The deadline to comply with the US Securities and Exchange Commission’s (SEC) Marketing Rule is fast approaching on November 4, 2022. The new rule effectively joins formerly disparate regulations together under the Investment Advisory Act of 1940 (The ’40 Act) to govern how registered investment advisors can advertise and solicit cash—essentially all things related to attracting new clients and cross-selling new services to existing clients.
Excluding private funds, all other fund types are subject to this regulation. The rule considers one-on-one communications with prospective or current advisory clients of “40 Act” funds to be advertisements, and that impacts the vast majority of investment advisors, their funds and their communications about those funds with current and prospective clients.
The SEC’s Marketing Rule aims to modernize regulation to match the evolution of investment advisors’ communications with their existing and prospective clients, which today is generally done digitally via web portals, social media and other historically “non-traditional” forms. There are a couple of areas that are especially important from a marketing content and client reporting perspective.
Disclaiming Testimonials and Endorsements
Proof of material claims made in an advertisement has always been required. But the new rule now beef up the focus on the status of people providing testimonials and endorsements to the advisor. Full disclosure is required whether the endorser is actually a client and whether they were compensated to make the endorsement. As video and other forms of client testimonials and celebrity endorsements are commonly placed on social media and online platforms these days, full disclosure makes sense.
Presenting Performance Figures
Common investment performance reporting best practice is now explicitly required in the Marketing Rule. First, gross performance figures must now also be presented with a net-of-fees figure. Additionally, the periods required in reporting performance figures have been standardized. The rule states that 1, 5 and 10-year performance figures must be presented to the extent that those periods are all applicable.
Meeting New Requirements
The SEC’s Marketing Rule responds to the rapid evolution in the ways investment advisors communicate with their clients and market to prospective clients. But, to be in compliance, client communications and marketing materials will have to be revised as needed—which underscores the importance of having processes and tools that an operations team can leverage to make meeting the new requirements and associated content changes efficient and scalable. Also, a system that fosters a unified approach to design, creation, and the governance and review of these materials before release is made all the more important by the Marketing Rule.
SS&C offers solutions to help. SS&C Vision FI is a flexible, end-to-end solution for designing, producing and distributing client communications for print, email or online channels. SS&C Sylvan is an award-winning and market-leading performance measurement, attribution and composite management platform that streamlines performance calculation and reporting. SS&C leverages both these leading solutions in an "Investment Performance and Reporting" service offering that gives clients more time to focus on building their business while our expert operational team manages the performance and reporting work. Contact us to learn more about our solutions and the best fit for your business.
Written by Mike Kendall
Director of Global Product Strategy, SS&C Institutional & Investment Management