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Marketing the Law FirmFeaturesLaw Firm Marketing and Business DevelopmentRegulation

Navigating the SEC's Marketing Rule

By Colleen Corwell, Shannon Nolan and Nikolas Simonlacaj
October 01, 2024

In 2020, the SEC formalized Rule 206(4)-1 (the Marketing Rule) under the Investment Advisers Act of 1940 (the Advisers Act) with the goal of codifying the multiple sources of guidance and case law that had accumulated over the years regarding the promotion of services under the previous regime. Since its implementation, investment advisers have faced challenges due to the regulation's ambiguity. Despite the Staff's initial release of a two-item FAQ to clarify the adoption time frame and reporting period for the Marketing Rule, many substantive questions remained well after the November 2022 compliance date.

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Who Is Impacted?  

Registered Investment Advisers (RIAs) are directly impacted by the Marketing Rule. The Advisers Act defines investment advisers as any person or firm that is engaged in the business of providing advice to others or issuing reports or analyses regarding securities for compensation. The Marketing Rule sets standards for how RIAs market their services, including presenting performance data, substantiating claims and ensuring advertisements are "fair and balanced."

Key questions that arose in the industry following the adoption of the Marketing Rule included:

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  • Can firms present gross performance for a single investment if net performance for the entire portfolio is also shown?
  • What practical criteria does the SEC expect to meet the "fair and balanced" standard in advertisements?
  • What types of evidence are needed to substantiate both express and implied claims?

Questions in the industry surrounding the presentation of gross and net performance led the Staff to update the FAQ again in 2023 and 2024. These updates clarified that net performance advertising must be presented in all circumstances, including for single asset investments. They also specified that gross and net performance must be calculated using the same time frame and methodology and highlighted the importance of accurately calculating an internal rate of return (IRR) when subscription lines of credit are used. See, SEC Marketing Compliance Frequently Asked Questions (Feb. 6, 2024).

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