SEC examiners proceed to seek out violations of its’ amended advertising rule, together with advisors falsely claiming they’re “freed from all conflicts,” in keeping with a brand new threat alert.
The chance alert posted by the fee’s Division of Examinations this week is the third one associated to the advertising rule and the second since companies had been required to adjust to the rule (the primary was launched in June 2023).
The latest alert focuses extra on the particular sorts of potential violations, together with misstatements on Kind ADVs and insufficient books and information. Nevertheless, SEC examiners additionally discovered companies made unfaithful and unsubstantiated statements in advertising 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 had been used (like ESG mandates).
Some adverts additionally omitted crucial info; for instance, some companies 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 instances, adverts would use photos of celebrities that erroneously implied they endorsed the agency.
The advertising rule went into impact in Might 2021, with a compliance date set for the tip of the next yr; then-SEC Chair Jay Clayton referred to as the amended advert guidelines an try to 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 situations and with the right disclosures. Nevertheless, the rule additionally curtailed hypothetical efficiency in adverts (which has been the point of interest of a number of of the SEC’s advert rule-related enforcement actions to date).
The chance alert highlighted that companies had been omitting they’d used hypothetical efficiency in ads on sections of their Kind ADV, violating the brand new guidelines.
Examiners additionally discovered instances the place testimonials in adverts had 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 had been for the advisors’ companies quite than the product. Many companies haven’t determined to swim into these waters, with an IAA survey final July discovering that solely 5% of companies elevated their use of testimonials within the aftermath of the advert rule.
