The SEC Department of Examinations (DOE) released a Risk Alert yesterday, that the staff will “conduct a number of specific national initiatives” in addition to broad review through examinations, for Investment Advisers’ compliance with the New Marketing Rule.
Specifically, the staff will review:
Whether RIAs have adopted and implemented written policies and procedures (P&Ps) that are “reasonably designed” to prevent violations; noting that for such P&Ps to be effective, they should include “objective and testable means”
Whether RIAs can substantiate material statements of fact in advertisements, as the New Marketing Rule prohibits any such statements that the Adviser can’t substantiate;
Whether RIAs are in compliance with the New Marketing Rule’s Performance Advertising Requirements, including their numerous prohibitions; and
Compliance with the new Books and Records Requirements, including updates to the Form ADV.
The compliance date for the new Marketing Rule is November 4, 2022, just six weeks away. The New Marketing Rule was adopted on December 22, 2020, and became effective on May 4, 2021, giving advisers (a) an 18 month transition period and (b) a choice during the transition period of complying with the SEC’s Marketing and Advertising Rules that were previously in effect, or the New Marketing Rule, with the caveat that advisers needed to fully comply with one or the other. Advisers have had almost two years to update their Marketing and Advertising P&Ps for the New Marketing Rule, including the rules applicable to third-party cash solicitations.
For RIAs that haven’t yet updated their Advertising and Marketing P&Ps, time is quickly running out. It seems that the any potential grace period will have expired by the compliance date, with the DOE already announcing its intent to examine advisers’ compliance with the new rules.
Lauri London counsels investment adviser clients on a variety of legal, regulatory and compliance matters. She can be reached at lauri@cohenbuckmann.com.