Upload
nina-gregory
View
40
Download
0
Embed Size (px)
DESCRIPTION
Investment Adviser Training Dallas, TX August 8-11, 2010. The Basics of Investment Adviser Advertising By Steve Thomas – Chief Compliance Examiner SD Division of Securities. WHAT IS AN ADVERTISEMENT?. - PowerPoint PPT Presentation
Citation preview
Investment Adviser TrainingInvestment Adviser TrainingDallas, TXDallas, TX
August 8-11, 2010August 8-11, 2010
The Basics of Investment The Basics of Investment Adviser AdvertisingAdviser Advertising
By Steve Thomas – Chief Compliance ExaminerBy Steve Thomas – Chief Compliance Examiner
SD Division of SecuritiesSD Division of Securities11
22
SEC Rule 206(4)-1(b) generally defines an SEC Rule 206(4)-1(b) generally defines an advertisement as covering, in addition to TV advertisement as covering, in addition to TV and radio, any written communication – and radio, any written communication – including notices, circulars and letters – including notices, circulars and letters – addressed to more than one person. addressed to more than one person. Including any notice or other announcement Including any notice or other announcement appearing in any publication that offers appearing in any publication that offers investment advisory services with regard to investment advisory services with regard to securities, as well as other specified securities, as well as other specified services.services.
WHAT IS AN ADVERTISEMENT?WHAT IS AN ADVERTISEMENT?
33
From NASAA Modules – From NASAA Modules –
SEC Rule 206(4)-1(b) defines advertisements as any notice, SEC Rule 206(4)-1(b) defines advertisements as any notice, circular, letter or other circular, letter or other written communicationwritten communication addressed to addressed to
more than one personmore than one person, or any notice or other announcement in , or any notice or other announcement in any publication or by radio or television, which offersany publication or by radio or television, which offers
(1) any analysis, report, or publication concerning securities, or (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to which is to be used in making any determination as to when to
buy or sell any security, or which security to buy or sell, or buy or sell any security, or which security to buy or sell, or
(2) any graph, chart, formula, or other device to be used in making (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or any determination as to when to buy or sell any security, or
which security to buy or sell, or which security to buy or sell, or
(3) any other investment advisory service with regard to (3) any other investment advisory service with regard to securities.securities.
WHAT IS AN ADVERTISEMENT?WHAT IS AN ADVERTISEMENT?
44
Advertising – Definition Advertising – Definition Advertisements may include notices in publications Advertisements may include notices in publications
relating to analysis and reports, form letters, relating to analysis and reports, form letters, electronic items and other standardized materials electronic items and other standardized materials that the adviser provides. that the adviser provides.
Advisers are required to keep copies of Advisers are required to keep copies of advertisements, pursuant to the books and records advertisements, pursuant to the books and records rules for investment advisers. rules for investment advisers. (3 or 5 years – first 2 years (3 or 5 years – first 2 years easily accessible)easily accessible)
Record Retention: The SEC rule only requires that Record Retention: The SEC rule only requires that ads sent to 10 or more persons be kept, but the ads sent to 10 or more persons be kept, but the NASAA model rule (Rule 203(a)-1) for adviser books NASAA model rule (Rule 203(a)-1) for adviser books and records requires ads to two or more persons to and records requires ads to two or more persons to be kept in the file.be kept in the file.
55
Advertising – Definition (cont.)Advertising – Definition (cont.)
Key Phrase:Key Phrase: ““written communication addressed to more than one person”written communication addressed to more than one person”
The SEC and most state regulators have adopted a broad The SEC and most state regulators have adopted a broad interpretation of this phrase:interpretation of this phrase:
An RIA’s quarterly client review letter that is customized An RIA’s quarterly client review letter that is customized for each client could still be considered an for each client could still be considered an advertisement.advertisement.
The copy and distribution of a newspaper article The copy and distribution of a newspaper article concerning the adviser could also qualifyconcerning the adviser could also qualify
Bottom Line – You should broadly interpret this Bottom Line – You should broadly interpret this phrase to mean “any written communication phrase to mean “any written communication DIRECTED to more than one person”DIRECTED to more than one person”
66
SEC Rule 206(4)-1(a)SEC Rule 206(4)-1(a)(Section 206 – Antifraud Provisions – Allows for Civil (Section 206 – Antifraud Provisions – Allows for Civil
Prosecutions by SEC and/or Criminal Prosecution by DOJ)Prosecutions by SEC and/or Criminal Prosecution by DOJ)
FIVE RESTRICTIONSFIVE RESTRICTIONSThe rule bars advertisements that directly or indirectly:The rule bars advertisements that directly or indirectly: Refer to Testimonials.Refer to Testimonials. Refer to past investment recommendations unless Refer to past investment recommendations unless
specific disclosures appear.specific disclosures appear. Rely on a graph, chart, formula, or other device to Rely on a graph, chart, formula, or other device to
determine investment strategy unless the ad discloses determine investment strategy unless the ad discloses specific details and the limitations.specific details and the limitations.
State that certain adviser services are free, unless true.State that certain adviser services are free, unless true. Contain any untrue statements of material fact or which Contain any untrue statements of material fact or which
are otherwise false or misleading.are otherwise false or misleading.
77
Using Testimonials in AdvertisingUsing Testimonials in Advertising
The first restriction – The first restriction – BARS AN INVESTMENT ADVISER FROM USING BARS AN INVESTMENT ADVISER FROM USING
TESTIMONIALS OF ANY KIND!TESTIMONIALS OF ANY KIND!The SEC and State Regulators have determined that The SEC and State Regulators have determined that
client testimonials are inherently misleading client testimonials are inherently misleading because they highlight favorable client because they highlight favorable client experiences while ignoring unfavorable ones.experiences while ignoring unfavorable ones.
In addition, testimonials communicate that In addition, testimonials communicate that allall clients clients typically have a favorable experience, even typically have a favorable experience, even though this may not be true.though this may not be true.
Finally, if testimonials were allowed, advisers might Finally, if testimonials were allowed, advisers might be tempted to provide extraordinary services to be tempted to provide extraordinary services to a select few clients with the goal of soliciting a select few clients with the goal of soliciting their testimonials and endorsements in their testimonials and endorsements in advertising.advertising. **There are no provisions that would allow for any sort of testimonial – **There are no provisions that would allow for any sort of testimonial –
EVEN IF DISCLOSURES ARE GIVEN.EVEN IF DISCLOSURES ARE GIVEN.88
Performance AdvertisingPerformance AdvertisingThe second prohibition prevents an adviser from advertising The second prohibition prevents an adviser from advertising
past, specific investment recommendations that were or past, specific investment recommendations that were or have been profitable, unless the ad fully discloses have been profitable, unless the ad fully discloses all all recommendations for at least the past year.recommendations for at least the past year.
These past year disclosures must include:These past year disclosures must include: the security recommended;the security recommended; the date, price and nature of the recommendations (buy, the date, price and nature of the recommendations (buy,
sell, or hold);sell, or hold); the price triggering the recommendation (and the most the price triggering the recommendation (and the most
recent price);recent price); a mandated cautionary legend. (past performance…)a mandated cautionary legend. (past performance…)
This mandate to include This mandate to include ALLALL recommendations prevents the recommendations prevents the adviser from cherry-picking only his best recommendations!adviser from cherry-picking only his best recommendations!
99
Performance AdvertisingPerformance Advertising
NASAA’s NEMO Modules have entire NASAA’s NEMO Modules have entire sections on performance advertising.sections on performance advertising.
The Performance Advertising Modules The Performance Advertising Modules are divided into 3 sections:are divided into 3 sections:
1) Figures based on ACTUAL portfolios1) Figures based on ACTUAL portfolios 2) Figures based on MODEL portfolios2) Figures based on MODEL portfolios 3) Section 3 deals with specifics on how 3) Section 3 deals with specifics on how
the performance results were calculated.the performance results were calculated.
1010
Use of Graphs, Charts, etc.Use of Graphs, Charts, etc.
The third restriction prevents an adviser from using any The third restriction prevents an adviser from using any graph, chart, formula, or other device (timing, etc.) in graph, chart, formula, or other device (timing, etc.) in advertising that is designed to be used by a consumer to advertising that is designed to be used by a consumer to determine when to make investment decisions unless it determine when to make investment decisions unless it prominently discloses the limitations and difficulties prominently discloses the limitations and difficulties involved. involved.
A typical violation of this provision would be an advisor A typical violation of this provision would be an advisor advertising that a particular “market-timing formula” or advertising that a particular “market-timing formula” or other “proprietary trading system” can dictate when and other “proprietary trading system” can dictate when and what securities should be bought and sold to make a what securities should be bought and sold to make a profit – without disclosing the risks involved and that you profit – without disclosing the risks involved and that you could also lose money.could also lose money.
1111
Advertising “FREE” ServicesAdvertising “FREE” Services
The fourth restriction prohibits an adviser from The fourth restriction prohibits an adviser from advertising that any of the services it provides advertising that any of the services it provides are free of charge, unless the service truly is are free of charge, unless the service truly is free.free.
While this may seem obvious, a typical violation is While this may seem obvious, a typical violation is found when an adviser states that a particular found when an adviser states that a particular service is free – but only upon the purchase of service is free – but only upon the purchase of other adviser services. other adviser services.
1212
Untrue, False, or Misleading Untrue, False, or Misleading StatementsStatements
The fifth, and most all encompassing, The fifth, and most all encompassing, restriction prohibits any advertising that restriction prohibits any advertising that “contains any untrue statement of material “contains any untrue statement of material fact, or which is otherwise false or fact, or which is otherwise false or misleading”.misleading”.
This provision is limited only by the This provision is limited only by the imagination of the adviser who is seeking imagination of the adviser who is seeking to mislead or deceive. Sometimes these to mislead or deceive. Sometimes these statements are subtle – sometimes they statements are subtle – sometimes they can be very “creative”.can be very “creative”. 1313
Untrue, False, or Misleading Untrue, False, or Misleading Statements Statements
Some Typical Examples:Some Typical Examples: Overstating Amount of AUMOverstating Amount of AUM Misrepresenting Educational Background or Work Misrepresenting Educational Background or Work
Experience of PersonnelExperience of Personnel Overstating Longevity of the FirmOverstating Longevity of the Firm Non-Disclosure of How Investment Performance is Non-Disclosure of How Investment Performance is
Calculated (Actual, Hypothetical, etc.)Calculated (Actual, Hypothetical, etc.) Non-Disclosure or Misrepresentation of the Time Frame Non-Disclosure or Misrepresentation of the Time Frame
Involved on Quoted Investment PerformanceInvolved on Quoted Investment Performance Inadequate, Inappropriately Displayed, or Missing Key Inadequate, Inappropriately Displayed, or Missing Key
DisclosuresDisclosures
1414
Using “Registered Investment Using “Registered Investment Adviser” and “RIA” in AdvertisingAdviser” and “RIA” in Advertising
There is no rule requiring advisers to include There is no rule requiring advisers to include the phrase “Registered Investment Adviser” the phrase “Registered Investment Adviser”
on Letterhead, Stationary, or Business on Letterhead, Stationary, or Business Cards.Cards.
However, there is a rule prohibiting the use However, there is a rule prohibiting the use of these terms where the adviser is implying of these terms where the adviser is implying
a particular level of training, education, a particular level of training, education, expertise, or competence.expertise, or competence.
1515
Using “Registered Investment Using “Registered Investment Adviser” and “RIA” in AdvertisingAdviser” and “RIA” in Advertising
Using the initials “RIA” or “R.I.A.” after a Using the initials “RIA” or “R.I.A.” after a person’s name is improper and misleading:person’s name is improper and misleading: 1) These initials have no meaning to the 1) These initials have no meaning to the
general public;general public; 2) These initials are not a professional 2) These initials are not a professional
designation or degree;designation or degree; 3) The ENTITY, not the individual 3) The ENTITY, not the individual
representative, is the Registered Investment representative, is the Registered Investment Adviser (This is true even with sole-Adviser (This is true even with sole-proprietorship registrants.)proprietorship registrants.)
1616
Advertising – Web BasedAdvertising – Web Based
The NASAA Interpretive Order (1997) states that The NASAA Interpretive Order (1997) states that neither an adviser (RIA) nor an investment neither an adviser (RIA) nor an investment adviser representative (IAR) will be considered adviser representative (IAR) will be considered to be doing business in a state solely because to be doing business in a state solely because it or he or she distributes information on it or he or she distributes information on available products and services through the available products and services through the Internet if certain conditions are observed. Internet if certain conditions are observed.
These conditions include the following:These conditions include the following:
1717
Advertising – Web BasedAdvertising – Web Based
1) The internet communication must contain 1) The internet communication must contain a legend or disclosure that clearly states:a legend or disclosure that clearly states:
The adviser (RIA) or IAR may only transact The adviser (RIA) or IAR may only transact business in a state where the RIA and/or IAR business in a state where the RIA and/or IAR is first registered, excluded, or exempt from is first registered, excluded, or exempt from registration and that no follow-ups or registration and that no follow-ups or individualized responses that involve the individualized responses that involve the rendering of investment advice for rendering of investment advice for compensation will be allowed unless the RIA compensation will be allowed unless the RIA and/or IAR is/are properly registered.and/or IAR is/are properly registered.
1818
Advertising – Web BasedAdvertising – Web Based
2) All internet communications must be 2) All internet communications must be monitored and contain some sort of monitored and contain some sort of mechanism (technical limitations or mechanism (technical limitations or policies and procedures) for ensuring policies and procedures) for ensuring that no individualized follow-ups are made that no individualized follow-ups are made with prospective clients unless the adviser with prospective clients unless the adviser and/or IAR is registered, exempt, or and/or IAR is registered, exempt, or excluded from registration.excluded from registration.
1919
Advertising – Web BasedAdvertising – Web Based
3) The internet communication must not include 3) The internet communication must not include any individualized investment advice for any individualized investment advice for
compensation; it must be limited to compensation; it must be limited to disseminating general information about disseminating general information about products and services.products and services.
4) If the internet communication comes from an 4) If the internet communication comes from an IAR, it must include a prominent disclosure of IAR, it must include a prominent disclosure of the related adviser’s (RIA’s) identity, and the the related adviser’s (RIA’s) identity, and the adviser (RIA) remains responsible for reviewing adviser (RIA) remains responsible for reviewing and approving the communication.and approving the communication.
2020
Advertising – Social NetworkingAdvertising – Social Networking
2121
Advertising – Social NetworkingAdvertising – Social Networking
WHERE TO LOOKWHERE TO LOOK::
GoogleGoogle Linked-InLinked-In Facebook (Look for Non-Restricted Pages)Facebook (Look for Non-Restricted Pages) My SpaceMy Space YouTubeYouTube TwitterTwitter Googleblog, Google BuzzGoogleblog, Google Buzz BingBing Yahoo! 360°plusYahoo! 360°plus
2222
Advertising – Social NetworkingAdvertising – Social Networking
Wikipedia (Wikipedia (http://en.wikipedia.org))
List of Social Networking WebsitesList of Social Networking Websites
Wikipedia note: This list is not exhaustive, and is Wikipedia note: This list is not exhaustive, and is limited to notable, well-known sites. limited to notable, well-known sites.
192 Sites!!!192 Sites!!!
2323
Advertising – Advertising – Social Networking SitesSocial Networking Sites
Just a Few ExamplesJust a Few Examples aSmallWorldaSmallWorld – European jet set and social elite worldwide – European jet set and social elite worldwide BlipBlip – Norwegian Community – Norwegian Community Cake Financial Cake Financial – Investing– Investing Classmates.comClassmates.com – School, college, work and the military – School, college, work and the military Eons.comEons.com – for baby boomers – for baby boomers FilmAffinityFilmAffinity – Movies and TV Series – Movies and TV Series FubarFubar – dating, an “online bar” for 18 and older – dating, an “online bar” for 18 and older Geni.comGeni.com – Families, Genealogy – Families, Genealogy HotlistHotlist – Geo-Social Aggregator rooted in the concept of – Geo-Social Aggregator rooted in the concept of
knowing where your friends are, were, and will be.knowing where your friends are, were, and will be. MeetthebossMeettheboss – Business and Finance community worldwide – Business and Finance community worldwide MyChurchMyChurch – Christian Churches – Christian Churches OneClimateOneClimate – Not for Profit Social Networking on Climate – Not for Profit Social Networking on Climate
ChangeChange
2424
Advertising – Advertising – Social Networking SitesSocial Networking Sites
Open Diary Open Diary – First Online Blogging Community – 1998– First Online Blogging Community – 1998 PartnerUpPartnerUp – Site for Entrepreneurs and Small Business – Site for Entrepreneurs and Small Business QapacityQapacity – Business-Oriented Social Directory – Business-Oriented Social Directory ReverbNation.comReverbNation.com – For Musicians and Bands – For Musicians and Bands RyzeRyze – Business – Business SocialVibeSocialVibe – Social Network for Charity – Social Network for Charity Something Awful Something Awful – General, Humor Based– General, Humor Based Vampirefreaks.comVampirefreaks.com – Gothic and Industrial Subculture – Gothic and Industrial Subculture Yelp,Inc.Yelp,Inc. - Local Business Review and Talk - Local Business Review and Talk
This was a list of sites (minus Fubar This was a list of sites (minus Fubar ) obtained ) obtained during an actual exam that an adviser had during an actual exam that an adviser had
written down and was considering as part of his written down and was considering as part of his new “advertising campaign”.new “advertising campaign”.
2525
Advertising – Social NetworkingAdvertising – Social Networking
Latest Developments – New Firms Latest Developments – New Firms Emerging to Monitor Social Emerging to Monitor Social
Networking Sites and Usage Networking Sites and Usage
Socialware, Inc. – 2010 IAR SurveySocialware, Inc. – 2010 IAR Survey
Usage of Social Media Sites:Usage of Social Media Sites: 60% Currently Using Social Media (expected to 60% Currently Using Social Media (expected to
grow to 71% by end of year)grow to 71% by end of year) 1.8 – Average # of Sites Used1.8 – Average # of Sites Used
(LinkedIn is most popular site – used by 57% of (LinkedIn is most popular site – used by 57% of respondents)respondents)
2626
Advertising – Social NetworkingAdvertising – Social Networking
SocialwareSocialware, Inc. – 2010 IAR Survey, Inc. – 2010 IAR Survey
Impact of Using Social Media:Impact of Using Social Media:
100% Believe – Positive Impact100% Believe – Positive Impact
60% Believe – New Client Source60% Believe – New Client Source
2727
Advertising – Social NetworkingAdvertising – Social Networking
Socialware, Inc. – 2010 IAR SurveySocialware, Inc. – 2010 IAR Survey
Compliance Issues:Compliance Issues: 43% who are using social media either do 43% who are using social media either do
not have or are unsure of firm policiesnot have or are unsure of firm policies 39% that are using social media sites for 39% that are using social media sites for business are business are prohibited prohibited from using them by from using them by
their firmstheir firms 40% believe the firm’s social media policies 40% believe the firm’s social media policies
are detrimental to their job performanceare detrimental to their job performance 66% do not archive social media data66% do not archive social media data
2828
Advertising – Social NetworkingAdvertising – Social Networking
Social Networking Is Here To Stay!!Social Networking Is Here To Stay!!
All Jurisdictions Need to Develop All Jurisdictions Need to Develop Examination Procedures to Monitor Examination Procedures to Monitor RIA/IAR Activities on These Sites!RIA/IAR Activities on These Sites!
Consultant’s Quote on Social Media Usage – Consultant’s Quote on Social Media Usage – ““RIA’s therefore have a good deal of flexibility in RIA’s therefore have a good deal of flexibility in
marketing on social media. They need only follow marketing on social media. They need only follow four basic principles, in our view: Treat all social four basic principles, in our view: Treat all social networking as advertising, monitor frequently, keep networking as advertising, monitor frequently, keep comprehensive records, and stay away from comprehensive records, and stay away from testimonials.” testimonials.” It’s our job to regulate and monitor these activies!It’s our job to regulate and monitor these activies!
2929
Great References and Resources!Great References and Resources!
Here are some great resources and Here are some great resources and reference material for you to use in reference material for you to use in determining if an RIA or IAR’s determining if an RIA or IAR’s advertisements are compliant:advertisements are compliant:
NASAA Nemo ModulesNASAA Nemo Modules Investment Adviser Exam Module Investment Adviser Exam Module
Instructions – (Pages 5&6 – Copies Instructions – (Pages 5&6 – Copies Included in Binders)Included in Binders)
Performance Advertising Sub-Module Performance Advertising Sub-Module (Includes 12 Pages of Performance (Includes 12 Pages of Performance Adverstising Explanation and Adverstising Explanation and Instruction)Instruction) 3030
Great References and Resources!Great References and Resources! Journal of AccountancyJournal of Accountancy – Article by Brian – Article by Brian
Carrol entitled “Investment Adviser Carrol entitled “Investment Adviser Advertising – For the unitiated, the SEC’s Advertising – For the unitiated, the SEC’s complex rules can have unintended complex rules can have unintended consequences.” (Copies of this article have consequences.” (Copies of this article have been provided.)been provided.)
SEC Rule 206(4)-1(a)(5) and NASAA Model Rule SEC Rule 206(4)-1(a)(5) and NASAA Model Rule 102(m)(13). Performance advertising is subject to 102(m)(13). Performance advertising is subject to prohibitions on false or misleading advertisements. prohibitions on false or misleading advertisements. The most comprehensive guidelines showing how The most comprehensive guidelines showing how performance may be presented are in the performance may be presented are in the SEC’s no SEC’s no action letter to Clover Capital. (Clover Capital action letter to Clover Capital. (Clover Capital Management, Inc. (October 1986)) – (Copy in Management, Inc. (October 1986)) – (Copy in Binder)Binder) 3131
Great References and Resources!Great References and Resources!
Social Networking:Social Networking:
FINRA Regulatory Notice 10-06 – Social FINRA Regulatory Notice 10-06 – Social Media Web Sites – January 2010Media Web Sites – January 2010
How SEC Regulations Apply to RIA’s Using How SEC Regulations Apply to RIA’s Using Social Media – One Page Summary Social Media – One Page Summary
www.triplestopLLC.comwww.triplestopLLC.com
Socialware.com – Several White Papers are Socialware.com – Several White Papers are available for download. (Facebook, LinkedIn, available for download. (Facebook, LinkedIn, Twitter, etc.)Twitter, etc.) 3232
Investment Adviser TrainingInvestment Adviser TrainingDallas, TXDallas, TX
August 8-11, 2010August 8-11, 2010
The Basics of Investment The Basics of Investment Adviser AdvertisingAdviser Advertising
By Steve Thomas – Chief Compliance ExaminerBy Steve Thomas – Chief Compliance Examiner
SD Division of SecuritiesSD Division of Securities3333