Compliance Solutions for Investment Advisers

Marketing Review Checklist

Advertising and marketing will always be a primary area of concern for regulators. Underscoring this is the SEC most recent Presence Exams Letter which listed “Marketing” as its first substantive subject. That letter stated that the Office of Compliance Inspections and Examinations (commonly referred to as “OCIE”) would consider whether an adviser:

” . . . has made false or misleading statements about its business or performance records; made any untrue statement of a material fact; omitted material facts; made any statement that is otherwise misleading; or engaged in any manipulative, fraudulent, or deceptive activities.”
Given the importance of this subject area, and given the confusion among advisers as to what is or is not permissible, we have prepared a series of questions advisers can use to analyze whether their marketing material is compliant with applicable regulations and best practices.

1.  Is the marketing piece actually an “advertisement”?

  • Remember, for a communication to be considered an advertisement, it must be sent to more than one person.

2.  Who is the intended audience?

  • The sophistication of the recipient(s) will determine attendant disclosure requirements.

3.  Is the marketing piece accurate?

  • Maintain appropriate backup to support all facts and data.

4.  Are assumptions made in the marketing piece clear or is additional explanation necessary?

  • Cite all sources.

5.  Is the presentation of performance consistent with SEC requirements?

  • Present performance net of fees unless in a one-on-one presentation to sophisticated clients (and even then you must show the effect of advisory fees).
  • Only use a benchmark that is relevant (it shouldn’t vary significantly from your strategy).
  • Include all applicable accounts to avoid a charge of cherry-picking.
  • Include all required performance disclosures (think Clover Capital Management No-Action Letter and its progeny).

6.  Does the marketing piece contain any prohibited types of advertising?

  • Do not include testimonials or past specific recommendations (unless all picks for the past year are presented).
  • Do not include guaranteed or projected returns.
  • Do not engage in puffery (i.e., exaggerated or unsupportable claims).
7.  Does it include all standard disclaimers?
  • Past performance is no guaranty of future returns.
  • Registration with the SEC does not imply any level of expertise or training.
  • Reflects (or does not reflect) the reinvestment of dividends.
  • Possibility of loss and other material risks.
While this is not an exhaustive list, it is an excellent place to start your review.  The bottom line is that when you look at proposed marketing from your clients’ perspective (or from a regulator’s perspective for that matter), could some portion be considered false or misleading or could it benefit from further explanation about some of the assumptions made and sources of data?

As with all things in compliance, make sure you document the review process.

Good luck!

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