Financial Regulatory Forum

IA brief: Advertising compliance principles for adviser Web sites

By Guest Contributor
June 26, 2013

By Jason Wallace, Compliance Complete

NEW YORK, June 26 (Thomson Reuters Accelus) - During an inspection, an examiner will inevitably ask the chief compliance officer of an advisory firm if they advertise and all too often, the examiner will receive a quick “no.” Although this may be true in the traditional sense of advertising, most firms do advertise with the use of a firm website and often don’t know it.

An adviser’s website is definitely a form of advertising and it’s usually a firm’s most public or visual form of it. Knowing some of the common compliance pitfalls when it comes to a firm website’s can save time and alleviate regulatory scrutiny. The listed pitfalls fall into four categories, they include: accuracy, disclosure, advertising rule considerations and documentation.

A large adviser may employ many different forms of advertising but a website may be the only form for many small to midsize firms. Usually a firm with multiple channels of advertising will have a more robust review and approval program, but a firm with little or no additional advertising could fail to complete any of those processes. That makes an annual or even quarterly review a must.

Rule 206(4)-1 under the Investment Advisers Act regulates advertisements, including websites. The rule prevents the use of false or misleading advertisements. Websites must not contain any untrue statement of a material fact. Furthermore, the content must not be false or misleading in any way. Although Rule 206(4)-1 applies directly to firms registered with the Securities and Exchange Commission, state rules frequently contain comparable prohibitions.

The four categories of most common compliance pitfalls with adviser websites are:

  1. Accuracy: Any information presented or documents linked to the firm’s website must be deemed accurate. A neglected site can be give a regulator a negative impression before even stepping foot into the adviser’s office.

    In some cases firms will claim current regulatory assets under management (RAUM). This practice may be scrutinized but is not prohibited. The figures should be accurate and from a recent period. It would be especially misleading if a firm had a large change in RAUM and did not reflect the change on its public website.

    Another example may involve a firm including a copy of its brochure or any other type of literature. These documents should have recent revision dates and be in their latest version. Lastly, individuals listed on the site should be currently employed or associated with the firm.

  2. Disclosure: A general website disclosure should be conspicuous as it discloses the nature of your entity (i.e. a registered investment adviser), and if left-out, could be misleading. The disclosure will usually contain information concerning the firm’s state registrations or provide contact information for the client to check availability of services in the state, a general statement about future performance and the notion that information on the website is not personalized in nature.

    A general disclosure may include the following information:

    “(NAME OF ADVISER) is a registered investment adviser. This website is only intended for clients and interested investors residing in states in which the Adviser is qualified to provide investment advisory services. Please contact ADVISER at XXX-XXX-XXXX to find out if the investment adviser is qualified to provide investment advisory services in the state where you reside. The Adviser does not attempt to furnish personalized investment advice or services through this website. Past performance is no guarantee of future results. ”

    Outside links require disclosure as well. Disclosure does not release supervision responsibilities. Links accessed from a firm’s website reflect directly on the advisory firm and in some cases cause violations of Rule 206(4)-1.

    For example, if a website links to a firm’s Facebook page that contains pictures of the adviser in question with certain individuals that may imply they are clients; this could be a testimonial. The use of social media links seems to be common practice for firms to bring attention to their Facebook, LinkedIn or Twitter accounts, but if not backed up with strong social media policies, it could open up a firm to additional scrutiny.

    Additionally, if a linked page, not controlled by the adviser, includes false information this may expose a violation, not to mention poor due diligence on the firm’s part. A disclosure concerning the linked information should be offered before a perspective or current client leaves the firm’s website.

    A sample link disclosure may include the following information:

    “At certain places on our website we offer direct access or ‘links’ to other Internet websites. These sites contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of (ADVISER). (ADVISER) does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there. Visitors to these websites should not use or rely on the information contained therein until consulting with an independent finance professional. (ADVISER) does not necessarily endorse or recommend any commercial product or service described at these websites.

  3. Advertising rule considerations: Rule 206(4)-1(a)(1) prohibits advertisements that refer directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser. The prohibition may include any type of direct or inferred client endorsement. A testimonial may include a client’s stated satisfaction with the adviser or an internal firm survey highlighting the firm’s approval level. The SEC considers them inherently misleading because they highlight favorable client experiences while ignoring unfavorable ones.
  4. Documentation: The firm’s policies and procedures should outline the frequency of the firm’s website review, including who is responsible and what type of records will be maintained. Website review is a time when documentation is required to evidence compliance.

    A quick read of the website and notation in a file may be okay if there haven’t been any changes since the last review but if there are changes made, a firm should keep the old verbiage and the corrected version. This can be accomplished with saved screen-shots or even printouts.

    Web presence can make or break a firm. Using these four general categories and others to perform a complete review of the firm’s website during the summer lull may be the best defense for an upcoming audit.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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