SEC Marketing Risk Alert and Exam Findings

 Last month, the SEC issued a Risk Alert summarizing the staff’s findings from its recent sweep exam regarding compliance with the marketing rule under the Advisers Act. The SEC has recently settled several enforcement actions which include marketing rule violations. The Risk Alert noted that key violations stemmed from overt violations of prohibitions in the marketing rule, including requirements relating to adopting and implementing policies and procedures, maintaining records, and adequately responding to Form ADV items relating to performance advertisements.  In particular, the exam staff identified the following deficiencies:

• Untrue and unsubstantiated statements of material fact regarding the adviser’s business;
• Misleading inferences or omission of material facts relating to conflicts, endorsements, performance claims, third party ratings, testimonials, and performance information;
• Fair and balanced treatment of material risks or limitations;
• References to specific investment advice that were not presented in a fair and balanced manner;
• Inclusion or exclusion of performance results or time periods in manners that were not fair and balanced; and
• Advertisements that were otherwise materially misleading as a result of font size, visibility of disclosures, etc. particularly on websites and in videos.

Boards reviewing adviser compliance programs may wish to inquire whether their firms were subject to the SEC’s marketing sweep examination and whether any findings were identified. Firms not subject to the examination should review the findings to assess whether their marketing rule policies are adequate.

Click here to read the SEC Marketing Rule Risk Alert.
Click here to read an SEC press release covering SEC settlements.