The staff of the SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued a risk alert about widespread noncompliance with the solicitation rule (206(4)-3). Reviewing examination deficiency letters for the last 3 years, the staff found that firms frequently failed to (i) ensure that third party solicitors provided or obtained adequate client disclosure statements; (ii) execute required agreements with third party solicitors; and (iii) conduct adequate due diligence to determine whether solicitors complied with agreements. The staff also expressed concern about conflicts of interests whereby advisers received client referrals in exchange for recommending service providers. The staff encourages advisers to “review their practices, policies, and procedures.”
This heightened review of solicitation rule compliance is consistent with OCIE’s broader concerns about adviser marketing practices. The SEC has increased scrutiny in related areas such as the use of backtested performance, testimonials, and revenue sharing. Also, last year, OCIE issued a comprehensive Risk Alert admonishing advisers to review their marketing and advertising compliance procedures.