SEC Expected to Be 'Heavy-Handed' With Marketing Rule Enforcement

SEC Expected to Be 'Heavy-Handed' With Marketing Rule Enforcement

The rule is creating a tremendous amount of work for compliance teams. Not only is the regulatory change itself onerous — as policies and procedures need to be reviewed and updated — but the implications of the rule will increase volumes as well.

With a broader definition of “advertisement,” firms will be required to apply a higher standard of review to more communications. Additionally, permitting testimonials represents a massive increase in supervision requirements, especially for large firms with thousands of advisors. Manually addressing these factors for tens of thousands of advisors will be impossible; firms must leverage technology to scale and automate their supervision processes.

Our forthcoming annual compliance benchmark report validates this finding: We found that whereas last year, firms were expecting to do more with less, this year the tide has shifted, and firms are demanding more compliance resources in order to meet escalating regulatory demands.

What is Hearsay offering to help in ongoing compliance with the rule?

To scale the supervision of testimonials, Hearsay has developed functionality that will permit advisors to categorize testimonials based upon inherent risk — whether they are unsolicited from current clients without conflicts, solicited from non-clients with conflicts, or any other flavor of testimonial. Our expectation is that most firms will initially want to review all testimonials — which we support — but will eventually want to treat different testimonials differently.

We want to confidently empower advisors to take advantage of this critical marketing tool, while helping compliance teams supervise the management of testimonials on social media.

Does the SEC need to provide more guidance?

It’s too early to tell. I expect that we’ll receive more intel after the SEC has begun its enforcement of the rule in 2023.

During that process, the SEC will see how firms are approaching compliance and issue further guidance on missteps that they’re seeing and how to avoid them.