The SEC's amended Marketing Rule — Rule 206(4)-1 under the Investment Advisers Act — fundamentally changed how registered investment advisers are permitted to advertise their services and communicate with prospective clients. The new rule replaced the old advertising rule and cash solicitation rule with a single, principles-based framework that expanded what advisers may do in their marketing while simultaneously raising the bar for what is required — and prohibited. Understanding the rule's requirements is not optional: the SEC has made Marketing Rule compliance a consistent examination priority, and deficiency findings in this area have been widespread.
This article provides a practical overview of the Marketing Rule's key provisions and what your firm needs to have in place to demonstrate compliance.
The General Prohibitions: What the Rule Forbids
The Marketing Rule establishes seven general prohibitions that apply to all advertisements. An advertisement cannot include any untrue statement of a material fact, or omit a material fact necessary to make the statement made not misleading. It cannot make a material claim that the adviser cannot substantiate. It cannot include information that implies or infers something that the adviser knows or reasonably should know to be otherwise. These prohibitions also ban the presentation of hypothetical performance without appropriate disclosures, cherry-picked performance results, and references to specific investment advice that portray the adviser's services in a misleading light.
These prohibitions are straightforward in principle but demanding in practice. Advisers must review all marketing materials — including website content, pitch books, social media posts, and email communications that meet the definition of an "advertisement" — to ensure compliance with each prohibition. Materials that were acceptable under the old rule may not satisfy the new standards.
Performance Advertising Under the New Rule
The Marketing Rule significantly changed what is permissible in performance advertising and imposed new requirements for how performance must be presented. Key provisions include:
- Net-of-fees presentation. If gross performance is shown, net performance must be shown with equal prominence. An advertisement cannot present gross performance without also presenting the corresponding net-of-fees performance calculated using the same methodology and time period.
- Consistent time periods. Performance presentations must include results for one-year, five-year, and ten-year periods (or the life of the account if shorter), unless the advertisement is provided to a limited and specific audience.
- Representative accounts. If an adviser shows the performance of a single account or a subset of accounts, it must be presented as representative of the broader strategy and must not be cherry-picked to show only favorable results.
- Related performance. Performance of related accounts (such as accounts managed before an adviser was registered or at a predecessor firm) may be shown, but only with specific disclosures about the limitations and conditions of that performance.
- Hypothetical performance. Hypothetical, back-tested, or model performance may only be used in advertisements to a limited audience with sufficient knowledge and experience to understand the limitations of hypothetical results, and specific disclosures are required.
Testimonials, Endorsements, and Third-Party Ratings
The new rule permits investment advisers to use testimonials and endorsements in their marketing for the first time — but only if specific conditions are met. This is one of the most operationally significant changes the rule introduced, because many advisory firms have been using client testimonials informally for years without understanding the compliance requirements now attached to them.
Testimonials are statements made by current clients about their experience with the adviser. Endorsements are statements made by non-clients — such as industry professionals or third parties — about the adviser. For both, the rule requires that the advertisement disclose: (1) that the person is a client or non-client; (2) whether the person is being compensated; and (3) any material conflicts of interest the person has. If the testimonial or endorsement is from a compensated person, an oversight agreement is required.
"Many advisers were surprised to learn that the Marketing Rule also covers simple written statements praising the firm's services posted by clients on public review platforms. If the adviser is directing prospects to that content or using it in solicitation, it may constitute a testimonial subject to the rule's requirements."
Third-party ratings — such as industry awards, rankings, or recognition — may also be used in advertising, but only if the adviser can demonstrate that the rating was made by a neutral third party, that the criteria for the rating are clearly disclosed or referenced, and that compensation paid to obtain the rating is disclosed.
Building a Compliant Marketing Review Process
Compliance with the Marketing Rule is not a one-time exercise — it requires an ongoing, documented review process for all marketing materials before they are used or distributed. Your compliance program should include:
- Written policies and procedures that define what constitutes an "advertisement" under the rule, establish a pre-use review and approval process, and specify the documentation required for each category of advertisement (performance, testimonial, endorsement, hypothetical performance, etc.).
- A designated review function — whether internal CCO review, outsourced compliance support, or both — responsible for evaluating all advertisements before use for compliance with the rule's general prohibitions and specific requirements.
- A marketing materials inventory that documents every advertisement in use, when it was approved, who approved it, and when it is due for re-review (particularly if factual performance data must be updated).
- Testimonial and endorsement agreements with any compensated persons who provide testimonials or endorsements, including appropriate disclosure language.
- Social media oversight procedures that address the firm's and individual supervised persons' use of social media platforms for business communications, particularly in light of the rule's broad definition of "advertisement."
Recordkeeping Requirements
The Marketing Rule includes specific recordkeeping requirements that advisers must satisfy. For any advertisement, the adviser must retain: the advertisement itself; documentation supporting any claims made in the advertisement; records of the internal review and approval process; and records of any testimonials or endorsements used, including any associated agreements. The general recordkeeping period under the Advisers Act applies: records must be retained for five years, with the first two years in an accessible location.
Recordkeeping is frequently examined. If your firm cannot produce the supporting documentation for performance claims made in a marketing pitch book, or cannot demonstrate that a client testimonial on your website was reviewed for compliance with the rule, you will receive a deficiency finding. The documentation discipline required by the Marketing Rule is not burdensome to establish upfront — but it becomes very expensive to reconstruct after an examination identifies gaps.
Investment advisers that have not yet conducted a comprehensive Marketing Rule compliance review of all current and pending marketing materials should treat this as an urgent priority. The SEC has been clear that it expects compliance programs to have addressed this rule fully, and examination findings in this area can lead to enforcement referrals for more serious violations.