SEC Warns Advisers About Misleading Advertising

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations published a risk alert on advertising compliance issues frequently observed by its staff. The SEC’s advertising rule prohibits advisers from publishing or distributing any advertisement that contains untrue statements of material fact, or that is otherwise false or misleading.

OCIE staff reported that some advertisements presented performance results without deducting advisory fees, while others contained hypothetical and back tested performance results, but did not explain how these returns were derived and did not include other material information regarding the results.

“Staff also observed adviser advertisements that compared results to a benchmark but did not include disclosures about the limitations inherent in such comparisons, including instances where an advertisement did not disclose that the advertised strategy materially differed from the composition of the benchmark to which it was compared,” according to the risk alert.

OCIE staff noted that some advisers did not have policies and procedures in place to review and approve advertising materials prior to their publication.

Last year, the SEC launched the “Touting Initiative” to examine the adequacy of disclosures contained in marketing materials that touted awards, promoted ranking lists, and identified professional designations.

The regulators found that advisers publicized third-party rankings and awards without disclosing material facts about the accolades, advertised outdated rankings that were no longer applicable, touted professional designations that have lapsed, and utilized prohibited client testimonials.

The SEC recommended that advisers review their compliance programs and practices in light of the topics noted in the alert.

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