Investment advisors are used to being under SEC scrutiny, but the agency has emphasized its prioritization of compliance with the Marketing Rule for its 2024 oversight activities. The rule revised 17 CFR Part 275.206(4), which serves as the single point of regulation for investment advisor advertising and solicitation. The SEC’s aim with this rule was to both protect investors from misleading statements, but consider existing and future marketing approaches.
The investment advisor marketing rule is intended to prevent advisors from creating advertisements that provide false or misleading information. The SEC specifically chose not to expand the definition of “advertisement” to encompass one-on-one communication, instead leaving it targeted to broad communication. The definition also does not include communications intended to retain existing customer investors, and contains several exceptions. Communications that are not considered part of the definition of an advertisement include extemporaneous, live, oral communication, as well as those involved in notices, filings, or other required information compelled by statute or regulation.
Under the marketing rule, advertisements are generally prohibited from containing untrue statements, or including statements that lack the necessary facts or would result in misleading implications. Another important piece of the general prohibitions require that advertisements discussing potential benefits of services be balanced by mentioning risks or limitations.
Testimonials and endorsements are closely governed by the rule. They must both contain the required disclosures that testimonials are from current clients or investors, and that endorsements are from people who are not current clients or investors. Any compensation or conflicts of interest must be stated clearly and prominently. Compensation and the type of activities connected with the testimonial and endorsement must be clearly documented in an agreement between the parties.
Compliance Assessments
Advisors should closely review their compliance programs to ensure that all necessary updates are clearly documented. Compliance is a culture, not just a role, and everyone at an investment company should understand the general requirements not to include any misleading information or information that is missing the necessary context. Advisors and compliance personnel need to understand their programs inside and out, and specific questions about whether communications meet the definition of an advertisement and if those advertisements contain the required information should be encouraged.
If a company is unfortunate enough to come under SEC scrutiny, the agency has clearly stated that its examination priorities of marketing practices will include a close examination of all written policies and procedures. Companies will need to ensure that they have clearly disclosed all required marketing information on Form ADV. Additionally, the agency will ensure that a company has maintained records of changes to policies.
Before releasing any advertisements, a company should scrutinize the communication with the agency’s eye. All communications should avoid any untrue factual statements, information that is materially misleading, or anything that could be considered deceptive. Performance statistics, third-party ratings, testimonials, and endorsements must all be clearly applied to the marketing rule to ensure that they pass muster. If there is any doubt, take the advertisements back to editing and check the SEC’s marketing FAQs for clarification—it’s not worth the risk of violating the SEC’s marketing rule.
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