SEC Proposes Amendments to Advertising Rules

In a proposal that would mark the first changes since 1961, the SEC has introduced amendments to modify the “Advertisements by Investment Advisers” Rule 206(4)-1 of the Investment Advisers Act. Changes to the rule would allow for testimonials and social media practices beyond that currently allowed, and performance marketing subject to new requirements. Some parts of the rule changes enshrine parts of no-action letters that have been used by the industry for decades. Other rule changes allow testimonials subject to disclosure of paid compensation. We note that the rule change expands the existing rule from 550 words and 2751 characters to 1830 words and 10,166 characters. Fifty-eight no-action letters covering applicable advertising topics are slated for review and withdrawal.

In addition to the rule changes, the SEC has proposed amendments to Form ADV Part 1, adding new Items 5.L.(1)-(5), which gather information about advisers’ Advertising Activities. Thirty-six additional no-action letters related to Rule 206(4)-3, the Cash Solicitation rule, are slated for review and withdrawal. Amendments include a name change of the rule to “Compensation for solicitations,” elimination of rules specific to affiliated persons, and adding private fund investor coverage. Thirty-five existing no-action letters covering Rule 206(4)-3 are slated for coverage.

Along with changing the rules, the SEC wants data to know what you are doing. Corresponding recordkeeping rule changes as well.

CSS continues to help advisers manage advertising rules. Our services will provide the new policies, the Sarasota 2020 Spring Conference agenda will cover the must knows, and a ComplianceCast webinar is being planned. We manage policies and procedures and conduct advertisement reviews for firms who want to know the answers. If you need help, contact us.


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