Compliance September 12, 2023

SEC Makes 2nd Marketing Rule Charges Against 9 Investment Advisories

According to the regulator, a sweep into marketing rule violations led to $850,000 in total penalties.

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The Securities and Exchange Commission announced on Monday its second charges against investment advisers for violating the SEC’s new marketing rule.

The regulator charged nine investment advisories for advertising hypothetical performance to the general public on their websites without implementing policies and procedures required by the marketing rule passed in November 2022. The nine firms have agreed to settle the charges for penalties ranging from $50,000 through $175,000 for a combined total of $850,000 in penalties, without admitting or denying the SEC’s findings.

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The announcement came after an August 21 announcement of the first charges under the rule, when Titan Global Capital Management USA LLC was charged more than $1 million in fines.

The firms, as listed by the SEC, are:

  • Banorte Asset Management Inc.
  • BTS Asset Management Inc.
  • Elm Partners Management LLC
  • Hansen and Associates Financial Group Inc.
  • Linden Thomas Advisory Services LLC
  • Macroclimate LLC
  • McElhenny Sheffield Capital Management LLC
  • MRA Advisory Group
  • Trowbridge Capital Partners LLC

The nine firms agreed to be censured, cease and desist from violating the charged provisions, comply with undertakings not to advertise hypothetical performance without following policies and procedures and pay penalties ranging from $50,000 to $175,000.

Under the marketing rule, registered investment advisers cannot include any hypothetical performance in their advertisements unless they have sought to ensure that the performance is “relevant to the likely financial situation and investment objectives of the intended audience of the advertisement,” the SEC wrote in the announcement.

Each firm allegedly advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures, and two of the advisers, Macroclimate LLC and MRA Advisory Group, failed to maintain required copies of their advertisements.

“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a statement. “It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the rule. Until that is the case, we will remain vigilant and continue our ongoing sweep.”

The SEC broadened the rule and gave further detail in June of how advisories can comply.

 

In Practice September 11, 2023

10 Questions for Advisers To Ask When Brand Building

Rebecca Hourihan, founder of 401(k) Marketing, shares how to attract clients through personal branding.

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In today’s market, 86% of plan sponsors are willing to commit before meeting an adviser and instead are making their decision based on advisers’ offline and online reputations, says Rebecca Hourihan, founder and CMO of 401(k) Marketing LLC, at the PLANADVISER National Conference. There she revealed the questions her firm asks clients when onboarding a marketing strategy.

“When you go through this with your team, it’s going to help unify your sales team, and it’s going to help them attract clients, generate those wonderful valuable referrals that we all love and help you build widespread brand loyalty,” she says.

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  1. Tell me about your firm.

“When your peers go out and they talk to prospects and they’re explaining what you do, you’re not hearing it. When your team describes your firm, write that down and put it in my pocket for later. It will be very interesting to hear so have everybody go around and record the conversation.”

  1. Where would you like your business to grow in the next three years?

“This helps us figure out what has fuel in the tank. If you want to start offering PEPs, that’s going to take resources, budget. If you want financial wellness programs, time, talent, resources, budget, you’re going to have to do the research, the due diligence screening, understand current mechanics, and that also is going to take time. This question also helps us understand what is important and what isn’t.

  1. How many times per year does your firm typically speak with each client?

“What you’re going to learn is some of the teammates next to you probably operate slightly differently. You might think, ‘That’s interesting, I wonder why,’ or, ‘OK, I’m going to work on something here. Maybe I can take a page from that book. That can be pretty good for my business.’”

  1. Tell us a story about a time when you helped a client.

“An adviser will say, ‘I helped an employer save $100,000 in taxes.’ Leaders also have powerful stories about advisers who had a meaningful conversation with an employee and put them farther on the path of retirement. What they demonstrate is values. It shows problem-solving skills, communication abilities, empathy and the ability to approach overall client satisfaction.”

  1. How does your firm engage clients? As a 3(21) co-fiduciary? A 3(38) fiduciary?

“This is an easier question. Like I mentioned, it kind of brings the air back into the room. Again, you work better when setting service expectations amongst your entire organization and getting them on top it. You create consistency across the board.”

  1. What are your thoughts on participant advice vs. education?

“This question goes into what is expected versus what is happening. For example, with financial wellness, how often do you say to do financial wellness meetings? What do they include? What’s your definition of financial wellness advice versus education? Then how we can bridge those?”

  1. What does being a fiduciary mean to you?

“Now, the next time you’re updating your website, and there’s a whole section on your website about fiduciary services, go back to Question 7. This is your “why.” You will have so much copy, phrases and terminology for what you’re trying to describe.”

  1. How prepared for retirement are the participants in your plans? How are you encouraging better outcomes?

“When your team goes around, you’ll see they’ve come up with really dynamic, interesting ways of helping to solve the problem of undersaving Americans. They might have done webinars, in-person office hours, one-to-one education or advice. They might have had  meaningful conversations, and they’re going to tell these stories. Those are going to be awesome stories in the future for case studies. You can start thinking about: How you can take this and start to build in more marketing content surrounding that material?”

  1. If given unlimited resources, how would you fix the 401(k) system?

“If you have a magic eraser and a Sharpie, you can erase anything you want. Whatever you want, you can do it. Every single person in this room has years of experience and expertise. You should bring these ideas to the forefront.”

  1. Over the next 15 years, how would you like to see our industry evolve?

“You can identify trends that your company wants to partake in and then also add in their succession planning and next-generation advisers. Right now, a lot of firms are struggling with having that next generation of advisers come in, so how is your organization making that possible?”

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