“A frequent issue cited by OCIE is advisers indicating that they have been named to a list ranking the top advisers in a field, but not specifying when they received the ranking—thus giving the appearance that the ranking appeared in the most recent publication or list.”

OCIE issues Risk Alert flagging issues in investment adviser advertisements

by Dan Clausen

June 18, 2018

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The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released a Risk Alert in September 2017 pertaining to investment adviser advertisements. Advisers are prohibited by Rule 206(4)-1 of the Advisers Act from publishing any untrue or misleading facts in their marketing materials, and the report details issues frequently arising in reviewed materials that can be considered misleading.

Misleading information can be distributed in advertising both intentionally and unintentionally and in a variety of ways. The advertising rules do not allow for the use of client testimonials in marketing, for example, because those testimonials give the potentially false impression that they are representative of the average client’s experience. The report also found instances of ads falsely deeming the firm in compliance with voluntary sets of standards such as GIPS. And a firm’s publicizing its (technically true) performance results can mislead the prospective client by not disclosing that it has not deducted the adviser fees from the advertised results.

“Investment advisers should be especially careful about using accolades in their marketing materials”

 

Investment advisers should be especially careful about using accolades in their marketing materials. A frequent issue cited by OCIE is advisers indicating that they have been named to a list ranking the top advisers in a field, but not specifying when they received the ranking—thus giving the appearance that the ranking appeared in the most recent publication or list. Advisers also frequently failed to disclose what criteria were used for determining their rankings and awards, or if they paid to appear on a list or receive an award.

In light of this Risk Alert, investment advisers and their firms should take a look at their policies and procedures for advertising, and take a careful, deliberate approach to their marketing.

 

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