Episode 88: The New Marketing Rule – How Your Firm Can Prepare Now

On episode 88 of the CCO Buzz, Core Compliance discusses what your firm should be thinking about now to prepare for the New Marketing Rule.


CCO Buzz: Hello and welcome back to the CCO Buzz. How is it June already? The sun is finally out, and summer is right around the corner. I don’t know about you, but the team at Core Compliance cannot wait for the summer. On today’s episode we have a Senior Compliance Consultant. He’s here to discuss a hot topic that should be on everyone’s horizon – The New Marketing Rule. Although the compliance deadline is still a ways away, firms should be considering the impacts to their programs and start the conversation within their organization.

I know I’ve got a ton of questions – so with that, let’s begin.

Can you provide our listeners with a little bit of background regarding the new rule?

Compliance Consultant: Absolutely. Late December of 2020 the Securities and Exchange Commission (“SEC”) released the final rule that will govern investment adviser advertisements and payments to solicitors.   Since its unveiling the industry has coined it as the “New Marketing Rule”, as its goal is to modernize the current advertising and solicitation regulations under Rules 206(4)-1 and 206(4)-3 of the Investment Advisers Act of 1940.

Although the effective date of the New Marketing Rule was May 4, 2021, firms must begin to address and acknowledge the multiple components of the regulation, in order to fully meet the requirements by the compliance date of November 4, 2022.

CCO Buzz: Wow, that’s less than…17 months? The clock is ticking for firms to get started. This month you authored Core Compliance’s Risk Management Update on the New Marketing Rule, which is set to be published in the coming days. In it, you discuss the main components of the rule quite nicely. Can we explore that a bit with listeners? There are several significant changes and updates pertaining to investment adviser marketing, can you give us a few that should be top of mind?

Compliance Consultant: Sure. Some include, but are not limited to…

  • A revised definition of an advertisement and new definitions of various other related terms;
  • Removal of the prohibition on testimonials and past specific recommendations; and
  • The addition of general marketing and advertising prohibitions.

In my article, I provide more, as well as a brief summary on how to digest, unpack, and tackle each component within the firm.

CCO Buzz: That’s interesting. Understanding that there’s more to the article than those three examples, mind if we unpack the first?

Compliance Consultant: One clear distinction for the New Marketing Rule is the new definition of advertisement, which includes any “direct or indirect” communication made to more than one person, or one or more persons if the communication includes hypothetical performance. The new definition “…offers the investment advisers investment advisory services with regard to securities to prospective clients or investors in a private fund advised by the investment adviser or offers new investment advisory services with regard to securities to current clients or investors in a private fund advised by the investment adviser…”.   The definition also includes any endorsement or testimonial where the investment adviser provides compensation.

So the definition carves out, among other things:

  1. Live, extemporaneous, and verbal communications;
  2. Information, endorsements, and testimonials contained in statutory or regulatory notices and filings; and
  3. Hypothetical performance that is provided due to an unsolicited request to a prospective or current investor in a private fund advised by the firm in a one-on-one communication.

Other terms further defined within the New Marketing Rule include Endorsement, Testimonial, De minimis Compensation, Portfolio, Hypothetical Performance, and Predecessor Performance – to name a few.

CCO Buzz: Wow, just understanding all of those new definitions could really impact and start a lot of changes for firms in the coming months. The definitions themselves could impact processes and procedures.

Compliance Consultant: Exactly! Which is why its best if firms start right now. In my article I give a simple plan of attack. Although only three steps, each one requires time to dedicate to each [of the] intricacies of the rule. So Step One is to review the New Marketing Rule, Step two is to update the firm’s Policies and Procedures, and Step Three is to provide training on the new regulations.

If I could share one piece of advice with the industry, this approach sounds simple- but don’t let it fool you- it’s going to take time to address the requirements in full.

While the [New] Marketing Rule is a welcome modernization of investment adviser advertising regulations, there are quite a few changes that will likely cause most firms to reconsider the way they market their services to the public.

If you don’t know where to begin, our team at Core Compliance can help you analyze how the changes will affect your firm, assist with drafting and implementing policies and procedures, and help train your employees.

For further information, please contact us at info@corecls.com, by phone at (619) 278- 0020, or visit us at www.corecls.com for more information.

CCO Buzz: Well there you have it listeners, a brief insight and a sign to start preparing your team now. Thank you so much for joining us today.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.



Leave a Reply

Your email address will not be published. Required fields are marked *