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Lost in limbo: How and why compliance officers can seem to thwart RIA marketing efforts

CCOs have valid reasons for poring over the content of any proposed articles coming from their firm -- but they owe you a quick response

Wednesday, February 22, 2012 – 3:52 AM by Guest Columnist Les Abromovitz
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Les Abromovitz: The SEC and state securities regulators want to prove they are aggressively overseeing RIAs.

I used to joke at presentations that the role of compliance is to suck the creativity out of advisory firms’ advertisements. See: Advertising practices that can raise the hackles of regulators.

That said, compliance officers can, despite the noblest of intentions, frustrate an RIA’s efforts to get its message out. Their compliance concerns are not limited to pure advertisements, but can extend to articles written to educate and enlighten the readers of a particular publication. Those articles do not fall within the definition of advertising, even though they usually enhance the prestige of the advisor’s RIA. See: Top 10 ways financial advisers can 'market smarter’ — and enjoy it more in 2012. Brooke Southall, managing principal of this publication, has observed that contributors’ articles have been delayed or even scuttled because the writers’ compliance departments had not approved them.

Hype detector

Assuming no content is false or misleading, there would appear to be little reason for an article to get hung up in compliance. One possible explanation for a delay, however, is that articles authored by advisers may be used for multiple purposes. The article might be e-mailed to current and prospective clients, for instance. See: Advisor newsletters: Compliance-wise, all news may not be fit to print.

When an adviser e-mails that article to prospects, it becomes an advertisement and is subject to different compliance standards. The article may also wind up on the firm’s website or an RIA might put the link on Twitter. See: Think about compliance before sending or posting those articles you read.

For these reasons, compliance might be looking at the article in relation to the RIA’s policies and procedures governing electronic communications, social media, and advertising. See: Why compliance experts are apt to dislike Facebook.

There is also a risk that an author, intentionally or unintentionally, might add a bit of marketing hype when they send along an article, for example, by referring to the RIA as a “nationally recognized expert” on a particular type of investment or the “foremost authority” on a specific subject. Marketing hype is inherently misleading and should never be used by an investment adviser representative.

Ghostwriters beware

Complicating matters, in some instances, is the fact that an author might be answering to more than one compliance department. Dually registered IARs must satisfy the compliance obligations of their advisory firms, as well as their broker-dealers. As an example, in Regulatory Notice 08-27, FINRA warned registered representatives that they should not misrepresent their investment expertise by using ghostwritten articles. See: FINRA guidance may help RIAs avoid social media blunders.

Similarly, advertising rules for RIAs state that they must avoid false or misleading advertisements. Several SEC deficiency letters have concluded that it is misleading for advisers to state they authored an article if it was ghostwritten by a freelance writer or some other third party.

In almost all cases, the folks in compliance have the firm’s best interests at heart and are trying to make well-reasoned decisions. There are occasions, however, where newer compliance employees are too cautious and drag their feet in making a decision.

Something to prove

Nevertheless, compliance decisions should not be made without full consideration of all of the potential risks. The stakes are higher now as securities regulators have become increasingly willing to impose harsh penalties against RIAs and their CCOs. The damage to a firm’s reputation may be irreparable.

Some RIAs, however, move forward, even after compliance personnel have raised concerns about the firm’s course of action. The head of an advisory firm recently ignored compliance advice because his previous examinations were uneventful. He also seemed unconcerned that regulators are now more likely to penalize noncompliant RIAs. Firms need to take note that the SEC and state securities regulators want to prove they are aggressively overseeing RIAs, especially with Congress weighing the establishment of a self-regulatory organization for advisers. See: RIAs switching to state registration may be examined by a second regulator, too.

Another way around

That being said, an adviser who sends an article, or any marketing piece, to compliance to be vetted, deserves an answer in a timely manner. Certainly, the IAR should make it clear to compliance that the publication wants to run the piece by a particular date.

If compliance personnel have concerns, they should be communicated promptly to the IAR. Instead of just saying “no,” they should suggest alternative language or disclosures that will alleviate their compliance concerns.

In some cases, the bottleneck in approving an article might not even originate with compliance. Executives of the firm might be looking at whether statements made in an article are controversial or might divulge a strategy better left unrevealed.

No matter what the reason is for the delay in approving an article or advertisement, the compliance process should be transparent. Compliance officers should try to explain why certain content may violate the rules, policies and procedures, or the best interests of the firm. Educating IARs on compliance issues will make life easier down the road for all the parties and will help that next article get published much sooner.

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. His new book, The Investment Advisor’s Compliance Guide, will be published in 2012. Les can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.

Mentioned in this article:

NCS Regulatory Compliance
Consulting Firm
Top Executive: Mark Alcaide, COO/Partner

Aurora Compliance Solutions
RIA Set-up Firm
Top Executive: Edward Romanowsky

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