Riskalyze and the SEC Marketing Rule

A big part of what Riskalyze does for advisors and firms is help ensure their compliance with applicable rules and regulations. The SEC Marketing Rule is no exception, and Riskalyze has been optimized to help advisors and firms comply with this new rule.

New regulation can feel overwhelming and even distracting, but the heart of this rule — preventing investors from being misled about the nature of future returns, and highlighting the importance of client engagement and interactivity in the process — aligns well with our mission to empower the world to invest fearlessly.


 

Overview of the Rule

The SEC Marketing Rule, now amended rule 206(4)-1 under the Investment Advisers Act of 1940, provides an overhaul and modernization of the restrictions and requirements related to advertising to investors. Many of these rules previously existed, including as less formal guidance, and the SEC has published a guide to the updated regulations here.

Generally, the use of hypothetical performance in advertising is prohibited (with the exception noted below), unless the advisor adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience and the advisor provides certain information underlying the hypothetical performance.

 


The Interactive Analysis Tool Exemption

There’s one exemption to the requirements on use of hypotheticals, and it pertains to “Interactive Analysis Tools” (the description of which may sound familiar):

“Hypothetical performance does not include: (A) An interactive analysis tool where a client or investor, or prospective client, or investor, uses the tool to produce simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices; provided that the investment adviser:

  1. Provides a description of the criteria and methodology used, including the investment analysis tool’s limitations and key assumptions;
  2. Explains that the results may vary with each use and over time;
  3. If applicable, describes the universe of investments considered in the analysis, explains how the tool determines which investments to select, discloses if the tool favors certain investments and, if so, explains the reason for the selectivity, and states that other investments not considered may have characteristics similar or superior to those being analyzed; and
  4. Discloses that the tool generates outcomes that are hypothetical in nature”

Investor interaction is at the heart of everything we build for advisors. Features like the Risk Questionnaire, Portfolio Analytics, and Check-ins serve to facilitate the investor’s communication, evaluation, and understanding of risk and reward with their advisor. As you know, investors contribute data into the Riskalyze analysis in two ways: by entering it themselves, or by providing information for the advisor to enter. The investor inputs entered into the tool fundamentally shape the outputs — you don’t get pre-determined analysis out of Riskalyze that is only customized with the client’s name. These components are critical to not only in satisfying the rule, but empowering fearless investing.

Disclosures in Riskalyze

The disclosure language required for Interactive Analysis Tools under the SEC Marketing Rule closely aligns with the pre-existing requirements of FINRA Rule 2214 for Investment Analysis Tools, and our currently available reports were designed with FINRA 2214 in mind. Of course, you are welcome to consult your own compliance resources, and/or establish custom disclaimers across your firm as well.

Once you set these up in Settings > Firm > Disclaimers, they’ll appear on all client-facing screens within the Riskalyze app and on any distributed materials, like reports and emails sent on behalf of advisors.

Don’t see a ‘Firm’ tab in your Settings? Ask your firm’s account owner to contact the Riskalyze Customer Care team [email protected] to enable firm administration for your account.


Fees in Riskalyze

So, you’re using an interactive analysis tool with clients and you’re confident in your disclosures. Another important requirement of the SEC Marketing Rule is making sure any hypothetical performance you present to clients is net of fees.

Analytics in Riskalyze are net of fees if you’ve applied those fees to your accounts. Riskalyze’s proprietary metrics (the Risk Number®, Riskalyze GPA®, Retirement Maps, etc.) have always been calculated net of fees, and a few other metrics are being updated across the app in advance of the 11/4/22 compliance date. If you haven’t set up default fees, the simplest way to do so is in Settings > Account Details > Fees. Create a new fee schedule and use the three-dot menu (•••) to set that schedule as default across accounts.


As always, we encourage you to consult with your compliance resources in all regulatory matters, but you can rest easy knowing that your growth platform is an interactive analysis tool, its disclosures are both updated and customizable, and the analytics it provides are net of the fees you enter.

Any questions? The industry’s most delightful Customer Care team would love to help at [email protected].

3 Tips for Navigating Compliance Changes and Regulations

With the end of the year quickly approaching, many firms are reminded of the required annual compliance review as regulated by the SEC. A large portion of this review includes updating policies and procedures to accurately reflect new guidelines and rules, as well as implementing firmwide compliance training.

We’ve compiled a list of recent and upcoming regulatory changes advisors should review and address – and how to easily stay on top of your firm’s compliance going forward.

Continue reading “3 Tips for Navigating Compliance Changes and Regulations”

CEO Aaron Klein’s Product Keynote from the 2022 Fearless Investing Summit

New Product Announcements from Summit 2022

Last week at the Fearless Investing Summit stage in Salt Lake City, we were thrilled to announce a brand-new suite of features and tools to the Riskalyze Platform that we know you’re going to love. Read on to learn more about all the exciting, new resources now at your fingertips!

Watch the Annual Keynote Address from CEO Aaron Klein

Unable to join us live in Salt Lake City or virtually? We’ve got you covered! Catch up on all the action from this year’s highly anticipated keynote address by Aaron Klein and watch it in its entirety for free below.

You’ll learn what’s new and what’s next for the Fearless Investing Movement, hear our exciting partnership news, and see all of our new product features and enhancements in action!

Watch the Keynote

Check Out What’s New
With Check-ins

Your favorite feature has gotten an upgrade! We’ve completely rebuilt how you engage with Check-ins, so you can see responses across your entire client base and sort them by status so you can see which clients might need your attention first. Check-ins are the most powerful way to keep your finger on the pulsebeat of client psychology, and now, they’re more accessible and actionable than ever before.

See what's New

Welcome Tax Drag!

Tax Drag is defined as the reduction of a portfolio’s annualized return due to taxes. Very simply, it’s the tax liability incurred due to distributions and capital gains in a non-qualified account.

Pretty much every investment manager talks about running a tax-efficient strategy, but very few provide metrics that are easily understood and can demonstrate the tax savings to clients. With Tax Drag, we’re measuring the tax efficiency of how securities in your portfolio are managed by the investment manager.

Introducing Account Groups

The All-New Portfolios Experience now has Account Groups which helps financial advisors easily categorize all their accounts. This new feature will help you increase efficiency when working with complex portfolios and will make it even easier to find the information you need.

We’re confident that Account Groups will optimize your workflow so that you have more time to spend where it matters most — with your clients.

Learn More about account groups

Meet Riskalyze Ultimate

We’re thrilled to introduce Riskalyze Ultimate — the firmwide growth platform to drive a consistent client experience across your advisors and alignment with compliance for every account.

Ultimate integrates into your CRM, asset platform, and financial planning workflows to get the growth flywheel spinning, drive a consistent client experience, deliver the insights to accelerate your progress, and protect your business value.

Experience Ultimate