Investment Advisers Settle Charges for Marketing Violations
Commentary by Rachael Hashmall
Four investment advisers settled SEC charges for advertising hypothetical performance on their websites without adopting policies to ensure that the published information was relevant to the likely financial situation and investment objectives of the intended audience.
According to the separate Orders, the firms' advertisements included hypothetical performance information derived from model portfolios and the firms' marketing materials were disseminated to the general public rather than to a particular intended audience in violation of the Amended Marketing Rule.
The SEC found that the firms violated Advisers Act Section 206(4) ("Prohibited transactions by investment advisers") and Rule 206(4)-1(d) ("Investment Adviser Marketing").
To settle the charges, all of the firms consented to (i) the entry of orders finding that they violated the Investment Advisers Act and ordering them to be censured, (ii) cease and desist from violating the charged provisions and (iii) comply with certain undertakings.
- The first firm agreed to pay a civil penalty of $20,000.
- The second firm agreed to pay a civil penalty of $30,000.
- The third firm agreed to pay a civil penalty of $30,000.
- The fourth firm agreed to pay a civil penalty of $20,000.
The civil money penalties reflected that the firms removed the advertisements containing hypothetical performance from their websites prior to being contacted by the SEC.
Commentary
This marks the second wave of Marketing Rule enforcement actions by the SEC following charges brought against nine registered investment advisers in September 2023. These actions should serve as a reminder that all registered investment advisers must regularly review and update all marketing materials, including websites, social media and printed materials to ensure they are not misleading and are in compliance with the Marketing Rule.
It's interesting to note that for each of the four advisory firms, the offending material was removed from the applicable public website prior to the firms being contacted by the SEC staff. Further, the SEC's acknowledgment of the firms' actions prior to contact shows how a proactive approach to managing potential risks can influence enforcement outcomes, possibly resulting in more favorable terms in the event of any settlement.