The Division of Examinations (Examinations) of the U.S. Securities and Exchange Commission (SEC) issued its observations (Risk Alert) on April 17 in light of its review of investment advisers’ compliance with Rule 206(4)-1 under the Investment Advisers Act of 1940 (Marketing Rule).1 Examinations staff shared its preliminary observations regarding the completion of the Marketing Rule items contained in Form ADV and compliance with Rule 206(4)-7 (Compliance Rule), Rule 204-2 (Recordkeeping Rule) and the Marketing Rule’s general prohibitions.
Observations Regarding Compliance Rule, Recordkeeping Rule and Form ADV
While Examinations staff generally observed that advisers had adopted and implemented policies and procedures relating to the Marketing Rule, provided compliance training for relevant staff and established procedures for reviewing advertisements, Examinations staff also observed instances of inadequate policies and procedures. Such inadequacies included, for example, policies and procedures that:
- Consisted only of general descriptions of the Marketing Rule that were not designed to prevent, detect and correct violations.
- Failed to address all marketing channels utilized by the adviser.
- Were not tailored to address advisers’ specific advertisements.
- Reflected the Marketing Rule but lacked implementation of the policies and procedures as written.
Examinations staff also observed recordkeeping deficiencies, such as failure to maintain copies of third-party rating questionnaires, information posted to social media and documentation to support performance claims.
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