Nine advisory firms are paying more than $800,000 in total to resolve allegations that they had violated the SEC's marketing rule by advertising the hypothetical performance of various investments without taking their audiences into consideration.
The Securities and Exchange Commission's marketing rule, which firms were required to come into compliance with last November, applies to any message an advisor sends to two or more prospective or existing clients about new investing opportunities. The rule generally prohibits wealth managers from predicting the likely performance of possible investments unless they've adopted policies "reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement."
The SEC alleged the nine firms involved in this latest marketing rule case used their websites to advertise hypothetical performance results to "a mass audience." Two of the firms — San Francisco-based Macroclimate and Parsippany, New Jersey-based MRA Advisory Group — were also accused of failing to abide by the requirement to hold on to copies of their advertisements.
Read more: AssetMark welcomes new CEO as Natalie Wolfsen exits to take over for Orion founder Eric Clarke
All told, the firms involved in the case agreed to pay between $50,000 to $175,000 each, neither accepting nor denying the SEC's charges. Besides Macroclimate and MRA Advisory Group, they were:
- Banorte Asset Management, of Houston
- BTS Asset Management, of Lincoln, Massachusetts
- Elm Partners Management, of Philadelphia
- Hansen and Associates Financial Group, of Sacramento, California
- Linden Thomas Advisory Services, of Charlotte, North Carolina
- McElhenny Sheffield Capital Management, of Dallas
- Trowbridge Capital Partners, of New York
The enforcement action comes three weeks after the SEC hit Titan Global Capital Management, a New York-based financial tech firm, with a more than $1 million penalty for advertising hypothetical results in violation of the marketing rule. That case, the first to invoke the less-than-a-year-old rule, accused the firm of predicting returns as high as 2,700% for its Titan Crypto strategy.
The marketing rule's complexity led the SEC in March to issue a risk alert warning advisors of the ways they might be falling short. The SEC then called on firms to remember their obligation to provide support for any claims about investment performance they make in marketing materials.
