Today, we offer our “Friday List,” an occasional feature summarizing a topic significant to investment management professionals interested in regulatory issues. Our Friday Lists are an expanded “Our Take” on a particular subject, offering our unique (and sometimes controversial) perspective on an industry topic.
Last year, the SEC’s Office of Compliance Inspections and Examinations issued a Risk Alert warning advisers to review their marketing and advertising practices. More recently, OCIE alerted advisers to widespread noncompliance with the solicitation rule. Meanwhile, the Enforcement Division has brought several actions alleging that adviser marketing practices violated applicable law. With this increased scrutiny, advisers should re-assess the following marketing practices to avoid material exam deficiencies or enforcement actions:
10 Adviser Marketing Practices to Avoid
Hypothetical Back-Tested Performance. The SEC has consistently targeted the use of hypothetical, backtested performance, and the Enforcement Division has brought numerous cases.
An investment adviser has been censured, fined, and barred from the industry for making misleading marketing representations. The adviser used emails to claim inflated assets under management and tout a non-existent quantitative trading model and historical performance. The adviser furthered his fraud by putting the fake product and returns on a hedge fund database that was accessed by potential investors.