Nearly all investment adviser firms have at least one if not more websites and their prevalence continues to grow, but have you reviewed your investment adviser firm’s website recently? Websites are a great way to advertise your firm’s business and attract new clients, but they can also be a treasure trove for securities regulators.
Website and other advertising deficiencies are commonly cited during routine U.S. Securities and Exchange Commission (“SEC”) and state securities regulatory examinations. The following are specific examples of common website deficiencies that investment advisers should avoid in order to comply with Rule 206(4)-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) and similar state securities rules:
- Implying the firm is somehow endorsed by the SEC or a state regulatory body;
- If the investment adviser has multiple entities, failure to clarify what services are offered by the particular entity;
- Failure to include adequate 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- Displaying outdated information;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.
Investment advisers should familiarize themselves with Rule 206(4)-1, which specifically prohibits any advertisement:
(1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser; or
(2) Which refers, directly or indirectly, to past specific recommendations of such investment adviser which were or would have been profitable to any person: Provided, however, That this shall not prohibit an advertisement which sets out or offers to furnish a list of all recommendations made by such investment adviser within the immediately preceding period of not less than one year if such advertisement, and such list if it is furnished separately: (i) State the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date, and (ii) contain the following cautionary legend on the first page thereof in print or type as large as the largest print or type used in the body or text thereof: “it should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list”; or
(3) Which represents, directly or indirectly, that any graph, chart, formula or other device being offered can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; or which represents directly or indirectly, that any graph, chart, formula or other device being offered will assist any person in making his own decisions as to which securities to buy, sell, or when to buy or sell them, without prominently disclosing in such advertisement the limitations thereof and the difficulties with respect to its use; or
(4) Which contains any statement to the effect that any report, analysis, or other service will be furnished free or without charge, unless such report, analysis or other service actually is or will be furnished entirely free and without any condition or obligation, directly or indirectly; or
(5) Which contains any untrue statement of a material fact, or which is otherwise false or misleading.
Although regulators do not pre-approve advertising and marketing materials, such materials are always an examination priority and will be eventually reviewed during regulatory examinations. Because of the scrutiny placed on all advertising, it is extremely important to conduct a compliance review and approve all websites before they go live. Additionally, changes and revisions to a website need to be reviewed and approved by the firm’s Chief Compliance Officer or his or her designee before changes are formally adopted and made publicly available. It is important to implement a periodic advertising review program for all website content to avoid displaying outdated content or misinformation.
For purposes of books and record requirements, advertising materials must be retained for a period of five years from the end of the fiscal year in which the advertisement was last used. If advertising performance, you need to keep records to support data for every year presented in the advertisement. Investment advisers can expect examiners to evaluate their current website as well as any past published advertising material content during the exam period which is typically 18 months to two years.
For more information about advertising and Rule 206 (4) – 1, join us on Thursday June 25, 2015, at 12:00 PM CDT for our webinar “Conducting an Annual Compliance Review – Session 5 – Advertising and Social Media”. If your investment adviser is looking to stay updated with ongoing compliance review policies and procedures for your investment adviser, you can sign up for our annual subscription to live and recorded webinars through our website. Also, if your investment adviser would like help conducting a review of its compliance program, we have services available through our online store for compliance tools and services (click here for more information). RIA Compliance Consultants can assist investment advisers with ongoing compliance reviews of advertising and marketing materials. If you are an existing client of RIA Compliance Consultants, please contact your consultant to discuss how we can assist you. If you have not previously worked with RIA Compliance Consultants, please click here to schedule a time to speak with one of our consultants.
Posted by Bryan Hill
Labels: Advertising, Common Deficiencies, Compliance Program, Webinar, Written Policies and Procedures