The New Marketing Rule – Develop Your Plan

The New Marketing Rule – Develop Your Plan

The new Marketing Rule (Rule 206(4)-1 under the Investment Advisers Act of 1940) is effective on May 4, 2021, starting an 18-month transition period. All advisers must be in compliance with the Rule by November 4, 2022. While that sounds like a lot of time, we encourage CCOs to start thinking about a plan because “time files in compliance.”

Here are some of our tips for a smooth implementation:

• Review and determine what changes to your firm’s policies and procedures are required. There are many new definitions and requirements resulting from this Rule, so give yourself plenty of time to address them in your compliance manual.
• Inventory your materials. Take stock of what you currently circulate which is deemed marketing and determine what revisions may be necessary as a result of the new Rule. Work closely to educate your Marketing department on the new facets of the Rule.
• Social media. Determine what your firm’s position is going to be on social media. Beyond whether the firm will participate in social media, understand the concepts of adoption and entanglement and how that might impact the marketing you will do. Also, make the decision on whether you will permit supervised persons to utilize their social media platforms for business/marketing purposes and develop the necessary policies surrounding their use.
• Solicitation arrangements. These need to be reviews and repapered. The Marketing Rule pulls in cash and non-cash solicitation arrangements under the endorsements/testimonial portion of the Rule and therefore changes will be required with your existing solicitation relationships. Since you potentially will need to work with outside counsel to draft new agreements, get that process in the works early on.
• Performance reporting. If you include performance data in your materials, look at how to meet the new requirements around gross and net performance, the time period presentation and relevant accounts.
• Recordkeeping. Be sure that you can substantiate any claims made in your materials and that your supporting documents are contemporaneous and easily accessible. In addition to performance calculations, we recommend supporting any claim in your materials (e.g., level of experience of a portfolio manager).

The Rule requires that you implement the entire rule at once, and there are amendments to Form ADV that must be made at the implementation date. When picking an implementation date, think about whether it is easier for you to select the first day or a quarter or some other landmark date that will be clear in your records. 

Finally, as we move through the transition period, keep up with the latest developments and information. The SEC maintains a webpage of frequently asked questions, so check it regularly. Also, look for materials and information from industry experts, like your favorite compliance services firm.

The size of the challenge will vary based on the amount and type of marketing activities your firm conducts and the state of your current policies and procedures around those activities. Stating that analysis now will ensure that you address the requirements and meet the deadline. As the old saying goes, “plan your work, work your plan.”

For more information on automating marketing reviews or to ensure compliance with the Marketing Rule, email: info@cssregtech.com.