SEC Issues New Updates on Marketing Regulations – 401k Expert

The Securities and Exchange Commission (SEC) recently announced updates to its guidelines regarding how registered investment advisors (RIAs) should disclose investment performance in marketing materials. These new rules focus on gross and net performance, as well as extracted performance and portfolio characteristics.

One of the key updates from the SEC is the clarification on how investment “performance” is defined under the marketing rule for RIAs. The agency posed a question about whether advisors could face enforcement action if they present characteristics such as yield, coupon rate, contribution to return, volatility, and sector without deducting all fees and expenses. The SEC acknowledged that advisors might be unsure if these characteristics qualify as “performance” and that calculating them net of fees could be challenging or lead to confusing results.

The SEC emphasized that as long as advisors disclose both gross and net performance of the total portfolio in a manner that is not misleading to clients, there is minimal risk of investors being misled on return fees and expenses. Additionally, if advisors display the gross performance of an investment in an advertisement, they must also show its net performance. If both performances are presented accurately and in a non-deceptive manner, the risk of SEC enforcement action is low.

Under the updated rules, RIAs could face SEC enforcement action if the gross characteristic is clearly identified as calculated without fee deduction, if the total portfolio’s gross and net performance is presented consistently with the rules, if the performances are displayed with equal prominence to the gross characteristic, and if the gross and net performance covers the entire calculation period of the characteristic.

These amendments aim to provide clarity and transparency in how RIAs report investment performance in their marketing materials. More information on the SEC’s latest marketing rules can be found on their official website.

In conclusion, the SEC’s updates on marketing rules for investment advisors underscore the importance of accurate and transparent performance reporting to avoid misleading clients and investors. By following these guidelines, RIAs can ensure compliance with regulatory requirements and maintain trust with their clients.