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Good Data Hygiene Supports the new SEC Marketing Rules

The Securities and Exchange Commission (SEC) has upgraded forty-year-old rules that affect investment advisors’ (RIAs’) marketing communications to help prevent fraud. The aim of the new rules is to adapt them to modern digital advertising media and clarifying relationships.
James Greenway
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The Securities and Exchange Commission (SEC) has upgraded forty-year-old rules that affect investment advisors’ (RIAs’) marketing communications to help prevent fraud. The aim of the new rules is to adapt them to modern digital advertising media and clarifying relationships. The new regulation, which comes into force this week, effectively overrides two previous rules of the Investment Advisors Act (1940), which affect both the content of advertising and rewards for endorsements.

Jay Clayton, Chair of the SEC explains how this new requirement, “reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite evolving financial markets and technology.” Today, most RIAs make regular use of a wide range of electronic and mobile media to existing or potential investors, and the new regulation addresses potential weak points.

It means certain aspects of performance presentations must now be standardized to enable investors to be able to compare funds more easily with like for like data. Advertisements with 3rd party ratings are also required to give specific information to prevent bias, and all testimonials and endorsements are now permitted so long as all payments for them, in either cash or ‘kind’, are made transparent.

Under the Act, the term advertisement has been amended to cover two different meanings: Firstly to denote, ‘any direct or indirect communication an investment advisor makes…with regard to securities to prospective clients or private fund investors’, and also, ‘with regard to securities to current clients or investors’. This excludes most one to one communication.

Secondly, it encapsulates any endorsement or testimonial ‘for which an adviser provides cash and non-cash compensation directly or indirectly,’ (such as directed brokerage, awards and discounted fees).

The new regulation underlines the need for RIAs to ensure all facts are materially true and that nothing is left out which could mislead the reader away from gaining a truthful understanding. Statements made must be able to be substantiated immediately if called upon by the SEC, and nothing must be included which could lead to any misplaced inference being deduced. In addition, all potential benefits must be balanced alongside any associated risks and all references to specific investment advice must be presented in a fair and balanced manner.

For RIAs such measures clearly mean more responsibility and accountability to ensure all employees and agents adhere to the new requirements. Enhanced data strategy and reporting can help support compliance teams with the new SEC regulations. Good data hygiene provides 360 degree visibility of marketing, investor, financial and trade data which supports accurate and rapid reporting to maintain good data hygiene when reporting to the SEC, reducing cost and time for managers under ever more onerous reporting burdens.

Less visibility of teams, and a greater degree of autonomy in the workplace, can mean a very real risk of individuals inadvertently publishing content that is not in line with regulatory guidelines. While increased digital marketing strategies have provided excellent opportunities for firms,  maintaining brand message drives value. Maintaining visibility and control of marketing output is key within the new SEC rules.

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