Solicitors

SEC Modernizes Marketing and Solicitation Rules

December 23, 2020 | Steve Parker

The U.S. Securities and Exchange Commission yesterday issued long-anticipated changes to the rules governing marketing for RIAs, including managers of private funds. The changes are designed to modernize the rules to account for the era of digital communication and other marketplace “evolutions.” The rule changes also impact firms’ uses of testimonials and paid solicitors.

By a 5-0 vote, the amendments will replace prior separate rules into a single comprehensive rule that deals with advertising and solicitation. The replaced rules date back to the 1970s and earlier.

By and large, the rules allow for more flexibility. For instance, instead of a blanket prohibition of testimonials, the new rule permits testimonials if certain disclosures are made. These disclosure requirements dovetail with the emphasis on preventing conflicts of interests that was the focus of last year’s IA Release 5248, relating to advisers’ fiduciary duty. The rules also create additional questions related to marketing on Form ADV Part 1.

RIAs Mull SEC’s Proposed Changes to Cash Solicitation Rule

November 15, 2019 | Parker MacIntyre

As discussed in our most recent posting on this blog, the SEC has proposed a wholesale rewrite of its existing advertising and cash solicitation rules. While that last post delved into the specifics of the SEC’s proposed amendment of its advertising rule, in this installment, we take up the Commission’s plans for revamping its cash solicitation rule.

The SEC’s Release No. IA-5407, published on November 4^th, aims to modernize both rules to reflect the dramatic changes seen in technology and the advisory industry since the initial adoption of these rules decades ago. While just a proposal for now, it offers the best view into what any ultimate final rules will probably look like. At this stage, RIAs and other industry participants are closely reviewing both proposed rules, and many will be submitting public comments to the SEC as permitted pursuant to the Commission’s public comment process. While the public comment process runs a fixed 60 days, the ultimate publication of final rules is at the SEC’s discretion.

Public Solicitations on Rule 506 offerings

February 7, 2014 | Bryan Gort

Several Congressmen and an SEC Commissioner have independently urged the SEC to move forward with adopting proposed rules that impose additional requirements on public solicitations of Rule 506 offerings. At the same time that the SEC finalized its initial rulemaking on the subject last September, it proposed additional rules that would require filing Form D prior to any general solicitation and would impose advertising restrictions, among other things. We discussed that action and the proposed rules in two earlier posts.

Rule 506 was adopted as a safe harbor under Section 4(2) of the Securities Act of 1933, which provides that securities sold “by an issuer not involving any public offering” are exempt from registration under the Act. However, under Title II of the JOBS Act, passed in 2012, Congress required the SEC to adopt a rule allowing for the use of public solicitation in those offerings under conditions to be prescribed by the SEC. The initial rule adopted last September – requiring enhanced verification of accredited investor status – was the Commission’s first small step on the issue.

The comment period on the simultaneous rule proposal imposing additional requirements expired on November 4, 2013, but the Commission has taken no further action to date. On December 5, 2013, however, SEC Commissioner Luis Aguilar, speaking at a Consumer Federation of America conference, forcefully called upon the rest of the Commission to move forward in adopting the strengthened rules. “Every day that these proposals are not adopted is another day that investors face great harm. I’m frustrated because investors are going to be damaged” said Commissioner Aguilar. “Unfortunately, it’s been almost five months since those proposals have been issued for comment.”
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JOBS Act: General Solicitation Provision to be a Boom for Hedge Funds

April 13, 2012 | Steve Parker

One of the most significant provisions of the Jumpstart Our Business Startups (JOBS) Act is its elimination of the general solicitation ban currently contained in Rule 502 for Rule 506 offerings sold only to “accredited investors.” As a result, hedge funds will be able to advertise to investors through the internet, mass mailings, and other media. Previously hedge funds have been banned from soliciting or advertising their private offerings to the general public. This prohibition has created confusion among hedge fund managers because of uncertainty about the meaning of “general solicitation.”

The JOBS Act requires the Securities and Exchange Commission (SEC) to eliminate the ban on general solicitation and advertising as long as all purchasers are either “accredited investors” or “qualified institutional investors.” An “accredited investor” includes an individual whose net worth is at least $1 million, excluding the value of his/her primary residence or who meets certain income criteria. We have previously discussed the definition of “accredited investor” in Financial Advisers Should Note More Restrictive Accredited Investor Definition. A “qualified institutional investor” includes companies that manage a minimum at $100 million in assets. Under the JOBS Act, the SEC must adopt rules to eliminate the ban on advertising for an offering by a private issuer within 90 days.
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Georgia SOS Publishes Proposed IA Rules

October 19, 2011 | Steve Parker

On October 13, 2011 the Georgia Secretary of State published proposed rules under the Georgia Uniform Securities Act of 2008 (“the 2008 Act”). Among the proposed rules are twenty (20) rules governing investment advisers and investment adviser representatives.

Although many of the proposed rules are consistent with the applicable rules under the prior Georgia Securities Act of 1973, quite a few of the proposed rules are new, and are designed to respond to the changing business and regulatory environment, including passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Firms currently registered in Georgia should pay careful attention to the regulatory changes. In addition, formerly SEC-registered advisers that are switching to Georgia registration will find the Georgia regulatory landscape, under both the old rules and the new ones, if adopted, to be quite different than what they are accustomed to.
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Georgia Excludes Certain RIA Solicitors

January 1, 2011 | Steve Parker

The Georgia Secretary of State issued an Implementation Order that became effective yesterday (December 31, 2010) excluding many solicitors from the definition of “Investment Adviser Representatives,” thereby eliminating the registration requirement for those coming within the exclusion. Entered pursuant to the Georgia Uniform Securities Act of 2002, Secretary of State Uniform Act Implementation Order No. 2010-4 substantially preserves, but slightly modifies, the practice that prevailed under the Georgia Securities Act of 1973.

Under the Georgia Uniform Securities Act of 2008, an individual associated with an investment adviser who “receives compensation to solicit, offer, or negotiate for the sale of investment advice” must register as an “investment adviser representative.”

The Implementation Order, however, excludes from the definition of “investment adviser representative” a solicitor that does not provide investment advice and who meets a number of other requisites. The effect of the Order is to allow persons who typically provide client solicitation services under SEC Rule 206(4)-3, without advising solicited clients, to avoid registration in Georgia. Care should be taken to insure that the solicitor who seeks benefit of the exclusion follows a number of unique provisions of the Georgia order, among them that compensation can be received for no more than 10 clients in a calendar year, unless the solicitor does nothing more than provide a list of investment advisers without determining or representing the advisability of a prospective client entering into a relationship with a particular adviser. Attorneys and CPAs may also solicit persons with whom they have existing relationships.