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SEC Proposes New Investment Adviser Advertising Rule

 

The SEC has proposed a new investment adviser advertising rule that broadens the definition of “advertising,” more specifically regulates performance information, and allows certain testimonials and endorsements.  Revised Rule 206(4)-1 would broadly include any communication distributed by any means that promotes advisory services or a pooled fund and prohibits any misleading or unsubstantiated statements.  The new rule would also require all retail-directed advertisements to include one, five and ten-year periods when presenting performance information.  Advisers would also be able to use testimonials so long as the adviser fully discloses whether the person is a client and whether compensation has been provided.  The new rule would also require approval in writing by a designated employee before dissemination.  The SEC said it may rescind current no-action letters.  The SEC also proposed a new solicitation rule that would require additional disclosure about the solicitor but eliminate the current rule’s requirement to collect client acknowledgements.  Both rules require at least a 60-day comment period.

We like that the SEC has modernized certain areas (e.g. testimonials) and has clarified how to present performance information.  We believe that clearer rules help compliance professionals and reduce the likelihood of enforcement cases resulting from subjective standards.