On April 17th, the SEC issued a Risk Alert titled “Initial Observations Regarding Advisers Act Marketing Rule Compliance.” Perusing the list of failures, a sense of familiarity arose, given that one of our clients had been involved in the recent SEC sweep of adviser examinations under the New Marketing Rule and that the client was about to undergo their exit interview.
The list of findings the SEC enumerated contained specific issues that our client would certainly be made aware of in their findings. We were aware of them as the exam was in process. Even before the exam began, we could tell from the client’s analytics that the SEC had been all over their website, and what they were looking at. A firm’s website is the public gateway to the company and a huge consideration for the SEC when assessing compliance with the rule. However, this client is not unique for any of this, as most SEC-registered advisers and funds will see many issues on the list that will give them pause as they evaluate their own practices.
Why is that?
We advised our clients to adopt the New Marketing Rule as late as possible because we hoped the SEC would provide some guidance, as problems with implementing the new rule were found when examining early adopters. But there was not much, and most of us were left to “interpret” and create “best practices” without bright lines to follow for guidance. The SEC seemed to wait until everyone had adopted it before focusing on the new rule.
The big takeaway from the risk alert, and what we have seen on the ground and in the sweep, is that many advisers updated their policies, trained employees, and updated their ADV, generally announcing both privately and publicly that they were in compliance with the new rule. Still, in practice, they had not, or not sufficiently, or only partially, and the like. The good news is that the risk alert is robust and pretty much exactly what we hoped to see back in 2023, but never did.
If you were not examined by the SEC recently, we strongly urge you to review the alert and use it as a checklist to test your current policies and practices with respect to the rule. We are confident that their examination focus on the implementation of this rule will continue for some time.
