SEC Identifies Most Frequent Compliance Issues Associated with Advertising by Investment Advisers

Stinson - Corporate & Securities Law Blog

The SEC’s Office of Compliance Inspections and Examinations has provided a list of compliance issues relating to Rule 206(4)-1, which is referred to as the Advertising Rule, under the Investment Advisers Act of 1940. In general, the Advertising Rule prohibits an adviser, directly or indirectly, from publishing, circulating, or distributing any advertisement that contains any untrue statement of material fact, or that is otherwise false or misleading.

OCIE’s objective in providing this guidance was to encourage advisers to assess the full scope of their advertisements and consider whether those advertisements are consistent with the Advertising Rule, related the prohibitions and their fiduciary duties, and review the adequacy and effectiveness of their compliance programs.

Some of the compliance issues noted were:

  • Use of misleading performance results
  • Misleading use of one-on-one presentations
  • Misleading claims of compliance with voluntary performance standards
  • Use of cherry-picked profitable stock selections
  • Use of misleading selections of recommendations
  • Failure to have compliance policies and procedures reasonably designed to prevent deficient advertising practices
  • Misleading use of third party rankings or awards
  • Misleading use of professional designations
  • Published statements of clients attesting to services or otherwise endorsing the adviser that may be prohibited testimonials

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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