Page 32 - Investment Advisor April/May 2022

interest’ expressed under Section 206 RIAs, Birdthistle noted, with nearly 15,000 also report if it used advertisements
findings and deficiency letters and refer- advisors reporting more than $110 trillion with hypothetical performance or pre-
enced back to the Commission’s guidance in assets under management. decessor performance.”
that came out with Reg BI” in June 2020. The SEC director said he’s interested Sanjay Lamba, associate general coun-
That commission guidance “talks about “in considering ways to bring order to sel at IAA, told me Monday that when it
‘best interest,’ while it does not define it, the new frontier of crypto assets and the comes to the SEC’s advertising rule, advi-
as a requirement under the fiduciary stan- expanding use of digital technology.” He sors need more clarity regarding perfor-
dard,” Lundy continued. “… We’re see- added that “the expanding opportuni- mance advertising, “which is a big chunk”
ing the examination program aggressively ties to invest in securities directly using of the rule. Some examples include how
use their tactics to allege findings under digital platforms, such as robo-advisors, to calculate net performance fees. Other
Section 206 and talk about ‘best interest.’” online brokerages, and mobile investment questions remain concerning placement
For advisors and broker-dealers “that apps and portals, also present challenges.” of performance advertising, Lamba said,
have not been examined in the last as well as the definition of advertising,
several years, we’re starting to see the SEC MARKETING RULE which is “pretty expansive” and also
examination program request payments Gail Bernstein, IAA general counsel, includes “indirect advertising.”
back to clients for violations of Section stated at the event that IAA and its mem- Christine Ayako Schleppegrell, senior
206 in the deficiency letters.” counsel at the SEC, said at
‘The expanding opportunities the IAA event that while the
SEC RULE PROPOSALS agency may consider further
Karen Barr, president and to invest in securities directly guidance on certain advertis-
CEO of IAA, noted during using digital platforms, such as ing rule topics, advisors should
the conference the barrage of move ahead with compliance.
SEC proposals that the agency robo-advisors, online brokerages, The law firm Eversheds
has issued — with short com- and mobile investment apps and Sutherland released in mid-
ment periods — since January. February a marketing rule
The 11 proposals address such portals, also present challenges.’ checklist for advisors to use as
issues as cybersecurity rules they prep for the Nov. 4 com-
for advisors, whistleblower —William Birdthistle, director of pliance date. Cliff Kirsch, part-
and private fund rules. the SEC’s Division of Investment ner and head of the Investment
Advisors aren’t fans of Services practice group at
the SEC’s new cyber rules Management Eversheds, said in releasing
for advisors. Barr told SEC the checklist that “legal and
Commissioner Caroline Crenshaw dur- bers have identified a lot of “interpre- compliance personnel at advisory firms
ing the event that IAA’s members “take tive” issues with the marketing rule that who are tasked with making sure their
cybersecurity very seriously; it’s very need further guidance. However, advi- firms are in compliance with the new
important to them,” Barr said. “They sors “should not wait” until guidance is rules have a big job ahead of them over
already believe that the cybersecurity issued before they start getting their poli- the next few months.”
policies and procedures are required cies and procedures ready to go, she said. Adam Aderton, co-chief of the SEC’s
under the compliance program rule.” Advisors also will have to contend Asset Management Unit, housed within
However, IAA intends to submit with new Form ADV requirements the Division of Enforcement, noted at
“extensive” comments on the rule, Barr related to the marketing rule, she said. the IAA event that the agency has levied
told Crenshaw. Comments are due to the Bernstein told me in an email that for five actions against robo-advisors, three
agency by April 11. advisors with a Dec. 31 fiscal year end, of them since last June.
William Birdthistle, director of the SEC’s their Form ADV filing in March 2023 “We follow where the money goes,”
Division of Investment Management, must include responses to new Item 5.L. Aderton said. “Robo-advisors are pro-
noted at the event that “assets in separate- “The new item asks if any of the advis- jected to have something like $1 trillion
ly managed accounts and private funds er’s advertisements include performance in assets under management in the next
have swollen to around $43 trillion and results, specific investment advice, testi- couple years. So it’s quite likely that we’ll
$18 trillion, respectively, and include indi- monials, endorsements, or third-party continue to see actions in that space as
viduals, institutions, governmental and ratings,” Bernstein explained. “If so, the assets go that way and particularly areas
private pension funds, and nonprofit orga- adviser must report whether it provided like startups where they don’t have as
nizations.” Approximately 46 million indi- cash or non-cash compensation in con- robust of a compliance infrastructure as
viduals currently receive services from nection with their use. The adviser must they try to get into a new area.”

30 INVESTMENT ADVISOR APRIL/MAY 2022 | ThinkAdvisor.com