the sec’s overhaul of the investment adviser advertising

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Your questions answered

The SEC’s overhaul of the investment adviser advertising and solicitor rules

March 5, 2021Clifford Kirsch, Michael Koffler, Issa Hanna, Bria Adams, Alexa Shockley

Eversheds Sutherland

Speakers

Clifford KirschNew York, NY+1 212 389 [email protected]

Issa HannaNew York, NY+1 212 389 [email protected]

Michael KofflerNew York, NY+1 212 389 [email protected]

Bria AdamsWashington DC+1 202 383 [email protected]

Alexa ShockleyAtlanta, GA+1 404 853 [email protected]


Session 1Overview of the rule amendments


Session 1: Overview of the rule amendmentsYour questions answered

Where does the SEC say that advisers must take an all-or-none approach to compliance with the rule during the period of time between the effective date and the compliance date?

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Would you consider a new strategy to be "new investment advisory service"?

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Would a text message to one individual be excluded from definition of advertisement?

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Can you provide some background on GIPS, and speak to the ways in which concepts from GIPS have found their way into the amended advertising rule?

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Are one-on-one communications with private fund investors (even if they include hypothetical performance) outside of the scope of the amended rule?

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What documentation is required when an adviser uses hypothetical performance materials with private fund investors? Should advisers keep records of the requests, distribution lists, etc.?

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Is an unpaid endorsement subject to certain disclosure and other requirements only if it is still an ad under prong 1?

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Session 2The new regulatory regime governing investment adviser performance presentations


Session 2: The new regulatory regime governing investment adviser performance presentations


Is yield (and hypothetical yield) considered a performance statistic by the SEC?

Does the rule specify using time weighted versus dollar weighted returns?

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Does the SEC consider extracted performance to be hypothetical performance?

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Is the requirement that performance results be shown for one-, five- and ten-year periods only for retail advertisements? What if a fund has not been in existence for ten-years?

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Would you recommend that an adviser still apply the rule’s net performance requirement even in communications that meet exceptions to the rule?

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An adviser provides performance to sponsor banks for bank collective funds. The performance is used in a fact sheet provided to bank clients. Would the fact that the adviser provides the performance to the sponsor bank bring the sponsor bank’s marketing piece into the scope of advertisement, as defined by the SEC?

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If an adviser communicates with an existing fund investor about past performance of the adviser’s funds during fundraising for a new fund, would this communication be an advertisement?

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If an adviser provides a performance presentation to an institutional investor represented by a board that consists of multiple individuals, would the SEC consider that a communication that has been provided to one individual, would the SEC consider it a communication that has been provided to more than one individual? If an adviser reaches out to multiple people at the same institution, does that count as "more than one person" for determining whether the outreach meets the definition of an advertisement?

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How does model performance differ from backtested performance? When an adviser shows a prospective client a proposal containing 10 years of performance for a 50/50 blend of two funds, would this be considered model performance or backtested performance under the rule?

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Will there be a requirement to document one-on-one unsolicited requests for hypothetical performance information?

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Are the Clover Capital no-action letter and subsequent no-action letters regarding performance being withdrawn? When will the SEC publish the list of withdrawn no-action letters?

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Session 3Issues for dual registrants under the amended rules


Session 3: Issues for dual registrants under the amended rulesYour questions answered

Will the rule’s provisions on endorsements apply to investment adviser employees who are also registered representatives of a broker-dealer firm? Third party marketers who are registered representatives of a broker-dealer firm?

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Session 3: Issues for dual registrants under the amended rulesYour questions answered

Is a promoter who is paid to place investors required to be registered with or as a broker-dealer?

What about capital introduction programs under the new rule?

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Session 4Solicitor relationships


Session 4: Solicitor relationshipsYour questions answered

Are the rule’s provisions governing solicitation only applicable to private funds?

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Where do the disclosures related to testimonials and endorsements need to appear?

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How can an adviser practically provide the required disclosure if at least some of the disclosure needs to be provided along with the solicitation?

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Are existing clients or other persons who refer new clients to an adviser treated as “promoters” under the rule? For example, assuming that compensation is not provided for the referral, does the rule apply to clients when they refer their coworkers to the adviser?

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Would a discounted advisory fee be considered non-cash compensation if an adviser offers the discounted fee to a client in exchange for promoting the adviser?

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Does an adviser have an obligation to discontinue use of a testimonial or endorsement if the testimonial or endorsement is no longer true? For example, may an adviser continue to use a testimonial provided by a client if the client is no longer satisfied with the adviser or its services?

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You have mentioned that the adviser oversight requirement with respect to solicitors now has “teeth” behind it. Can you explain that a bit more?

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Can a placement agent for a private fund rely on the private placement memorandum to disclose the placement agent’s fees?

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How does this rule affect investment company relationships with selling broker-dealers?

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Session 5The impact on private fund advisers


Session 5: The impact on private fund advisersYour questions answered

Is the rule consistent with FINRA’s rules (assuming that a registered representative or broker-dealer could use private fund marketing materials)?If a registered representative of a broker-dealer firm is using private fund marketing materials, then how will SEC and FINRA rules apply?Will FINRA rules limit the application of any of these SEC requirements related to private funds?

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Questions?

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eversheds-sutherland.com© 2021 Eversheds Sutherland (US) LLPAll rights reserved.

Clifford KirschNew York, NY+1 212 389 [email protected]

Issa HannaNew York, NY+1 212 389 [email protected]

Michael KofflerNew York, NY+1 212 389 [email protected]

Bria AdamsWashington DC+1 202 383 [email protected]

Alexa ShockleyAtlanta, GA+1 404 853 [email protected]

the sec’s overhaul of the investment adviser advertising

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