NSCP Special Edition: The New Marketing Rule
This year, NSCP is pleased to release a special issue of
Currents dedicated to the coverage of the SEC’s new marketing rule. In planning the issue, we polled NSCP members to assess members’ top areas of concern, and tailored this issue accordingly. This is not the first time
Currents has published a dedicated topical issue. Given the scope and magnitude of this rulemaking, the
Currents Publications Committee believes this issue will be a welcome and valuable collection of resources for its readers.
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In this Issue:
Let’s Go Crazy – A Princely Look at How the SEC’s New Marketing Rule Impacts Solicitors and State Licensing and Registration
In addition to being a generational musical talent and transformative artist, singer, guitarist, songwriter, producer, dancer, and performer, Prince Rogers Nelson (aka Prince, The Artist Formerly Known as Prince, and The Artist) was truly “best-in-class” when it came to marketing, even turning his name into a symbol.
As a tribute to Prince then, we endeavor to explore the nuances of the new SEC Marketing Rule, and in particular, the issues and challenges surrounding how the Marketing Rule impacts solicitors, state licensing and registration requirements. So put on your brightest Raspberry Beret and let’s dive into the Controversy with a quick history lesson.
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Reconciling the SEC Marketing Rule to the GIPS® Standards for GIPS-Compliant Firms
The CFA Institute Global Investment Performance Standards (GIPS®) are ethical standards for calculating and presenting investment performance based on the principles of fair representation and full disclosure. They are voluntary industry standards that provide transparency and global comparability in a world where regulations and market practices can differ significantly between jurisdictions. The GIPS standards are developed, maintained, and promoted through the collaboration of individual volunteers from the investment community, CFA Institute, and GIPS Standards Sponsors in over 40 markets. CFA Institute is a global not-for-profit association of investment professionals with the mission of leading the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.
As of June 30, 2021, more than 1,800 firms globally claim compliance with the GIPS standards, with a majority of these firms (≈75%) coming from the United States. Each of these firms will therefore need to reconcile their current policies for complying with the GIPS standards to the new SEC Marketing Rule.
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Five Significant Impacts of the SEC Marketing Rule on GIPS Compliant Firms
If your firm claims compliance with the GIPS standards, the first step for complying with the amended Rule 206(4)-(1) (the “Marketing Rule”) is to give yourself a pat on the back. GIPS compliant firms should already have established robust policies for related account performance and should be well-positioned to readily comply with the new rules taking effect in November 2022. That said, a GIPS compliant firm’s work to digest the impacts of the new rule on its performance presentation practices does not end there. Five significant performance-related considerations associated with the Marketing Rule are: 1) Calculation of net of fee performance; 2) How the firm uses GIPS Reports; 3) Related performance/representative account performance; 4) Timeliness of GIPS Report updates; and 5) Performance time periods.
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How the New Marketing Rule will Affect Private Fund Advisers
On December 22, 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to Rules 206(4)-1 (the “Advertising Rule”) and 206(4)-3 (the “Cash Solicitation Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”), and combined them into a single rule as amended Rule 206(4)-1 (the “Marketing Rule”). This new rule became effective on May 4, 2021 and the SEC has provided an 18-month transition period by which advisers must comply; the compliance date for the Marketing Rule is November 4, 2022. For any type of adviser, this is a significant rulemaking as it modernizes the regulatory regime governing adviser marketing practices and in a number of respects revises the standards advisers have been operating under for decades. But for private fund advisers especially, this rulemaking is a paradigm shift for two reasons.
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Sample Resources to Guide Your Firm in Preparing for the New Marketing Rule:
The following materials were provided by members of the NSCP Publications Committee for NSCP members to use and adopt to fit their firm’s specific needs:
- Sample Policies and Procedures
- Sample Training Materials
- Sample Checklist for Testimonials and Endorsements
- Other helpful resources are also available on the Forum page for the new Marketing Rule Working Group, including information regarding NSCP’s meeting with the SEC on October 8th (right before the National Conference!)
- Prior Currents publications, including The SEC Marketing Rule: 14 Things to Know and Choices to Make which contains case studies meant to provide insights into the practical application of the new Marketing Rule
VIEW RESOURCES > 
Join NSCP’s Diversity, Equity and Inclusion Committee on December 8th for a conversation on all Diversity, Equity and Inclusion matters, such as ageism, neurodiversity, disabilities, race, gender and more! The Committee welcomes you to ask questions, share your stories, and provide your thoughts on how to move the DEI needle for compliance professionals.
So that we can best respond to your input during this conversation, please submit your questions/stories/thoughts in advance by using the following link on or before 11/15. We look forward to hearing from you!
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