Eight months on the job and Securities and Exchange Commissioner Allison Herren Lee is already wading into controversial territory: wondering aloud at the Investment Adviser Association (IAA) annual compliance conference in Washington, D.C., yesterday whether the agency’s newly proposed advertising rules for advisors won’t lead to more of what they fear most—SEC examiner interpretations that lead to pricey, high-profile enforcement actions.

Herren said she thinks the advertising proposal—the first real update of advisor ad rules since 1961—represents meaningful improvement over the existing framework, but she is concerned the rule's open-ended flexibility could create compliance pitfalls and enforcement for firms that the SEC should avoid.

“I know there are concerns expressed by many about what is often referred to as ‘regulation by enforcement,’” Herren told the hundreds of compliance attorneys and RIA executives at the IAA event.

Both IAA and the Financial Services Institute have lobbied the SEC against what they have termed the creep of “regulation by enforcement,” particularly with regard to the SEC’s 2019 mutual fund share class settlements, which forced 95 broker-dealer to pay $135 million in investor restitution for failing to supervise reps who sold clients’ the most expensive fund share classes without disclosing it.

The new advertising rule proposal may have similar landmines, Herren said.

“If the rule’s requirements are too vague, how can the commission ensure compliance without raising those sorts of concerns? If it’s not enforceable, responsible advisors like the people in this room may find themselves competing against advisors who use performance information that is not fair and balanced at all. I believe that the current proposal may rely too heavily on high-level principles, which can certainly exacerbate that issue,” Herren said.

In general, the proposal would modernize much of the existing framework for advisor advertisements and address the presentation of advisor performance in a more holistic fashion than the piecemeal approach derived from existing staff guidance, which Herren called a meaningful improvement.

The SEC ad proposal also includes measures designed to ensure that investors are not misled. It updates and modernizes the regulatory regime to reflect the changing ways in which investors receive and review information and it requires advisors, in certain contexts, to provide specific information to facilitate more informed decision-making.

Herren said she supports rule updates that are consistent with the SEC’s mission to protect investors, but has concerns with proposal specifics that could lead to RIA misinterpretations or errors that should be avoided.

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