SEC Proposes Amendments to the Advertising and Solicitation Rules

The U.S. Securities and Exchange Commission has proposed amendments to Rule 206(4)-1 – Advertisements by Investment Advisers (Current Advertising Rule) and Rule 206(4)-3 – Cash Payments for Client Solicitations (Current Solicitation Rule) under the Investment Advisers Act of 1940, as well as technical amendments to Rule 204-2 (Current Recordkeeping Rule) and Form ADV, Part 1A (separately, Proposed Advertising Rule and Proposed Solicitation Rule, and collectively, Proposal). The Proposal was published in the Federal Register on December 10, 2019 with a comment period ending February 10, 2020.

The Proposed Advertising Rule, if adopted, would dramatically revise and modernize the regulatory framework for investment adviser and private fund marketing materials. It would replace the current set of rigid prohibitions (particularly those relating to testimonials and past specific recommendations) with a more flexible, principles-based approach, and would codify and rationalize the current patchwork of guidance provided through SEC enforcement actions and Staff no-action letters (particularly as these apply to performance presentation). Among other things, the Proposed Advertising Rule seeks to:

• Bring the regulatory scheme into the 21^st century and adapt it from primarily paper-based premises to a more technology-neutral basis that recognizes the realities of the Internet, social media and mobile applications;
  
• Eliminate unnecessary or outdated requirements;
  
• Distinguish in many key instances between retail and institutional investors and more appropriately calibrate the Current Advertising Rule’s requirements to the differing needs of such investors; and
  
• Rely more expressly on compliance policies and procedures, as well as additional reviews by advisers, than under the Current Advertising Rule.

While the changes in the Proposed Solicitation Rule are less fundamental, they also reflect a significant modernization of the Current Solicitation Rule with a more streamlined structure.

Read the full version of the "SEC Proposes Amendments to the advertising and Solicitation Rules" here.