A Summer Must-Read: the Latest SEC Risk Alert on the Marketing Rule

The June 8 SEC Risk Alert isn’t a window into findings-to-date, nor a much-anticipated list of best practices offering clarification.  It is a solid overview of areas at your firm likely impacted by the new Marketing Rule (NMR).  Accept it as a “summer gift”: a quick read to inspire CCOs across the country to double-check key elements of the NMR and allocate some Annual Review testing time to map out your compliance in each of the areas included in the alert.

• Policies & Procedures – Dates matter. Current SEC examination periods typically cover two years, which includes materials before and after the NMR.  Most firm’s P&P should have been edited to address new requirements, and the SEC’s initial request lists are looking for dates and descriptions of changes.

Recommendation: save redline versions and/or include effective dates in the P&P document.

• Performance advertising/substantiation/books and records – The SEC reiterated its focus on these areas, so be sure to document, train, and collaborate with professionals at your firm directly responsible for compiling advertising inputs.

Recommendation: reverse training – have performance analysts train compliance on their own desktop policies and procedures and look for ways to continually improve documentation and disclosures; for GIPS compliant firms, reference additional GIPS P&P in your compliance manual.

• General prohibitions – SEC registrants must be honest, fair, and balanced in your advertisements. As much as we love reading actual examples of violations (there were none included in the risk alert), we wouldn’t want anyone reading this to be made an example. Compliance needs to review not only what’s on the face of the firm’s advertisements, but also reviewing for what isn’t there.  And, where’s the backup?

Recommendation: review your firm’s advertisements with each of the seven prohibitions as a viewing lens. Is it unclear if a statement is a fact or opinion?  Could small edits make it more clear?  Does your firm advertise performance for strategies with no benchmark presented?  If so, what additional material market events need to disclosed to ensure the presentation is fair and balanced?

• Three new areas of emphasis: Testimonials and Endorsements, 3P Ratings and ADV filings.

Again, no new guidance provided.  The focused summary provided in the risk alert, however, makes revisiting these areas in your firm’s policies, procedures, and everyday practices an excellent idea.

What we are hearing from SEC Consultants right now is: document and defend.  Firms need to know what is in their marketing materials and be able to defend anything that may be different from what is considered standard in the industry.  As your firm goes through this process, please let us know if you have any questions.  We are happy to help!

Cascade Compliance has over 45 years of combined experience working with SEC Regulations, the GIPS standards, and performance.  Our employees have worked with hundreds of firms in the U.S. and abroad.  One of the best parts of working with clients is getting to share expertise and knowledge of best practices across the industry.  Whether you are a client of ours or not, we are here to help you get better at what you do and answer any questions you may have.  Contact us at connect@cascadecompliance.com.