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The U.S. Securities and Exchange Commission’s Division of Examinations recently published a Risk Alert to promote compliance with the Advisers Act Marketing Rule.
United States
Media, Telecoms, IT, Entertainment
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The U.S. Securities and Exchange Commission’s Division of
Examinations recently published a
Risk Alert to promote compliance with the Advisers
Act
Marketing Rule. The Risk Alert focuses, in particular, on
compliance with the provisions of the Marketing Rule
governing
testimonials and endorsements and
third party ratings.
Testimonials and Endorsements
The Marketing Rule generally prohibits investment advisers from
using testimonials and endorsements, or from providing for a
testimonial or endorsement, unless specific disclosure and
substantiation requirements are followed and the investment adviser
has a written agreement with the person giving the testimonial or
endorsement.
The SEC said that, based on its review of industry advertising,
the “most common observed reason that an endorsement or
testimonial was observed to be non-compliant was that it did not
provide the disclosures at the time the testimonial or endorsement
was disseminated.” For example, advertising did not properly
disclose whether the person giving the testimonial or endorsement
was a current client or an investor, whether the person was paid to
give the endorsement or testimonial, or whether the person had a
material conflict of interest.
The SEC also noted that, in some situations when disclosures
were included, they were not made in a clear and prominent manner.
For example, advertisers used hyperlinked disclosures “rather
than including the required clear and prominent disclosures within
the testimonial or endorsement.” The SEC also pointed to
disclosures that were not properly included because they were in a
smaller or lighter font than the testimonials or endorsements that
they were related to.
Third-Party Ratings
The Marketing Rule also prohibits investment advisers from using
third-party ratings unless the adviser has a reasonable basis for
believing that any questionnaire or survey used in the preparation
of the rating meets certain criteria and discloses certain
information related to the ratings. The SEC said that it observed
advisers “using third-party ratings without appearing to
comply with all or some of the requirements for use of third-party
ratings.”
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