Nerd's Eye View blog

How The SEC Is ACTUALLY Enforcing The Marketing Rule: A Checklist To Ensure Compliance Policies Meet The Mark

December 3, 2025 07:02 am 0 Comments CATEGORY: Marketing, Regulation & Compliance

As financial advisers strive to communicate value and differentiate themselves in a competitive landscape, the SEC's new Marketing Rule has significantly reshaped the compliance obligations tied to how firms advertise and promote their services. Now, three years into its implementation, the rule has proven to be more than a technicality: it represents a foundational component of the SEC's regulatory framework. With several high-profile enforcement actions already announced, it's increasingly clear that the SEC considers Marketing Rule compliance a top-tier priority. The rule fundamentally redefines how firms communicate with prospects and clients, making it essential for advisers to engage directly with the rule's requirements rather than delegate them entirely to compliance departments.

In this article, Isaac Mamaysky, Partner of Potomac Law Group and Cofounder of QuantStreet Capital, explores the key takeaways from the SEC's enforcement of the Marketing Rule – and how advisory firms can implement their marketing strategies confidently without fear of regulatory action.

At its core, the Marketing Rule reinforces the general anti-fraud principles that underlie the Federal securities laws. These principles include ensuring that advertising is not misleading, material statements of fact can be substantiated, and all investment advice is presented in a way that is fair and balanced.. The rule also governs how performance results can be presented in advertisements and how advisers may use client testimonials and third-party endorsements.

However, in the years since the Marketing Rule's compliance date, the SEC's enforcement activity has also underscored the areas of greatest regulatory focus. Hypothetical performance – especially when shared via publicly accessible websites – has consistently triggered enforcement actions, highlighting concerns about misleading unsophisticated investors. Firms have been penalized for sharing backtested or model performance with general audiences without vetting the recipients. The SEC has also brought charges over unsubstantiated claims, misuse of third-party ratings without proper disclosure, and paid endorsements or testimonials lacking requisite transparency. Collectively, these actions reflect a broader regulatory theme: marketing practices must reflect not only technical compliance but also fair, honest, and substantiated communication consistent with investor protection goals.

Advisers can take several steps to assess and reinforce their marketing compliance. Reviewing the Marketing Rule itself – surprisingly accessible at under 3,500 words – can help clarify its intent and applicability. Updating compliance manuals to reflect the new rule, rather than legacy advertising and solicitation guidance, is essential. From there, a detailed checklist covering definitions, prohibited practices, disclosures, performance standards, and documentation can help ensure policies are comprehensive and current. Testing those policies against hypothetical scenarios – such as athlete endorsements, mass mailings of hypothetical performance, or adviser-requested online reviews – can further refine understanding and reveal implementation gaps.

Ultimately, the key point is that the Marketing Rule is now firmly entrenched in the compliance expectations governing advisory firms' external communications. Advisers who approach the rule not as a compliance formality but as a guidepost for transparency and professionalism will be better positioned to communicate effectively, avoid regulatory pitfalls, and strengthen client trust. By aligning marketing practices with both the letter and spirit of the rule, advisers can elevate their messaging and reinforce the integrity at the heart of every great client relationship!

Doubling AUM From Under $300M To Over $600M In 3.5 Years By Making Investments To Systematize For Scale: #FASuccess Ep 466 With Morgan Nichols

December 2, 2025 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 466th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Morgan Nichols. Morgan is the CEO of LifeBranch Wealth Partners, an independent broker-dealer practice based in Grapevine, Texas, that oversees approximately $630 million in assets under management for 830 client households.

What's unique about Morgan, though, is how she has been willing to make hard-dollar investments in her firm that have pinched profit margins in the short run but have allowed her to double the size of her firm in three and a half years and set it up to reach her $2 billion AUM goal.

In this episode, we talk in-depth about how Morgan strives to hire new team members before a need becomes critical (even though each new hire is costly) to both ensure a consistent level of client service and provide her additional capacity as her client base grows, how Morgan invested $20,000 in rebranding her firm (including moving away from having her last name as the company name) to better reflect what it offers clients and to attract new advisors in the process, and how Morgan made the decision to bring on on a business development director (one of the more expensive roles she’s hired) a move that has paid off both through his ability to network and to train other team members on business development best practices.

We also talk about how Morgan created defined career paths for employees to show how they can advance in the firm as they develop their client service and business development capabilities and build their technical expertise (including CFP certification as well as portfolio management and behavioral finance credentials), how Morgan crafted compensation models that reflect the desire for stability amongst more junior employees (in the form of a larger base salary) and more upside potential for those bringing in and serving new clients for the firm, and how Morgan is now rolling out a long-term incentive plan to give employees a chance to grow their total compensation alongside the firm’s success (while also incentivizing them to stay with the firm over the long haul).

And be certain to listen to the end, where Morgan shares how she holds group training sessions that include case study discussion where team members shares ideas on how they would handle a particular scenario (allowing more junior employees to contribute their own ideas and learn from multiple senior advisors), how Morgan’s participation in a coaching group of fellow female entrepreneurs has helped her weather the hard times on her journey and ultimately move her business forward, and how Morgan, at a time when many advisors are moving towards the RIA channel, has decided to remain with a broker-dealer due in part to the infrastructure and compliance support that allow her to spend more time focusing on the client experience and growing her business.

So, whether you’re interested in learning about weighing the tradeoffs of investing hard dollars in an advisory business, creating career paths and compensation models to attract and retain the employees needed to help a firm scale, or about the benefits of building a network of like-minded advisors and professionals to serve as sounding boards and a support network through the challenges of growing a business, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Morgan Nichols.

Vanilla Launches “Starter” Tier For Less Complex Estate Planning Needs (And More Of The Latest In Financial #AdvisorTech – December 2025)

December 1, 2025 07:01 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the December 2025 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the news that the estate planning software provider Vanilla has launched a new "Starter" subscription tier, which provides estate documents and basic estate planning tools without the sophisticated planning capabilities of Vanilla's core product – which may be an acknowledgement of the reality that the types of clients whose needs are served by technology-driven estate document creation are usually those in less complex situations that don't require high-end planning capabilities, so it makes sense to unbundle document creation from planning so that those who just need documents can get them without having to buy the entire software package.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

FP Alpha has launched a new "NextGen Tax Insights" tool, which analyzes a client's tax return and other financial data and identifies planning opportunities, which come from a predetermined list of strategies created and vetted by tax and financial planners – offering a potential model for how more planning tools could incorporate AI that doesn't generate new planning ideas from scratch but instead simply expedites the process of analyzing data and brainstorming ideas (with the advisor still being in charge of the final recommendation)
A new AI-driven prospecting tool called WealthReach uses "de-anonymized" data from visitors to an advisory firm's website to identify prospects who may be interested in the advisor but didn't book a meeting – although the main problem for advisors isn't usually that they're getting too many visitors who don't book a meeting, but that they don't get enough visitors to their website to begin with, which means that it might make more sense to invest in a better marketing strategy that can bring in visitors before using a tool like WealthReach
A recent influx of investments by advisor platforms into alternative investment-related technology suggests that more advisors are adopting alternatives, making it worthwhile for platforms to build out their alternatives infrastructure (because even if alternatives make up only a small percentage of overall AUM, the basis point fees on even a fraction of that amount could generate a healthy return on the investment)

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

Why Altruist's announcement that its Hazel AI notetaker will start to pull in client custodial data from Altruist raises the question of when AI notetakers will start to usurp CRM software's traditional role as an interface between advisors and client data – and if CRM systems will even be needed if AI is able to weave together client data from all sources without needing to store it in a centralized spot?
In light of the news that pre-AI meeting transcription service Mobile Assistant reportedly considered (but ultimately turned down) an offer to sell its meeting transcript data to other vendors for AI training purposes, it's worth it for advisors to ask their technology vendors what they can and cannot do with their clients' data, since the data privacy issues that advisors might have considered years ago when they signed their vendor agreement might be completely different in today's AI-dominated landscape

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) as well!

*To submit a request for inclusion or updates on the Financial Advisor FinTech Solutions Map and AdvisorTech Directory, please share information on the solution at the AdvisorTech Map submission form.

Weekend Reading For Financial Planners (November 29–30)

November 28, 2025 01:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that Charles Schwab (following a similar move as Fidelity and in a bid for greater revenue at a time when trading costs have plummeted and interest rate spreads on cash are being squeezed) is planning to introduce ETF platform fees as soon as early 2026, with the custodian expected to charge funds 15% of their ETF fee revenues or have them face a ticket charge of about $100. While aimed directly at the asset managers whose funds appear on Schwab's platform, such a move by Schwab could have secondary effects on RIAs, including the potential for some fund sponsors to pass along (a portion of) the increased costs to investors in the form of higher fund expenses.

Also in industry news this week:

The Department of Labor announced this week that it plans to drop its defense of the Retirement Security Rule (aka Fiduciary Rule 2.0), with a new proposal expected to be released in 2026
A survey finds that small changes in how advisors frame certain retirement planning decisions can impact the likelihood of their clients accepting their recommendation

From there, we have several articles on investment planning:

Why diversification (and not short-run inflation protection or absolute returns) could be the most significant benefit to holding gold in a portfolio
9 charts analyzing the strong performance of gold this year and whether these trends might continue in the future
An analysis finds that while gold is not a particularly effective short-run inflation hedge, it has held its purchasing power over the (very) long run

We also have a number of articles on practice management:

How a financial planning client service calendar can help a firm show how it meets the unique needs of its ideal target client (and differentiate it from other firms)
How advisors can use a first-year client service calendars to show prospects the level (and type) of service they can expect to receive if they become clients
Real-world examples of client service calendars show how firms can tailor this tool to their unique personality and ideal client profile

We wrap up with three final articles, all about shopping:

Why thoughtfulness (rather than price) is often the name of the game for financial advisors looking for the 'perfect' client gift this holiday season
An analysis suggests that some skepticism is merited when considering whether certain Black Friday 'deals' are, in fact, sales
How a recent settlement between payment processors and merchants could lead to more limited acceptance or new surcharges when using a credit card

Enjoy the 'light' reading!

Helping Retired Clients To Actually Start Spending And Enjoying Their Money: Kitces & Carl Ep 178

November 27, 2025 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Entering retirement often signals a profound shift in an individual's philosophy, time, and goals. This new chapter is a culmination of decades of diligent labor and saving – and for many, it brings excitement and newfound freedom. However, for some retirees, their diligence in saving makes it difficult to transition into a phase of life where spending down their savings feels appropriate. After years of building strict habits and shaping their identity around not spending, this transition can feel uncomfortable – and some clients may avoid spending beyond their basic needs even when they have activities and experiences they'd like to pursue.

In this 178th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why some clients 'underspend' in retirement – and how advisors can tactfully encourage them to use their wealth in productive ways that align with their values.

Often, the tendency to underspend is shaped by some portion of a person's identity. Retirees who have built their financial security through disciplined saving often take pride in their frugality. For these clients, just the idea of their net worth declining – regardless of purpose – can create anxiety. In such cases, even the most compelling spreadsheets and projections can fall flat in inspiring change. Instead of reasoning clients into spending, it may be more effective to reframe spending as a new skill to be practiced. Exposure to small, intentional spending – such as treating a friend to coffee or funding a grandchild's sports lesson – helps clients build comfort and confidence incrementally.

At the same time, if advisors project their own values onto a client's retirement goals, it may unintentionally distort the conversation. Some retirees are genuinely content with a simple life and may view indulgences as frivolous or unnecessary. Open-ended questions can help the advisor dig deeper into a client's aspirations and goals, uncovering what they truly value. Sometimes, questions like "What's something you used to love that you haven't done in years?" or "If you had a happiness budget that had to be spent each year, how would you use it?" can unlock conversations that reignite passions or surface meaningful experiences clients have delayed for too long. Alternatively, a client may realize they already have what they want with little else they desire to 'add' to their life. Either way, these discussions can deepen understanding and help clients reframe wealth as a means to fulfillment, not just security.

Ultimately, the opportunity for advisors is to help clients align their money with what matters most – whether that's relationships, personal growth, or experiences. By creating a safe space for dreaming, shifting the narrative around spending from fear to joy, and offering tangible ways to 'practice' using their wealth meaningfully, advisors can help clients live not only more richly in financial terms, but also more fully in retirement!

Addressing Clients’ Cognitive Decline: Regulatory Responsibilities And Measures To Mitigate Risk

November 26, 2025 07:03 am 0 Comments CATEGORY: Ethics

Financial advisors have a fiduciary duty to their clients, meaning that they must take the client's interests into account when making recommendations and acting on their behalf. Usually, fulfilling that duty involves listening to the client to understand their wishes and acting accordingly to ensure those wishes are carried out. However, the situation becomes more complicated if the advisor suspects that the client may have a diminished capacity to make sound financial decisions on their own.

When clients exhibit signs of cognitive decline, advisors must navigate a tricky tightrope of conflicting goals and obligations. On the one hand, an advisor's desire to respect and uphold the client's wishes (and their desire not to lose the client) may lead them to follow the client's instructions at all times, even when the advisor might find them suspicious (e.g., if the client requests a large withdrawal to invest in the business of a 'friend' they've never mentioned before). But on the other hand, the advisor's duties of care and loyalty, as well as a growing number of elder-abuse prevention laws enacted in many states, compel the advisor to intervene to prevent actions that could cause harm to the client and/or to notify authorities when they suspect the client is being exploited.

As life expectancies increase and the population ages, cognitive decline is unfortunately on the rise. It's therefore a best practice for financial advisors – particularly those who serve retirees and elderly clients – to establish processes that enable them to recognize potential cognitive decline or exploitation when it occurs, and to handle those situations in a manner that meets their ethical and regulatory obligations. Having these processes in place before diminished capacity arises can ease the challenge of navigating situations where the advisor's fiduciary duty may come in conflict with the client's express wishes.

The process can start with training and education, for both advisors and clients, on the signs of cognitive decline and/or financial exploitation. Ensuring that the client is aware of the risk of fraud and abuse as they age can help reassure the client that the advisor is proactively involved in protecting their interests and create awareness that the advisor will act if they suspect abuse is occurring. Advisors can also ask their clients to name a 'trusted contact' who can be involved if the advisor observes concerning behavior or is unable to reach the client (and having the contact authorized by the client in advance can help the advisor avoid breaching any privacy laws if they later feel the need to engage a third party in the conversation).

When an advisor notices signs of cognitive decline or abuse, they aren't expected to make a medical diagnosis. Instead, they can note (and document) instances where the client's behavior or desires are inconsistent with their past behavior and emphasize their desire to protect the client's interests. State laws often grant advisors the authority to delay requested disbursements of funds in cases of suspected fraud, providing the advisor with additional time to investigate and discuss the situation with the client. And even though the client may push back, keeping the emphasis on the actions rather than the client's behavior – e.g., noting that the client's actions appear unusual based on their past behavior and that firm policy requires further review in such cases to protect client assets – affirms that the advisor's primary concern is on acting in the client's best interest, rather than confronting the client about their cognitive ability.

Ultimately, while it's challenging to face clients experiencing cognitive decline – especially in deep and long-lasting client relationships – advisors have a critical role to play in ensuring that decline doesn't lead to abuse, fraud, and/or loss of the client's savings. By proactively putting procedures in place to prepare for, detect, and handle such situations as they arise, advisors can fulfill their legal and ethical duties – but more importantly, safeguard their clients' assets when the client is no longer able to do so themselves.Read More...

Making The Sell-Or-Keep Decision When You Hit A $260M AUM Wall: #FASuccess Ep 465 With Todd Pisarczyk

November 25, 2025 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 465th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Todd Pisarczyk. Todd is the founder of Momentous Wealth Management, an RIA based in Vancouver, Washington, that oversees approximately $400 million in assets under management for 400 client households.

What's unique about Todd, though, is how he worked his way through the choice of whether to sell or keep his firm after hitting a complexity wall by analyzing both the numbers (creating his own spreadsheet in the process) and the lifestyle considerations of this decision.

In this episode, we talk in-depth about how Todd found that as his business grew (to around 350 clients) he became frustrated by the increasing lack of freedom and time (despite the financial success of the firm itself), how Todd started receiving offers to acquire his firm (which led him to consider what he wanted the rest of his career [and future ownership of the firm] to look like and what would be most financially advantageous for himself), and how Todd built a spreadsheet to analyze offers that showed that holding on to the firm (even if it meant eventually selling at a lower multiple to internal successors) could lead to a better financial outcome (particularly given the strong growth his firm was experiencing).

We also talk about how Todd, after deciding against selling his firm, brought in newer advisors, which both helped to spread out the workload of the growing firm but also energized him by allowing him to spend more time coaching these new hires, how Todd worked with a consultant to document and build out his firm’s processes to streamline operations and more efficiently scale, and how Todd has found that time blocking (including adopting a surge meeting structure that fits his needs) has allowed him to have more control over his schedule and gives him time to both work in the business and on the business.

And be certain to listen to the end, where Todd shares how his forward-leaning approach towards technology adoption has not just been about gaining efficiency but also freeing up time to provide a deeper level of planning for his clients (which has led to an increased pace of client referrals), how Todd has prioritized creating an attractive client experience to differentiate his firm at a time when clients have many ways to tap into comprehensive financial advice, and how Todd’s idea of success has shifted over time from constantly seeking ‘more’ (in terms of clients, AUM, or other factors) to creating an environment where the next generation of advisors at his firm can be successful themselves.

So, whether you’re interested in learning about making the decision to keep or sell a firm when approaching a complexity wall, keeping financial and personal considerations in mind when making this momentous decision, or leveraging technology to provide a deeper level of financial planning and generate more client referrals in the process, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Todd Pisarczyk.

Delegate Your Least-Favorite Work By Hiring Your Opposite (Not Your Mini-me)

November 24, 2025 07:01 am 0 Comments CATEGORY: Practice Management, Research

Hiring a new employee brings the promise of delegation and an increase to the hiring advisor's individual capacity. Yet despite the promise that hiring offers, many firms struggle to see a meaningful lift from new team members. What often appears to be an onboarding issue – slow ramp-up, mismatched expectations, or underperformance – is more accurately a hiring issue. In an industry where talent is scarce and the cost of a bad hire is high, selecting the right person for the right role is one of the most strategic decisions an advisory firm can make. And counterintuitively, long-term growth may depend not on hiring someone like the advisor, but someone fundamentally different.

In this article, Sydney Squires, Senior Financial Planning Nerd, describes the potential pitfalls of hiring someone too much like themselves and how to ensure that the new hire is inclined toward their role – most often, by hiring their opposite.

Employees who are too similar in aptitude to their manager often gravitate toward the same work, leaving essential but unappealing tasks untouched. This can lead to one of three unsatisfactory outcomes: the advisor ends up keeping the tasks they intended to offload, an additional hire is made prematurely to handle the gap, or the new employee exits due to misalignment – all of which reduce efficiency and hurt firm profitability. Instead, sustainable delegation and firm growth come from hiring someone whose strengths and interests are the advisor's weaknesses. This strategy increases the likelihood that the new hire will not only accept the delegated work but also take ownership of it and improve it over time.

To maximize hiring effectiveness, tools like the Working Genius framework offer a structured way to assess candidates' natural inclinations and identify how their strengths map to the job responsibilities. By first determining which tasks need to be delegated, then identifying the personality traits and aptitudes needed to perform them well, managers can attract candidates whose native genius aligns with the firm's operational gaps. This increases not only the likelihood of long-term retention but also the odds that the employee will innovate and streamline processes that previously stalled firm growth.

When interviewing for a role, asking questions about the candidates' favorite work and what they enjoy can also be instructive. Someone who loves brainstorming and big picture work may struggle with a role that is solely checklist-oriented – and vice versa. Working Genius or other assessments can articulate a candidate's potential strengths in a structured, relatively unbiased way.

Ultimately, delegating to someone who finds joy and energy in tasks the manager finds draining not only boosts morale but leads to more effective execution and even innovation. Over time, this symbiotic dynamic allows the advisor to redirect focus toward higher-impact activities like business development, while empowering the new hire to refine processes and assume greater responsibility. When hiring decisions are driven by strategic self-awareness and intentional role design, advisors unlock a virtuous cycle of trust, delegation, and growth. The result is not only a more efficient firm, but a more fulfilled team – and a founder who can spend more time in their own zone of genius, building the business they envisioned in the first place!

Weekend Reading For Financial Planners (November 22–23)

November 21, 2025 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that the Securities and Exchange Commission (SEC) this week released its list of examination priorities for 2026, which includes a combination of focus areas from previous years (e.g., RIAs' use of emerging technologies, data security, adviser-broker dual registrants) and topics such as the operational complexities and potential conflicts of interest surrounding RIA mergers and acquisitions activity (amidst a record pace of dealmaking) and the use of alternative investments (including advisers' consideration of costs, risks, and conflicts of interest when it comes to alts such as private credit).

Also in industry news this week:

A CFP Board report identifies four potential scenarios for financial planning amidst developments in Artificial Intelligence (AI) tools, from a world in which advisors thrive by providing a deeper level of service to (more) clients by incorporating AI tools across their firms to one where big tech firms come to dominate the financial advice sphere, with human advisors specializing in the most complex client cases
The SEC appears to be taking a lighter touch towards enforcement of off-channel communications issues in recent months (particularly when it comes to historical compliance) but firms are likely to continue to face questions regarding their thoroughness in archiving required communications (and ensuring that all team members are aware of their responsibilities in this area)

From there, we have several articles on retirement planning:

An end-of-year checklist for financial advisors and their clients saving for retirement, from making desired contributions to workplace retirement plans to identifying tax-loss harvesting opportunities
How advisors can help their clients avoid Income-Related Monthly Adjustment Amount (IRMAA) surcharges in the years ahead
As the end of the year approaches, advisors and their clients could consider their Roth conversion strategies for 2026, which could include "conversion-cost-averaging" or a "barbelling" approach

We also have a number of articles on advisor marketing:

Strategies advisors can use to boost their rankings when consumers query search engines for "financial advisors near me"
Four ways financial advisors can boost their presence in AI search results, from building FAQ pages to being cited by trusted media outlets
How financial advisors can increase their visibility and relevance in their local communities to become the go-to source of advice for their neighbors

We wrap up with three final articles, all about handling challenging situations:

The value of sorting thorny problems into those that could have a single, 'silver bullet' remedy and those that require a deeper level of analysis and a more complex solution
Why choosing to take on challenging tasks isn't necessarily about appearing 'tough' in the eyes of others or achieving a certain accomplishment, but rather conditioning oneself for the inevitable challenges that arise over time, better focusing on the task at hand, and feeling more in control of one's life and outcomes
Four ways to better handle uncertainty, including being honest about the problem at hand and trying 'experiments' that don't require committing to a particular plan

Enjoy the 'light' reading!

AI Compliance: Applying Existing SEC Regulatory Frameworks To Fast-Moving Technologies

November 19, 2025 07:03 am 0 Comments CATEGORY: Regulation & Compliance

Given that the pace of technological change is often swift, regulatory bodies often struggle to keep regulations up to date amidst a rapidly changing landscape. In the past couple years, the rapid increase in investment adviser use of Artificial Intelligence (AI)-powered tools has presented a challenge to regulators in attempting to ensure (among other priorities) that client data remains secure while allowing advisers to use this technology to offer better client service. Which has left many open questions as to advisers' responsibilities under relevant regulations when it comes to the use of AI.

In this guest post, Chris Stanley, founder of Beach Street Legal LLC, discusses how the Securities and Exchange Commission (SEC) appears to be viewing AI, how advisers can apply the existing regulatory framework to the use of this technology, including for research, marketing, client meeting note-taking, and portfolio management.

While the SEC under previous Chair Gary Gensler in 2023 proposed a variety of new rules and rule amendments that would have regulated investment advisers' and broker-dealers' use of technologies that "optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes" (likely intended to target the use of AI without naming it explicitly), these were withdrawn earlier this year, leaving advisers to look to the existing regulatory framework (e.g., the Advisers Act, the rules thereunder, and Regulation S-P) as well as statements made by SEC officials for guidance when it comes to using AI tools appropriately.

The concept of 'trust but verify' is applicable in several areas when it comes to adviser use of AI. For instance, advisers using AI tools for conducting research will likely want to verify the accuracy of AI-generated output (as these tools continue to experience hallucinations and misinterpretations). Similarly, advisers using AI in marketing (or touting their use of AI in marketing materials) will want to be aware of both the SEC's "Marketing Rule" and the Advisers Act's anti-fraud prohibitions (as the SEC has issued enforcement actions related to "AI Washing" [i.e., making false claims about an adviser's use of AI]). Additionally, recordkeeping, participant consent, and client privacy and information sharing requirements under the Advisers Act's "Recordkeeping Rule" will be relevant for advisers who use AI-powered notetaking tools.

In this environment, advisers can consider acting proactively to remain in compliance with current regulations and put themselves on good footing for potential changes to the regulatory environment surrounding AI. Such steps, among others, could include surveying staff to understand the firm's current use of AI tools, determining which AI tools and use cases will be permitted (and which ones will not), conducting due diligence on AI tools being used, as well as training and testing staff on these policies.

Ultimately, the key point is that because regulation will invariably lag behind the rapid pace of AI innovation, advisers will, for the moment, have to conform their AI practices as best they can under the existing regulatory framework. Which could allow advisers to take advantage of the capabilities that AI tools provide while maintaining their fiduciary duty to their clients.