Compliance September 20, 2022

SEC Risk Alert Addresses Marketing Rule Compliance Examinations

The SEC’s new marketing rule is set to take effect on November 4, and the agency’s Division of Examinations says it will be looking at whether policies and procedures “are reasonably designed to prevent violations.”

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On Monday, the Securities and Exchange Commission released a risk alert that provides the latest information about “upcoming review areas during examinations” related to its new marketing rule.

As of the November 4 compliance date, the alert says, investment advisers may no longer choose to comply with the previous advertising and cash solicitation rules, and any advertisements on or after that date will be subject to the marketing rule. Additionally, it notes that the SEC Division of Examinations is withdrawing certain staff statements related to the previous rules.

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Advisers should consider whether they need to update or revise their written policies and procedures “to ensure they are reasonably designed to prevent violations by the advisers and their supervised persons of the Marketing Rule,” the alert states. Investment advisers will also be required “to make and keep certain records, such as records of all advertisements they disseminate, including certain internal working papers, performance related information, and documentation for oral advertisements, testimonials, and endorsements.”

The risk alert, which is noted to represent the views of the staff of the Division of Examinations, says staff “will conduct a number of specific national initiatives, as well as a broad review through the examination process, for compliance with the Marketing Rule.” This will include, but will not be limited to, the following areas:

Marketing Rule Policies and Procedures

The alert says staff will review whether investment advisers have adopted and implemented written policies and procedures that are reasonably designed to prevent violations by the advisers and their supervised persons of the Advisers Act and the rules thereunder, including the marketing rule.

Substantiation Requirement

The staff will review whether investment advisers have a reasonable basis for believing they will be able to substantiate material statements of fact in advertisements, the risk alert states. The marketing rule prohibits advertisements that “[i]nclude a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission.”

Performance Advertising Requirements

The alert states staff will also review whether investment advisers are following performance advertising requirements in the marketing rule, including the prohibitions on including the following in an advertisement:

  • Gross performance, unless net performance is also provided;
  • Any performance results, unless they are provided for specific time periods;
  • Performance results of a subset of investments extracted from a portfolio, unless the performance results of the total portfolio are provided;
  • Hypothetical performance; or
  • Predecessor performance, unless other disclosures are made.

Books and Records

The alert states that the SEC has adopted amendments to the books and records rule and will review these requirements for compliance. Additionally, the agency has amended Form ADV to require advisers to provide additional information regarding their marketing practice and “reminds advisers of their obligations to accurately complete these questions in their next annual Form ADV amendment.”

Data & Research September 19, 2022

Retirement Plan Investors Face Challenges Managing Digital Accounts

According to J.D. Power, Bank of America and Charles Schwab tie for the top spot in digital participant satisfaction.

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Retirement investors feel their financial health is deteriorating, and many are concerned about their investments—but when they turn to their plan’s website or app for help, they are not finding what they need, a recent survey by the firm J.D. Power found.

Overall satisfaction is down 12 points (on a 1,000-point scale) this year, as 53% of retirement plan investors are now classified as financially unhealthy and 63% said they have challenges managing their accounts digitally, according to the 2022 U.S. Retirement Plan Digital Experience Study. Based on responses from more than 7,000 retirement plan participants and conducted in May and June, the study measures customer satisfaction across four factors: information and content; navigation; speed; and visual appeal.

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“Retirement investors are under a great deal of financial stress right now and they are looking to their plan’s websites and apps for information and guidance,” said Mike Foy, senior director and head of wealth intelligence at J.D. Power, in a statement. “Unfortunately, many are not finding what they need and end up having to call customer service for help. This is a moment-of-truth opportunity for plan providers. When they get the digital experience right, they see a very significant lift in the likelihood to grow and retain participant assets long after they have left their current employer.”

During the past year, the percentage of financially healthy retirement investors has dropped to 47% from 60%, with 28% now falling into the financially vulnerable category, the study found. Overall satisfaction with retirement plan digital experience has fallen 12 points, similar to the decline seen in financial health.

Strong digital performance is highly correlated with the acquisition and retention of retirement investor assets—highlighting the importance of how a good digital experience can help retain customers, the study says. Among top digital performers, 50% of investors said they “definitely will” keep their assets with their current provider in the event of a job change, versus 17% of investors with low-performing firms. With average job tenure for Millennials and members of Generation Z now hovering below three years, retaining investors through employment changes has become a top priority for retirement plans, the study adds.

Overall customer satisfaction with retirement plan digital experience rises 191 points to 671 when participants can complete tasks by themselves on their plan’s website or mobile app, the study says. However, just 37% of investors said they can manage their accounts digitally without contacting customer service.

According to the study, overall customer satisfaction rises 178 points when investors believe the retirement plan websites and apps offer proactive guidance and help, yet just 22% of firms evaluated are meeting this performance indicator.

Bank of America (including Merrill) and Charles Schwab rank highest in retirement plan digital satisfaction, in a tie, with a score of 704. Prudential Financial ranks third with a score of 696. Fidelity investments came in fourth with a score of 690, followed by T. Rowe Price with a score of 689. The industry average is 663.

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