The New Marketing Rule: Key Elements and SEC Commissioner Concerns

Much has changed in the world in general, and in the investment adviser space specifically, in the decades since the SEC adopted Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Advisers Act) – the so-called “advertising rule” – and Rule 206(4)‑3 under the Advisers Act – the “cash solicitation rule.” For example, advertising and referral practices have evolved, while the technology used for communications has advanced and investor expectations have changed. Thus, in November 2019, the Commission issued proposed changes to the advertising and cash solicitation rules. Following receipt of more than 100 comments voicing concerns with the proposed changes, the Commission recently issued a 430‑page release announcing a new so-called “marketing rule” (Marketing Rule), which amends the existing advertising rule and replaces the cash solicitation rule. It also amends Rule 204‑2 (the books and records rule) and Form ADV. This article reviews the key elements of the Marketing Rule of particular interest to private fund managers and examines some concerns the SEC Commissioners have with it. For discussion of the originally proposed changes to the advertising and cash solicitation rules, see “What the SEC’s Proposed Amendments to the Cash Solicitation Rule Mean for Private Fund Advisers” (Dec. 19, 2019); and “SEC Proposes Expanding Permissible Performance Advertising Practices With Favorable Treatment for Private Fund Managers” (Dec. 5, 2019).

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