Recently Byrnes Consulting and AdvisorAssist teamed up to give a webinar called “Online Marketing Mistakes to Avoid.” Conor Anderson, the VP of Advisor Compliance at AdvisorAssist shared this advice related to the U.S. Securities Exchange Commission's latest risk alert identifying the most common deficiencies related to advertising:
Disclosures Of Performance
If communications have any performance information in them, know what the performance is, what disclosures are needed and have back-up information for the performance. Anderson gave examples of model calculations, treatments of fees shown net of advisory fees and back-tested performance.
Gross-of-fees performance should only be used with one-on-one “table setting” types of interactions, said Anderson. It should be accompanied by performance figures that show the impact of investment advisory fees and it should be clear what those fees are.
Cherry Picking
When making claims around holdings, the area of fair, balanced and misleading comes into play, explained Anderson. If showing top holdings, bottom holdings should also be shown for a balanced attribution presentation. Clients should receive disclosure that they can request a full holdings list.
When comparing performance to an index, especially a custom index, the communications has to have an apples-to-apples comparison. “Our guidance is to always add a common-based benchmark,” advised Anderson.
Do not omit any material facts from communications.
Complying With GIPS
If representations of things like being in compliance with GIPS standards are made, make sure you engage with an independent third-party verifier for the review of an investment management firm's performance measurement processes and procedures.
Charts And Graphs
When putting together visual communications, do a thorough job of labeling charts and graphs, added Anderson. Disclose all sources of information. Make sure the end reader has a clear understanding of what they are looking at.
Internal Standards
Every advisor needs to ensure that there is a set of policies and procedures that governs the client communications within the firm, said Anderson. That includes a “review and approval policy.” There needs to be a clear definition of how the content is going to be reviewed so the chief compliance officer can find any gaps or noncompliance of the procedures.
There should be a “performance calculation policy” to determining the parameters for performance calculations and for checking the accuracy of the performance results.
All of the communications, as well as the performance source and back-up for each of the communications, should be retained for five years after the date of last use. There should be easy access for the chief compliance officer to access any of this information that might be asked for during a SEC examination.
Mike Byrnes is a national speaker and owner of Byrnes Consulting LLC. His firm provides consulting services to help advisors become even more successful. Need help with business planning, marketing strategy, business development, client service and management effectiveness? Read more at ByrnesConsulting.com and follow @ByrnesConsultin.