SEC Proposes Amendments to Advertising and Solicitor Rules

By Jessica Morgan and Jarell Hunt

On November 4, the Securities and Exchange Commission (SEC) announced proposals to amend Rules 206(4)-1 and 206(4)-3 under the Investment Advisers Act of 1940 (Act). The proposed amendments are aimed at modernizing these rules.

Rule 206(4)-1, commonly referred to as the "Advertising Rule," was last amended in 1997. The Advertising Rule outlines the responsibilities and restrictions of marketing and advertising practices for registered investment advisers. The proposed amendment is meant to better reflect advertising and other communications in the 21st century.

Rule 206(4)-3, commonly referred to as the "Solicitor Rule," was last amended in 2010. The Solicitor Rule provides restrictions on investment advisers regarding the payment of cash compensation to solicitors in exchange for referrals. The proposed amendment introduces several significant changes:

  • Eliminating the need for the solicitor to deliver the compensating investment adviser’s Form ADV brochure to solicited clients,
  • Expanding the scope of the rule by making it applicable to the payment of any type of compensation for solicitation activities (not just cash payments),
  • Making the rule applicable to solicitation activities for investors in private funds,
  • Eliminating the requirement that investment advisers obtain client acknowledgements of their receipt of the solicitor's disclosure, and
  • Expanding the list of disqualifying events that would prohibit someone from acting as a solicitor.

The SEC also announced corresponding proposed amendments to Rule 204-2 (Books and Records) in connection with the proposed amendments discussed above, and proposed amendments to Form ADV.

The proposed amendments are available now on the SEC's website; a 60-day comment period will begin when they are published in the Federal Register.

This client alert is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have any questions regarding this update, or for more information about this topic, please contact any of the attorneys in our Financial Services & Investment Management Practice Group, or the attorney with whom you normally consult.

Posted in
Filed under