Correspondence and Advertising

Quick Answer

The SEC Marketing Rule conditionally permits testimonials and endorsements. NASAA's amended model does too, but affected exam questions change in early 2027, with the exact date pending. Keep the pre-amendment exam standard separate from the new model and each state's law. Registration abbreviations are not professional designations.

The state Administrator's general authority under the Uniform Securities Act (USA) lets the Administrator require the filing of advertising and sales literature, and a separate provision prohibits false or misleading statements in any communication.

The Securities and Exchange Commission (SEC) Marketing Rule, adopted under the Investment Advisers Act of 1940, is the primary federal rule governing adviser advertising; it absorbed the prior cash-solicitation rule into a single framework.

The SEC's books-and-records rule requires firms to keep records of advertisements and communications for at least five years from the end of the fiscal year in which the adviser last published or disseminated them.

The adviser keeps a copy of each advertisement it disseminates. A website whose performance table changes every month needs a copy of each version, and an archive that holds only the latest page does not meet the rule. The records that support the performance figures (account statements, worksheets, working papers) are a separate requirement and do not replace the copy of the advertisement.

Other adviser records, including client correspondence, are kept for at least five years from the end of the fiscal year of the last entry.

Either way, the first two years must be in an appropriate office of the adviser. For a state-registered adviser, the parallel state rule appears on the exam as the NASAA Recordkeeping Requirements for Investment Advisers Model Rule.

What Is the Definition of "Advertisement" for Investment Advisers (IAs)?

The SEC Marketing Rule defines "advertisement" with two independent prongs. A communication is an advertisement if it meets either prong; it does not need to meet both:

First prong: a direct or indirect adviser communication offering securities advisory services to prospective clients or prospective investors in a private fund the adviser advises, or new securities advisory services to current clients or current investors in such a fund, that goes to more than one person, or to one or more persons if it includes hypothetical performance, subject to the rule's exclusions.

Second prong: any testimonial or endorsement for which the adviser provides compensation, directly or indirectly.

The numbering just follows how the Marketing Rule itself lists the two parts of the definition; there is no significance to the order. Each prong has its own separate trigger, so classify a communication by which trigger it meets, not by trying to rank the prongs.

What counts as an advertisement under the first prong:

Emails, text messages, social media posts.

Websites, podcasts, videos, blogs.

Brochures, radio/TV, presentations.

What is excluded from the first prong:

Ordinary one-on-one communications without hypothetical performance. Some messages containing backtested, model-portfolio, or other hypothetical results can qualify under the first prong even with only one recipient, subject to the rule's exclusions.

Extemporaneous, live, oral communications: an adviser speaking off the cuff on a call or in person, with no script or pre-prepared materials.

Required notices and filings: information in a statutory or regulatory notice, filing, or other required communication, as long as the information is reasonably designed to satisfy that requirement. A required regulatory filing is not an advertisement just because a prospect could read it. The same carve-out removes required-notice information from the second prong (compensated testimonials and endorsements) too.

Think of it this way: A public service offer reaches more than one person. An ordinary private reply showing only actual results stays outside the first prong. Some one-person hypothetical-performance messages qualify, subject to the rule's exclusions. Separately, a compensated testimonial or endorsement can meet the second prong regardless of recipient count.

Exam Tip: Gotchas

Ordinary one-on-one replies are not advertisements when they contain neither hypothetical performance nor a compensated testimonial or endorsement. Some hypothetical-performance messages qualify under the first prong; compensated testimonials and endorsements independently meet the second, subject to the rule's exclusions.

Social media posts are advertisements. A post on LinkedIn about your firm's performance is subject to advertising rules.

Emails to multiple recipients = advertisement. A mass email about your services triggers all the advertising rules.

What Are the Seven General Prohibitions of the Marketing Rule?

All advertisements by investment advisers must NOT:

1. Include any untrue statement of a material fact, or omit a material fact necessary to make the statement not misleading.

2. Include a material statement of fact the adviser has no reasonable basis for believing it can substantiate if the Administrator or SEC demands proof.

3. Include information reasonably likely to cause an untrue or misleading implication or inference about a material fact.

4. Discuss potential benefits without providing fair and balanced treatment of associated material risks or limitations.

5. Reference specific investment advice that is not presented in a fair and balanced manner.

6. Include or exclude performance results or present performance time periods in a manner that is not fair and balanced.

7. Be otherwise materially misleading.

Are Testimonials and Endorsements Permitted?

Testimonial = a qualifying statement from a current client or current investor in a private fund advised by the adviser; endorsement = a qualifying statement from someone who is neither. Required disclosures identify that client or investor status, compensation, and material conflicts.

Promoter = the SEC's label, used in its adopting release and not in the rule text, for any person who gives a testimonial or endorsement, paid or unpaid. It replaced the old term "solicitor." The rule text itself says "the person giving the testimonial or endorsement." Pay does not change the label; it changes which conditions apply (a nonexempt compensated promoter above $1,000 needs a written agreement).

The SEC Marketing Rule permits testimonials and endorsements for SEC-registered IAs, subject to these requirements:

Requirement: Prominent disclosures. Detail: Clearly and prominently identify whether the speaker is a current client or current investor in a private fund advised by the adviser, compensation, and a brief statement of material conflicts.

Requirement: Additional disclosures. Detail: Disclose material compensation-arrangement terms, including the compensation description, and describe material relationship or compensation conflicts.

Requirement: Written agreement. Detail: Required for compensation over $1,000 in 12 months unless another exemption applies.

Requirement: Oversight. Detail: Adviser must oversee promoter compliance with the marketing rule.

Requirement: Disqualification. Detail: "Bad actors" with certain disciplinary histories may not act as compensated promoters unless an exemption applies.

No compensation or de minimis compensation: a testimonial or endorsement paid $1,000 or less over the preceding 12 months is exempt from the written-agreement and disqualification provisions. The required disclosures and the adviser's reasonable basis for believing the communication complies still apply.

How Does the Current NASAA Model Rule Compare to the SEC Rule?

The current NASAA model rule on unethical practices takes the same conditionally-permitted approach as the SEC Marketing Rule. It requires the applicable identity, compensation, and conflict disclosures, a reasonable compliance basis, and agreement and promoter-eligibility safeguards, subject to its exemptions.

Exam transition: NASAA has announced that questions affected by its May 2026 advertising amendments will change in early 2027, with the exact date still pending. Until that transition, distinguish the pre-amendment NASAA testimonial prohibition tested on the exam from the current SEC rule and the newly amended NASAA model.

The model is the NASAA Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers Model Rule. Its adoption does not by itself change a particular state's law; that state's adopted version governs actual compliance.

Exam Tip: Gotchas

Identify the framework. The SEC rule conditionally permits testimonials. The pre-amendment NASAA exam standard prohibits client testimonials; disclosures do not cure that prohibition.

The newly amended NASAA model permits testimonials with conditions, but its exam implementation is still pending. Do not confuse model adoption, exam implementation, and a particular state's adoption.

What Are the Rules for Third-Party Ratings?

Third-party ratings are permitted only from a neutral, independent source, with three required disclosures:

The date the rating was given and the period it covers.

The identity of the third party that created and tabulated it.

Any compensation the adviser paid to obtain or use it.

Separately, the adviser must have a reasonable basis for believing the questionnaire or survey behind the rating was structured so a participant could as easily give an unfavorable response as a favorable one, and was not designed to produce a predetermined result.

Exam Tip: Gotchas

Methodology is NOT on the disclosure list. Whether the survey was fairly structured is a due-diligence condition the adviser must satisfy before using the rating at all, not something the advertisement itself has to spell out.

What Are the Rules for Performance Advertising?

Net performance must be shown alongside gross performance with equal prominence, calculated over the same time period and using the same type of return and methodology as the gross performance.

Must include returns for 1-, 5-, and 10-year periods (or since inception if shorter), each shown with equal prominence and ending no earlier than the most recent calendar year-end; this requirement does not apply to private fund performance or to hypothetical performance.

The rule does not ban an extra period shown beside the required ones. Leaving out a required period, or choosing a period to flatter the results, is the violation (see general prohibition 6).

Hypothetical performance is permitted only if the adviser does all three: adopts policies reasonably designed to ensure the performance is relevant to the intended audience, discloses the criteria and assumptions used, and discloses the risks and limitations of relying on it.

Predecessor performance requires the people primarily responsible for the prior results to manage accounts at the advertising adviser, sufficiently similar predecessor and current accounts, all substantially similarly managed predecessor accounts, and clear and prominent relevant disclosures.

Related performance (performance of other, related portfolios or composites) must include all related portfolios, unless the excluded ones would not make the advertised performance materially higher and their exclusion does not change the required time periods. So an adviser cannot drop weaker portfolios to make the advertised results materially higher.

Extracted performance (a single investment or subset pulled from a larger portfolio) is permitted only if the advertisement offers to provide, promptly on request, the performance of the full portfolio it was drawn from.

For predecessor performance, an account may be excluded only if the exclusion would neither make performance materially higher nor alter an applicable required time period. The disclosures must include that another entity managed the accounts.

Exam Tip: Gotchas

Cannot state that the SEC (Commission) or the Administrator has approved or reviewed any advertised performance.

Hypothetical performance is exempt from the 1-, 5-, and 10-year period requirement. The rule also excuses it from the related-performance and extracted-performance conditions.

Its own three conditions still apply, and so do the other performance conditions, such as net beside gross when gross results are shown. The audience-relevance policies belong to hypothetical performance alone; the prescribed periods do not.

Why Are Registration Abbreviations Not Professional Designations?

RIA (Registered Investment Adviser) and IAR (Investment Adviser Representative) describe a registration status, not an earned credential. Presenting either abbreviation on a business card, letterhead, or advertisement as if it were a professional designation is misleading and falls under the same unethical-practices ban that covers misrepresenting an adviser's or representative's qualifications and publishing advertising that is otherwise materially misleading, even if the person genuinely holds that registration.

Genuine professional designations such as CFA (Chartered Financial Analyst) and CFP (Certified Financial Planner) are earned by meeting an independent certifying body's exam, ethics, and experience requirements. Because they reflect a real qualification process rather than a state filing, they are permitted in advertising.

Term: RIA. Category: Registration status. Permitted in advertising? Only to state the fact of registration, never presented as a credential.

Term: IAR. Category: Registration status. Permitted in advertising? Only to state the fact of registration, never presented as a credential.

Term: CFA. Category: Earned professional designation. Permitted in advertising? Yes.

Term: CFP. Category: Earned professional designation. Permitted in advertising? Yes.

Think of it this way: Registration tells you someone filed the right paperwork. A designation tells you they passed an independent body's exam and met its ongoing standards. Advertising a registration as if it were the second thing is the violation.

Exam Tip: Gotchas

Stating your registration accurately is permitted; styling "RIA" or "IAR" as a credential is not. On a business card, "Jane Doe, Investment Adviser Representative" in ordinary text states a fact. "Jane Doe, CFP, IAR" in one credential line presents a registration category as an earned designation, which is misleading.

Earned designations (CFA, CFP, and similar) remain permitted because they represent a real, independently verified qualification, unlike a registration status.

What counts as social media. SEC staff describes it as an umbrella term for activities that integrate technology, social interaction and content creation.

The technologies the staff names are blogs, microblogs, wikis, photo and video sharing, podcasts, social networking and virtual worlds. The list is not exhaustive ("including, but not limited to").

A traditional print newspaper is not on that list. It is a one-way, static medium that does not integrate technology, social interaction and content creation.

Social media posts that offer advisory services to more than one person are advertisements subject to the Marketing Rule.

Advisers must have written policies and procedures for social media use.

Third-party posts shared or adopted by the adviser become the adviser's own communication.

A personal account does not take business content outside the firm's oversight. When an IAR posts investment recommendations on a personal account, the content makes the post a business-related communication. The firm's compliance policies must reach it and the firm must keep copies. Naming a specific security is not required, and neither is a follower threshold.

Record-keeping: All social media communications related to the advisory business must be retained under the SEC's adviser books-and-records requirements.

The advertisement rule requires a copy of each advertisement the adviser disseminates. It sets no count per platform. When the same advertisement runs on several platforms, it is one advertisement with one retention period, measured from the end of the fiscal year in which the adviser last published it on any of them.

How Are Static and Interactive Posts Supervised?

The Financial Industry Regulatory Authority (FINRA) draws this line in its social media guidance for member firms and their representatives:

Static content, such as a prepared profile description, is treated as an advertisement, so a registered principal must approve it before it is posted.

Interactive content, meaning unscripted participation in a live online discussion, is treated as a public appearance and needs no prior principal approval.

The firm still supervises interactive content: it may review it after use under risk-based procedures, such as sampling and keyword searches, reasonably designed to catch misleading or unbalanced statements.

Interactive content copied into a static area, such as a blog, becomes static and then needs prior approval.

Record-keeping does not change with the label: retention depends on the content of the communication.

What Rules Apply to Email and Digital Messaging?

Business-related emails and digital messages are records that must be retained.

Mass emails offering advisory services are advertisements under the Marketing Rule.

Individual email responses to client questions are generally not advertisements (one-on-one communications).

Advisers must archive and supervise electronic communications.

What Rules Apply to Website and Internet Communications?

An adviser's website is an advertisement under the Marketing Rule.

Must comply with all seven general prohibitions.

Performance information on websites must follow performance advertising rules.

Websites accessible to the general public are treated as communications with retail clients.

Content must be kept current and accurate.

The state Administrator has broad authority over adviser communications under the USA:

May require filing of advertising materials before or after use.

May require specific disclosures in advertisements.

May require that certain types of communications be pre-approved.

May issue stop orders against misleading advertising.

The Administrator's authority extends to all persons registered or required to be registered in the state.

What Should You Check on Exam Day?

Identify the SEC rule, pre-amendment NASAA exam standard, amended model, or actual state law before deciding whether a testimonial is permitted.

SEC testimonial safeguards include disclosures and a reasonable compliance basis; apply the compensation and other exemptions when assessing agreements and promoter disqualification.

Show net performance alongside gross with equal prominence, matching periods and methods; apply the required performance periods and safeguards.

Retain advertising and communication records for at least five years, with the first two in an appropriate office.

Registration is not a professional designation or regulatory endorsement; the Administrator may require filings and stop misleading advertising.