Professionals in the securities industry may get more freedom when it comes to advertising.
In early November 2019, the U.S. Securities and Exchange Commission proposed updating the Investment Advisers Act of 1940 to allow investment advisers using endorsements and testimonials for advertisements on social media. Should the proposal be approved, the amendment would be the first update on advertising under the Advisers Act since 1961, nearly 60 years ago. The SEC says the amendment was proposed due to changes in technology, especially the creation of social media.
“In the decades since the current rule was adopted, the use of the internet, mobile applications and social media has become an integral part of business communications,” the proposal reads. “These advances in technology have led to significant growth in the nature and volume of information available to individuals and businesses, for example, by allowing them to access and share user reviews.”
To include social media, the SEC would update the definition of advertisement to “any communication, disseminated by any means,… that offers or promotes the investment adviser’s investment advisory services or that seeks to obtain or retain one or more investment advisory clients or investors.”
The current definition of advertisement to the SEC is limited to written communications, TV and radio.
Karen Barr, chief executive of the Investment Adviser Association, told Investment News that the changes to advertising rules are a “big deal.”
“There are communications practices that every other business can employ that investment advertisers can now employ. Advisers will be able to engage in communications that are expected by consumers,” Barr said.
While the amendment would give investment advisers more freedom, it would still prohibit them from outright deceiving customers. An advertisement that “omits to state a material fact necessary in order to make the statement made… not misleading.” Any ads that have false information or misleading inferences would also be prohibited.
The amendment to advertising is open to public comment for 60 days on the Federal Register. The SEC may modify the proposal based on the comments before releasing the final rules.
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