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SEC Cracks Down on RIA Advertising
How to comply with the SEC Marketing Rule
Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Last week, the SEC cracked down on registered investment advisor firms for violating the commission’s Marketing Rule, a relatively new regulation that went into effect in November of 2022.
This showed us two things:
The SEC believes the new provisions are critical and must be enforced.
Many firms are struggling to adapt to these requirements.
In today’s industry chatter piece, we’ll discuss how to comply with the Marketing Rule and stay out of the SEC’s crosshairs—let’s get started.
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
The Securities and Exchange Commission is scrutinizing the marketing tactics of registered investment advisors.
Regulators recently announced fines against five firms for breaking marketing rules designed to protect investors from misleading information. The penalties ranged from $20,000 to $100,000. All five RIAs settled with the SEC over the charges brought against them. The SEC had previously unveiled charges against nine firms last September for marketing rule violations.
Context Is Key
According to the SEC, the violations referenced involved the language present on advisory firms’ websites.
Officials said the firms advertised hypothetical performance without giving the proper context for those potential returns. They said there was not enough detail present to explain how performance could change based on an individual’s specific situation.
In a statement, the SEC wrote that the action taken against these firms shows they will “continue to employ targeted initiatives to ensure that investment advisors fully comply with their obligations under the [marketing] rule.”
The ‘Marketing Rule’ being referred to is a regulation rolled out by the SEC in December 2020 that aims to prohibit misrepresentation of information that could mislead investors.
Button It Up
This tight enforcement of the rule over the last eight months shows that the SEC is keying in on how advisors portray performance.
Regulators are planning to heavily scrutinize hypothetical portfolios and language used to promote investment strategies. Through audits, the SEC has said they will examine websites, social media, and other marketing avenues advisors use to interact with the public.
Stay out of the Crosshairs
Compliance professionals have some straightforward advice to help RIAs avoid penalties.
A simple tip is to ensure that everything on websites, brochures, or social media is completely accurate. If any statements cannot be shown to be altogether true, they should not be used on marketing materials.
Another piece of advice is to avoid vague language. If the language is even slightly unclear, regulators could argue that it might mislead the intended audience.
Of course, the most obvious way to get punished by regulators is to fudge performance numbers.
As long as RIAs are being vigilant in reviewing their firm's materials for accuracy, they should avoid hefty fines from the SEC.
MARKET RECAP
The Nasdaq 100’s technology stocks wrapped up their fourth consecutive week in the red, marking their most dismal stretch and sharpest declines since late 2022, as investors opted to pocket profits against a backdrop of mounting concerns over inflation and geopolitical tensions.
On Friday, Israel responded to Iranian attacks from the preceding week, adding another layer of uncertainty to the volatile situation in the Middle East despite widespread international calls for de-escalation.
On Wednesday, Fed Chair Jerome Powell firmly shut the door on rate cuts, citing lack of confidence in progress on inflation. This stance pushed two-year Treasury yields to 5%, their highest level since November 2023.
Gold prices notched their fifth consecutive week of gains, marking their longest streak since August 2020.
Debt Sustainability Concerns
Gita Gopinath, International Monetary Fund deputy chief, has voiced concerns over the U.S. national debt, stressing the need to reduce the federal deficit, which equals 7% of GDP. Projections indicate the U.S. deficit will remain above 6% through 2029, pushing the debt-to-GDP ratio to 134%.
Bitcoin Halving Looms
BlackRock Inc. and Coinbase Global Inc. have launched educational advertising campaigns to explain the Bitcoin halving process. This event, which halves the creation rate of new bitcoins, aims to reduce inflationary pressure and potentially boost Bitcoin prices.
Cybertruck Recall Alert
Tesla is recalling 3,878 Cybertruck vehicles due to a risk of unintended acceleration caused by a potentially dislodging accelerator pedal pad. The company, which has not reported any injuries or accidents from this issue, will replace the accelerator assemblies for free and has adjusted the production to include a new pedal design.
Lockheed’s $17B Contract
Lockheed Martin Corp. has been awarded a $17-billion contract by the U.S. Missile Defense Agency to develop the Next Generation Interceptor aimed at countering missile threats from North Korea and Iran. The contract is a part of a broader U.S. strategy to enhance missile defenses, with the NGI expected to be operational by 2028.
Musk Announces Layoffs
Tesla is reportedly laying off over 14,000 employees, which amounts to more than 10% of its global workforce. Elon Musk, in a companywide email, stated that this painful decision is necessary to reduce costs and eliminate redundancy in job functions.
WHAT THE PROS ARE WATCHING
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THE WEEK AHEAD
Economic Data
Monday: None
Tuesday: S&P flash US services PMI, S&P flash US manufacturing PMI, New home sales
Wednesday: Durable-goods orders, Durable-goods minus transportation
Thursday: GDP, Pending home sales, Advanced retail inventories
Friday: Personal spending, PCE index, Consumer sentiment (final)
Earnings
Monday: Northeast Bank, Washington Trust Bancorp
Tuesday: JetBlue Airways, Alphabet, Timberland, Sherwin-Williams, Raytheon, Lockheed Martin, Halliburton
Wednesday: Group 1 Automotive, AT&T, Boeing, Blackstone Mortgage Trust
Thursday: American Airlines, Southwest Airlines, Amazon, ADT
Friday: AutoNation, Chevron, Piper Sandler Companies
Click here for the full calendar of economic data and earnings reports.
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