SEC Proposes to Modernize the Advertising Rule

November 5, 2019

On November 4th, the U.S. Securities and Exchange Commission (SEC) announced proposed amendments intended to modernize the rules under the Investment Advisers Act related to investment adviser advertisements and payments to solicitors. Neither rule has been amended significantly since they were introduced in the 1960s and 1970s, respectively.

The advertising rule amendments would replace the current rule with principles-based provisions. Specifically, the amendment proposes specific requirements for firms to follow if presenting:

  1. Testimonials,
  2. Endorsements,
  3. Third-party ratings, and
  4. Actual and hypothetical performance results, with different requirements based on an advertisement’s intended audience.

To meet the business and investor needs, advisers often rely on No-Action Letters (NALs) to provide guidance on how to approach advertising. The SEC’s press release indicated that staff will be reviewing relevant NALs to determine whether any should be withdrawn in connection with any adoption of the proposed amendments.

Action Item: Here is your opportunity to provide feedback on regulation that will impact all investment advisers, including traditional asset managers, hedge funds, and private equity firms. The public comment period is open for 60 days following publication of the proposal in the Federal Register.  Click here for more information.