SEC Advertising Proposals Could Create Marketing Opportunities
The Securities and Exchange Commission recently proposed amendments to its advertising rules that would give mutual funds, variable annuity issuers and producers new marketing options–and also result in significant savings to the financial services industry.
If adopted, they will open the door to simpler and more cost-efficient ways of marketing mutual funds and VAs–a significant development for companies and distributors.
However, the changes would impose new requirements on the industry and raise significant new interpretive questions. These will merit close scrutiny by the industry.
Here, we will look at some of the opportunities and issues created by the proposal, as it relates to mutual fund and VA sales materials. (Variable life sales materials would also be affected, but that will not be addressed here.)
With respect to general advertising campaigns in magazines and newspapers, the new rules would mean additional content flexibility together with increased disclosure obligations.
The way the SECs advertising rules now work, magazine or newspaper advertisements that include performance are generally permitted only under "Rule 482." The content of Rule 482 ads is limited to information the "substance of" which is included in the full prospectus.
As a result, magazine or newspaper ads generally may not include information outside the four corners of the prospectus, such as a discussion of recent market developments or financial planning advice.
Under the new rules, however, any information could be included in advertisements–without the substance of that information being included in the prospectus. This would give marketing departments significant new flexibility.
The other type of sales literature that may contain performance is "supplemental sales literature." This type must be accompanied (or preceded) by a full prospectus, but is not subject to the "substance of" requirement currently applicable to Rule 482 ads.
Magazine and newspaper ads presenting performance, as noted above, cannot as a practical matter be accompanied by a full prospectus, so almost invariably they are Rule 482 ads. However, a producer or issuer has more flexibility when it comes to general marketing materials, since they can be treated either as Rule 482 ads or supplemental sales literature.
