On June 8, the SEC Division of Examinations published a risk alert expanding the areas of focus for its ongoing examination sweep of compliance with Rule 206(4)-1 under the Investment Advisers Act of 1940.
The Division announced its initial focus areas in a September 2022 risk alert, covering (1) policies and procedures, (2) substantiation, (3) performance advertising and (4) books and records. It has not yet released any observations from the sweep, nor has there been guidance on the Marketing Rule’s requirements from the Division of Investment Management. This risk alert’s addition of the “general prohibitions” to the sweep’s focus areas could signal the staff’s intent to issue deficiencies for violations of the broad and undefined “fair and balanced” and “materially misleading” standards. The risk alert also adds, as expected, endorsements and testimonials to the areas of focus, which is likely an unwelcome addition for advisers having difficult negotiations with placement agents over those requirements.
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