What: The Division of Examinations issued a Risk Alert with preliminary observations about Marketing Rule items contained in Form ADV as well as related discussions concerning the Compliance Rule (206(4)-7), the Books and Records Rule (204-2), and the Marketing Rule’s General Prohibitions.
Who: SEC-Registered Investment Advisers (The Marketing Rule applies to investment advisers registered or required to be registered with the SEC under Section 203 of the Advisers Act.)
When: Risk Alert issued April 17, 2024.
Why: Marketing practice assessments were designated as a particular focus area in the Division of Examination’s FY 2024 examination priorities.
How: The Risk Alert provides examples of gaps in marketing policies and procedures and in the preservation and maintenance requirements under the Marketing Rule. In addition, with respect to the Marketing Rule’s General Prohibitions, the Risk Alert provides observations of deficiencies related to the following: (1) untrue statements of material fact and unsubstantiated statements of material fact; (2) omission of material facts or misleading inference, (3) fair and balanced treatment of material risks or limitations, (4) references to specific investment advice that were not presented in a fair and balanced manner, and (5) inclusion or exclusion of performance results or time period in matters that were not fair and balanced.
Why it matters: As a 2024 priority, investment advisers should expect Marketing Rule compliance to continue to be under the microscope in examinations this year. It is imperative that firms have appropriately tailored compliance procedures designed to prevent violations of the Marketing Rule and, just as importantly, that the procedures are fully implemented – including the maintenance of required books and records. Investment advisers are encouraged to review the focus areas laid out in the examination priorities letter and the initial examination observations included in the new Risk Alert relative to their specific programs and marketing practices.
CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.
Contact Mitch Avnet for further details: (646)346-2468 | mavnet@compliance-risk.com
