New Adviser Marketing/Advertising Rule Requires 1-5-10 Year Performance
The SEC adopted a new investment adviser marketing and advertising rule (206(4)-1) that eliminates distinctions between retail and institutional performance marketing, requires both gross and net performance, and mandates mutual fund-like one, five and ten year results. Eliminating the old solicitation rule (206(4)-3), the new rule allows testimonials and third-party endorsements with extensive disclosure including a description of the relationship, conflicts, and any compensation paid. The SEC also will allow hypothetical and predecessor performance with conditions similar to prior informal and no-action positions about fair presentation. The SEC did not adopt specific prior internal approval of all marketing materials, relying, instead, on each adviser’s obligation under the compliance rule (206(4)-7) to implement reasonable policies and procedures to ensure compliance with the Advisers Act.
The good news: allowing testimonials (with significant conditions), clearer guidance on predecessor and hypothetical performance, no longer collecting signed disclosures from clients solicited by third parties. The bad news: 1-5-10 year performance presentations, no flexibility for institutional marketing, withdrawal of prior staff guidance (e.g. no action letters) that addressed more specific situations. Net/net, this is a much better rule that the previous amalgam of rules, statements, staff positions, enforcement actions, and informal guidance. This rule revision may be the most significant legacy of the Clayton/Blass years.