SEC Marketing Rule: New CFA Institute and IAA Survey Clarifies How Firms are Complying

August 6, 2024

Contacts: CFA Institute at PR@cfainstitute.org or the IAA at sanjay.lamba@investmentadviser.org.

CFA Institute and the Investment Adviser Association have released the findings of a new survey on the compliance practices of investment management firms concerning the SEC Marketing Rule and its principles for the presentation of performance information in marketing materials.

The SEC Marketing Rule applies to SEC-registered investment management firms in the United States and those firms globally who market investment products in the U.S. The survey results provide the first analysis of how investment managers are interpreting and applying the SEC Marketing Rule.

Karyn Vincent, CFA, CIPM, Senior Head of Global Industry Standards, CFA Institute said, “The SEC Marketing Rule continues to be a hot topic of discussion among impacted firms. There is substantial overlap between our CFA Institute Global Investment Performance Standards (GIPS®) and the SEC Marketing Rule. As a result, we’ve spoken with many investment firms who are keen to understand how to interpret the Rule. Until now, firms have had to rely on anecdotal information for insights into how their peers are complying. The survey results remove this uncertainty. As an example, the results show that a majority of investment firms are calculating composite net returns using model fees. This is especially the case for larger asset managers. We hope this new information offers a baseline of understanding for firms to use in assessing their policies for complying with the SEC Marketing Rule.”

Key Findings:

• When calculating net returns, model fees are more popular than actual fees, but 37 percent of firms are still primarily using actual fees.
• Roughly half of the respondents do not include contribution to return in marketing materials, and roughly half do not include attribution effects either. Many respondent comments indicate that this information was removed because of the Marketing Rule.
• There is no predominant policy for classifying attribution effects, contribution, or yield as performance.
• Most firms that are calculating investment-level net internal rates of return (IRRs) use the spread method.
• Approximately 74 percent of responding firms treat information submitted to databases as an advertisement subject to Marketing Rule requirements.
• Approximately 39 percent of firms do not present hypothetical performance.
• Of those firms that present hypothetical performance, most do so only on a one-on-one basis or in response to unsolicited requests.
• Firms take a variety of approaches for defining which prospect types qualify to receive hypothetical performance, with 36 percent classifying institutional investors as qualified.
• The biggest challenge for complying with the Marketing Rule is determining which information is considered “performance” that must be presented on a net basis.

Sanjay Lamba, Associate General Counsel, IAA said, “We are pleased to have been able to conduct this survey with CFA Institute. The SEC’s Marketing Rule remains a significant compliance focus for investment advisers and the performance related provisions continue to be the most challenging to implement. The survey results should be helpful for firms to benchmark their compliance programs with how other firms are implementing the marketing rule.”

For the survey findings in detail, visit the CFA website.

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Methodology

The SEC Marketing Rule survey was completed by 189 investment management firms.  Responding firms represented firms of all sizes, with smaller firms (AUM of $1 billion to $5 billion) and mid-size firms (of AUM $50 billion to $250 billion) being the largest groups. Most respondents (90 percent) claim compliance with the CFA Institute GIPS® Standards.

The upcoming Global Investment Performance Standards annual conference taking place on 17-18 September 2024 will include discussion of the SEC Marketing Rule and lessons learned from the CFA Institute/IAA SEC Marketing Rule survey.

About CFA Institute

As the global association of investment professionals, CFA Institute sets the standard for professional excellence and credentials. We champion ethical behavior in investment markets and serve as the leading source of learning and research for the investment industry. We believe in fostering an environment where investors’ interests come first, markets function at their best, and economies grow. Spanning nearly 200,000 charterholders worldwide across 160 markets, CFA Institute has 10 offices and 160 local societies. Find us at www.cfainstitute.org or follow us on LinkedIn and X at @CFAInstitute.

About the Investment Adviser Association

The Investment Adviser Association (IAA) is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For 85 years, the IAA has been advocating for advisers before Congress and US and global regulators,

promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the US economy. The IAA’s member firms manage more than $35 trillion in assets for a wide variety of

individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, visit www.investmentadviser.org, or follow us on LinkedIn and YouTube.