With its first enforcement case based on the new Marketing Rule, the SEC wants firms to take note of how they use hypotheticals in their marketing and advertising. In its case against a robo-advisor, the SEC warned that the use of hypothetical performance metrics must have proper disclosures and comply with the rule’s requirements designed to prevent fraud. With the lead comments, FrontLine’s Founder and President Amy Lynch states that while the findings in the case did violate the new rule, the firm’s actions appear to be so egregious that the anti-fraud provisions would have applied no matter what. She further comments that when investment advisers use hypothetical performance in their advertising, they need to make sure the limitations of the information are well represented. And according to Ms. Lynch, the SEC is casting a wide net during its exams, looking at every aspect of the Marketing Rule, not just what it has published in its guidance. See InvestmentNews, “Titan hit with $1 million penalty in ‘perfect compliance cocktail’“
