Recently I have made some comments on social media in connection with some posts made by American Funds with regard to the performance of some of their funds. As a securities/ERISA attorney, RIA compliance consultant and former compliance manager, the ads raised a number of potential issues for me.
As a former compliance manager, one of my duties was to review all advertising that third parties wanted our registered representatives to use in marketing their products. The first thing that I always did was to ask the mutual fund company to provide me with the NASD’s letter unconditionally approving the marketing piece. More often than not, they could not do so, as the NASD had raised issues that they felt needed to be addressed before they would unconditionally approve the marketing piece. Unless and until I had something indicating the NASD’s unconditional approval of the marketing piece, my reps were prohibited from using that document in any way, shape or form. We had good reps overall, and while we did not always agree on things, they knew that I was always acting in their best interest, even if they admitted to same begrudgingly.
One of the most common compliance mistakes I see with independent RIA firms is the failure to use third-party materials with out properly vetting such material. Third-party materials includes not only marketing/sales material from mutual funds and insurance companies, but also any third-party materials that the firm post on their web sites and/or blogs, such as guest posts and links to third-party web sites and blogs.
From a regulatory standpoint, any use of third-party materials results in the RIA firm’s express or implicit adoption of such material as their own, with the resulting potential liability exposure. When I discuss this compliance and consulting issue with my clients, the most common question is whether the inclusion of a disclosure can effectively limit their potential disclosure in such cases.
In connection with third-party marketing pieces, the mutual funds and insurance companies do not allow for modification of their materials, so a disclosure would be ineffective. In connection with guest articles on RIA company web sites and referral links, I am not personally aware of any enforcement actions or no-action letters that have stated that such disclosures would guarantee complete immunity from liability for such use of or reference to such third-party materials or sites.
I often receive requests from third-parties to allow them to post something on my two blogs. I often get an angry response when I refuse their request and try to explain to them the legal issues involved. As my former reps will tell you, I have a firm policy against making exceptions, as once you do so, everyone immediately points to the first time you do so.
As I tell my clients, if you decide to open up your own RIA firm, you also assume responsibility for knowing and enforcing all applicable compliance rules and regulations. That includes dealing with third-party marketing and compliance departments that will often try to dismiss you with the familiar “it’s OK, they said they were sending the unconditional approval letter” and “don’t worry, it’s just a minor thing and we’re taking care of it, so you can go ahead and use the ad.” Ask them to put those assurances in writing, and the story quickly changes.
The easiest and safest policy is to always request the letter from the applicable regulatory body unconditionally approving a marketing piece that the third-party has provided to you. I rarely allow guest posts on my blogs, and then only by close friends who I know and respect. Even then, I require them to submit the material for approval, complete with supporting cites or copies of supporting material in order to allow me properly vet the material. I generally advise my clients to just politely decline third-party requests to post on or link from the RIA’s sites.