SEC Proposal Impact
Views of experts or thought leaders regarding the Securities and Exchange Commission (SEC) proposed changes to marketing and advertising rules are presented below under distinct subheading. The subheadings identify the experts or thought leaders, while their opinions and remarks are presented below each name. These remarks are captured in news articles released on November 5th and 6th, 2019.
- Karen Barr, the chief executive of the Investment Adviser Association, said, the new proposed changes are a big deal to the advertising sector. According to Barr, the proposed changes are a complete overhaul of the existing advertising rules.
- The chief executive applauded the move noting that now there can be communications practices for every other business, including investment advisers. Importantly, the new rules will allow advisers to communicate as expected by customers.
- According to Barr, the biggest change regards the definition of advertising. The SEC defines an advertisement as "any communication, disseminated by any means ... that seeks to obtain or retain advisory clients or investors."
- Barr further asserted that the SEC used a principles-based approach to the regulations, claiming that the approach will make the rule more adaptable as business practices and technology evolve.
- According to Michael Caccese, a partner at K&L Gates, what the SEC is proposing is "earth-shattering in a positive way." He continues to note that it is great to see the regulators acting following concerns raised in the industry and putting measures to try to address them.
- Caccese's opinions focus more on the standardization of performance information, whereby results of any portfolio will be showed over 1-, 5-, or 10-year periods. Again, under the new regulation, gross performance results are prohibited, unless they include net performance results, which factor in expenses and fees.
- Therefore, the new regulations seek to establish a non-biased playing field for advisers, in particular, when they present results of their investment performance.
- Herb Perone, a spokesman for the Investment Advisers Association, said in an email that “the SEC proposal is a big step in the right direction." According to him, the change follows a principles-based, evergreen, approach versus the existing one based on per se prohibitions.
- The spokesman continued to commend the proposed regulation noting that it also helps to differentiate between retail and institutional investors in specific aspects. The new rule would also not ban "the use of testimonials and past specific recommendations.”
- Perone added that the advertising regulation has not changed since 1961, long before fax machines, the internet, and social media. Because of the old rule, investment advisers have never had a chance to use communications and marketing strategies that were adopted as standard business practices in other domains.
- Todd Cipperman, principal at Cipperman Compliance Services, expressed satisfaction regarding the new changes through an analysis report.
- The principal at Cipperman Compliance Services said that the SEC has improved some areas, in particular, testimonials and has defined the process of presenting performance results.
- Cipperman further acknowledged that more transparent regulations help compliance experts and minimize the possibility of enforcement penalties arising from subjective standards.
- Clara Shih, CEO of Hearsay Systems, agrees that the SEC proposal welcomes clarity in the advertising and marketing sectors.
- Speaking on behalf of Hearsay's hundred-thousand plus advisers and compliance officers in an email, Shih expresses the concerns of these employees, specifically questioning, which interactions, for instance, accumulating ‘likes’ on their Facebook Pages, are permitted.
- Shih continues to note that due to the confusion around social media use, some investment advisers avoiding social media due to the lack of understanding regarding what they can or cannot do on social media. In the end, these investment advisers fail to meet customer expectations.
- In some cases, Shih notes that advisers can use social media freely; however, that creates unnecessary tension and risk for the company's compliance teams.
Your research team managed to uncover what experts or thought leaders are saying about the new SEC proposal and how it will impact advertising and marketing strategy. We began by reviewing recently published reports on the proposed SEC regulations on advertising and marketing published by leading business and corporate websites, including Investment News, Wealth Management.com, and Non Perele. These sources contained reports featuring reviews and opinions of experts and thought leaders regarding the proposed SEC changes to advertising and marketing rules.