Advertising Compliance Series: Six Methods for a Fund Manager to Test Its Advertising Review Procedures (Part Two of Two)

Rule 206(4)‑7 of the Investment Advisers Act of 1940 (Advisers Act) requires investment advisers to adopt policies and procedures reasonably designed to prevent violations of the Advisers Act. Advisers must also review, no less frequently than annually, the adequacy of those policies and procedures and the effectiveness of their implementation. Although promoting compliance with the Advisers Act is one of the main objectives of the rule, the SEC also expects advisers to design policies and procedures that can detect violations. Testing is one of the primary means of detecting violations, yet building an effective testing program is not an easy task. Because the SEC does not dictate how registrants should test their compliance policies and procedures, CCOs are often left to question whether they have designed and implemented testing protocols that are effective at preventing and detecting violations. To assist advisers with developing their testing programs, this second article in our two-part series explores six different testing mechanisms firms can employ to verify compliance with their advertising procedures. The first article identified what documents fall within the advertisement definition and outlined ten best practices that managers should consider when designing or evaluating their advertising review procedures. See our two-part series on the impact of the new marketing rule: “What Constitutes an ‘Advertisement’ and How to Adhere to Principles‑Based Standards” (Mar. 23, 2021); and “Disclosures in Non‑Standard Calculations and Requirements When Using Promoters” (Mar. 30, 2021).

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