A Big Picture Overview of the SEC’s New Investment Adviser Marketing Rule 

By | May 8, 2023

The SEC recently made waves in the long-established investment adviser regulatory landscape, governed by the Investment Advisers Act of 1940 (the “Act”), by adopting the new investment adviser marketing rule, which became binding on advisers in November 2022. Recognizing the “outdated and patchwork regime on which advisers have relied for decades,” the SEC passed the new rule to modernize the Act’s approach to marketing, combine the old advertising and solicitation rules into one, and replace the former prescriptive approach with new principles-based guidance.  

To give a bit of history, the SEC adopted the original advertising rule in 1961 and the original solicitation rule in 1979. Since their adoption, neither rule has been substantively updated. As the SEC recognizes, however, in the intervening years, “advertising and referral practices have evolved . . . , the technology used for communications has advanced, the expectations of investors shopping for advisory services have changed, and the profiles of the investment advisory industry have diversified.” Indeed, the world has changed in ways that would have been incomprehensible when the rules were first drafted. Not surprisingly, the old advertising and solicitation rules included specific requirements that do not align with modern marketing and consumer decision-making practices.  

To give one notable example, testimonials and endorsements (client reviews) have been long-banned in investment adviser marketing. The old rules meant no reviews, no website quotes from satisfied clients, and no other testimonials or endorsements in investment adviser advertising. This was based on the rationale that these kinds of reviews may mislead investors and serve as an undue influence on their decision-making. And yet, we may safely assume that most readers of this article would not even order food from a new restaurant without reading its Google reviews first, let alone make the far more consequential decision of which adviser to trust with managing their personal and family assets. Recognizing how consumer purchasing decisions have changed, the new marketing rule allows testimonials and endorsements subject to certain conditions. 

These and other changes make the new marketing rule directly applicable to the day-to-day business practices of investment advisers, including how they communicate with their actual and prospective clients. The SEC has also made clear that it will focus on the requirements of the new marketing rule in upcoming compliance examinations of advisers; this means the updated regulatory regime requires corresponding changes to compliance manuals and processes.   

An Overview of the New Rule 

Defining Advertisement 

The new marketing rule does not apply to every communication an investment adviser makes—it only applies to “advertisements.” Thus, one of the first questions under the new rule is whether a particular communication is or is not an advertisement.  

The rule provides a two-prong definition of the term. The first prong defines advertisement as: “any direct or indirect communication an investment adviser makes to more than one person, or to one or more persons if the communication includes hypothetical performance, that offers the investment adviser’s investment advisory services . . . .”  

The first-prong definition does not include: “extemporaneous, live, oral communications” (i.e., live and unscripted conversations); information in statutory or regulatory filings; or hypothetical performance if it is provided in response to an unsolicited request or a one-on-one communication with a private fund investor. 

The second-prong definition of advertisement includes any paid endorsement or testimonial. Unlike the first prong, it does not include a carve-out for one-on-one communications or live and unscripted conversations; however, like the first prong, it excludes information in regulatory filings. 

Going back to our historical context, the first prong of the definition includes the types of communications traditionally covered by the advertising rule. In contrast, the second prong includes the activities previously covered by the cash solicitation rule.  

General Prohibitions 

Once an adviser determines that a particular communication is indeed an advertisement, the next question under the marketing rule is whether it violates any of the seven “general prohibitions” drawn from the securities laws’ historic anti-fraud provisions. These seven prohibitions are as follows:

  1. Making an untrue statement of material fact or omitting a material fact necessary to make a statement not misleading;
  2. Making a material statement of fact that cannot be easily substantiated;
  3. Providing information that would cause an untrue or misleading inference about the investment adviser;
  4. Discussing benefits to the client of the investment adviser’s services without discussing risks; 
  5. Referencing the adviser’s specific investment advice in a manner that is not fair and balanced; 
  6. Including or excluding performance results in a way that is not fair and balanced; and 
  7. Being misleading in any other way. 

Testimonials and Endorsements  

Considering the general prohibitions, the marketing rule now allows for “testimonials,” defined as reviews by current clients, and “endorsements,” defined as reviews by non-clients. To use testimonials and endorsements in advertisements, advisers must provide two types of disclosures. 

First, they must provide the following “clear and prominent” disclosures: “(A) That the testimonial was given by a current client or investor, and the endorsement was given by a person other than a current client or investor, as applicable; (B) That cash or non-cash compensation was provided for the testimonial or endorsement, if applicable; and (C) A brief statement of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment adviser’s relationship with such person.”  

Second, advisers must disclose: “(ii) The material terms of any compensation arrangement, including a description of the compensation provided or to be provided, directly or indirectly, to the person for the testimonial or endorsement; and (iii) A description of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment adviser’s relationship with such person and/or any compensation arrangement.” This second set of disclosures does not need to be “clear and prominent,” unlike the first set.  

Advisers do not have to deliver these disclosures directly, but must have a reasonable basis to believe that the promoter delivered them as required by the rule. Advisers must also have a written agreement with any compensated promoter, which is a good place for advisers to contractually bind each paid promoter to share the required disclosures. 

Third-Party Ratings 

In addition to allowing testimonials and endorsements, the new rule also allows advisers to use third-party ratings in advertisements. However, third-party ratings are only allowed when the adviser reasonably believes the rating platform is neutral, making it equally easy for contributors to submit a negative or positive review. When using third-party ratings, advertisements must include the rating date, the period it applies to, the entity that put together the rating, and, if applicable, the adviser paid for it. 


In designing and implementing the marketing rule, one of the SEC’s stated goals was protecting investors when advertisements include performance results, based on the SEC’s concern that performance advertising is especially likely to mislead. The rule applies many requirements to performance-based advertisements, including the following. 

Gross and Net Performance 

When an advertisement includes gross performance, it must include equally-prominent net performance; put simply, gross performance net of the adviser’s management fees. 

Performance Time Periods 

Advertisements that include performance results for any period must include equally-prominent performance results for the past one-, five-, and ten-year periods, or for the portfolio’s life if it has not existed long enough to provide performance results in any one of those periods. This is to prevent advisers from cherry-picking nonrepresentative periods of strong performance.  

Related Performance 

Based on the same concern about advisers cherry-picking beneficial information, an advertisement cannot include any performance of “related portfolios,” which are defined as portfolios with similar investment policies, objectives, and strategies as those of the services being offered in the advertisement, unless the advertisement includes the performance of all related portfolios. 

Extracted Performance 

An advertisement can only include “extracted performance,” which is the performance of a subset of investments in the portfolio, if the adviser offers to promptly provide the performance of the total portfolio from which the subset was extracted.  

Hypothetical Performance 

Advertisements can only include “hypothetical performance,” which is defined as model portfolios, backtests, and targeted or projected performance, if the adviser reasonably believes that such hypothetical performance is relevant to the financial situation and investment objectives of the intended audience, explains the criteria and assumptions on which the hypothetical performance is based, and discloses the risks and limitations of relying on hypothetical performance. The SEC is especially wary of hypothetical performance and its potential to unduly influence unsophisticated investors. 

Predecessor Performance 

“Predecessor performance” refers to the adviser’s past performance, often from another investment firm or with another team. The marketing rule does not allow the use of predecessor performance unless: (1) the people responsible for that performance manage accounts for the advertising adviser; (2) the predecessor accounts are similar to the adviser’s current accounts, so that referencing them is relevant to investors; (3) every predecessor account that was managed similarly is included; and (4) the advertisement prominently discloses that the performance results were from accounts managed at another entity. 

Regarding the above performance advertising requirements and every other specific mandate of the marketing rule, advisers should bear in mind that they are always bound to follow the seven general prohibitions. The primary focus of the new rule is preventing fraud and not misleading investors, and the SEC believes that general prohibitions are crucial to achieving those goals. 


Of course, this article presents an overview of the marketing rule from 1,000 feet in the air. While the rule consists of just a few pages of text, the SEC’s adopting release is 400+ pages long and supplemented by FAQs, risk alerts, and other guidance. This brief article presents a big-picture overview of the new marketing rule, leaving out many important details and nuances.  

To take a deep dive into the new rule, I encourage you to read my forthcoming article, The Investment Adviser Marketing Rule: Analysis and Compliance Guide, which will be published in the Washburn Law Journal. That article looks much closer at the various provisions of the new marketing rule and the related SEC guidance. As the industry moves from the old marketing regime to the new one, I hope to contribute to the collective dialog and effort to achieve effective compliance.  


Isaac Mamaysky is a Partner in the New York office of Potomac Law Group PLLC, a national corporate law firm, and the Chief Compliance Officer of QuantStreet Capital, an asset management firm based in New York. Beyond his practice, Isaac is an adjunct professor at Albany Law School, where he sits on the steering committee of the Corporate Compliance graduate program. He is also the founder of a large nonprofit focused on healthy, active living. 

This post was adapted from his paper, “The Investment Adviser Marketing Rule: Analysis and Compliance Guide,” available on SSRN 

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