As we move further away from the one-year anniversary of the compliance date for the SEC's new Marketing Rule 206(4)(1) under the Investment Advisers Act of 1940 (the "Marketing Rule"), Registered Investment Advisers ("RIAs") have begun to not only comply with the Marketing Rule, but have started to incorporate new marketing practices in response to the rule. We have seen a broad array of responses from the industry in response to the Marketing Rule, including many advisers thinking that the Marketing Rule does not apply to them (but it often does).

According to a survey conducted by the Investment Adviser Association, approximately one-third of the respondents (33.8%) indicated that they are engaging in at least one of the specified marketing activities covered by the Marketing Rule. Over one-quarter of the respondents (28.9%) indicated that they include performance information in their advertisements, while 10.1% said that they include hypothetical performance. Less than 10% of the respondents answered "yes" to each of the remaining questions. Those questions address references to specific investment recommendations, testimonials, endorsements, third-party ratings, compensation for recommendations, and use of predecessor performance in advertisements. Larger advisers were more likely to answer "yes" than smaller advisers. For example, 85.3% of respondents with more than $100 billion in assets answered "yes" to at least one question, while only 22.1% of advisers with less than $100 million in assets indicated that they engage in any of the specified marketing activities. What we take from these numbers is that many RIAs are not only engaging in marketing activities but are engaging in marketing activities that are specifically addressed by the Marketing Rule.

Given the changes the Marketing Rule has brought to the industry, it is important for RIAs to keep this topic top of mind one year after the compliance date.

State of the Rule

The new Marketing Rule represented a broad, sweeping change in how the SEC regulates RIA marketing activities. The changes were so significant that the SEC changed the very definition of what an "advertisement" is.  The amended definition of "advertisement" contains two prongs: one that captures communications traditionally covered by the advertising rule and another that governs solicitation activities previously covered by the cash solicitation rule. 

The first prong of the definition includes traditional "advertising," such as "any direct or indirect communication an investment adviser makes that: (i) offers the investment adviser's investment advisory services with regard to securities to prospective clients or private fund investors; or (ii) offers new investment advisory services with regard to securities to current clients or private fund investors." See SEC Adopting Release No. IA-5653, 17 FR Part 275 and 279.

The second prong includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly (e.g., directed brokerage, gifts and entertainment, such as outings, tours, awards, or other prizes, and reduced advisory fees). See SEC Adopting Release at 48.

Under the new rule, if an RIA uses endorsements or testimonials, it is now required to satisfy disclosure, oversight, and disqualification requirements. In addition, the Marketing Rule has created new disclosure requirements for third-party ratings and using performance data in advertisements, which are further detailed below. There are numerous articles and resources regarding disclosures for testimonials and endorsements and developing marketing policies and procedures, but this article is intended to address the more complex questions that have been raised due to the change in how the SEC regulates RIA marketing activities.

Practical Takeaway: The Marketing Rule is platform neutral, so regardless of what social media platform you may post advertisements on, you must comply with the Marketing Rule.

Who Does the Marketing Rule Apply to?

When talking to RIAs, many both large and small are under the assumption that the Marketing Rule does not apply to them because they do not "do marketing." This is a common misconception. Even if RIAs are not actively marketing in the traditional sense, the Marketing Rule applies to all RIAs who directly or indirectly advertise their investment advisory services. The rule is not limited to RIAs but extends to include advisors who are required to be registered with the SEC under section 203 of the Advisers Act (which includes Private Fund Advisers).

Most RIAs understand what direct advertising means, but it is the indirect marketing activities that may cause RIAs to run afoul of the new regulations. Indirect marketing may include third-party ratings and providing performance data that may appear on an RIA's website, and it is important that RIAs understand the disclosure requirements under the rule.

How Can RIAs Use Third-Party Ratings?

The Marketing Rule prohibits including third-party ratings in an advertisement unless they comply with the rule's general prohibitions and additional conditions. A "third-party rating" is defined under the Marketing Rule as "a rating or ranking of an investment adviser provided by a person who is not a related person … and such person provides such ratings or rankings in the ordinary course of its business."  See Adopting Release at 159 (emphasis in original). To use a third-party rating in an advertisement or on a website, the RIA must:

  • Have a reasonable basis to believe that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses and is not designed or prepared to produce any predetermined result (the "due diligence requirement"); and
  • Clearly and prominently disclose: (i) the date on which the rating was given and the period of time upon which the rating was based; (ii) the identity of the third-party that created and tabulated the rating; and (iii) if applicable, that compensation has been provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating (the "disclosure requirement"). In order to be clear and prominent, the disclosure must be at least as prominent as the third-party rating. See Final Rule 206(4)-1(c).

In order to comply with the Marketing Rule, RIAs must comply with both the due diligence requirement and the disclosure requirement. While many RIAs seem comfortable with the disclosure requirement, the due diligence requirement has been more difficult to comply with. In the Adopting Release, SEC staff noted that an RIA could satisfy the due diligence requirement by accessing the questionnaire or survey that was used in the preparation of the rating or could seek representations from the third-party rating agency regarding general aspects of how the survey or questionnaire is designed, structured, and administered. Ultimately, the SEC Staff's position is that an adviser relying solely on the results of a survey or questionnaire – i.e., the rating itself – without conducting some due diligence into the underlying methodology and structure, could give rise to advertisements that include misleading ratings. See Adopting Release at 161.

Practical Takeaway: As a best practice, we recommend RIAs conduct regular reviews of their websites and advertisements on at least an annual basis to ensure any third-party ratings are compliant with the Marketing Rule.

How Can RIAs Use Performance Data in Advertising?

Another way RIAs may be engaging in indirect marketing activities within the purview of the Marketing Rule is by providing and/or posting performance data. The Marketing Rule provides very prescriptive requirements when it comes to publishing performance data, so it is imperative RIAs understand them.

The Marketing Rule prohibits including in any advertisement:

  • gross performance, unless the advertisement also presents net performance;
  • any performance results, unless they are provided for specific time periods in most circumstances;
  • any statement that the Commission has approved or reviewed any calculation or presentation of performance results;
  • performance results from fewer than all portfolios with substantially similar investment policies, objectives, and strategies as those being offered in the advertisement, with limited exceptions;
  • performance results of a subset of investments extracted from a portfolio, unless the advertisement provides, or offers to provide promptly, the performance results of the total portfolio;
  • hypothetical performance (which does not include performance generated by interactive analysis tools), unless the adviser adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience and the adviser provides certain information underlying the hypothetical performance; and
  • predecessor performance, unless there is appropriate similarity between the personnel and accounts at the predecessor adviser and the personnel and accounts at the advertising adviser. In addition, the advertising adviser must include all relevant disclosures clearly and prominently in the advertisement. See Adopting Release at 163.

On January 11, 2023, the SEC published an updated FAQ on the Marketing Rule that included two clarifying points on using performance data in advertisements. The first FAQ posed was whether RIAs may use interim performance information after a calendar year-end. In those circumstances, the SEC staff advised that they would not object if firms are unable to calculate the one-, five-, and ten-year performance data in accordance with rule 206(4)-1(d)(2) immediately following a calendar year-end and use performance information that is at least as current as the interim performance information in an advertisement until they can comply with the calendar year-end requirement. See SEC Marketing FAQ. The guidance noted that staff believed that a reasonable period of time to calculate performance results based on the most recent calendar year-end generally would not exceed one month.

The second FAQ provided that RIAs must show the net performance of single investments and the group of investments when the adviser displays the gross performance of one investment or a group of investments from a private fund. Id. The staff believes that displaying the performance of one investment or a group of investments in a private fund is an example of extracted performance under the new marketing rule and because the extracted performance provision was intended to address the risk that advisers would present misleadingly selective profitable performance with the benefit of hindsight, the staff believes the provision should be read to apply to a subset of investments. Therefore, by rule, RIAs may not show gross performance of one investment or a group of investments without also showing the net performance of that single investment or group of investments, respectively.

The changes to the rules on using performance data have already had a significant impact on the industry. On September 11, 2023, the SEC announced charges against nine RIAs for advertising hypothetical performance to the general public on their websites without adopting and/or implementing policies and procedures required by the Marketing Rule. All nine firms have agreed to settle the SEC's charges and to pay $850,000 in combined penalties. See SEC Sweep into Marketing Rule Violations. The SEC's orders found that each of the charged firms advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures. In addition, two of the advisers failed to maintain required copies of their advertisements. To use performance data in advertisements, RIAs must ensure they are complying with the disclosure, supervisory, and recordkeeping requirements.

Practical Takeaway: Beyond the SEC Sweep, SEC Staff have noted in RIA examinations that policies and procedures on advertising hypothetical performance must be sufficiently tailored to reasonably prevent violations of the Marketing Rule, and ultimately RIAs must comply with their own policies and procedures.

What Are the Recordkeeping Requirements?

In connection with the Marketing Rule, the SEC also amended Advisers Act Rule 204-2 (Books and Records Rule), to require RIAs to make and keep certain records, such as records of all advertisements they disseminate, including certain internal working papers, performance related information, and documentation for oral advertisements, testimonials, and endorsements.

The prior recordkeeping rule required RIAs to retain all accounts, books, internal working papers, and other documents necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in any advertisement. The Marketing Rule amended the prior rule to also require advisers to maintain accounts, books, internal working papers, and other documents necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any portfolios (as defined in the final marketing rule). See Adopting Release at 246. In addition, the supporting records of RIAs that display hypothetical performance must include copies of all information provided or offered pursuant to the hypothetical performance provisions of the Marketing Rule. Id.

In addition, the Marketing Rule requires RIAs to maintain:

  • documentation of communications relating to predecessor performance
  • a record of who the "intended audience" is pursuant to the hypothetical performance and model fee provisions of the final marketing rule.
  • any communication or other document related to the investment adviser's determination that it has a reasonable basis for believing that a testimonial or endorsement complies with rule 206(4)-1 and that a third-party rating complies with rule 206(4)-1(c)(1).
  • any questionnaire or survey used in the preparation of a third-party rating included or appearing in any advertisement. Id at 247-249.

Practical Takeaway: These recordkeeping requirements are a significant departure from the prior rule, so as a best practice we recommend RIAs review their recordkeeping policies to make updates as necessary to comply with the Marketing Rule.


The SEC is naturally putting an increased emphasis on compliance with the Marketing Rule. On September 19, 2022, the SEC published an exam risk alert focused on the Marketing Rule. See SEC Risk Alert. On February 7, 2023, the SEC highlighted the Marketing Rule as an exam priority for 2023. See 2023 Examination Priorities. And then on June 8, 2023 the SEC published an additional Risk Alert focused on additional areas of the Marketing Rule. See Additional SEC Risk Alert. Most recently on October 16, 2023, the SEC published their exam priorities for 2024, which included a focus on compliance with the Marketing Rule. See SEC 2024 Examination Priorities.

Finally, the SEC exam request letter is asking for even more documentation of Marketing Rule compliance. With the increased scrutiny from the SEC combined with an increase in marketing activities from RIAs, it is essential for advisors to understand how to comply with their obligations under the Marketing Rule.