SEC Charges Nine Firms with Marketing Rule Violations

The SEC announced on September 11, 2023 that it had settled charges against nine registered investment advisers (“RIAs”). These advisers were accused of advertising hypothetical performance on their websites without the requisite policies and procedures in place, in violation of SEC Rule 206(4)-1 (“Marketing Rule”).

Two of the nine firms also failed to maintain required copies of their advertising in violation of the Books and Records Rule 204-2, which requires RIAs to preserve and maintain records related to the adviser’s business.

Without admitting or denying the SEC’s findings, the firms agreed to be censured, cease and desist from violating the charged provisions, comply with undertakings not to advertise hypothetical performance without having the requisite policies and procedures, and pay civil penalties totaling $850,000.

SEC’s Marketing Rule

Under the Marketing Rule, RIAs are prohibited from including hypothetical performance in their advertisements unless they have adopted and implemented policies and procedures reasonably designed to make certain that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement.

Due to the high risks that hypothetical performance advertisements present to potential investors, the SEC will continue its investigations of potential Marketing Rule violations by RIAs. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said it is crucial for RIAs to implement policies and procedures that comply with the rule, as the SEC will remain vigilant in its ongoing sweep to ensure advisers comply with the Marketing Rule.

RIAs should conduct reviews of their policies and procedures to assess their compliance with the rule, and update these in a timely manner if they identify deficiencies.