On September 9th, the SEC announced charges against nine investment managers for non-compliance with the Marketing Rule, totaling over 1.2 million dollars. However, the monetary costs will pale in comparison to the reputational damage caused by the non-compliance as well as any potential litigation from clients.
In summary, the SEC uncovered several types of violations, including:
These types of mistakes are very common but also very easy to catch. Unfortunately, a lot of investment managers do not have the time, resources, and in some cases the requisite legal knowledge to prevent these issues in their marketing materials.
In particular – using the claim of membership to a non-existent organization as an example – some of these mistakes highlight flaws in many managers’ processes. It is very likely that the creators of the marketing material either added the membership claim after compliance had signed off on the document or the compliance team did not have the time to check that the organization existed.
As Zeidler has outlined in previous posts, the SEC’s power had been narrowed in 2024 which led us to predict that the SEC staff would focus on the remaining areas where they can flex their power: non-compliance with the SEC Marketing Rule. The fines to these nine investment managers should be seen as a shot across the proverbial bow for the investment management industry because the SEC will continue with rolling Marketing Rule reviews, most likely at an increased rate.
Note: The SEC’s Division of Examinations will release its priorities in October, and Marketing Rule compliance should be a priority (this is not great news for firms that do not have a robust marketing compliance process).
With all that said, what could have prevented these issues for those nine firms? A simple, reliable tool that checks marketing materials for SEC Marketing Rule compliance. Good news: such a tool already exists!
The Zeidler Marketing Material Review (MMR) tool would have completely prevented these issues. Had these firms used the Zeidler MMR tool, their respective marketing materials would have been flagged for every one of the violations the SEC found.
By using the Zeidler MMR Tool, investment managers can prevent compliance failures, avoid costly penalties, and, most importantly, safeguard their firm’s reputation from long-term damage caused by SEC violations.
Don’t wait for the SEC to come knocking. Protect your firm from costly fines and reputational damage by ensuring your marketing materials are fully compliant, let our lawyer-educated AI do the heavy lifting!
