8 Marketing Rule Documents the SEC Requests During Exams

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Advisors should take heed of a recent Risk Alert issued by the Securities and Exchange Commission that lays out what documents the agency will likely request during an exam.

Particular attention should be paid to the list of documents related to the SEC’s new Marketing Rule, of which the agency is now conducting a sweep of advisory firms’ compliance.

The alert describes the types of initial information the agency will request in exams, as well as additional requests for information and documents as needed.

On Sept. 11, the SEC said it charged nine registered investment advisors “for advertising hypothetical performance to the general public on their websites without adopting and/or implementing policies and procedures required by the Marketing Rule.” The firms agreed to pay civil penalties ranging from $50,000 to $175,000.

On Aug. 21, the SEC brought its first action related to the rule, ordering Titan Global Capital Management USA LLC, a New York-based fintech RIA, to pay more than $1 million for using hypothetical performance metrics in advertisements that were misleading, among other violations.

The Investment Adviser Association told ThinkAdvisor that the group “has recently amplified calls for the SEC to publish its document request list to help advisers assess the adequacy of their compliance programs and prepare for exams.”

IAA has “also encouraged the SEC to more regularly publish issue-specific request lists, as it did years ago with the agency’s first phase of cybersecurity examinations.”

The group said it’s pleased that the SEC Division of Examinations “has now published a Risk Alert that includes a list of the documents and information the exam staff typically requests at the outset of examinations, as well as additional information and documents staff may request as the examination progresses.”

This greater transparency, IAA said, “will provide advisers with additional resources to evaluate and improve their compliance programs.”

Sara Crovitz, a partner at Stradely Ronon in Washington, said that “the industry has informally shared around exam request letters for years, but it’s really helpful for [SEC] Exams to be fully transparent. I hope this trend continues.”

Issa Hanna, partner at Eversheds Sutherland, warned, however, that the way the SEC has drafted the document requests “is designed to be very broad,” as the agency is “casting a very wide net to assess for compliance with all aspects of the Marketing Rule.”

In some cases, Hanna said, the SEC is “actually asking for materials that may not necessarily be advertisements.” A good example, he pointed out, is the agency request regarding sponsored and attended seminars or events.

See the gallery for the list of documents the SEC says it will request regarding the marketing rule.