FinReg + Policy Watch
January 6, 2021

SEC Adopts Amendments to Advertising and Cash Solicitation Rules

On December 22, the SEC adopted amendments to modernize and combine the existing advertising and cash solicitation rules for advisers registered or required to be registered with the SEC. Among many other things, the amendments:

  • Streamline the advertising and cash solicitation requirements under the newly named “Investment Adviser Marketing Rule” (numerous long-standing no-action letters will be withdrawn);
  • Replace the four per se prohibitions of the advertising rule with seven general prohibitions based on historic anti-fraud principles (but also includes specific requirements as to disclosure, diligence, policy and oversight);
  • Set forth numerous new definitions, including a new two-prong definition of “advertisement” that:
    • addresses advertising in the first prong and solicitation in the second and
    • is designed with flexibility intended to address the ongoing evolution and interplay of technology and advisers’ communications with their clients and private fund investors;
  • Include provisions regarding the presentation of gross performance, related performance, extracted performance, hypothetical performance and predecessor performance;
  • Permit the use of testimonials, endorsements and third-party ratings, subject to certain conditions; and
  • Expand the application of solicitation requirements to the solicitation of private fund investors and incorporates the concept of non-cash compensation.

Simultaneously, the SEC adopted related amendments to the books and records rule and Form ADV, the investment adviser registration and reporting form.  The amendments will become effective 60 days after publication in the Federal Register and allow for an 18-month transition period beginning from the effective date. The amendments will be discussed in an upcoming Goodwin client alert.

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