder seriously, says RIA attorney Max Schatzow.
The Securities and Exchange Commission has launched an email campaign reminding registered investment advisors about the upcoming Nov. 4 compliance date for the amended marketing rule — and steps they’ll need to take to comply.
FrontLine Compliance warned Tuesday that “this first-of-its-kind mass email campaign by the SEC signifies that the regulator has served notice that it will aggressively pursue actions against firms that fail to comply with the new rule.”
The compliance firm said to “expect SEC targeted sweeps and exams to be a priority” once the compliance date hits.
While the SEC email — sent to all registered investment advisors on Monday — lays out helpful tips that advisors should definitely heed, at least one industry official says further SEC guidance is needed to help advisors navigate trouble spots that have cropped up.
As of Nov. 4, the SEC email states, RIAs “may no longer choose to comply with the previous advertising rule and cash payments for client solicitations rule or rely on the staff’s positions under those rules. Any advertisements disseminated on or after the compliance date are subject to the Marketing Rule.”
Also, as of Nov. 4, Advisers Act Rule 206(4)-7, the Compliance Rule, “will require SEC-registered investment advisers’ policies and procedures to be updated and revised, as appropriate, to ensure they are reasonably designed to prevent violations of the Marketing Rule.”
Further, the email continues, Advisers Act Rule 204-2, the Books and Records Rule, as amended, will require investment advisors “to make and keep certain records, such as records of all advertisements they disseminate, including certain internal working papers, performance related information, and documentation for oral advertisements, testimonials, and endorsements.”
The SEC directs advisors to review their Form ADV Part 2A brochure Item 14 (client referrals and other compensation) with respect to Rule 206(4)-3 (Cash Payments for Client Solicitations) being replaced by the Marketing Rule.
The securities regulator also recommends advisors review the following information on the SEC’s website:
Industry Experts Weigh In
Since the rule went into effect last May, compliance experts have been cautioning advisors to tread carefully when using testimonials and endorsements before Nov. 4.
The law firm Eversheds Sutherland released a checklist in late February for advisors to use as they prep for the Nov. 4 compliance date.
Amy Lynch, founder and president of FrontLine Compliance, said in a video message Tuesday that the new rule will require “significant changes.”