General Guidance

  1. The updated regulation became effective on May 4, 2021.
  2. Investment advisers will have an 18-month transition period—until November 4, 2022—to comply with the Marketing Rule and the amended books and records rule and Form ADV. Early compliance is permitted, so long as the adviser elects to comply with the new rules in their entirety from the time of such election. Partial compliance is not permitted.
  3. The final marketing rule allows testimonials, endorsements and third-party ratings as long as they comply with anti-fraud protections and other conditions.
  4. It contains principles-based provisions that can apply to social media communications.
  5. The previous rule centered on written communications, television and radio advertising.
  6. The Marketing Rule does not generally consider communications with existing investors or clients that do not offer new or additional advisory services to be “advertisements.”
  7. The Marketing Rule does not consider any of the following to be “advertisements”: a description of material terms, objectives and risks of a fund offering included in private placement memoranda; account statements, transaction reports and other similar materials delivered to existing investors in private funds; and presentations to existing clients concerning the performance of private funds they have invested in (for example, at annual meetings of limited partners).
  8. The Marketing Rule generally does not cover any one-on-one communications with prospective or current investors in private funds. The rule considers one-on-one communications with other prospective or current advisory clients to be advertisements, but only if the communication includes hypothetical performance and the adviser is not providing the hypothetical performance in response to specific and unsolicited questions or requests from the advisory client.

Performance Results

  • The updated Marketing Rule expressly prohibits the presentation of gross performance if net performance is not also included. The rule also applies to all advertisements. Model fees are allowable in the presentation of net performance. Both hypothetical and extracted gross performance are also subject to these requirements. Advertisements that include performance results must be presented in a fair and balanced manner. The Marketing Rules require that gross and net performance are presented with at least equal prominence, calculated over the same time period and using the same type of return and methodology.
  • Prescribed time periods (1-, 5-, and 10-year performance): The new Marketing Rule dictates the minimum time periods that must be shown if a firm is presenting performance in an advertisement. While private funds are exempt from the requirement to show prescribed time periods, certain other vehicles that would not normally show such time periods(say, a composite of separate accounts showing money-weighted returns) are not. Advertisements must include 1-, 5-, and 10-year performance with an end date no less than the most recent calendar year-end.
  • Related performance is defined as “the performance results of one or more related portfolios.” Related portfolios have substantially similar investment policies, objectives, and strategies, and advisers that present performance within an advertisement must show performance for all related portfolios either on a portfolio-by-portfolio basis or as a composite aggregation.
  • Extracted performance: Extracted performance is defined as the presentation of a subset of investments from a single portfolio. Advertisements are prohibited from including extracted performance unless the advertisement includes, or offers to promptly provide, the performance results from the total portfolio from which the performance was extracted.

General Prohibitions

The Marketing Rules include many general prohibitions of certain marketing practices. These prohibitions seek to curtail fraudulent, deceptive, or manipulative acts. Thus, an advertisement may not: 1) include untrue material statements and omissions; 2) include unsubstantiated material statements of fact; 3) include untrue or misleading implications or inferences; 4) discuss potential benefits from the adviser's services or methods without a fair and balanced treatment of material risks or limitations; or 5) include a reference to specific investment advice by the adviser unless it is presented in a fair and balanced manner.