Part 2: How to Avoid Becoming a Marketing Rule Enforcement Statistic

If you missed Part 1 covering recent SEC penalties check it out here

The Basics You Can't Skip

Get a marketing policy in writing The Marketing Rule requires it. Not having one is like leaving money on the table for SEC examiners. Your policy should clearly define when the rule applies and how your firm complies. If you have a policy, but it reflects the state of the law before the new SEC Marketing Rule came into effect – time for an updated policy ASAP.

Figure out what counts as an advertisement The rule casts a wide net. Your policy should define what qualifies—because "I didn't know this was marketing" won't hold up.

Hit the compliance fundamentals

• No material misstatements or omissions

• You must be able to substantiate to the SEC all material statements of fact

• Present information fairly—don't exaggerate returns or downplay risks - present material in a fair and balanced manner

• Avoid cherry-picking results without context

• Disclose risks and assumptions clearly

• If you're using testimonials, disclose compensation and other required details

Performance Presentations

You must present both gross and net performance, with clear fee disclosures. Disclose net performance net of the highest fees and expenses a prospective investor would pay.

If you're showing extracted performance (e.g., from a case study), SEC staff has said you can show gross performance for the slice—as long as you include net performance for the whole portfolio over the same time period.

Obviously, don't cherry-pick time periods or high-performing assets. If you're using predecessor performance, make sure you meet the rule's portability requirements.

Hypothetical Performance

If you're including hypothetical performance, be sure to:

• Have a policy and procedure specifically addressing hypothetical performance

• Explain how the performance was calculated

• Clearly label it as hypothetical

• Spell out key assumptions, methodologies, and limitations

• Ensure the intended audience can understand and evaluate the performance meaningfully

• If you're showing performance based on a model account, or applying model fees, you must: o Disclose that model fees were used o Apply the highest fees and expenses a prospective investor could pay to avoid overstating net returns o Confirm the presentation is not misleading in light of all facts and circumstances

• For backtested performance, ensure it is relevant to the intended audience and clearly discloses that it was generated using historical data that was not experienced by any actual clients

• For projected or targeted returns, provide a sound basis for the projection and include prominent disclosures of the assumptions, limitations, and that actual results may differ materially

Third Party Rankings

Under the Marketing Rule, you can use third-party ratings—but only if you:

• Conduct due diligence on the rating provider's methodology

• Include the required disclosures about the rating and how it was determined

• Disclose the period for which the rating applies

• Disclose whether compensation was paid to the rating provider

• Ensure the rating is based on the whole firm or specific strategy being advertised

• Include any material limitations or qualifications about the rating

• Make sure the rating provider uses objective criteria and isn't affiliated with your firm

The due diligence requirement is particularly important - you need to understand how the rating was calculated and whether it's meaningful for your target audience. The SEC has been clear that you can't just slap a third-party rating on your marketing materials without understanding what it actually means.

Testimonials & Endorsements: What You Need to Watch

Under the Marketing Rule, testimonials (statements by clients or investors) and endorsements (recommendations by anyone else) require specific disclosures. You must clearly state:

• Whether the speaker is a client or investor

• Whether compensation was paid (cash or non-cash compensation)

• Any material conflicts of interest

An adviser that includes testimonials or endorsements in its advertising is responsible for ensuring compliance with the SEC Marketing Rule. In most cases, the adviser must also enter into a written agreement with the promoter—unless the promoter is an affiliate or receives only de minimis compensation (defined as $1,000 or less, or equivalent non-cash value, over the prior 12 months).

The rule prohibits certain "bad actors"—such as individuals subject to disqualifying events—from acting as promoters in advertisements.

The SEC's 2022 overhaul created a single, unified Marketing Rule that replaced the old advertising and solicitation rules. That means if your ad includes testimonials, performance results, third-party ratings, or endorsements, it's all governed by one rule—and each piece must meet its own compliance standards. Mixing elements? You're responsible for complying with all applicable parts.

Form ADV Compliance

Your marketing materials need to be consistent with your Form ADV Part 2A brochure.

• If you're claiming expertise in ESG investing in your marketing, it better be reflected in your ADV.

• Plus, Form ADV Part 1 now requires you to report your use of hypothetical performance, third-party ratings, testimonials and other marketing practices. Your ADV filings need to accurately reflect what you're actually doing in your marketing.

Books and Records

Keep good records. The SEC will ask for them—and they're required.

Advisers must maintain:

• Documentation supporting the calculation of performance

• Documentation supporting any material statement of fact

• Copies of all advertisements disseminated

• Records of the required annual review of compliance policies

Everything Else You Need to Think About

• Are you subject to other regulators?

• What about international regulators?

• Social media counts as marketing - LinkedIn posts, X, YouTube videos, even employee personal accounts when they mention work topics. Most firms either ban investment-related posting or require pre-approval. The SEC doesn't care if you think of it as "just social media." It is essential to have a clear Social Media Policy.

• Your website must be compliant—disclosures, disclaimers, and ongoing review.

Build a System That Actually Works

• Who writes your disclaimers?

• The SEC expects a real review process for advertising materials.

• Who reviews your marketing materials?

• Who gets trained on the Marketing Rule?

• Who does the Training?

Having a policy is step one. Having a system that ensures it's followed is what keeps you out of trouble.

These are the core systems and processes that keep firms out of trouble. But if you want a detailed compliance checklist you can use for your next review, Part 3 breaks down every requirement with actionable checkboxes.