Page 38 - Investment Advisor July/August 2022

• The definition of advertisement we still see advisers dealing with a tation of gross performance. However,
now includes indirect communica- myriad of open issues regarding the in some instances, a broad interpre-
tions, such as those produced or rule’s requirements.” tation of this net of fees requirement
distributed by third parties; Karen Barr, president and CEO of may result in performance numbers that
• The absolute prohibition on tes- the Investment Adviser Association in have no practicable meaning and in fact
timonials and endorsements has Washington, added in another email could be confusing to investors, contrary
been rescinded; that IAA “has been working with our to the SEC’s intent.”
• All previous SEC no-action letters members in navigating this major Gail Bernstein, general counsel at
related to marketing have been change to the marketing rule, including the Investment Adviser Association in
rescinded; and providing resources, education, regular Washington, stated at the compliance
• The revised rule makes it clear that member calls and a dedicated imple- event in March that IAA and its members
private fund managers are subject to mentation group.” have identified a lot of “interpretive” issues
the rule with specific appli- with the marketing rule that need
cations and exemptions. ‘[M]arketing personnel need further guidance. However, advi-
Lynch told firms to “conduct sors “should not wait” until guid-
a targeted gap analysis to deter- training on the new do’s ance is issued before they start
mine where to address updates getting their policies and proce-
and revisions based on the and don’ts. November will dures ready to go, she said.
new rule.” Advisors also will have to
In a separate email message, be here sooner than firms contend with new Form ADV
Lynch told me that “firms are think so they need to start requirements related to the mar-
just now realizing that it’s time keting rule, she said. Bernstein
to take action. We are currently now. Especially, since more told me in an email that for
updating our clients’ marketing advisors with a Dec. 31 fiscal
policies for the new rule. Most than one training session year end, their Form ADV fil-
importantly, marketing person- ing in March 2023 must include
nel need training on the new do’s will likely be needed.’ responses to new Item 5.L.
and don’ts. November will be “The new item asks if any
here sooner than firms think so —Amy Lynch, of the adviser’s advertisements
they need to start now. Especially, FrontLine Compliance include performance results,
since more than one training ses- specific investment advice, testi-
sion will likely be needed.” monials, endorsements, or third-
Training also should be provided Consistent with the SEC’s email party ratings,” Bernstein explained. “If
to “key employees,” Lynch advised on campaign, Barr added, “we have been so, the adviser must report whether
the video, and firms should utilize a reminding members about the compli- it provided cash or non-cash compen-
“reputable outside party” with exper- ance date for quite a while, as the time sation in connection with their use.
tise in the Investment Advisers Act to and effort needed to comply with the The adviser must also report if it used
assist and support the firm through new rule is significant.” advertisements with hypothetical per-
the transition. Sanjay Lamba, IAA’s associate general formance or predecessor performance.”
counsel, added that while advisors are Max Schatzow, a partner with RIA
‘STUMBLING BLOCKS’ “knee deep and hard at work” in trying to Lawyers, told me in an email that the
RIAs viewed the new marketing and implement the new rule, “unfortunately, SEC email contains “helpful reminders
advertising rule as the hottest com- they are hitting stumbling blocks where from the [SEC] staff about upcoming
pliance topic in 2021, according to an the rule requirements appear to run into rule changes to assist with compliance.”
Investment Adviser Association poll. conflict with practicality. Further guid- Advisors, Schatzow said, “should abso-
“Over the past two years we have ance and clarifications from the SEC lutely take this reminder seriously. If they
been advising many clients on compli- would be helpful to address these situ- haven’t yet, they should be reviewing all
ance with the new rule and have had ations. I suspect many firms will wait current marketing material and the firm’s
discussion with the SEC staff regard- until closer to the compliance date in policies and procedures and bring it all
ing a host of implementation issues,” anticipation of this guidance.” into compliance with the new rule.”
said Cliff Kirsch, partner at Eversheds For instance, Lamba said, “the rule
Sutherland in New York. “As we get requires advisors to present perfor- Washington Bureau Chief Melanie Waddell can
closer to the rule’s compliance date, mance net of fees alongside any presen- be reached at [email protected].

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