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SEC Reveals 5 Serious Violations in RIA Marketing

By Alex Padalka September 15, 2017

The SEC is stepping up scrutiny of how RIAs tout themselves in marketing materials, issuing a risk alert that highlights common violations of the Advertising Rule.

The SEC's Office of Compliance Inspections and Examinations has identified the most frequently occurring compliance issues in RIA advertising, which the regulator defines as anything published online or print, broadcast on TV or radio or sent directly to clients.

One of the most frequent deficiencies, according to the risk alert issued Thursday, is the prevalence of misleading performance results. Examiners have found instances of failure to subtract advice fees from performance results, omitting explanations for the methodology in deriving hypothetical results and a lack of disclosures on differences between benchmarks and advertised investment strategies, according to the risk alert.

OCIE staff have also come across instances of advisors making misleading claims of adhering to certain voluntary performance standards, as well a cherry-picking profitable stock picks in materials sent to clients or presented on their websites.

Some advisors allegedly selectively highlight previous stock recommendations while omitting losing picks, according to the OCIE. And some RIA practices lack adequate policies and procedures on advertising rules, examiners found.


Furthermore, some RIAs are apparently abusing third-party rankings and awards, according to the report. This includes obtaining the awards by submitting potentially misleading data, touting awards that are several years old and no longer apply, and failing to disclose the selection criteria or the fees paid to enter into contests. In addition, the OCIE found instances of advisors using professional designations they no longer hold. And some RIAs have violated the SEC’s rules on using client testimonials on their websites, social media pages and more, according to the OCIE.