The SEC’s new principles-based approach to advertising regulations designed to allow advisors to better tell their stories to prospective clients, is an improvement, but is still too onerous to be workable for the industry.

That’s according to the Investment Adviser Association (IAA), the trade association whose members manage some $25 trillion for retail and institutional investors,

IAA generally supports the SEC’s efforts to modernize the advertising rules originally created and unchanged since 1961 and 1979, respectively—“we are concerned that certain elements of the proposal would impose significant operational and compliance burdens and unduly impede important communications with investors,”  IAA President Karen Barr said in a letter sent to the SEC last night.

Most troubling, Barr said, is the SEC’s proposed “far-too broad” definition of advertisement, coupled with a review and pre-approval requirement, which “in our view create the single most concerning aspect of the Commission’s proposed Advertising Rule and would significantly undermine much of what the Commission is intending to accomplish.”

By defining advertising as almost every communication, the SEC’s revised rules “will have the unintended consequence of impeding communications between advisers and investors that do not raise the risks the rule is trying to address.”

At a high level, the proposed amendments to the advertising rule would replace the current SEC rule’s broadly drawn limitations with principles-based provisions. The proposed approach would also “permit the use of testimonials, endorsements, and third-party ratings, subject to certain conditions, and would include tailored requirements for the presentation of performance results based on an advertisement’s intended audience.”

At a more granular level, the industry also has concerns with the proposal’s “onerous new review and pre-approval requirement under the proposed Advertising Rule would make the rule exceedingly difficult to implement and hamper investors’ access to information they want and expect,” Barr said.

Barr said that in practice, the proposal “would likely result in advisers being compelled to review virtually all communications directed at clients and potential clients prior to their use.”

IAA also has concerns with the SEC’s proposed expansion of the Solicitation Rule to cover solicitation of private fund investors – “which we believe is already subject to appropriate oversight – and to include an extremely broad universe of direct and indirect benefits, that will be hard for firms to identify and administer in practice,” Barr said.

The IAA is, however, generally supportive of the inclusion of specific disclosure-based guidelines for testimonials, endorsements, third-party ratings, and references to specific security recommendations.

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