Page 31 - Investment Advisor July/August 2023

THE plAyINg FIElD

By Melanie Waddell

seC examiners Turn Up the Heat on

Marketing rule Compliance

The regulator’s new risk alert shows examiners “will be undertaking a

comprehensive approach,” says attorney Issa Hanna of Eversheds sutherland.

he Securities and Exchange Further, Lynch said, “it is now clear
Commission is beefing up exams that current and future exams of advi-
Tof advisors’ compliance with its sors will focus on these areas so any
new Marketing Rule by zeroing in on firms using testimonials/endorsements
testimonials and endorsements, third- or third-party ratings should be pre-
party ratings and Form ADV, the agency pared now. It is especially important for
warned on June 8. advisors using questionnaires for ratings
In a just-released risk alert, the agen- to be able to prove that the question-
cy’s exam division warns that while it naire was not so biased as to produce
will continue to focus on policies and a known result in favor of the advisor.”
procedures, substantiation, performance
advertising and books and records, exam ‘serIoUs’ MArKeTInG rULe
staff is now “increasing its focus” on DeFICIenCIes
other Marketing Rule-related areas. Sanjay Lamba, associate general
With its new alert, SEC examiners counsel for the Investment Adviser
“It is especially “will be undertaking a comprehensive Association in Washington, told me
important for advisors approach” to assessing compliance with in May that IAA had “very recently
the Marketing Rule, Issa Hanna, part-
learned that the [SEC] exam staff has
using questionnaires ner at Eversheds Sutherland’s New York found serious [marketing rule-relat-
for ratings to be able office, said June 8 in an email. ed] deficiencies on a large number of
The new risk alert sets out areas of
to prove that the focus not listed in the agency’s alert exams — with some being referred to
the SEC enforcement staff.”
questionnaire was not so released in September, adds Sara The risk alert the SEC exam staff
biased as to produce Crovitz, partner at Stradley Ronon in released last September included mak-
ing sure advisors “can substantiate
Washington. The SEC “says that now
a known result in favor Exams will look at everything.” material statements of fact in their mar-
of the advisor.” As I reported in May, industry attor- keting materials,” Lamba said.
The SEC said at the time that it would
—Amy Lynch neys warned that SEC exams have also zero in on written policies and pro-
uncovered Marketing Rule compliance
deficiencies, with some sent to the cedures, performance advertising and
SEC’s enforcement division, and that the books and records.
”breadth” of marketing rule requests by While the compliance date was Nov. 4,
examiners has been significant. the SEC’s advertising and marketing rule
Amy Lynch, president and founder of has been in effect since May 2021.
FrontLine Compliance, said in anoth- In its new risk alert, the agen-
er email that the new alert “reinforces cy explained that it is now conduct-
what we’ve seen from examiners regard- ing “focused” exams — as well as broad
ing the need to be able to substantiate reviews, which include testimonials and
claims made in marketing materials by endorsements, third-party reviews and
having the backup data on hand.” Form ADV.

July/August 2023 InvesTmenT ADvIsor 29