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THE ADVISER’S GUIDE to SEC Advertising and Marketing Rules ©2018 Regulatory Compliance Watch. All Rights Reserved. ARGADMKTG18
THE ADVISER’S GUIDEto SEC Advertising and Marketing Rules
©2018 Regulatory Compliance Watch. All Rights Reserved. ARGADMKTG18
The Adviser’s Guide to SEC Advertising and Marketing Rules
The Adviser’s Guide to SEC Advertising and Marketing Rules
Table of ContentsThe companion CD features the tools printed in this handbook.
Advertising and Marketing Best Practices and Guidance
1 Introduction .................................................................................... 1
2 A primer to stay on the right side of the SEC’s advertising and marketing rules ...................................................... 3
3 Perils of advertising and marketing rules speak to the need for best practices ............................................................. 6
4 Adviser fined for CCO role in failing to oversee advertisements that misled ............................................................. 8
5 ‘Low hanging fruit’ likely means enforcement will keep picking advertising cases ..................................................... 10
6 F-Squared CEO found liable for misleading statements .................. 14
7 New OCIE risk alert aims to help advisers avoid advertising deficiencies ................................................................. 15
8 Taking the measure of the accuracy of another adviser’s performance advertising ................................................. 17
9 Many tripwires lay before performance advertising so use it with care ............................................................................. 19
10 30-year-old no-action letter has legs even if it stumbles in new social media world ..............................................22
11 ‘Imprecise’ disclosure surrounding advertised performance results in enforcement action ....................................25
12 Backtested ads have always required care, even more so post-Lucia ruling ............................................................ 27
13 Zeroing in on when a one-on-one presentation becomes an advertisement...........................................................29
14 It’s permissible to use predecessor performance data but beware missteps potential ............................................... 31
15 Adviser obtains permission to use advertising track record after merger ......................................................................34
16 Compliance steps for monitoring your firm’s websites .................... 35
17 Advertising and marketing hot-spots that can attract trouble ............................................................................. 38
18 Care and contemplation should surround decisions to change index comparisons ...................................................... 39
19 Crowing about your firm in an ad without backup proof of claims can get your roasted .............................................42
The Adviser’s Guide to SEC Advertising and Marketing Rules
The Adviser’s Guide to SEC Advertising and Marketing Rules
20 Debate, if you wish, whether pitchbooks are ads but best practices suggest review them .............................................. 44
21 IM declares social media commentary need not be considered to be testimonials ....................................................... 46
22 A simple web search can unveil how easy it is to stumble over advertisements ........................................................ 48
23 Coveted TV spots draw staff like bees to honey but take steps to avoid getting stung .................................................. 50
24 You can use outside materials in your marketing efforts but first take these steps .............................................................. 53
Advertising and Marketing GIPS
1 GIPS tips to avoid trouble on SEC exams ..................................... 57
2 SEC Enforcement case shows the agency will cite firms for fraudulent GIPS claims ................................................... 59
Rule 206(4)-1 – Advertisements by Investment Advisers
1 Rule 206(4)-1 – Advertisements by Investment Advisers ................ 62
Advertising and Marketing Risk Alert
1 The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers ................ 66
SEC Division of Investment Management Guidance
1 Guidance on the testimonial rule and social media ........................74
2 Investment Adviser Use of Social Media ....................................... 84
Advertising and Marketing No Action Letters
1 Clover Capital Management .......................................................... 92
2 Amerivest Investment Management .............................................. 99
3 The TCW Group ..........................................................................110
4 Bramwell Growth Fund ............................................................... 127
5 IAA No-Action Letter .................................................................. 137
6 Trainer, Wortham & Co.................................................................141
7 Investment Counsel Association ................................................. 149
8 Jennison Associates ................................................................... 152
9 Franklin Management ................................................................. 165
10 Association for Investment Management and Research ................ 174
11 Horizon Asset Management .........................................................189
12 Munder Capital Management .......................................................195
The Adviser’s Guide to SEC Advertising and Marketing Rules
The Adviser’s Guide to SEC Advertising and Marketing Rules
13 J.P. Morgan ................................................................................ 206
14 Denver Investment Advisers .........................................................212
15 Conway Asset Management ........................................................218
Advertising and Marketing Tools
1 Advertising and Marketing checklist (Courtesy of Michael S. Caccese, Chairman of the Management Committee and Practice Area Leader - Financial Services at K&L Gates LLP) ................................................................ 222
2 Advertising Checklist (Courtesy of Krista Zipfel, CEO/President of Advisor, Solutions Group in Newport Beach, CA) ....................................................... 285
3 Marketing Approval Form ............................................................ 291
4 Advertising P&Ps ........................................................................ 292
5 Advertising Test Matrix ............................................................... 306
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Advertising and Marketing Best Practices and Guidance
The Adviser’s Guide to SEC Advertising and Marketing Rules
Introduction
Modern means of communications take place in so many ways. Mobile devices place the internet in your hands. You can share your thoughts with thousands via a single tweet. You can become a video star overnight via YouTube. A post to Facebook could be seen in seconds the world over.
None of these media could have been envisioned when the SEC promulgated its advertising rule way back in 1961.
Some 500 words describe Advisers Act rule 206(4)-1 (advertisements by IAs). It’s the second oldest Advisers Act rule, trailing only the books and records rule (and even that was by only a few months).
But the advertising rule can confound with the best of them, which is why IA Watch has published The Adviser’s Guide to SEC Advertising and Marketing Rules.
Modernization?Now before you express dismay that the government relies upon a nearly 60-year-old rule to govern modern communications, know that the SEC has indicated that it plans to do a “top to bottom” review of the Advertising rule in an attempt to bring it into the modern age.
Until that happens, the rule and its many “no-action” letters dispensed by the agency over the decades are what you have to help you to understand the agency’s goals and how firms like yours must comply.
Understand first that the rule doesn’t forbid IAs from advertising. The government recognizes businesses need to publicize themselves to be viable.
But the rule has an expansive definition of what is an advertisement (any “written communication addressed to more than one person”) and lays out numerous tripwires that can easily trigger a violation, an exam deficiency or an enforcement action.
Indeed, deficiencies tied to advertising have consistently been among the most commonly cited by examiners over the years. In 2017, OCIE released a risk alert (you can find the alert in this guide) that listed some of these common deficiencies. They include misleading performance results; misleading one-on-one presentations; cherry-picked profitable stock selections; and poor compliance policies and procedures.
Beyond misleading ads, fundamental restrictions include prohibitions against the use of testimonials, past specific recommendations (unless certain conditions are met), graphs, charts or formulas as tools to buy or sell securities (unless limitations are disclosed) and claims of free services that really aren’t.
2 The Adviser’s Guide to SEC Advertising and Marketing Rules
Advertising and Marketing Best Practices and Guidance
Advertising do’s and don’tsAs an overview, here are some definite “do’s” when it comes to complying with the SEC’s advertising rule:
} Do present information fairly and accurately.
} Do produce reprints of news articles featuring your firm or alert clients that your firm has received an award from a third-party.
} Do share a partial client list provided certain circumstances are met.
} Do disclose that clients face the possibility of financial loss.
} Do present performance net of fees and other expenses.
Now some don’ts: } Don’t present performance data if you don’t have the records to support them.
} Don’t state your firm suffered no deficiencies in its last SEC exam when it really had.
} Don’t apply an incorrect benchmark to your performance data.
} Don’t cherry-pick performance results.
You’ll find more on these do’s and don’ts inside this guide. We also include here many of the seminal “no-action” letters that go beyond the advertising rule to shape the SEC’s regulatory expectations when it comes to advertising.
You’ll also find some advertising tools and checklists inside that can help keep you on the right compliance path.
As complicated as the advertising rule is, you can boil down its essence in a few words. Read these as a guide to when you advertise: be fair and be honest.
Turn to this guide and its companion CD to help you with your firm’s advertising and marketing compliance.
The coverage in IA Watch’s “The Adviser’s Guide to SEC Advertising and Marketing Rules” is indicative of what can be found at IA Watch (a service of Regulatory Compliance Watch), the most authoritative source and all-in-one regulatory compliance service offering best practices, guidance and tools to help advisory firms keep in compliance.
For additional information, or to subscribe, contact the IA Watch team at 1-800-455-5844, option 2, prompt 1. To request a FREE trial, visit www.regcompliancewatch.com/FreeTrial.
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The Adviser’s Guide to SEC Advertising and Marketing Rules
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