This week, the SEC announced a proposal to modernize advertising rules affecting investment advisers with a streamlined, principles-based approach. Also, the House Financial Services Committee announced a November hearing on private funds, which is expected to have a largely anti-private equity sentiment.
SEC Proposes Modernization of Advertising Rules
The Securities and Exchange Commission proposed changes on Nov. 4 to portions of the Investment Advisers Act surrounding advertising and payments to solicitors by investment advisers.
Though the proposed changes have not yet been published in the Federal Register, an SEC press release includes an unpublished version of the rule and a related fact sheet. Among other stipulations, the proposal “would replace the current rule’s broadly drawn limitations with more principles-based provisions” surrounding the definition of an advertisement, general prohibitions on advertising practices, testimonials, third-party ratings and performance information on investments. The proposal would also revise the rules that govern solicitations and record-keeping for investment advisers.
Under the proposed rule, the definition of an advertisement would include “any communication, disseminated by any means, by or on behalf of an investment adviser, that offers or promotes investment advisory services or that seeks to obtain or retain advisory clients or investors in any pooled investment vehicle advised by the adviser.” There are, however, several proposed exclusions to what constitutes an advertisement, including live oral communications that are not broadcast and responses to certain unsolicited requests for specified information.
“The advertising and solicitation rules provide important protections when advisers seek to attract clients and investors, yet neither rule has changed significantly since its adoption several decades ago,” SEC Chairman Jay Clayton said. “The reforms we have proposed today are designed to address market developments and to improve the quality of information available to investors, enabling them to make more informed choices.”
This proceeding provides an important opportunity to modernize the advertising and marketing rules under the Investment Advisor Act, a longstanding issue for ACG members. The public comment period for the proposed changes will remain open for 60 days following its publication in the Federal Register.
House Financial Services Committee Plans Private Equity Hearing
On Nov. 19, the House Financial Services Committee will hold a full committee hearing, titled “America for Sale? An Examination of the Practices of Private Funds.”
The hearing will likely be an unfavorable examination of the private equity industry, centering on high-profile topics such as the Toys ‘R’ Us bankruptcy, surprise medical billing issues, Elizabeth Warren’s proposed private equity overhaul, and continued concerns surrounding leveraged lending. The witness list is not yet available.
Already this Congress, the committee has held hearings focused on leveraged lending as it relates to systemic risk and the potential role that private market exemptions play in limiting the number and timing of initial public offerings. Both hearings peripherally touched on the subject of private equity but did not directly address many of the headlines from recent months. The upcoming hearing is expected to be more adversarial and directly targeted at the private equity industry.
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Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.