According to the SEC press release, “The reforms will allow advisers to provide investors with useful information as they choose among investment advisers and advisory services, subject to conditions that are reasonably designed to prevent fraud.”
The new rule is the first update to advertising regulations since 1961. While long overdue, reactions to the change are mixed. The new rule will allow advisors to use testimonials and endorsements and broadens the use of social media.
According to Investment News, the SEC is broadening the scope of what advertising means but not necessarily setting parameters. Much appears left to advisors to define what will be appropriate for their business.
While clarity of the rule remains muddy, some believe it may be too vague and will cause advisors to err on the side of caution rather than take advantage of the full breadth of the new rule. Many restrictions remain the same in that “cherry-picking,” misleading information, hypothetical performance, etc. are not allowed.
Perhaps the biggest change is that testimonials and endorsements will now be allowed with appropriate oversight and disclosures.
Taking advantage of the rule is still nearly two years away. It will become official 60 days after publication in the Federal Register (likely within one month) and takes effect 18 months after the publication date.
It is also possible that incoming president-elect Joe Biden could appoint new SEC leadership that could impact the rule. Current SEC Chairman Jay Clayton’s term ends in 2020.
The final rule in its entirety can be found here.
Stay tuned! We will be sure to share updates and clarifications as additional information becomes available.