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Beware of using the term as focal point for marketing; some states may have competing regulations
October 11, 2010 — 4:41 AM UTC by Les Abromovitz, Columnist
Earlier in my career, which was during the Paleolithic Era, one of the first things I learned about advertising by Registered Investment Advisers (“RIAs”) is that they should avoid using the acronym, “RIA,” in advertisements.
Securities regulators fear that those initials might look like a degree or designation earned by an investment adviser. For the same reason, securities regulators will object if you use the initials, “IAR,” after your name to indicate that you are an Investment Adviser Representative.
Using those initials will violate Rule 206(4)-1 under the Investment Advisers Act of 1940, because they might mislead clients and prospective clients.
According to the Adopting Release that accompanied the new Form ADV Part 2 rule, you might also be in trouble if your firm describes itself as a “Registered Investment Adviser” in marketing materials and advertisements. Footnote 29 in the Adopting Release reads as follows:
We have observed that the emphasis on SEC registration, in some advisers’ marketing materials, appears to suggest that registration either carries some official imprimatur or indicates that the adviser has attained a particular level of skill or ability. Section 208(a) of the Advisers Act [15U.S.C. 80b-8(a)] makes such suggestions unlawful.
The SEC’s observation was surprising, because I have always believed that identifying a firm as a Registered Investment Adviser helps to prevent an advertisement from being misleading. Otherwise, someone reading the ad might not know if the firm is an RIA or some other type of financial services firm.
State securities regulators may have a different opinion
About the same time I was reading the SEC’s Adopting Release, another consultant at National Compliance Services, Inc. (“NCS”) told me about an examination report issued by Oregon securities regulators. The report criticized a state-registered RIA, because the firm did not properly identify itself as a “Registered Investment Adviser” and the principal as an “Investment Adviser Representative.”
The letter went on to state that, “All sales literature and advertising of the firm must show these designations.” Although Oregon expects firms to provide this information in advertisements, the state does not want to see the acronyms, “RIA,” or “IAR,” used in a manner that suggests they are a professional designation like the CFP.
That same NCS consultant talked with an SEC lawyer to ask for an informal opinion on the issue. The SEC attorney stated that the appropriate use of the term, “Registered Investment Adviser,” in an advertisement depends upon the facts and circumstances of the situation.
While that may seem at first to be the type of answer we have come to expect from attorneys, it actually makes a great deal of sense. Much depends upon the context in which the term is used.
Some advertisements go on and on that the firm is an SEC or state-registered investment adviser. In those situations, it is clear that the term, “Registered Investment Adviser,” is being used for marketing purposes.
In contrast, I believe an examiner will be far less concerned if the reference to “Registered Investment Adviser” is used to make the point that RIAs owe a fiduciary duty to investors, while other financial professionals may not be held to that standard. There is also a big difference if the firm’s status as a Registered Investment Adviser is placed in a disclosure as opposed to it being the focal point of a marketing campaign.
Disclosures Can Make the Difference Between Compliance and Noncompliance
In situations where you are not sure if you have gone too far in calling yourself a Registered Investment Adviser, a disclosure may help prevent compliance problems. For example, you might use language like this in the disclosures that accompany your marketing materials:
SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.
Even if you are not SEC-registered, you may wish to disclose that registration does not constitute an endorsement by state securities regulators.
Because of these issues, it is important to be careful when calling your firm a Registered Investment Adviser on your website or in an advertisement. The goal is getting calls from prospective clients, not securities regulators.
Les Abromovitz is a senior consultant with National Compliance Services, Inc. Les, an attorney, is the author of Growing Within the Lines: The Investment Adviser’s Advertising and Marketing Compliance Guide (Available on Amazon.com or through NationalUnderwriterStore.com). He can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.
Mentioned in this article:
NCS Regulatory Compliance
Consulting Firm, Compliance Expert, RIA Set-up Firm, Regulatory Consultant
Top Executive: Mark Alcaide, COO/Partner
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