Page 40 - Investment Advisor December 2022/January 2023

Bill Simpson, compliance principal nications regardless of how they are Practically speaking, Hanna contin-
at Hearsay Systems, anticipates that disseminated — whether via emails, ued, this means advisors should be “mak-
the securities regulator “will likely text messages, electronic presenta- ing sure your policies and procedures are
be heavy-handed in its disciplinary tions, videos, films, podcasts, digital up to date (and that they are appropriate-
actions for firms that are not in compli- audio or video files, blogs, billboards, ly tailored to the business of your firm),
ance,” as firms have had “roughly two social media, or otherwise via digi- rolling out training and policy commu-
years to comply.” tal or hard-copy means, or by consul- nications to the appropriate parties, and
tants, other fund advisors, promoters, ensuring your advertisements comply
MARKETING RULE NUTS AND BOLTS or other third parties. with the rule’s big-ticket items, like the
The new marketing rule applies to “Subject to certain restrictions, performance advertising requirements.”
registered investment advisors of this definition also includes compen- Firms should also “pay attention to
all types — including those to hedge sated endorsements, testimonials, and the items specifically called out” in the
funds, private funds Division of Exams’ recent
and separately managed “Even if you put the more difficult, Risk Alert, Hanna added.
accounts, BakerHostetler’s gray area issues aside, the more The SEC staff “seems to be
Investment Funds team signaling that it will be vig-
wrote in a recent alert. straightforward implementation orously examining for com-
Among other changes, pliance with certain elements
the marketing rule “broad- tasks have still been a significant of the rule, including the
ly defines ‘advertisement’ lift because of how much of a sea rule’s requirement to have
to generally include com- substantiation for statements
munications with investors change the rule is for a lot of firms.” of material fact, the rule’s
and potential investors on requirements relating to per-
securities advisory servic- —Issa Hanna, Eversheds formance advertising, and the
es, including testimonials, associated amendments to
endorsements, and third-party ratings, other statements made by third parties the Advisers Act books and records rule.”
but in large part excludes tailored one- as well as communications by advis-
on-one communications with inves- ers to investors in private funds,” the EXPECT EXAMS TO START
tors,” BakerHostetler said. BakerHostetler attorneys write. With compliance now mandatory,
The SEC’s Division of Exams said Advisors, the BakerHostelter attor- Sanjay Lamba, associate general counsel
that it will “actively examine compli- ney continued, “should also be aware for the Investment Adviser Association,
ance” with the new rule through “a that they may be held liable under the warned that SEC examiners will “start
number of specific national initiatives,” Marketing Rule for communications by conducting” exams that focus on areas
BakerHosteler said, noting a particular third parties — including hyperlinks to outlined in the Sept. 19 Risk Alert.
focus on whether advisors have: independent web pages and public com- These exams will include making
• implemented appropriate written mentary on an adviser’s own website or sure advisors “have implemented writ-
policies and procedures; social media page — if such communica- ten policies and procedures to address
• a reasonable basis for believing they tions constitute ‘advertisements.’” the requirements of the Marketing Rule,
will be able to substantiate material particularly with respect to being able
statements of fact in advertisements; NEW RULE A ‘SEA CHANGE’ to substantiate material statements
• complied with the rule’s performance Compliance with the marketing rule “has of fact in their advertising materials,”
advertising prohibitions; and not been an easy task,” Issa Hanna, part- Lamba said.
• maintained the requisite books and ner at Eversheds, said in an email. “Even Advisors “are also subject to new
records. if you put the more difficult, gray area recordkeeping requirements relating to
The rule further defines “advertise- issues aside, the more straightforward the Marketing Rule,” and “they should
ment” as any direct or indirect com- implementation tasks have still been a continue to assess their procedures and
munication made by an advisor that significant lift because of how much of a controls to ensure that they are work-
offers securities advisory services to sea change the rule is for a lot of firms.” ing as intended and to address any fur-
prospective clients or new securities For those running behind, Hanna rec- ther guidance the SEC staff may issue
advisory services to existing clients, ommended that they put “a laser focus in the future.”
BakerHostetler explained. on the fundamentals so that you can put
This “sweeping definition,” the best possible foot forward if you are Washington Bureau Chief Melanie Waddell
BakerHostetler said, includes commu- examined out of the gate.” can be reached at [email protected].

38 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com