Advertising continues to be one of the primary focus areas of the SEC during investment adviser examinations. More specifically, performance advertising is one of the more common deficiencies found during SEC examinations and one that needs effective compliance oversight. During examinations, the SEC is interested in whether investment advisers have effective policies and procedures to make sure that their claims about past investment performance, their advertisements, and other marketing materials, among other things, contain accurate information, are not misleading, are not promissory, and have been reviewed by compliance.
Category Archives: Advertising
A recent consent order in a matter before the Nebraska Securities Bureau serves as a reminder to registered investment advisors of the necessity to clearly and accurately disclose that advisory services are offered by the registered investment advisor and not an outside business activity of the investment advisor representative.
In January of this year, the SEC entered bar and cease and desist orders against a two member registered investment advisor firm. The firm was owned by a husband and wife with the wife serving strictly in an administrative capacity. The law judge in the case found that the registered investment advisor had willfully violated the Investment Advisers Act of 1940 because it falsely represented to the SEC that it had assets under management (AUM) exceeding $25 million in order to remain eligible for SEC registration. The inflated AUM numbers were reported on several Form ADV Part 1 amendments from 1996 through 2000. The SEC terminated the firm’s registration in 2002. However, the firm continued to hold itself out to the public as an investment advisor and reported its AUM numbers through several database services. The reporting of those numbers were also found to be intentionally inflated and therefore misleading. Further, the firm was not able to provide documentation substantiating its AUM and performance numbers. The firm claimed all paperwork and client files were lost in a fire and then claimed the paperwork was lost in flood. To read the entire order click here.
SEC Chair Previews Results of “Free Lunch” Seminar Exams
September 06, 2007
During recent testimony before the U.S. Senate’s Special Committee on Aging, United States Securities and Exchange Commission (“SEC”) Chairman Christopher Cox offered a preview of the results from the SEC’s targeted exams of financial firms that sponsor “free lunch” seminars in advance of the full release next week at the SEC’s “Senior Summit”. The following is an excerpt of SEC Chairman Cox’s comments regarding the SEC’s “free lunch” seminar exam findings:
Senate Hearing Scheduled Regarding “Free Lunch” Seminars for Seniors & Professional Designations
September 01, 2007
The United States Senate Special Committee on Aging will hold a hearing entitled as “Advising Seniors About Their Money: Who Is Qualified – and Who Is Not?” on Wednesday, September 5, 2007 at 2:00 p.m. EST. If interested in hearing the webcast, you should visit the website of the Special Committee on Aging.
Earlier this month, the California Department of Corporations announced proposed changes to rules regulating investment advisers registered in California. According to the release, the objective in proposing the amendments is to increase uniformity with the model rules suggested by the North American Securities Administrators Association (NASAA), rules already in effect in other states, and rules established by the Securities and Exchange Commission (SEC). California is giving the public an opportunity to comment on the proposed changes. The time period for comment ends on October 30, 2007.
Washington Securities Division is Scrutinizing Professional Designations that Imply Expertise with Seniors
August 10, 2007
The State of Washington’s Securities Division is currently seeking comments regarding the possible regulation of professional designations by investment adviser representatives related to senior citizens. It appears that the Washington Securities Division might be following the lead of many other state securities regulators that have expressed concern about the use of a professional designation that implies a special expertise, training or experience in dealing with seniors when in fact the investment adviser representative utilizing such a designation does not possess such expertise, training or experience with seniors. Even if your state securities regulator hasn’t adopted a senior professional designation rule, you should exercise caution about using certain senior related professional designations if you’re registered as an investment adviser representative since your state securities regulator may attempt to argue that your use of such designtations is a material misrepresentation in violation of the state securities act.
SEC Highlights Performance Advertising Deficiencies
June 26, 2007
In the first SEC ComplianceAlert issue, the United States Securities and Exchange Commission (SEC) cautioned registered investment advisors against inappropriate performance advertisements and inadequate policies regarding performance advertising. According to the ComplianceAlert article, the SEC discovered numerous deficiencies as a result of a risk-based sweep examination of several registered investment advisors.
In today’s edition of the Omaha World-Herald, Jack Herstein, deputy director of the Securities Bureau of the Nebraska Department of Banking and Finance, noted that the Securities Bureau has approved eight (8) professional designations for use by registered investment advisers in Nebraska.
It appears that certain state securities regulators are continuing their investigation of insurance only agents offering equity indexed annuities by focusing upon the use of seminars targeted toward the elderly and underlying training associated with such seminars.
