SEC Hits RIA With $430K Marketing Rule Fine

What You Need to Know

Pacific Financial’s hypothetical ads were disseminated to the public rather than to a particular intended audience.
The ads were disseminated on the firm’s public website.
The SEC ordered Pacific to pay a $430,000 civil penalty and undertake certain compliance measures.

The Securities and Exchange Commission has fined The Pacific Financial Group $430,000 for advertising hypothetical performance on its public website without adopting and implementing policies and procedures “reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of the intended audience.”

According to the SEC’s order, Pacific Financial of Bellevue, Washington, published communications on its website that constituted “advertisements” because they offered Pacific Financial’s “investment advisory services with regard to securities to prospective clients and offered new investment advisory services with regard to securities to current clients.”

Under the Marketing Rule, RIAs are prohibited from including any hypothetical performance in their ads unless, among other things, the advisor “[a]dopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement.”

Pacific Financial’s ads included hypothetical performance that consisted of performance derived from model portfolios, the order states, and “were disseminated to the general public rather than to a particular intended audience.”

While advertising hypothetical performance, Pacific Financial “failed to adopt and implement policies and procedures reasonably designed to ensure that the performance was relevant to the likely financial situation and investment objectives of the intended audience,” according to the SEC.