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Modernized Marketing Rule for Investment Advisers

Monday, January 25, 2021

On December 22, 2020, the SEC announced the Modernized Marketing Rule’s finalization for investment advisers. These rules were developed under the Investment Advisers Act of 1940 and have not been significantly revised since the 1980s.

The world of marketing and client-adviser interaction has changed monumentally over that time, as the internet and social media provide two of the top channels where consumers gather information and begin their decision-making processes. Because of these innovations, the SEC determined it was a proper time to make changes that better reflect the changing environment and introduction of electronic media and mobile communications.

What are the Key Changes Created through the Modernization of the Rule?

Testimonial advertising is a key area impacted by this rule.

Testimonials are one of the best ways to showcase the value and benefits of a product by sharing the impact it has made on another similar customer. In fact, 92% of consumers read online reviews before making purchases, and 72% of consumers say positive testimonials and reviews increase their trust in a business.

Rules like this are typically put in place to protect from unscrupulous people who misrepresent themselves and defraud consumers.

However, in an online-driven world, the inability to offer testimonials regarding products or services can place reputable firms and advisers at a distinct disadvantage by not allowing them to differentiate themselves from others in the market. In fact, the rules have been so stringent in the past that some consultants have advised professionals to turn off the ability to comment on their social media posts lest an unsolicited positive comment might be mistaken for a testimonial.

By making these changes, the SEC acknowledges consumers’ desire for information and the need to keep up with the advancement of technology. With the new guidelines, advisers will be able to receive and promote relevant reviews of their services and the products they offer.

Additional safeguards against fraud remain part of the rule. For example, the SEC will “require advisers to standardize certain parts of a performance presentation to help investors evaluate and compare investment opportunities, and will include tailored requirements for certain types of performance presentations.”

While advertisements may include mentions of third-party ratings or endorsements, appropriate disclosures must be included to ensure they are not misleading. If a testimonial is used and it touts profitability, for example, the profitability must be representative of the experience of the adviser’s full client portfolio. Paid testimonials must fall under certain thresholds and must be properly disclosed.

How Will This Affect My Advertising and Advertising Compliance?

As an adviser, you may be able to revise your marketing strategy. You may want to begin pooling testimonials from your clients and adding them to your campaigns.

To do so and to strike quickly, you’ll want to have a clear set of disclosures you can use, and you’ll also want a fast and thorough review process to ensure you’re meeting the guidelines required by the rule’s modernization.

You’ll also want to consider the type of testimonials you’re using and how quickly you can update them if something changes. It may make sense to focus your initial marketing campaign updates on your service and stability rather than focusing on certain products’ profitability.

And, it’s always a good idea to spend some time reviewing your advertising compliance, ensuring you’re using appropriate disclosures and that they’re consistent across the board.

In addition to marketing and solicitation changes, the SEC has also amended the books and records Rule and ADV requirements. All amendments will be effective 60 days after publication in the Federal Register and enforced 18 months after the effective date.

You can review the SEC’s full press release on their website. If you’re looking forward to utilizing these modernized guidelines to promote your services, contact our team, and we can work with you to develop the appropriate disclosures and processes for your new testimonial advertising.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry, serving clients with more than $19 trillion in assets under management. Red Oak’s advertising compliance review software offers quick implementation timelines, as well as agile technology that responds to client needs and is 100% Books and Records compliant. Our clients report 35% faster approvals and 70% fewer touches, with many experiencing even better results. Are you ready to minimize risk, reduce costs, and improve efficiency?  Contact the Red Oak team to learn how.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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