The SEC published new rules on adviser marketing that became effective in May of 2021. The new rule brings together old advertising and solicitation rules and repackages them under one all-encompassing “Advisor Marketing Rule” that covers advertisements, testimonials, endorsements, solicitations, 3rd party ratings and hypothetical performance.
For an adviser or compliance professional working with these rules, the threshold question must be whether the communication is an advertisement.
It is important for practitioners to stay abreast of this new rule because the definition of an advertisement changed materially in 2021. This has caused certain communications that previously escaped the definition of an advertisement to now be in the crosshairs of the new adviser marketing rule. The new rule also takes communications that were previously advertisements outside the current definition, and therefore beyond the scope of the new marketing rules.
The rule presents a 2-prong definition of advertisement:
The first prong includes any communication to 2 or more people that offers the advisor’s investment service or to be an investor in a private fund advised by the adviser. This would also include communications to existing clients to solicit new or additional services. It would not include communications to current clients to retain their business at the current services provided. This prong would also apply to one-on-one communications that include hypothetical performance, subject to one exclusion noted below.
The second prong includes any compensated testimonial or endorsement. Of course, to analyze this prong, you’ll have to understand the precise definition of testimonial and endorsement. The good news is that DALBAR has checklists for both at the end of this article.
Lastly, the rule carves out a few exclusions from the definition of an advertisement, including extemporaneous, live, oral communications; information within statutory or regulatory filings; or a communication that includes hypothetical performance that is provided in response to an unsolicited investor request
Take heed, these preceding 3 paragraphs are not enough to fully understand what an advertisement is. It's important to look at the rules carefully because while the definition has only 2 prongs, the details and definitions behind each prong are essential when analyzing the specific facts and circumstances of a communication.
To help wrap your head around what the SEC considers an advertisement, DALBAR has created the Is it an Advertisement? checklist for advisers. We encourage you to download the checklist below and use it as a reference in your marketing efforts. And of course, if you need any help, Just Ask DALBAR.
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