Of the nine marketing cases released by the SEC recently, one caught me off-guard and has left me concerned.
Say you’re a proud alumni of Notre Dame. You want to be associated with the athletic program and give some money back to the school. All you ask is that you get to be the official ____ of program. That works for most industries. But if you’re a registered investment adviser…
Is this a problem? The SEC said this was an endorsement that lacked proper disclosure.
The first step is whether this affiliation is advertising for purposes of the Marketing Rule. That is obviously “yes.”
What’s less obvious to me is whether this is an “endorsement” under the Marketing Rule. (Section 206(4)-1(e)(5))
(5) Endorsement means any statement by a person other than a current client or investor in a private fund advised by the investment adviser that:
(i) Indicates approval, support, or recommendation of the investment adviser or its supervised persons or describes that person’s experience with the investment adviser or its supervised persons;
(ii) Directly or indirectly solicits any current or prospective client or investor to be a client of, or an investor in a private fund advised by, the investment adviser; or
(iii) Refers any current or prospective client or investor to be a client of, or an investor in a private fund advised by, the investment adviser.
Does being the “official wealth management partner” indicate support by Notre Dame Athletics? I suppose “partner” does indicate some level of endorsement.
What if you replaced “partner” with “firm”?
Howard Bailey agreed to the SEC’s position and agreed to remove advertisements or add disclosure to advertisements. So now there is this footnote at the bottom of the website:
University of Notre Dame and University of Notre Dame Athletics (“Notre Dame”) are not current clients of Howard Bailey Securities, LLC nor Howard Bailey Financial, Inc. Legends / JMI Rights Holders, on behalf of Notre Dame, was compensated for this Endorsement, as such term is defined under SEC Rule 206(4)-1. More Information
Yes, that “more information” exposes all of the monetary details.
Let’s move down to the local level. How does this work for an investment advisory firm that sponsors the local little league team?
Notre Dame Athletics is a non-profit. Does this carry over to other non-profit sponsorships?
I was looking at the back of my Pan-Mass Challenge jersey with all of the corporate logos. If any of them are RIAs, should they be concerned that the logo placement has created an “endorsement” under the Marketing Rule?
I didn’t sleep well last night thinking about all of the possible implications of this case.
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