Modernized Marketing Rule for Investment Advisers Takes Effect on May 4

The countdown to the implementation of the modernized marketing rule for investment advisers has begun.

After years in the making, the sweeping changes that the SEC made in modernizing marketing rules for investment advisers will finally take effect on May 4, 2021, 60 days after being published in the Federal Register on March 5.

Firms will have 18 months, until Nov. 4, 2022, to comply with the rules, Karen Barr, president and CEO of the Investment Adviser Association, told ThinkAdvisor for a story about the effective date for the changes.

A New Era in Compliance for Investment Advisers

“The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology,” then-SEC Chairman Jay Clayton said in announcing the finalized reforms in December.

“This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors.”

The SEC created a single marketing rule that modernizes the rules that governed investment adviser advertisements and compensation to solicitors under the Investment Advisers Act of 1940. Neither rule had been amended significantly since its adoption.

The SEC first proposed amendments to modernize the advertising and cash solicitation rules in November 2019. Regulators revised their proposed changes based on public comments before announcing the final rule a year later.  When the SEC announced the new rule, it said it would take effect 60 days after being published in the Federal Register.

Compliance Management for the Present and the Future

The SEC has achieved a “Herculean task” by collecting hundreds of pages of piecemeal guidance that have accumulated over decades as well as “accounting for all of the information technology, social media, and marketing practice advancements over more than half a century, and fusing them into a modern, principles-based, evergreen, workable framework,” IAA President Barr wrote in a note to members in January, according to a ThinkAdvisor article on how advisor advertising rules are entering the 21st century.

The “principle-based provisions” include:

  • A two-prong definition of “advertisement”;
  • Prohibitions of certain general practices;
  • Requirements for using testimonials and endorsements in advertisements;
  • Criteria for the use of third-party ratings; and
  • Restrictions on promoting performance information in advertisements.

The SEC adopted amendments to the books and records rule and amended Form ADV to require advisers to provide additional information regarding their marketing practices to help facilitate the Commission’s inspection and enforcement capabilities as well.

Also, the staff of the Division of Investment Management will withdraw no-action letters and other guidance addressing the application of the advertising and cash solicitation rules as those positions are either incorporated into the final rule or will no longer apply, the SEC announced, noting that a list of the letters will be available on the commission’s website.

Addressing the New Investment Adviser Marketing Rule

“Anyone can read the rule but putting it into play and understanding what’s in and out, that’s really the work to be done,” said attorney Genna Garver, a partner at Troutman Pepper, during a RegEd webinar about understanding and preparing for the modernized marketing rule.

Webinar panelist Suzan Rose expects the SEC to provide additional guidance on some of the rule’s provisions during the transition period. “We have plenty of time to work out the kinks but there’s lots to cover,” said Rose, a senior advisor to the Alternative Investment Management Association (AIMA).

For example, the new “principles-based” approach includes undefined concepts like “fair and balanced.” “It will be a while before anyone can get a grasp on what the SEC truly feels ‘fair and balanced’ means,” Rose said. “And you want to be sure that ‘fair and balanced’ in your judgment does not equate to ‘misrepresentation’ in their judgment.”

Still, there are welcome changes, Garver said. One of the biggest is that the new rule permits testimonials.

“This will be welcome relief for many, especially on the social media front,” Garver said. “This is massive.”

Additional highlights of the rule include flexibility for the continual evolution and interplay of technology and advice, and easing restrictions on references to past investments, Garver and Rose noted.

“Part of this transition period needs to be used to look at everything that’s interfacing with clients and making a decision if this is an advertisement or is it not and having the training and policies and procedures in place to identify things that might be outliers in the types of communication that you have,” Garver said.

Adopting the Modernized Marketing Rule

Some investment advisers may adopt the new marketing rule before the 18-month transition period ends, said Margie Webber, director of regulatory compliance for RegEd. “They may consider rolling it out sooner so that they could use testimonials in their marketing materials as soon as possible after the May 4 effective date.”

Though advisers can voluntarily adopt the new rules before the compliance date, they would be subject to them in full if they do. “If you’re going to do it, make sure that you have policies in place and that you’ve trained your teams,” Garver suggested.

Rose recommended waiting for the SEC to clarify any provisions that could use additional guidance, like those related to the usage of hypothetical performances. “Ask your questions before deciding to adopt the rule as it is and before the compliance date because once it’s in effect that’s what you’ve got,” she said.

Rose expects the SEC to respond to industry comments during the transition period.

But the countdown to Nov. 4, 2022, has begun. Advisers have until then to comply.

RegEd has reduced non-compliance risk for hundreds of financial services firms by providing them with proven, scalable compliance management solutions, including our market-leading Advertising Review software.

View our most recent Advertising Regulation Webinar to learn more about the new modernized marketing rule for investment advisers, its impact on the industry, and what firms can do now to prepare.

About RegEd

RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.

Established in 2000 by former regulators, the company is recognized for continuous regulatory technology innovation with solutions hallmarked by workflow-directed processes, data integration, regulatory intelligence, automated validations, business process automation and compliance dashboards. The aggregate drives the highest levels of operational efficiency and enables our clients to cost-effectively comply with regulations and continuously mitigate risk.

Trusted by the nation’s top financial services firms, RegEd’s proven, holistic approach to RegTech meets firms where they are on the compliance and risk management continuum, scaling as their needs evolve and amplifying the value proposition delivered to clients. For more information, please visit

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