The Nov. 4 compliance date for the Securities and Exchange Commission's new Marketing Rule is fast approaching, and compliance experts warn that while firms are at various stages of compliance — many advisors are "behind the eight ball," according to Amy Lynch, founder and president of FrontLine Compliance.
Firms shouldn't dawdle, as SEC examiners will include compliance with the Marketing Rule as a focus area for 2023, adds Ken Joseph, managing director and head of the Financial Services Compliance and Regulation practice for the Americas at Kroll.
Investment Adviser Association members "are working hard to be ready to go" by Nov. 4, said Sanjay Lamba, IAA associate general counsel, on Thursday in an email. IAA has been holding weekly meetings with members to share and discuss implementation issues, he said. "I've been impressed by the tremendous member participation and commitment and the granularity of issues that are being discussed."
However, the "lack of clarity — or gray areas — regarding some aspects of the performance provisions of the rule has been the biggest stumbling block" for advisors, Lamba said.
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 to help investors evaluate and compare investment opportunities, and will include tailored requirements for other 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," the securities regulator noted.
The agency has issued FAQs as well as an email warning on the rule.
A 'Heavy Lift'
Lynch of FrontLine adds that some firms are behind because there is more to compliance with the rule "than just updating the firm marketing policy. Several areas need to be addressed and changes may need to be made in actual marketing materials and solicitation practices. This can be a heavy lift and if firms have not yet started then they are already behind."
IAA, according to Lamba, is "hopeful that the rollout of the new marketing rule will be like that of Form CRS. We are not expecting a gotcha game by the SEC staff right off the bat. We believe that in the early stages, the SEC exam and enforcement staff are expecting advisers to make good-faith efforts to comply with the Marketing Rule and implement reasonably designed policies and procedures."
