Registered investment advisors view the Securities and
Exchange Commission’s new marketing and advertising rule as the “hottest”
compliance topic this year, with the second-hottest being cybersecurity, according
to a recently released Investment Adviser Association poll.
IAA’s 2021 Investment Management Compliance Testing Survey,
conducted with ACA Compliance Group, also found that firms would like the SEC
to conduct investor testing on its Customer Relationship Summary Form, or Form
CRS, and that the agency should conduct a comprehensive review and rewrite of
the Custody Rule, Rule 206(4)-2 under the Advisers Act.
ACA and IAA announced Thursday that they’ve entered into a
strategic partnership. “As a strategic partner, we are excited to collaborate
further with the IAA on delivering thought leadership and guidance on how to
address topical challenges for the benefit of our shared member/client
community,” said Carlo di Florio, Chief Services Officer at ACA Group, in a
statement.
The SEC’s advertising and marketing rule has been in effect
since early May, but compliance experts are cautioning advisors to tread
carefully when using testimonials and endorsements before the rule’s Nov. 4,
2022, compliance date.
The use of testimonials and endorsements “before the firm is
fully compliant and updating its compliance [policies and procedures] … that is
a huge risk to the firm,” Amy Lynch, founder and principal of FrontLine
Compliance, said on a recent webcast held by ThinkAdvisor.
Daren Domina, a partner in the Investment Management and
Private Equity Practice Groups at Haynes and Boone in New York, who also heads
the Broker-Dealer Regulatory Practice Group, told ThinkAdvisor Thursday in an
email that “because of the Marketing Rule’s permissibility of use, I expect to
see more adviser arrangements and presentations with testimonials and
endorsements, including increased use of social media.”
Said Domina: “Given the SEC’s reframing of advisor
solicitations arrangements, and that the SEC denied suggestions to provide
grandfathering relief, advisers will also have to convert their existing
agreements under the now defunct ‘Cash Solicitation Rule’ to the new paradigm
of compensated endorsements (and testimonials, as applicable), along with
increased material conflicts of interest disclosures.”
It’s important to note, Domina warned, that an advisor “may
not phase in parts of the Marketing Rule at different times; each adviser must
be prepared to internally select, and to identify to the SEC, the effective
date that such adviser is complying with all aspects of the Marketing Rule.”
The marketing rule “not only effectively codifies certain
existing interpretations and [SEC] no-action letters, but also introduces new
requirements,” Domina said.
Attorneys at BakerMcKenzie warned in a recent client alert
that the SEC “is ramping up its examination and enforcement focus on
cybersecurity at financial institutions, including scrutiny on actual
implementation and deployment of published procedures in response to discovery
of cyber breach incidents.”
The SEC, the attorneys said, also “appears to signal its
expectation that multi-factor authentication (‘MFA’) for email accounts
containing sensitive client and customer information should be in place.”
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