The US Securities and Exchange Commission (SEC) has spotlighted investment advisers failing to comply with its marketing rule, particularly around testimonials, endorsements and third-party ratings.
This week, the SEC’s Division of Examinations issued a risk alert identifying deficiencies among registered investment advisers (RIAs) in complying with the investment adviser marketing rule, an area important for private credit managers marketing their funds.
A consistent theme throughout the alert was the gap between documented policies and actual practice. The SEC repeatedly noted advisers who had updated written compliance policies to reflect the marketing rule but could not demonstrate that these policies were being implemented effectively.
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The most common deficiencies observed by the SEC related to testimonials, endorsements and third-party ratings. In regard to third-party ratings the SEC highlighted failure to conduct or document due diligence on survey methodologies, missing or unclear disclosures about rating dates, time periods or the rating provider and undisclosed payments for ratings, logos, enhanced placement or referrals.
For private credit managers, these findings are particularly relevant as marketing materials often rely on performance snapshots, investor testimonials or third-party ratings to attract capital.
“It is a notice to RIAs, stating that it is important to focus on initial compliance when the rule came out and ensure you continue to keep the aspects of the rule a part of your compliance programme and a part of what you look for when doing advertising,” Laura Arnott, director at Vigilant Compliance, an outsourced compliance services firm, told Alternative Credit Investor.
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However, Arnott emphasised that enforcement to date around the marketing rule has been limited, with the SEC highlighting this being a positive step.
Many risk alerts by the the US independent agency are derived from targeted examinations or broader examination findings. It should also be noted that the body rarely issues alerts, with six being published last year.
Arnott cautioned that following the SEC’s alert, she would not be surprised to see increased enforcement around these issues.
“We had a new administration this year, the fact that we are seeing this risk alert, the fact that the SEC examiners are out there doing examinations, that is an indication that, although the focus of the SEC’s higher-level administration has shifted slightly, the implementation of this rule remains a priority,” she said. “Firms shouldn’t assume that changes at the top mean compliance with the rule is any less important.”
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