As a part of these guidelines, financial firms must be fair and balanced in their marketing practices.
Fair and balanced marketing
Providing a fair and balanced approach allows investors and potential customers to understand the risks and benefits and to be able to make a more educated decision as a consumer.
To help offer further guidance in this area, here are some specific things prohibited by the rule.
- Focusing on gross performance: to help people understand the big picture, advertisements must present net performance in addition to gross performance.
- Neglecting to include time periods: firms should provide specific time periods for performance results. For instance, marketing material may not cherry-pick specific periods of high performance and not mention periods of lower performance. Instead, one-, five-, and 10-year performance must be included for investors when available.
- Making statements that the Commission approves of performance: advertisements cannot include any statement that the SEC has approved or reviewed the performance results.
- Misleading portfolio selection: with limited exceptions, performance results that do not include all portfolios similar to those being discussed in the advertisement are prohibited. Firms are not allowed to pick one or two high-performing portfolios and have viewers get the impression that these results are typical.
- Misleading subset extraction: it’s unlawful to focus on a specific subset of investments in that portfolio unless the advertisement also provides the performance of a total portfolio.
Firms must provide clear and accurate information in all advertisements. However, the term “fair and balanced” is a bit vague and subject to individual interpretation. Though the SEC does offer some additional guidance on this subject, some concerns have been raised. For instance, the Consumer Federation of America asked the SEC for even more clarity regarding this topic.
With the new rule already under effect, financial services firms need to immediately evaluate existing advertising protocols and make the changes necessary to ensure all communications are aligned with the new rules by November 4, 2022. As a part of this evaluation, firms need to check that none of its new communication content contains any prohibited items.
In addition, more training may be necessary for firms to maintain compliance. Staff need to understand the rule changes, and Investor Relations (IR) staff must be trained on what the new protocols are. As the SEC issues additional guidance on the marketing rule, this training can get more specific. Firms may need to create new positions to ensure compliance in new areas such as third-party ratings and scripted material.
What fair and balanced marketing means for firms
Firms must evaluate the current state of their marketing practices to decide what changes are necessary to fully implement a fair and balanced approach by the compliance deadline. With many changes required, it can take time to work through this process. Firms should not wait until the deadline to prepare and act accordingly.
Also, since additional guidelines are coming, it’s important for firms to continue to follow the SEC and stay up to date on all new information.
Toppan Merrill’s technology-driven solutions can help financial services firms create, manage, and distribute critical content that is compliant with the SEC.
To learn more about the new Modern Marketing Rule and what it means for firms, download our whitepaper.
