SEC Marketing Rule Enforcement Actions Could Be on Their Way

In statements last November, William Birdthistle, director of the SEC’s Office of Investment Management, called the new marketing rule one of the agency’s more “ambitious” rulemakings, and stated: “I would very much encourage a rigorous compliance with the rule.”

While the compliance date was Nov. 4, the SEC’s advertising and marketing rule has been in effect since May 2021.

Exam Focus

The Risk Alert the SEC exam staff released last September sets out specific areas the agency will be looking at during initial exams, Lamba explains. One focus area is on making sure advisors “can substantiate material statements of fact in their marketing materials.”

The SEC exam sweep also zeroes in on written policies and procedures, performance advertising and books and records.

Maureen Kiefer-Goldenberg, senior vice president of compliance at Mariner Wealth Advisors, said on the webcast with Lynch that “there’s not a lot of meat” to the SEC’s updated FAQ released in January.

State-registered firms, Kiefer-Goldenberg said, may also be having a tough time complying with the new marketing rule, as only Arkansas, Massachusetts, Rhode Island and Wyoming have issued harmonized rules.

Lamba of IAA agrees that the SEC’s updated FAQ distributed in January to clarify an issue involving gross/net performance “has thrown a monkey wrench into the compliance programs” of many advisors.

Many advisors “devoted significant resources and effort, including obtaining advice from outside counsel, to try and address an issue that was unclear and known to the staff prior to the compliance date,” Lamba said.

The updated FAQ, however, came out “with a different position than advisers had taken in good faith,” he continued. “Exam staff then tell them — through a formal written deficiency — that despite making good-faith determinations on how to comply, they got it wrong.”

Firms “are now having to spend more time and money to change their compliance programs to reflect the staff’s view in the FAQ,” Lamba said.

The FAQ, Lamba said, “raised additional uncertainties.”

Senior SEC officials were able to provide some additional clarity during a recent IAA event, according to Lamba.

For example, Lamba said, according to SEC staff, “a table showing the gross performance of all individual holdings in a portfolio must include the net performance of each of the individual holdings.”