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A Closer Look at the SEC’s New Marketing Rule

On December 22nd, 2020, the SEC finalized the Modernized Marketing Rule, culminating a monumental shift in the way they will view advertisements and solicitations by investment advisers going forward. This landmark update – referred to simply as the “Marketing Rule” aims to create a more evergreen, consolidated set of guidelines for anyone subject to the SEC’s jurisdiction.  

The Marketing Rule combines the Advertising Rule and the Solicitation Rule, which have been in existence since 1961 and 1979, respectively.  Since then, most of the updates to the interpretation of these rules have been made through “No-Action” letters. In finalizing the Marketing Rule, the SEC has set up a framework by which it will mostly supersede preceding guidelines to create a more comprehensive rule that includes updates to many of the interpretations to align with more modern, digital practices.

The new rule – aimed at simplifying and harmonizing guidelines – provides a unified solicitation and advertisement rule under a single regulatory framework. The finalized Marketing rule is expansive, but we’ve distilled it down to four of the most salient updates for programs and the potential implications for client engagement going forward 

  • The SEC aims to offer a clearer, and wider, definition of what constitutes an “advertisement,” thus allowing for a better understanding of what the rule covers.  The rule also includes exceptions for certain types of communications, which provides some relief for compliance professionals. This means more communications will fall under the definition of “advertisement”, and firms will need to adjust the way they supervise to accommodate a more nimble, yet broader approach.
  • Testimonials and endorsements will be allowed subject to certain conditions and disclosure requirements. While this is a step in the right direction, the restrictions placed around how testimonials and endorsements are presented will present challenges in implementation. For many firms, this is a long awaited development, but ensuring clear/prominent placement of the disclosures will probably be problematic.
  • The revised rule provides guidance on performance presentations, specifically updates around the use of gross/net of fees performance and “non-standard” performance (related, extracted, hypothetical, and predecessor performance). Most firms have historically stayed away from posting this type of performance in a public-facing setting, but the new rule provides a path forward for those that stay within the (considerable) boundaries.  
  • Lastly, the rule updates and modernizes record keeping mandates and Form ADV requirements to provide clients with better access to an advisor’s data. This will mean an Adviser will be subject to more intelligent broad-reaching scrutiny during SEC audits, further underscoring the need to prioritize their adherence to the applicable rules and regulations.

This is an important and much-needed step forward that will modernize how the financial industry approaches its marketing activities. While the SEC has provided firms ample runway to conform, it’s critical that firms start to assess the implications now to stay ahead of the curve. We can help – Hearsay’s Compliance Advisory Practice helps firms deliver against regulatory changes like the Marketing Rule. Our experienced team of compliance practitioners can help evaluate the rule, consult on the path forward and develop plans to optimize an approach. 

Learn more about our Hearsay Compliance Advisory Services and stay tuned for more insights as we dig deeper into the SEC’s new Marketing Rule.

Welcome to the “Last-Mile” Digital Maturity Series

A new phase of digital maturity is underway. Transformational firms are optimizing across the client journey, proactively orchestrating the way in which the field engages with their clients in the “last-mile” and guiding seamless handoffs between channels to deliver business outcomes.

To help you get there, Hearsay has developed a framework for how you can evaluate your path to digital maturity. Along the way, we’ll provide insights and identify opportunities to accelerate your progress along the maturity curve. 

Over the next few months, we’ll share weekly blog posts with the framework components. This framework allows you not just to identify where your program sits, but to illuminate key areas for program growth that deliver the outcomes your business demands. 

But first, let’s start with why it matters.

The most digitally mature firms are enabling frequent and targeted engagement between advisors and clients. These interactions deepen the relationship between the advisor and client, and are what we call the “last-mile.” In a crowded, commoditized marketplace, this is the most differentiated experience you can offer so advice must be delivered in a human way to resonate.

As the ways to digitally engage clients have proliferated, leading firms have begun to recognize the need for an integrated and cohesive technology ecosystem. Their digital programs have become more systematic, and their digital platforms more integrated across their core technologies. 

Our aim is to align your program with your business objectives – centered around three key outcomes – shifting your focus toward the digital actions that drive the most success.

  1. Reach & Attract – Achieve the consistency and scale needed to build brand and acquire new leads
  2. Nurture & Convert – Optimize engagement to influence new business generation.
  3. Retain & Grow – Leverage digital to drive better client support and boost loyalty and retention.

Guiding your field to deliver these outcomes at scale is difficult. It takes time to set up the right framework, mine your data, and leverage technology to scale your efforts across a distributed network of advisors and agents. 

A new breed of marketing organizations, alongside a new generation of advisors and agents, are leveraging digital channels to find new ways to reach and attract clients and prospects. COVID-19 accelerated this transformation. Digital activities are more critical than ever when the field cannot participate in physical top of funnel activities like local sponsorships etc. COVID has put immediate pressure on the industry to rethink service offerings, and explore digital as a way to keep their business moving forward. Looking to the future, these behaviors will be entrenched amongst the most digitally mature. We’ll get started next week by discussing the foundational elements you need to Reach & Attract prospects. 

If you can’t wait to learn more, download the full white paper now.