Forewarned Is Forearmed as RIAs Put Together Ad Campaigns In Light of Recent OCIE Guidance
On September 14, the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued its list of frequently-encountered compliance issues related to Rule 206(4)-1 under the Advisers Act (the Advertising Rule) arising from its examinations of RIAs. For advisers, forewarned is forearmed as they develop future advertising campaigns.
The Advertising Rule prohibits RIAs from using advertisements that contain any untrue statement of material fact or that is false or misleading, as well as testimonials, specific past recommendations of the RIA that would have been profitable to anyone, claims that a graph or chart by itself can dictate by itself whether to buy or sell and offers of purportedly free services that are in fact not free.
OCIE cited the following issues as cropping up most frequently in its recent exams:
- Misleading performance results—presentations of results that are not net of all fees; comparisons to benchmarks that omit all of the relevant bases for comparison; and the use of hypothetical and back-tested results without explanation of their derivations;
- Misleading one-on-one presentations—for example, those presenting gross performance results or contained inadequate explanations of the deduction of fees and its effect on performance;
- Misleading claims of compliance with voluntary performance standards—where the performance presented did not clearly adhere to those standards;
- Cherry-picked profitable stock selections—always a problem, and the misleading selection of recommendations;
- Inadequate compliance policies and procedures—not tailored to identify deficient advertising practices (such as processes for review and approval prior to publication and to confirming the accuracy of track records;
- Testimonials—OCIE noted the frequent publication of statements from clients that are in fact forbidden testimonials and appearing in firm websites, social media pages, reprints of third party articles and pitchbooks); and
- In response to the Office’s Touting Initiative, OCIE flagged the misleading use of third party rankings and awards without adequate explanation, or that were in fact stale, or that the RIA paid a fee to participate in or distribute the results of the rankings.
If you would like to discuss your firm’s advertising and marketing materials in light of Rule 206(4)-1 and OCIE’s concerns (especially before OCIE itself raises them in a future visit), please contact me at the address below. This information is provided by the Law Office of John P. Ziaukas for educational and informational purposes only and is not intended and should not be construed as legal advice. This information may be considered advertising under applicable California law. Please refer to the Legal Disclaimers link below.