Approving Marketing Materials for Investment Advisors

May 23, 2012

Reading time : 3 minutes

Under the anti-fraud provision of the Investment Advisers Act of 1940 (“Investment Advisers Act”) investment advisors registered with the U.S. Securities and Exchange Commission (“SEC”) must comply with the provision’s requirements concerning advertising and marketing materials. In efforts to prevent fraudulent, deceptive, or manipulative acts, your registered investment advisor should have in place strong supervisory and compliance policies and procedures designed to approve and monitor advertising and marketing materials. Federally registered investment advisors are routinely cited examination deficiencies for issuing non-compliant advertising materials. Much less, investment advisor firms have been cited for simply not establishing reasonably designed compliance policies and procedures for the creation, review and approval of advertising materials.

The importance of strong compliance controls for advertising and marketing materials is not limited to SEC registered investment advisor firms. In 2011, the North American Securities Administrators Association (“NASAA”) conducted an examination of 825 state-level advisers that revealed 3,543 deficiencies in 13 categories. Of the reported deficiencies, 21.6% of all investment advisers had at least one advertising deficiency. The result of the examination prompted NASAA to recommend best practices for investment advisers and specifically recommends investment advisers “review all advertisements, including websites and performance advertising, for accuracy.” (For a complete look at the examination results and best practices guidelines, click here.)

For many registered investment advisors, advertising materials can generate increased risk exposure. Using advertising claims that cannot be supported or proven, that are promissory, that are misleading or materially inaccurate must be avoided. Investment advisors should avoid specifically prohibited items, including: testimonials; the use of past specific recommendations that were profitable, unless the advisor includes a list of all recommendations made during the past year; a representation that any graph, chart, or formula can in and of itself be used to determine which securities to buy or sell; and advertisements stating that any report, analysis, or service is free, unless it really is free. An advertisement could include both a written publication (such as a website, blog newsletter or marketing brochure) as well as oral communications (such as an announcement made on radio or television).

All registered investment advisors should have detailed policies and procedures regarding advertising materials memorialized within their compliance program. It is advisable for investment advisors, as part of their on-going compliance program, to have in place policies requiring the pre-approval of all marketing materials. Investment advisors should be prepared for a thorough review of advertising materials during a regulatory examination.

For more information on the use of marketing materials for your investment advisor, join RIA Compliance Consultants on June 14, 2012, at 12:00 Central for our webinar, “Approving Marketing Materials.” During this webinar RIA Compliance Consultant will review SEC rules, no-action letters and enforcement actions related to marketing materials used by investment advisors. We will discuss examples of prohibited promises, guarantees and untrue statements. Our consultants will discuss best practices and sample disclosures related to client testimonials, client references, third-party rankings, top advisor lists, news article reprints and past investment recommendations. This webinar includes guidance about the regulatory considerations when an investment advisor uses a professional designation or social networking sites. Finally, our consultants will briefly explain the SEC’s requirements in order to show model or actual investment performance in advertising and marketing materials. To register for this webinar, please click here. This webinar is eligible for one credit hour towards the CFP professional designation continuing education requirements.

Posted by Bryan Hill
Labels: Compliance Program, Compliance Training, Marketing, NASAA, Webinar