Advisors' Biggest Problem With SEC's Marketing Rule
What You Need to Know
CFA Institute and IAA polled 189 firms on compliance practices associated with the Marketing Rule.
The No. 1 challenge is determining which information is performance that must be presented on a net basis.
Performance is not defined in the rule; more SEC interpretive guidance is needed.
The biggest challenge for advisors in complying with the Securities and Exchange Commission’s Marketing Rule continues to be determining which information is “performance” that must be presented on a net basis, according to a newly released survey by CFA Institute and the Investment Adviser Association on compliance practices associated with the rule.
When asked about their biggest challenges in implementing the rule, 36% of the 189 respondents selected determining performance that must be presented on a net basis.
Advisors are still grappling with the term “performance” because it’s “not defined” in the Marketing Rule, Karyn Vincent, senior head of CFA Institute’s Global Industry Standards, said in an email. “The key requirement is that performance must be presented on a net basis.”
For example, “is yield considered to be performance?” Vincent said. “If a firm considered yield to be performance, then it must be presented on a net basis. This is not a calculation that most firms have done.”
Julia Reyes, partner, performance services at ACA Group, agreed in another email that the survey findings “highlights the difficulty of implementing rules-based provisions to performance metrics where terms are not defined clearly. It’s not a surprise that the biggest challenge in implementing the marketing rule is determining what is considered performance.”
Because the Marketing Rule does not define performance, “this seems to come through in a number of the questions around how advisers treat contribution to return, attribution, and yield,” Reyes said. “Without clear written guidance from the SEC, advisers are stuck in a gray area where they must make a decision and risk being out of step with SEC staff expectations.”
