SEC Investment Adviser Marketing Rule — Compliance Program Roadmap
The SEC’s modernized Marketing Rule, effective 4 November 2022, expands advertising, testimonial, and performance requirements, compelling advisers to overhaul policies, Form ADV reporting, testing, and promoter oversight to substantiate every marketing claim.
Executive briefing: On the U.S. Securities and Exchange Commission’s (SEC) amended Investment Adviser Marketing Rule (Rule 206(4)-1 under the Investment Advisers Act) became fully enforceable after an 18-month transition. The rule modernizes advertising regulations by consolidating prior rules on advertisements and cash solicitation, addressing testimonials, endorsements, third-party ratings, performance presentations, and Form ADV disclosures. Registered investment advisers (RIAs) must now evidence policies, supervisory controls, and recordkeeping to substantiate all marketing claims and manage compensation arrangements with promoters.
Key rule components
The Marketing Rule defines advertisements broadly, covering any direct or indirect communication offering advisory services, including websites, social media, podcasts, and one-on-one presentations containing hypothetical performance. Major provisions include:
- Testimonials and endorsements: Permitted if advisers disclose material terms, compensation, and conflicts; promoters must deliver a disclosure statement and have a written agreement with the adviser (unless de minimis).
- Third-party ratings: Allowed when advisers have a reasonable basis for believing the rating is unbiased and provide required disclosures about criteria and compensation.
- Performance advertising: Requires fair and balanced presentation of net performance, prescribed time periods (1-, 5-, and 10-year returns for portfolios), and stringent conditions for hypothetical, extracted, and predecessor performance.
- Form ADV updates: Part 1A Item 5.L asks advisers to report use of performance results, testimonials, endorsements, third-party ratings, and hypothetical performance.
- Books and records: Amendments to Rule 204-2 mandate retention of all advertisements, disclosures, and supporting documents demonstrating compliance.
Policy and procedure expectations
Compliance programs must be updated to reflect the Marketing Rule. Recommended actions include:
- Revise written policies covering advertising review, supervisory approvals, promoter due diligence, and ongoing monitoring.
- Implement standardized disclosure templates describing compensation, conflicts, and promoter status (client vs. non-client).
- Enhance training for marketing, investor relations, and client-facing teams on permissible statements and substantiation requirements.
- Document processes for Form ADV reporting, ensuring marketing inventory aligns with ADV responses.
Chief compliance officers (CCOs) should maintain RACI matrices assigning responsibilities for marketing content creation, review, approval, publication, and archival. Supervisory procedures must require pre-approval of advertisements, with checklists covering risk disclosures, net performance presentation, and hyperlink management.
Testimonials, endorsements, and promoters
Before using testimonials or endorsements, advisers must vet promoters, confirm eligibility (no “bad actor” disqualifications under Rule 206(4)-3), and execute written agreements outlining compensation, scope, and compliance obligations. Disclosure statements must describe the relationship, compensation (cash and non-cash), and material conflicts. Advisers should maintain promoter attestations confirming delivery of disclosures and adherence to advertising policies.
Compliance teams must monitor social media, review third-party content, and ensure hyperlinks to testimonials include required disclosures. For influencer marketing, advisers should implement social listening tools, require pre-approval of posts, and maintain copies of communications to satisfy recordkeeping. When testimonials appear on platforms outside adviser control (for example, Google reviews), advisers must adopt policies addressing whether to feature such content and how to ensure fair and balanced presentation.
Performance advertising controls
Performance presentation is heavily scrutinized. Advisers must present net performance with equal prominence to gross performance, covering prescribed time periods for composite and portfolio performance. For private funds, the SEC expects metrics that align with investor decision-making (for example, internal rate of return, multiples) and requires disclosure of fees and expenses impacting returns.
Hypothetical performance—including model, back-tested, and targeted performance—may only be shown to investors for whom the adviser reasonably believes it is relevant, with policies governing the criteria used. Advisers must maintain information sufficient to substantiate hypothetical assumptions and provide tailored risk disclosures. Extracted performance (subsets of portfolios) requires disclosure of the complete portfolio and selection criteria. Predecessor performance (portability) demands documentation showing the same personnel managed the accounts and that the performance is not materially higher than the entire predecessor firm.
Compliance should implement performance calculation controls: independent verification of returns, reconciliation to audited financial statements, and segregation of duties between portfolio managers and marketing staff. Leverage technology to store calculation methodologies, source data, and change logs.
Form ADV reporting and books and records
By the first annual amendment after November 4, advisers must update Form ADV Part 1A Item 5.L and Schedule D. Maintain inventories of advertisements to ensure responses accurately reflect usage of testimonials, endorsements, third-party ratings, hypothetical performance, and predecessor performance. Books and records obligations extend to retaining questionnaires, surveys, and data underlying third-party ratings, along with documentation of due diligence on rating providers.
Advisers must retain copies of all advertisements disseminated to more than one person (or to one person if hypothetical performance is included), along with disclosures, substantiation files, and evidence of delivery. Electronic archiving solutions should provide tamper-evident storage, indexing, and retrieval to respond promptly to SEC examinations.
Testing and surveillance
CCOs should design annual testing plans covering:
- Sampling of advertisements across channels (web, print, social, audio/video) to verify disclosures, performance presentation, and accuracy.
- Review of promoter compensation records, disclosure delivery, and attestations.
- Recalculation of performance figures to confirm net/gross parity, time period requirements, and alignment with source data.
- Monitoring of hypothetical performance usage, ensuring distribution only to eligible investors with documented criteria.
- Surveillance of public websites and social media for unauthorized testimonials or outdated disclosures.
Document test results, remediation actions, and escalation to senior management. Consider independent reviews by compliance consultants or internal audit for high-risk marketing programs, particularly those using complex performance strategies or digital campaigns.
Enforcement landscape
The SEC’s Division of Examinations announced Marketing Rule compliance as a 2023 priority and has already issued deficiency letters. Common issues include insufficient policies, lack of substantiation for statements of fact, improper hypothetical performance distribution, and failure to update Form ADV. The SEC settled its first Marketing Rule enforcement action in September 2023, highlighting the agency’s willingness to pursue penalties for inaccurate hypothetical performance and testimonials.
Advisers should monitor SEC risk alerts, enforcement orders, and industry guidance. Membership in trade associations (Investment Adviser Association, Managed Funds Association) can provide peer benchmarking and best practices.
Integration with broader compliance programs
Marketing Rule controls intersect with other regulatory regimes. Ensure alignment with:
- Regulation Best Interest and Form CRS: Broker-dealers affiliated with advisers must maintain consistent disclosures and avoid conflicting statements.
- Privacy rules: Testimonials should comply with Regulation S-P and state privacy laws when using client information; obtain consent before publication.
- Anti-fraud provisions: Section 206 of the Advisers Act prohibits misleading statements; marketing oversight should integrate with insider trading and valuation controls.
- ESG disclosures: If marketing includes environmental, social, and governance claims, ensure alignment with ESG policies, data, and fund disclosures to avoid greenwashing scrutiny.
Metrics and reporting
Track metrics demonstrating compliance maturity:
- Advertising inventory coverage: Percentage of marketing materials logged and reviewed before publication.
- Testing completion: Number of marketing samples reviewed per quarter and exception rates.
- Promoter oversight: Percentage of promoter agreements with current disclosures and attestations.
- Remediation timeliness: Average days to correct identified marketing deficiencies.
- Training coverage: Percentage of marketing and client-facing staff completing annual Marketing Rule training.
Report results to compliance committees and boards. Document remediation plans and evidence of closure to prepare for SEC examinations.
Zeph Tech’s compliance office has cataloged all marketing channels, refreshed disclosure templates, implemented automated Form ADV reporting workflows, and scheduled quarterly sampling of testimonials, hypothetical performance, and third-party ratings to evidence adherence to the SEC Marketing Rule.
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