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Modernizing Advertising Rule
17 January 2020
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In November 2019, the Securities and Exchange Commission (the “SEC”) proposed amendments (the “Advertising Amendments”) to Rule 206(4)-1 under the Investment Advisers Act of 1940 (the “Advisers Act”). The SEC also proposed amendments to Rule 206(4)-3 under the Advisers Act (the “Solicitation Amendments”).
Among other things, the Advertising Amendments would (i) expand the definition of an “advertisement” to capture a wider range of communications, (ii) impose a set of atomized prohibitions and prescribe specific requirements to the presentation of performance information, (iii) eliminate the prohibition on testimonials, endorsements and third-party rankings but subject their use to various conditions and disclosures, (iv) create a welcome distinction between retail and non-retail persons for purpose of performance presentations, imposing specific requirements for each type of communication, and (v) require that advertisements be reviewed and approved by a designated employee of the adviser before use.
The Solicitation Amendments would (i) expand Rule 206(4)-3’s scope to include persons who solicit current and prospective investors for private funds, making all requirements and conditions of the Solicitation Amendments applicable to private funds and their current and prospective investors, (ii) update Rule 206(4)-3 to reflect market practices (such as by expanding Rule 206(4)-3’s scope to non-cash payments and eliminating the duplicative requirement that a solicitor provide an adviser’s Form ADV brochure) and (iii) expand the types of disciplinary events that would disqualify persons from acting as solicitors.
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