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The New SEC Advertising Rule

The U.S Securities and Exchange Commission (SEC), on December 22, 2020, approved the new advertising rule. It improves the rules that govern investment adviser advertisements and payments to solicitors. It took effect on May 4, 2021.

The new rule connects two laws: the current advertising rule, Rule 206(4)-1, and the cash solicitation rule, Rule 206(4)-3. These rules are under the 1940 Investment Advisers Act. This is the first important revision to those rules since 1961. The revisions were in light of growing technology and changing investor expectations.

Highlights Of the New Marketing Rule

The new marketing rule illustrates the advancement in technology. It also reflects the communications used by investment advisers to promote their products. These factors have definitely evolved through the years since 1961. The new rule prevents fraud. It also helps investors make fair comparisons between the wide variety of services.

Descriptions of “Advertisement”

Combining the two laws has led to the creation of two distinctive points on the understanding of advertising.

  1. Advertising is direct or indirect communication between an investment adviser and a client. Many one-on-one communications are absent in this rule.

  2. Advertising soliciting cash or a form of non-cash compensation for endorsements or testimonials; this can be indirect or direct compensations.


The marketing rule replaces the limitations of the existing rule with principle-based provisions. The principles involve prohibitions on:

Making a false statement about a material fact and omitting a material fact required not to make the statement misleading.

  • Including a material statement of fact without a logical basis for substantiating the statement

  • Giving information that would reasonably incline to cause a misleading or untrue implication

  • Discussing any potential profits of an opportunity without giving fair and balanced treatment of any associated material risk

Endorsements And Testimonials

The marketing rule authorizes endorsements and testimonials only with specific restrictions. Advisers should disclose whether the promoter receives compensation or is a client. Advisers must ensure compliance with the marketing rule. They should also have a written agreement with their promoters.

Third-Party Ratings

The new marketing rule permits the use of third-party ratings in an advertisement. The condition is that the adviser presents clear disclosure. The adviser should also meet the creation of rating criteria on the creation of the rating. Positive comments on a social media post only qualify as advertising when the adviser alters them for the purposes of advertising.

Alterations On Books and Records Requirements

Advisers need to make sure that they archive all the records of advertisements they have put up. They must also keep records of any communication related to the proof that the statement is true.

The Current State of the New Rule

In line with the new marketing rule, the SEC will publish no-action letters on their website. To facilitate the transition, the SEC has extended the compliance period to 18 months. The 18 months commence after the effective date of May 4, 2021. Firms have until November 4, 2022, to adopt the new rule.

Until the state securities regulatory agencies revised their advertising rules and regulations and adopt a similar stance as the SEC, registered investment advisor firms currently registered with the state securities regulatory agencies are subject to the old advertising rules and regulations.



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