Managing your own compliance internally can create a lot of information to sift through for investment advisors. Without lots of reps in a compliance role, it can be difficult to know best practices, what’s important and what you should prioritize for your independent advisory firm.
With the new year, comes many new changes that are going to be crucial for your firm to maintain proper compliance. We’re here to cut through the noise and provide you a concise rundown of what to expect in the compliance world in 2022.
What do I need to know about compliance in 2022?
The New Marketing Rule
One of the larger changes on the docket relates to the November 4th, 2022 Compliance Deadline for the updated Investment Advisers Act Rule 206(4)-1. The new regulation was announced on March 5th of 2021 and ultimately will be replacing the former advertising rule that has been in place since 1961. Some of the updates to the previous rule include testimonial disclosures, performance reporting, and solicitation.
So, what do you need to know about the New Rule as an Independent RIA?
The New Rule is tapping into two marketing related areas that will allow financial advisors to ‘enter the 21st century’ when it comes to more modern advertising and promotional strategies for their firm:
- Testimonials: The New Rule allows for testimonials, endorsements, and third-party ratings so long as they comply with the anti-fraud protection plans and other conditions. Firms will now be permitted to utilize past specific recommendations and testimonials that they were previously unable to promote.
- Social Media: The New Rule now contains principle-based provisions that apply specifically to communications via social media platforms. While the previous rule only applied to traditional forms of marketing (written, television, and radio communications), the New Rule allows for more expansive advertising – which is extremely relevant given the role of social media in our lives today. When it comes to advertisements specifically, firms may choose to forego pre-approval requirements and instead utilize a more vigorous set of controls around their marketing and advertising efforts as a whole.
Although those changes may appear to be minor, the 430-page New Rule is far from simple. In fact, most compliance experts estimate that it may take up to a year of thought and planning to ensure all the different aspects of the new rule have been implemented properly. Some of these details include:
- Assessing your existing marketing materials
- Determining how to adjust those materials to meet the obligations of the New Rule
- Establishing specific policies and procedures aligning with your marketing efforts
- Training staff on said procedures and new compliance guidelines
These historically large changes take time. Be sure to schedule time each week to be ready to go by the November 4, 2022 deadline. Get started today by creating your own compliance timeline.
How can you develop a marketing strategy that is ‘SEC approved’?
Marketing your RIA has proven to be beneficial in a variety of ways including increasing consistent lead generation and remaining top-of-mind through brand awareness.
Given the pandemic’s impact on our lives, it’s become increasingly important for firms to evaluate their marketing tactics and embrace a new digital strategy – so much so that the SEC has developed the New Rule to address marketing and social media specific regulations.
So, what do you need to consider when developing a marketing plan that won’t land you in hot water with the SEC?
- Avoid ‘endorsing’ third-party content on social media, basically meaning you should refrain from ‘liking’ or ‘reposting’ content unless you include disclosures and have assured that the information is not misleading. As an advisor, you are liable for the content you endorse on social platforms just as any of the content you would produce yourself.
- Refrain from including hypothetical performance information in social messaging channels. For the most part, any other communication through direct message on social platforms is permitted and does not require disclosures.
- You can utilize ‘influencer marketing’ so long as they fulfill required disclosures. Any influencer acts as a promoter and therefore it is encouraged that the disclosure requirement is included in a written contract with said influencer.
- All advertisements must be on record. Any ads delivered to more than one person must be retained in an easily accessible place for a period of no less than 5 years. This means that all efforts to market services via social media must be archived including ads, posts and messages.
With the updated conditions related to social media marketing tactics, there is also a risk of financial penalty for anyone who fails to comply with the new regulations. To avoid making mistakes that violate the SEC’s conditions, you should take time to analyze current efforts as well as any future strategies to ensure they comply.
Find out more about the new marketing rule here.
How is the overall regulatory environment changing?
Continuing Education Requirement
In November of 2020, the North American Securities Administration Association (NASAA) announced an ongoing education requirement for every registered investment advisor representative beginning in the 2022 calendar year. The education program has been carefully crafted to encourage a higher level of regulatory compliance and to assist advisors in serving their clients with an improved understanding of compliance requirements.
- All applicable advisors must fulfill 12 CCE credits each year (1 credit is equivalent to 50 minutes of instruction)
- 6 credits of Products and Practices
- 6 credits of Ethics and Professional Responsibility
- There are no specific course requirements as long as minimum 12 CE credits requirement is met – you can choose which courses align with your interests or unique firm needs.
- Excess credits may not be carried over into the following year.
- Application for approval of courses can be found here.
- CE credits must be reported by the end of each calendar year
The continued education program is meant to ensure advisors have access to updated information and resources that allow them to better service their clients.
For more information on the IAR Continuing Education Rule, visit the NASAA FAQ.
Another recurring compliance issue that has become more apparent in recent years is the diminished capacity of seniors causing an increase in security-related complications. As the baby boomer workforce ages, some investment advisors and compliance consultants have found themselves having to make difficult decisions with sensitive information of those who are cognitively impaired.
It becomes complicated to navigate through the legal waters of what you can and cannot say in these situations. For example, when a less cognizant client has a family member claiming to be ‘power of attorney’, there are rules that regulators need to follow before fulfilling the wishes of the supposed relative.
As these kinds of situations increase, how can you prepare your firm as an Independent RIA?
- Utilize thoughtful communication and information provided by continued education courses when addressing these situations.
- Encourage professionals to establish succession planning, regardless of their age.
- Ensure clients designate a Trusted Contact Person that they authorize your financial firm to contact in limited circumstances, such as if there is a concern about activity in your account and they have been unable to get in touch with you.
- Train staff to be aware of red flags that signal diminished capacity and/or cognitive impairment.
Paying a security attorney to help navigate these situations can be very expensive but making a mistake and compromising financial security information may cost you your reputation. Make use of courses and stay up-to-date on the legal security conditions that come into play when it comes to the diminished capacity of some clientele.
Where does tru come in?
With 2022, comes many important changes to the former compliance regulations. Many of which require a lot of time and effort dedicated to ensuring that new procedures are understood and carried out under compliance.
If you find yourself struggling to sort through the many rules and requirements and need a hand developing a plan to ensure your firm meets the new rule deadlines, see what our compliance team can help you with in 2022.