SEC Proposes Modernizing Advertising and Cash Solicitation Rules for Investment Advisers

In a much-anticipated move, the Securities and Exchange Commission (the “Commission” or the “SEC”) recently voted to propose amendments to modernize rules that prohibit certain investment adviser advertisements and payments to solicitors under Investment Advisers Act of 1940 (the “Advisers Act” or the “Act”). The proposal also contemplates amendments to Form ADV to require additional disclosures regarding advisers’ advertising practices and conforming amendments to the Advisers Act books and records rule.

AMENDMENTS TO RULE 206(4)-1

The proposed amendments to the advertising rule recognize how advances in technology have altered how advisers interact with investors and prospective investors, and changes in the expectations and demographics of consumers, the types of services offered by advisers, as well as the availability of information. The Commission notes that, “The breadth of the current (advertising) rule’s prohibitions, as well as the lack of explicit prescriptions related to the presentation of performance in the rule, can present compliance challenges and potentially have a chilling effect on advisers’ ability to provide useful information in communications that are considered advertisements.(i)” The proposed rule takes a more principles-based approach, incorporating both general prohibitions along with certain tailored restrictions and requirements, to better align with the evolution of the industry.

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