CFA Institute/IAA Issue Survey Report on Firm Practices for Complying with the SEC Marketing Rule
Since its introduction, the Securities and Exchange Commission’s (SEC) Marketing Rule has created significant uncertainty for SEC-registered investment management firms in the United States and those firms globally that market investment products in the United States. The Global Industry Standards team at CFA Institute has actively engaged with many firms that are eager to better understand the SEC guidance, particularly given the Rule’s overlap with the CFA Institute GIPS® standards.
Firms 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. CFA Institute and the Investment Adviser Association (IAA) conducted a survey to identify how firms are dealing with some of the most challenging issues in the Marketing Rule. We have released the survey’s findings 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 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%) claim compliance with the CFA Institute GIPS standards.
Key findings from the survey include:
- When calculating net returns, model fees are more popular than actual fees, but 37% 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% of responding firms treat information submitted to databases as an advertisement subject to Marketing Rule requirements.
- Approximately 39% 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% 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.
The upcoming 28th Annual GIPS Standards Conference, taking place on 17-18 September 2024 in San Diego, will include two sessions focusing on the SEC Marketing Rule, featuring speakers from the SEC’s General Counsel office and Examination team.
