SEC Rule 206(4)-1 — the Marketing Rule — became effective on November 4, 2022, replacing the prior Advertising Rule (Rule 206(4)-1 promulgated in 1961) and the Cash Solicitation Rule (Rule 206(4)-3). For independent RIAs, the consolidation brought meaningful compliance gains in some respects and significantly tighter obligations in others. Two years into enforcement, the Division of Examinations has signaled in its annual examination priorities that marketing rule compliance remains a focus area, particularly testimonials, endorsements, and performance advertising.
This guide is not a substitute for counsel. It is a practitioner-oriented walkthrough of what the rule actually requires, where firms commonly fall short, and what a CCO's review process should cover. Nothing in this article constitutes legal advice.
What the Rule Requires: Seven General Prohibitions
Rule 206(4)-1 establishes seven general prohibitions applicable to all investment adviser advertising. An advertisement may not include any untrue statement of a material fact; it may not omit a material fact in a way that would make the advertisement misleading. It cannot include a material statement of fact that the adviser does not have a reasonable basis to believe is accurate. Presenting information — including performance — in a way that creates a false impression, or that omits context necessary to make the information not misleading, is prohibited. Third-party ratings used in advertisements must meet specific conditions, including disclosure of the rating date and the fact that compensation was provided if applicable. And, critically, the rule prohibits advertisements containing information about specific investment advice that was or was not profitable unless the context is not misleading and appropriate disclosures are included.
These seven prohibitions apply to all advertising regardless of audience. The distinction between retail and institutional investors matters primarily for some of the more detailed disclosure requirements — not for the general prohibitions, which are universal.
Testimonials and Endorsements: The Most Operationally Complex Requirement
The Marketing Rule permits the use of testimonials and endorsements for the first time under a codified framework — a departure from the prior rule, which most practitioners interpreted as a de facto prohibition. But "permitted" comes with significant conditions.
A testimonial is defined as a statement by a current client or investor about the client's experience with the adviser. An endorsement is a statement by a person other than a current client about the adviser. Both require disclosure of: (1) whether the person is a client; (2) whether compensation was provided; and (3) a brief statement that the testimonial or endorsement may not be representative of others' experiences.
Paid endorsers — commonly called "promoters" or "solicitors" under the prior rule — face additional requirements. If the promoter is compensated more than $1,000 per year (including non-cash compensation), the adviser must have a written agreement with the promoter, perform a reasonable belief assessment that the promoter complies with the rule's requirements, and make certain disclosures in the advertisement. The $1,000 threshold applies on a rolling 12-month basis. A referral arrangement where you pay a financial planner a flat fee per referred client is a paid endorsement; the fee does not need to be monetary to trigger the requirement.
Consider a mid-Atlantic RIA using a podcast host who regularly refers listeners to the firm in exchange for a sponsorship fee. That arrangement falls squarely within the paid endorsement framework regardless of whether the podcast is a financial program. The RIA must have a written agreement, confirm the podcaster's compliance, and include the required disclosures in any episode or show note that could constitute an advertisement.
Performance Advertising: Prescriptive Requirements and the Portability Problem
Rule 206(4)-1 establishes specific conditions for the presentation of performance data. Gross performance may not be shown without net performance. The time periods for which performance is presented must be consistent — typically 1-year, 5-year, and 10-year periods, or since inception if the composite or portfolio has been in existence for less than 10 years. Extracted performance (showing a subset of a composite's holdings) is generally prohibited unless all holdings are also shown. Hypothetical performance is permitted but requires specific disclosures and, for retail investors, policies and procedures reasonably designed to ensure it is relevant to the financial situation of likely recipients.
We are not saying performance advertising is inherently problematic or that firms should avoid it. The rule's requirements are demanding but workable with consistent processes. What is consistently mishandled is the portability problem: when a portfolio manager moves from one firm to another and wants to advertise prior performance, the rule requires careful analysis of whether the prior performance is the performance of the new firm's supervised persons and whether the accounts were managed substantially by the same person using the same strategy. Merely having the manager's track record is not sufficient; the conditions in the rule must be satisfied before portability can be claimed.
Third-Party Ratings: Disclosure of Methodology and Compensation
Using a third-party rating in advertising — a "best advisor" recognition, a publication ranking, or a trade organization designation — requires that the advertisement disclose: the date and period covered by the rating; the identity of the third-party rating provider; that compensation was paid by the adviser if that is the case; and that prior results do not guarantee future performance if the rating is based on past performance. The rule does not prohibit the use of such ratings, but it does require that the conditions for their use be satisfied and that the methodology be clearly described or referenced.
Many of the ratings that RIAs commonly use — Barron's lists, Forbes rankings, Five Star Professional, local magazine "best of" awards — involve criteria that advisers often do not fully examine before including them in marketing materials. Some require a nomination or application process involving client contact; some are based on AUM thresholds. A CCO reviewing marketing materials should be able to state, for each rating, the date it was issued, whether compensation was paid, what criteria were used, and whether the disclosure in the advertisement accurately reflects those criteria.
The Written Policies and Procedures Requirement
Under Rule 206(4)-7 — the compliance program rule — advisers are required to have written policies and procedures reasonably designed to prevent violations of the Advisers Act, including violations of Rule 206(4)-1. A standalone "Marketing Rule policy" is now effectively mandatory for any RIA that publishes advertising. The policy should address: what constitutes an "advertisement" under the rule's definition (which is broader than many practitioners expect and explicitly includes any communication that offers investment advisory services to more than one person); the pre-approval process for advertisements before they are used; recordkeeping requirements under Rule 204-2 (discussed below); and the process for reviewing testimonials and third-party promoters.
The Division of Examinations has noted in examination risk alerts that advisers sometimes have policies but do not follow them consistently. An inadequate policy is a problem; an adequate policy that is not implemented is a worse problem. If a CCO is conducting an annual review of the marketing compliance program, the review should test whether the pre-approval log reflects actual marketing activity, whether testimonials currently in use have been analyzed against the written promoter agreement requirements, and whether performance presentations have been reviewed against the gross-net and time period requirements since last reviewed.
Recordkeeping Under Rule 204-2
Rule 204-2(a)(11) requires advisers to keep copies of all advertisements distributed by the adviser, including all supporting documentation substantiating the reasonableness of material statements of fact. For performance advertising, this means the underlying account data. For third-party ratings, this means the criteria documents and any correspondence with the rating provider. For testimonials and endorsements, this means the written agreements with paid promoters and records of the compensation analysis.
The retention period is five years for most records under Rule 204-2, with the first two years in an easily accessible place. Electronic records maintained under the rule must comply with the conditions in Rule 204-2(g): the records must be maintained in a non-rewriteable, non-erasable format for the required period, or the adviser must have certain controls in place that provide equivalent assurances. This is the books-and-records corollary of the marketing compliance program. An advertisement without its supporting documentation is an incomplete record for examination purposes.
Where Examiners Are Looking
The SEC's Division of Examinations has conducted targeted sweep examinations on Marketing Rule compliance since 2023. Based on publicly available risk alerts and examination findings, the common deficiencies include: advertisements that include testimonials without required disclosures; performance presentations that show gross returns without corresponding net returns; hypothetical performance without the required disclosure that such performance is hypothetical; and social media content that qualifies as an advertisement under the rule's definition but was not reviewed or archived. The Division has also noted that some advisers were unaware that client referrals from paid referral arrangements constituted endorsements requiring written agreements.
Social media presents a category that many CCOs find practically difficult. A financial adviser's LinkedIn post describing a client success story — even without naming the client — may constitute a testimonial if it describes the client's experience with the adviser and could reasonably be attributed to a current client. The determination turns on the content and context, not the platform. Archiving social media communications under Rule 204-2 requires systems that capture posts, edits, and deletions with timestamps.
Firms that have a clear pre-approval process, that can produce at examination a marketing approval log with dates and reviewer sign-off, and that have analyzed each testimonial or endorsement in use against the rule's conditions are well-positioned. Those that rely on informal processes or one-person reviews without documentation tend to generate examination findings.
Nothing in this article constitutes legal advice. Regulatory requirements are subject to change and may be interpreted differently by the SEC, FINRA, or applicable state regulators. Consult qualified legal counsel for guidance specific to your firm's obligations under SEC Rule 206(4)-1 and the Investment Advisers Act of 1940.