SEC Fines Investment Firm $430,000 For Misleading Ads About Performance

Given the spike in retirement plan trading after Monday’s market downturn, many investors are looking for help with what to do now that the markets are stabilizing. Advertising is key to that – but it’s important to remember that financial advisors have to be careful how they advertise their services, and to whom.

A recent $430,000 fine imposed on The Pacific Financial Group by the Securities and Exchange Commission (SEC) is a good example. The advisory group was fined for violating the Marketing Rule by advertising hypothetical performance on its public website without proper safeguards, according to ThinkAdvisor.

Here’s what happened. Pacific Financial published advertisements on its website offering investment advisory services. Those ads included a hypothetical performance derived from model portfolios and were disseminated to the general public rather than a specific intended audience.

Because of that, the SEC ruled that the firm failed to adopt and implement policies ensuring the relevance of the performance data to the likely financial situation and investment objectives of the intended audience, as required by the Marketing Rule.

Also Read: Dollar-Yen Volatility Sparks Debate Over Carry Trade Positioning: ‘We Maintain A Structurally Bearish Yen View,’ Analyst Says

The SEC order states that Pacific Financial’s actions resulted in “disseminating hypothetical performance in advertisements to a mass audience” instead of tailoring it to a specific audience’s needs.

As of March 27, Pacific Financial reported approximately $3.7 billion in regulatory assets under management.

In addition to the fine, the SEC ordered Pacific to undertake certain compliance measures.

This enforcement action highlights the importance of adhering to the Marketing Rule, which the SEC adopted in December 2020 with a compliance deadline of Nov. 4, 2022. The rule prohibits registered investment advisers (RIAs) from including hypothetical performance in ads unless they implement policies ensuring the relevance of the data to the intended audience.

The case serves as a reminder for RIAs to carefully consider their marketing practices, especially when using hypothetical performance data. It underscores the need for tailored advertisements that align with the specific financial situations and investment objectives of intended audiences, rather than broad dissemination to the general public.

As the SEC continues to enforce the Marketing Rule, RIAs should review their advertising practices and ensure compliance with the regulation to avoid similar penalties. Especially as advertising performance gets more tempting, the more volatile markets get.

Of course, none of this is legal advice. Please get a professional opinion if you have any questions about your marketing strategy’s compliance with regulations.

Read Next:

• Benzinga’s ‘Stock Whisper’ Index: 5 Stocks Investors Secretly Monitor But Don’t Talk About Yet

Photo: Shutterstock