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SEC examiners proceed to seek out violations of its’ amended advertising and marketing rule, together with advisors falsely claiming they’re “freed from all conflicts,” in keeping with a brand new danger alert.
The danger alert posted by the fee’s Division of Examinations this week is the third one associated to the advertising and marketing rule and the second since corporations have been required to adjust to the rule (the primary was launched in June 2023).
The most recent alert focuses extra on the particular sorts of potential violations, together with misstatements on Kind ADVs and insufficient books and data. Nevertheless, SEC examiners additionally discovered corporations made unfaithful and unsubstantiated statements in advertising and marketing supplies.
These included the aforementioned (and unfaithful) declare of being conflict-free, in addition to “faulty” personnel {qualifications} and referencing funding mandates for advisors in a agency when no such mandates have been used (like ESG mandates).
Some advertisements additionally omitted crucial info; for instance, some corporations claimed their advisors differed from others as a result of they acted in a consumer’s finest curiosity with out revealing that this was required of all SEC-registered advisors. In some circumstances, advertisements would use photos of celebrities that erroneously implied they endorsed the agency.
The advertising and marketing rule went into impact in Might 2021, with a compliance date set for the top of the next 12 months; then-SEC Chair Jay Clayton referred to as the amended advert guidelines an try and revisit necessities the fee hadn’t reassessed in a long time.
Amongst different modifications, the foundations allowed testimonials and endorsements for use in ads beneath sure circumstances and with the correct disclosures. Nevertheless, the rule additionally curtailed hypothetical efficiency in advertisements (which has been the point of interest of a number of of the SEC’s advert rule-related enforcement actions to date).
The danger alert highlighted that corporations have been omitting they’d used hypothetical efficiency in ads on sections of their Kind ADV, violating the brand new guidelines.
Examiners additionally discovered circumstances the place testimonials in advertisements have been deceptive. In a single instance, advisors used testimonials from shoppers of a third-party product on the advisors’ web site with out disclosing that the testimonials have been for the advisors’ companies fairly than the product. Many corporations haven’t determined to swim into these waters, with an IAA survey final July discovering that solely 5% of corporations elevated their use of testimonials within the aftermath of the advert rule.
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