Investment Advisers Are Encouraged to Review Their Websites for Marketing Violations

June 07, 2012

Investment adviser marketing materials and advertisements are regulated by Rule 206(4)-1 of the Investment Advisers Act of 1940 (“Investment Advisers Act”) and similar state regulations. Under Rule 206(4)-1, an SEC registered investment adviser’s website is considered a form of advertisement under the following circumstances:

“For the purposes of this section the term advertisement shall include any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.”

Rule 206(4)-1 generally prohibits an SEC registered investment adviser from using client testimonials and the use of past specific recommendations and seeks to prevent the use of false or misleading information. Investment advisers should take care when reviewing the content of their websites as the information contained within the content can easily become considered false or misleading, especially if the content becomes outdated or contains unverifiable statements.

The following are examples of common website deficiencies that investment advisers should take care to avoid:

  • Failure to clearly indicate that the firm is a registered investment adviser;
  • If the investment adviser has multiple entities, failure to clarify what services are offered by the particular entity;
  • Failure to include website disclosure language;
  • Using misleading statements;
  • Using testimonials;
  • Displaying outdated information;
  • Overstating qualifications or experience; and
  • Using language that may be construed as a guarantee.

In order to avoid regulatory violations, an investment adviser should have its chief compliance officer (“CCO”) or compliance department review and approve all website content before it is posted. Additionally, an investment adviser’s CCO is encouraged to frequently monitor and review the content of the investment adviser’s website. Likewise, it is essential that an investment adviser has written policies and procedures that require frequent website reviews as part of its on-going compliance program.

An investment adviser’s website can be a great marketing tool as long as it remains compliant with the regulations of the SEC or state securities regulators. Simply, an investment adviser should remember its fiduciary role and act in accordance with such fiduciary obligations which extend to advertising and marketing materials.

On June 14, 2012 at 12:00pm CDT, RIA Compliance Consultants is hosting a webinar designed to educate investment advisers on the importance of approving marketing materials used by investment advisers. To register for this upcoming webinar, “Approving Marketing Materials,” please click here. If your investment adviser would like to speak with RIA Compliance Consultants to discuss ways in which we may further assist your investment adviser with its continuous on-going compliance requirements, contact your consultant if you are an existing client or new clients can click here to schedule a time to speak to one of our senior compliance consultants.

Posted by Bryan Hill
Labels: Advertising, Compliance Program, Marketing, Webinar