The SEC’s Division of Examinations has released a Risk Alert highlighting observations regarding continued deficiencies in investment advisers’ compliance with the Advisers Act Marketing Rule, particularly around testimonials, endorsements, and third-party ratings.
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Key Takeaways
- Disclosure requirements: Advisers were observed failing to provide clear, prominent disclosures when using testimonials or endorsements, leaving investors without essential context.
- Oversight and compliance practices: Written policies alone are insufficient; firms must demonstrate effective supervisory and compliance controls in practice.
- Third-party ratings: Advisers must conduct due diligence to ensure ratings are unbiased and disclose material facts about methodology and limitations.
- Execution gaps: The SEC continues to observe breakdowns between documented policies and their actual implementation, underscoring the need for stronger training and monitoring.
- Regulatory expectations: The Division encourages advisers to review their practices, update procedures, and implement modifications to supervisory and compliance programs.
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Practical Implications
Firms should reassess their marketing materials and compliance frameworks to ensure alignment with the Marketing Rule. This includes:
- Conducting comprehensive reviews of disclosures in advertisements.
- Strengthening oversight mechanisms to verify compliance in day-to-day operations.
- Documenting due diligence on third-party ratings and ensuring transparency with investors.
- Providing ongoing training to staff responsible for marketing and compliance functions.
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Bottom Line
The SEC’s latest Risk Alert signals that enforcement focus on marketing practices remains strong. Advisers should treat these observations as a roadmap for compliance enhancements to avoid regulatory scrutiny.
For the full Risk Alert please click here.
Please reach out to us if you would like to discuss how this development may impact your compliance obligations or to discuss our services.
