The SEC Marketing Rule (Rule 206(4)-1 under the Investment Advisers Act of 1940) governs how registered investment advisers market their services. It sets seven general prohibitions against misleading advertising and adds specific conditions for testimonials, endorsements, third-party ratings, and performance results. Adopted in December 2020, its compliance date was November 4, 2022.
What the Marketing Rule is
In December 2020 the SEC adopted a substantially amended Rule 206(4)-1, commonly called the Marketing Rule. It replaced the decades-old advertising rule and merged in the former cash solicitation rule (Rule 206(4)-3), creating one modernized, principles-based framework. The compliance date was November 4, 2022; since then all SEC-registered advisers must follow it in full.
The rule is deliberately technology-neutral. It applies to a pitch deck, a website, an email, a social-media post, or a paid influencer's video — anything that fits the definition of an advertisement. Corresponding amendments to the books-and-records rule (Rule 204-2) and Form ADV require advisers to keep records of their advertisements and to report their marketing practices.
What counts as an advertisement
The rule defines "advertisement" in two prongs:
- First prong — communications to prospects/clients. Any direct or indirect communication an adviser makes to more than one person (or to one or more persons if it includes hypothetical performance) that offers the adviser's advisory services to prospective clients or offers new advisory services to current clients.
- Second prong — compensated testimonials and endorsements. Any endorsement or testimonial for which the adviser provides compensation, directly or indirectly. This is what folds the old solicitation activity into the Marketing Rule.
The first prong specifically excludes extemporaneous live oral communications, information contained in a statutory or regulatory notice or filing, and most one-on-one communications (unless they contain hypothetical performance).
The seven general prohibitions
Every advertisement is subject to seven general prohibitions. An advertisement may not:
| # | Prohibition |
|---|---|
| 1 | Include an untrue statement of a material fact, or omit a material fact necessary to make a statement not misleading. |
| 2 | Include a material statement of fact the adviser cannot substantiate on demand by the SEC. |
| 3 | Include information reasonably likely to cause an untrue or misleading implication or inference. |
| 4 | Discuss potential benefits without fair and balanced treatment of associated material risks or limitations. |
| 5 | Reference specific investment advice in a manner that is not fair and balanced. |
| 6 | Include or exclude performance results, or present time periods, in a manner that is not fair and balanced. |
| 7 | Be otherwise materially misleading. |
Testimonials & endorsements
The Marketing Rule permits testimonials (from clients) and endorsements (from non-clients) — a significant change from the prior near-total ban — but only when the adviser meets several conditions:
- Clear and prominent disclosure, at the time of the testimonial or endorsement, of: whether the person is a client, and whether the person is compensated.
- Disclosure of the material terms of any compensation and of material conflicts of interest.
- Adviser oversight and a written agreement with any promoter who is compensated above a de minimis amount (more than $1,000, or its equivalent, over the preceding twelve months).
- The promoter is not subject to a disqualifying event (the rule's "bad actor" provisions).
Third-party ratings
An adviser may use a third-party rating in an advertisement only if it: has a reasonable basis to believe the questionnaire or survey behind the rating is not designed or prepared to produce a predetermined result; and clearly and prominently discloses the date of the rating and the period it covers, the identity of the third party that created it, and whether compensation was provided, directly or indirectly, in connection with obtaining or using the rating.
Performance advertising
Performance is the most technical part of the rule. Key requirements include:
- Gross and net. An advertisement may not show gross performance unless it also presents net performance with at least equal prominence, over the same period and using the same methodology.
- Prescribed time periods. Certain performance must be shown over one-, five-, and ten-year periods (or since inception if shorter), each ending on a recent date.
- Related, extracted, and predecessor performance are each subject to specific conditions designed to prevent cherry-picking.
- Hypothetical performance (model, backtested, targeted, or projected) may be used only if the adviser adopts policies ensuring relevance to the intended audience and provides sufficient information about the criteria and assumptions used.
Marketing Rule compliance checklist
- Written marketing policies and procedures are in place and reviewed periodically.
- A defined review/approval workflow exists for advertisements before use.
- Every material statement of fact can be substantiated on demand.
- Benefits are paired with fair and balanced treatment of risks and limitations.
- Testimonials and endorsements carry required disclosures and written agreements.
- Compensated promoters are screened against the disqualification provisions.
- Third-party ratings disclose date, period, source, and compensation.
- Gross performance is never shown without equally prominent net performance.
- Copies of advertisements and supporting records are retained per Rule 204-2.
- Form ADV marketing questions are answered accurately.
Frequently asked questions
What is the SEC Marketing Rule?
The SEC Marketing Rule is Rule 206(4)-1 under the Investment Advisers Act of 1940. Adopted in December 2020 with a compliance date of November 4, 2022, it modernized and consolidated the former advertising rule and cash solicitation rule into a single, principles-based framework governing how registered investment advisers market their services.
Who must comply with the SEC Marketing Rule?
The rule applies to investment advisers registered or required to be registered with the SEC. State-registered advisers follow their own state rules, though many states have adopted parallel requirements. The rule reaches any communication that meets the definition of an advertisement, including those made through third parties the adviser compensates.
What counts as an advertisement under the rule?
The rule defines an advertisement in two prongs. The first covers direct or indirect communications an adviser makes to more than one person (or to one or more persons if it includes hypothetical performance) that offer advisory services to prospective clients or new services to current clients. The second covers any testimonial or endorsement for which the adviser provides compensation. Certain items — such as extemporaneous live oral communications and most regulatory filings — are excluded.
Are testimonials allowed under the SEC Marketing Rule?
Yes. The Marketing Rule permits testimonials and endorsements, reversing the prior near-total ban, provided the adviser meets conditions: clear and prominent disclosure of whether the speaker is a client and whether they were compensated, disclosure of material conflicts of interest, adviser oversight and a written agreement where compensation exceeds a de minimis amount, and compliance with disqualification provisions for bad actors.
What are the seven general prohibitions?
An advertisement may not: (1) include an untrue statement of material fact or omit a material fact; (2) make an unsubstantiated material statement of fact; (3) include an untrue or misleading implication or inference; (4) discuss potential benefits without fair and balanced treatment of material risks or limitations; (5) reference specific investment advice in a way that is not fair and balanced; (6) present performance in a way that is not fair and balanced; or (7) be otherwise materially misleading.
Can advisers show gross performance in advertising?
Only alongside net performance. The Marketing Rule prohibits presenting gross performance in an advertisement unless net performance is shown with at least equal prominence and calculated over the same time period using the same methodology. The rule also requires certain performance to be shown over prescribed one-, five-, and ten-year periods.
How does the rule treat hypothetical performance?
Hypothetical performance — including model, backtested, and targeted or projected returns — may be advertised only if the adviser adopts policies and procedures reasonably designed to ensure the performance is relevant to the likely financial situation and objectives of the intended audience, and provides sufficient information for that audience to understand the criteria and assumptions used.
Primary sources
- SEC Rule 206(4)-1 (Investment Adviser Marketing) — full rule text via eCFR: 17 CFR 275.206(4)-1
- SEC final rule adopting release, "Investment Adviser Marketing" (Dec. 22, 2020): sec.gov/rules/final/2020/ia-5653.pdf
- SEC Marketing Rule resources & FAQ: sec.gov/investment/marketing-faq
Market with confidence
Hadrius reviews advertisements against the Marketing Rule, flags missing disclosures, and keeps the substantiation records the SEC expects.