With the issuance of the Marketing Rule for Investment Advisers (Rule 206(4)-1) decades of interpretations and guidance were wiped out. We’ve been waiting to see what falls under those seven general prohibitions in the Marketing Rule. We’ve been thirsting for more guidance.
We’ve gotten some additional clarification on the performance aspects of marketing. We know we can’t put hypothetical performance on a website. We know the net and gross returns have to be calculated in the same manner. (see FAQ 4).
The Division of Examinations released a Risk Alert with the Initial Observations Regarding Advisers Act Marketing Rule Compliance that provides some of that additional guidance of what not to do. It’s mostly a hit list of what not do.
- Don’t claim that your investment processes were validated by professional institutions when they were not.
- Don’t state that you considered certain risk tolerances when recommending investment strategies when all clients were placed into the same strategy without consideration of risk tolerances.
- Don’t reference a formalized securities screening processes that did not actually exist.
- Don’t describe yourself as a “private fund adviser” when you don’t actually advise any private funds.
- Don’t say that you received awards that you didn’t actually receive.
- Don’t say you are different from other advisers because you act in the “best interest of clients”. (Without disclosing that all investment advisers have a fiduciary duty to act in their clients’ best interests.)
- Don’t say that were “seen on” national media, without disclosing that the “appearances” were in fact paid advertisements.
- Don’t include the Securities and Exchange Commission logo on your website.
- Don’t claim that you achieved above average performance results without disclosing that you did not yet have clients or performance track records.
- Don’t print disclosures in an unreadable font on websites or in videos.
- Don’t use outdated market data information.
- Don’t market performance of only realized investment information in the total net return figure and exclude unrealized investments.
These dozen are just some of the anecdotes mentioned in the Risk Alert. Most of these are very obvious failures.
Sources:
- Initial Observations Regarding Advisers Act Marketing Rule Compliance (April 17, 2024)
- Final Rule: Investment Adviser Marketing, Rel. No. IA-5653 (Dec. 20, 2020)
- Marketing Compliance Frequently Asked Questions
- A Reminder that Hypothetical Performance Does Not Belong on Your Website
