Key Takeaways From SEC Proposal On Advertising And Cash Solicitation Rules

The Securities and Exchange Commission (the SEC) proposed amendments to the rules that govern advertising and cash solicitation by investment advisers. The amendments mark the first substantial changes since these rules were adopted in 1961 and 1979, and are intended to reflect changes in technology, investors' expectations and the evolution of industry practices. The SEC is seeking feedback from the industry on their proposed changes to these rules.

The Advertising Rule

Definition of Advertisement The SEC proposes to expand the type of communications that would qualify as "advertisements" by including evolving methods of communication. In addition, these amendments bring the rule in line with accepted industry practices and investor expectations, namely by establishing a clear distinction between solicited and unsolicited communication (i.e., in general, a communication that simply responds to an unsolicited request from a client or prospective client for certain information about the investment adviser would not be deemed an "advertisement.").

Prohibited practices The provision governing the advertisement of specific investment advice would replace the current prohibition with a principles-based approach. This would allow investment advisers to better tailor the information included in advertisements that contain references to specific investment advice.

Testimonials, endorsements and third-party ratings The proposed amendments relax the restrictions on the use of testimonials, allowing testimonials and endorsements as well as third-party ratings, all subject to specified disclosures.

Performance advertising The current rule does not specifically address performance result calculations, but the proposed amendment would add a number of prohibitions in this area. Additionally, if performance information is...