The Securities and Exchange Commission (SEC) has penalized another registered investment advisor (RIA) under its revised marketing rule.
Pacific Financial Group (PFG), a Bellevue, Wash.-based RIA managing $3.7 billion in assets, agreed to a $430,000 settlement over allegations concerning advertisements that showcased hypothetical investment performance.
PFG reached this settlement without admitting or denying the SEC's allegations. Linda Hoard, the firm's chief compliance officer, opted not to comment on the issue.
This settlement marks one of the latest actions by the SEC following the 2022 overhaul of its marketing rule. The updated regulation permits advisors to expand their promotional content to include third-party endorsements, client testimonials, and hypothetical performance projections, provided these materials are presented in a non-misleading manner with appropriate context and disclosures.
The SEC mandates that communications about hypothetical performance must be directed toward a specific audience with clearly defined financial goals. PFG allegedly breached this requirement by posting hypothetical performance projections of model portfolios on its public website, which did not meet the criteria for a targeted audience.
According to the SEC's settlement letter, "The advertisements on the website were disseminated to the general public rather than to a particular intended audience. Pacific Financial disseminated hypothetical performance in advertisements to a mass audience rather than presenting hypothetical performance relevant to the likely financial situation and investment objectives of the intended audience."
The SEC also noted that PFG failed to establish policies and procedures to comply with the marketing rule effectively. However, the commission acknowledged the cooperation of PFG's new leadership team, which took over in March. The SEC credited the new CEO, CCO, and chief legal officer for promptly assessing the situation and fully cooperating with the investigation, which contributed to the SEC's decision to accept the terms of the settlement.
