Adam Schaub

  By Adam Schaub, Vice President, Platform Product Management, RegEd

About the Author: Adam Schaub has been in compliance in the financial services industry for more than 20 years. He most recently led the Compliance Services team at Avantax, and formerly served as Chief Compliance Officer at 1st Global. Adam joined RegEd in 2021, where he is Vice President of Platform Product Management.

All Aboard: Leveraging Technology to Address the New SEC Marketing Rule

The light at the end of the proverbial tunnel is in sight, as the compliance date for the SEC’s new Marketing Rule is November 4, 2022.  But is that light the dawn of a new age of marketing promotion for your RIA, or is it a train headed toward you like an unstoppable force, driven by your financial professionals and fueled by their ambitions to use client testimonials and endorsements?  Or maybe a bit of both?

Most firms appear to not have taken the SEC up on the offer in the new rule to move forward with revising their P&Ps prior to the compliance date, as it was an all-or-nothing proposition.  While compliance professionals recognize the importance and attraction that the new rule offers the business side, the creation of P&Ps is a pre-requisite as they are the rails that keep the train on track.  If the P&Ps and supporting supervisory structure are not ready when the Marketing Rule pulls into the station in November, the compliance department will need to at a minimum indicate that endorsements, testimonials, performance advertising, and so on are prohibited or restricted.

The task of developing procedures and enabling compliance with the various disclosures, verification of material facts as opposed to opinions, and the standard approval and archiving concerns, among all the other requirements, can seem daunting.  And while there are other parts of the rule such as performance advertising, much of the focus has been on testimonials and endorsements.  In the pandemic and social-media powered world, online reviews are a core to promotion and may be the most challenging to supervise.

In this regard, Compliance professionals can take some solace that they or their predecessors have been here before, first with websites and email and then with LinkedIn, Facebook, and other social media sites.  For all of these old “iron horses” there was great concern of the ability to supervise, which was overcome over time and with new technology.  Fortunately, there is existing technology that can assist with the many tasks related to your firm’s implementation of the new Rule.

With that in mind, the focus of this article are on some other items that your firm should consider adding to its to-do list as part of its preparation and subsequent compliance processes, and the technology that can assist you.

Part Two: Monitoring Compliance with Policies and Procedures after Implementation

1. Adjust advertising lexicon detection. In its final rule release, the SEC stated that “we are requiring advisers to have a reasonable basis to believe that they can substantiate material claims of fact upon demand by the Commission” and “We continue to believe that advertisements should provide an accurate portrayal of both the risks and benefits of the adviser’s services.” as well as “prohibiting advertisements that discuss any potential benefits…from the adviser’s services…without providing a fair and balanced treatment…”  With these statements in mind, your firm should review its current advertising review platform’s keyword and keyword phrase lexicon to look for keywords that would highlight the use of endorsements and testimonials, as well as review the lexicon structure for identifying statements that may not be fair and balanced.  This latter step may not be an easy one initially, and may need time to develop based on the actual language that promoters end up using in their endorsements and testimonials.

2. Adjust email and social media lexicon. Similarly, your firm will want to look at the keywords and keyword phrases in its email and social media monitoring systems.  For example, if a user submits a review of a business on Google, Yelp, etc., the business owner may have the ability to have that platform send a notification email.  In Google, the email uses language such as “2 people reviewed your business recently” or “Good job, you got a new 5-star review”.  Using these or partial phrases may help your firm identify advisers who have set up business pages and prompt your team to review the content of reviews to determine if they’re in line with your polices.

3. Revise advertising submission system. With the potential for new format types or variation in existing ones, you will need to review your advertising submission process to help your advisers and marketing team submit items correctly as well as submit all information necessary in order for your advertising team to conduct an effective and efficient review of the materials.  This can take the shape in additional submission questions that can act as guardrails to “self-reject” submissions that don’t meet the basic policy standards, and can also act as supplemental training for advisers to understand the requirements when using testimonials, endorsements, performance advertising, and the like.

4. Internal advertising team guidance. You can also set up your advertising review team for success in review of materials, beyond just providing them with training and surveillance support.  Your firm’s policy can be reduced into internal review questions and included in your advertising review process, to prompt the review team to ask the same questions about each submission (e.g., “Is the testimonial fair and balanced or does it contain any opinions which cannot be substantiated?”)  This will help with consistency among the team, and will help make those policies a permanent part of the process.

5. Compensation arrangements. Depending upon whether your firm allows for promotors to be compensated, you may need to set up your “Gifts, Gratuities, and Contributions” solution to have a submission option for such compensation, so that a home office supervisor or principal is able to review and approve the proposed compensation.

6. Branch Audits. In addition to training the branch audit team, your firm will want to revise its branch audit module to ask questions of the advisers as to their knowledge of the policies on the new rule, as well as collect information about their use of endorsements and testimonials, and to document the validation of compliance with those policies in the field.

7. Monitor for SEC guidance. As an ongoing process, you will need to monitor for any subsequent guidance that the SEC provides regarding the rule, so that you can adjust your policies as needed.  If the monitoring of ongoing regulatory changes is a challenge given all of your other responsibilities, a service such as RegEd’s Regulatory Change Management can assist.  This service can monitor regulations and regulatory changes for you and help to distribute those changes to the persons who need to review them in order to determine applicable or potential changes to your firm’s polices.

These are just some of the tasks that need to be taken or considered in order to effectively get and keep your new policy on the right track and avoid being derailed.  Fortunately, through the effective use of technology, a compliance team can put itself in the best position to create, implement, and surveille and monitor ongoing compliance with the policies.  The entire undertaking may be best summed up in this railroad saying:  “Driving the train doesn’t set its course. The real job is laying the track.”



This article is part two of a two part series. Visit here to read part one.

About RegEd’s Enterprise Advertising Review

RegEd’s Enterprise Advertising Review solution simplifies compliance with advertising regulation, reducing review time by more than 50%, and in some cases, by close to 80%. It also improves the accuracy and consistency of reviews. For example, Lexicon Detection automatically flags problematic keywords and phrases using firm-customized business rules while Smart Disclosures detects and confirms that submission items contain the proper disclosures.

More than 50 leading financial services firms rely on Enterprise Advertising Review to review more than 4 million marketing, advertising, and customer communications per year.

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