Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Business Crimes BulletinFeaturesRegulationWhite Collar Crime

Navigating the SEC's Marketing Rule: Compliance Challenges and Legal Insights

By Colleen Corwell, Shannon Nolan and Nikolas Simonlacaj
October 01, 2024

In 2020, the SEC formalized Rule 206(4)-1 (the Marketing Rule) under the Investment Advisers Act of 1940 (the Advisers Act) with the goal of codifying the multiple sources of guidance and case law that had accumulated over the years regarding the promotion of services under the previous regime. Since its implementation, investment advisers have faced challenges due to the regulation's ambiguity. Despite the Staff's initial release of a two-item FAQ to clarify the adoption time frame and reporting period for the Marketing Rule, many substantive questions remained well after the November 2022 compliance date.

|

Who Is Impacted?  

Registered Investment Advisers (RIAs) are directly impacted by the Marketing Rule. The Advisers Act defines investment advisers as any person or firm that is engaged in the business of providing advice to others or issuing reports or analyses regarding securities for compensation. The Marketing Rule sets standards for how RIAs market their services, including presenting performance data, substantiating claims and ensuring advertisements are "fair and balanced."

Key questions that arose in the industry following the adoption of the Marketing Rule included:

|
  • Can firms present gross performance for a single investment if net performance for the entire portfolio is also shown?
  • What practical criteria does the SEC expect to meet the "fair and balanced" standard in advertisements?
  • What types of evidence are needed to substantiate both express and implied claims?

Questions in the industry surrounding the presentation of gross and net performance led the Staff to update the FAQ again in 2023 and 2024. These updates clarified that net performance advertising must be presented in all circumstances, including for single asset investments. They also specified that gross and net performance must be calculated using the same time frame and methodology and highlighted the importance of accurately calculating an internal rate of return (IRR) when subscription lines of credit are used. See, SEC Marketing Compliance Frequently Asked Questions (Feb. 6, 2024).

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
How Secure Is the AI System Your Law Firm Is Using? Image

What Law Firms Need to Know Before Trusting AI Systems with Confidential Information In a profession where confidentiality is paramount, failing to address AI security concerns could have disastrous consequences. It is vital that law firms and those in related industries ask the right questions about AI security to protect their clients and their reputation.

COVID-19 and Lease Negotiations: Early Termination Provisions Image

During the COVID-19 pandemic, some tenants were able to negotiate termination agreements with their landlords. But even though a landlord may agree to terminate a lease to regain control of a defaulting tenant's space without costly and lengthy litigation, typically a defaulting tenant that otherwise has no contractual right to terminate its lease will be in a much weaker bargaining position with respect to the conditions for termination.

Pleading Importation: ITC Decisions Highlight Need for Adequate Evidentiary Support Image

The International Trade Commission is empowered to block the importation into the United States of products that infringe U.S. intellectual property rights, In the past, the ITC generally instituted investigations without questioning the importation allegations in the complaint, however in several recent cases, the ITC declined to institute an investigation as to certain proposed respondents due to inadequate pleading of importation.

Authentic Communications Today Increase Success for Value-Driven Clients Image

As the relationship between in-house and outside counsel continues to evolve, lawyers must continue to foster a client-first mindset, offer business-focused solutions, and embrace technology that helps deliver work faster and more efficiently.

The Power of Your Inner Circle: Turning Friends and Social Contacts Into Business Allies Image

Practical strategies to explore doing business with friends and social contacts in a way that respects relationships and maximizes opportunities.