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SEC Marketing Rule Frequently Asked Questions (FAQs) for Advisors

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A client checking out a financial advisor marketing disclosure

If you’re an investment advisor, whether you’re a seasoned pro or just starting out, deciphering rules and regulations like the Securities and Exchange Commission (SEC) Marketing Rule is key to your success and compliance. This rule specifically highlights what advisors can and cannot do when marketing their services to potential clients. Failing to adhere to it can result in severe legal repercussions and hurt your chances of landing future clients. Below are some of the most important things you should know about the SEC Marketing rule. 

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What Is the SEC Marketing Rule?

Simply put, the SEC Marketing Rule is a federal regulation that mandates how investment advisors should advertise their services. The rule compels investment advisors to provide accurate, clear and non-misleading information about their services to investors.  Customer testimonials are not precluded. This rule can be confusing, though, as it’s a little vague.

The primary purpose of the SEC Marketing Rule is to protect investors from deceptive or misleading advertising practices. It helps ensure investors receive accurate and complete information about an investment advisor’s services, fostering transparency and honesty in marketing and advertising practices. This results in a more secure and trustworthy environment for investors. 

What Marketing Activities Are Prohibited From Advisors?

The SEC Marketing Rule has outlined specific marketing methods that advisors should not undertake, such as making misleading or untrue statements and presenting performance data without a reasonable basis. For example, a firm could face serious legal repercussions, including a hefty fine, for cherry-picking and displaying only positive testimonials on its website. This wouldn’t be providing a fair representation of client experiences, which can lead to significant penalties.

Does the Rule Prevent Advisors From Mentioning Performance?

Two financial advisors trying to perfect their marketing with the SEC rule

The SEC Marketing Rule, while strict, does not prevent advisors from reflecting performance in their marketing materials. It guides how this information should be structured and presented, ensuring authenticity, non-misleading data and a reasonable premise for the results. The importance of the SEC Marketing Rule cannot be overstated or underplayed. 

For example, advisors should provide full disclosure of all material facts related to the presented performance data. If an advisor is showcasing their five-year performance data, any significant market events or alterations in their investment strategy during this period influencing the results should also be disclosed.

Do You Have to Advertise Net Performance if You Advertise Gross Performance?

If an advisor chooses to advertise gross performance, it’s necessary to also state net performance simultaneously. Following this, misinterpretations can be avoided. The net performance should be reflected over the same time period and using the same type of return as the gross performance. Nevertheless, it’s important to remember that not all advisors who neglect to abide by these rules may necessarily face legal repercussions.

Tips for Effective Practice Advertising

To create compliant advertising materials, advisors can consult with a lawyer to make sure they have their basis covered. Here are some advisor marketing tips that may be helpful though. 

  • Be accurate: You should maintain accuracy in all statements. 
  • Be balanced: Present balanced views of the risks and benefits that you offer.  
  • Keep all materials up to date: Frequently review and update all of your marketing materials on a consistent basis, especially if anything changes. 
  • Avoid certain language: Avoid the use of promotional or exaggerated language and maintain a balanced, informational tone.

Echoing successful strategies, large firms that have been successful with their marketing typically underscore their long-term approach, wide range of investment options, transparency and honesty in their advertising in line with SEC regulations. 

Bottom Line

A financial advisor adhering to the SEC marketing rule when pitching clients

While adherence to the SEC Marketing Rule is paramount, advisors should be reminded that each one’s situation may differ, and strategies that work for one may not necessarily work for another. Successful marketing isn’t only about attracting new clients as maintaining a strong relationship with existing ones is equally critical. It’s important to make sure that you’re completely clear in any materials you use to promote your firm

Tips for Growing Your Advisor Firm

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