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Bates Research  |  12-21-21

The SEC’s New Marketing Rule - Webinar Takeaways

In a recent webinar, Bates Compliance leaders examined key provisions of the new SEC Marketing Rule, which replaced the agency’s prior Advertising Rule and Cash Solicitation Rule. The deadline for mandatory compliance is November 4, 2022. The SEC stated that advisers may choose to comply with the new rule, but only “in its entirety,” at any time after the May 4, 2021 effective date (see, prior Bates post.) SEC staff has reminded advisers that during this transition they should be reviewing, revising, and preparing to implement compliance procedures and policies to prevent potential violations of the new rule.

During the webinar, Bates Compliance consultants Linda Shirkey and Rhonda Davis provided perspective and practical advice on compliance with the new rule—a rule promulgated to address significant market changes stemming from the “retailization” of investment advice enabled by new technologies. They described how the rule effectively consolidated SEC guidance, no-action letters and exam findings on questions concerning recommendations (e.g. on social media), testimonials and the presentation of performance metrics. Here are some of the key takeaways.


The Bates Compliance consultants started with an analysis of the broad scope of the definition of “advertisement” under the new marketing rule. “Advertisement,” they said, covers any direct or indirect communication by an investment adviser offering services to prospective clients or new services to current clients. This definition includes communications to current and prospective investors in advised private funds and to any solicitation of interests in private funds, and as to testimonials, endorsements, or third-party rankings.

Ms. Davis highlighted the major compliance implications for advisers, underscoring, particularly for private funds and for advisors offering new services to existing clients, the scope of the definition that now applies. Regardless of the medium used (including, e.g., e-mail blasts and social media), the rule covers some new territory—offers to expand a financial relationship, communications related to cross sales, investment strategies, material on hypothetical performance, and any adviser/intermediary/third party distributed material conveyed to the investor. Not covered under the rule are extemporaneous or unprepared communications, routine communications (account statements, transaction reports), white papers—or other content that does not contain any offer—or material that would be contained in a required notice or filing.

Major Changes

Ms. Shirkey and Ms. Davis highlighted the significant documentation and reporting obligations under the new rule relating to the substantiation of claims about the adviser or investments. Ms. Davis warned that “with this new rule, [the SEC] is clearly stating that when you make a claim, … you’ve really got to have your back-up ready…. I better have that documentation in my file.” She cautioned that under the rule, the SEC requires such documentation on demand, and that if you cannot produce it upon demand, the agency “will presume you did not have a reasonable basis of saying it in the first place.” Ms. Shirkey concluded that this “will increase the workload significantly,” because “there’s a lot more recordkeeping that needs to be retained.”  

On Form ADV changes (already in place), they described areas examiners will probe, particularly around hypothetical performance communications. Ms. Davis remarked, “If I were an SEC examiner, I would ask to pull every firm that is using hypothetical performance listed.” She added that given its current approach, the SEC may engage in “gotcha” exams and proceed through enforcement action rather than issuing a lot of alerts and FAQs. Ms. Shirkey stated that she expects to see “sweep exams across small and large firms” to ensure implementation.

Practical Preparation

The consultants explained that despite the dense, 435-page adopting release, the approach advisers should take toward compliance preparation is straightforward. They suggested a series of questions: Will you be advertising? Will you be advertising performance? What types of performance? (Ms. Shirkey stated that the SEC will take a hard look at the reliability of performance communications.) Are you going to be using testimonials or endorsements, and if so, are you going to pay for them? (This, Ms. Shirkey said, should be of particular concern for retail firms.) And finally, will you use or pay for referrals? (which introduces a set of more complex questions.) The Bates Compliance consultants have prepared an analytic tool for advisers to ensure effective answers to these questions.  

Watch the On-Demand Replay of this Webinar

Advertising Rule Prohibitions

The tool outlines the seven prohibitions that apply to advertisements as covered under the rule definition. These include: (i) untrue statements, or omissions of material facts; (ii) untrue, or misleading implication or inference; (iii) unsubstantiated material statement of fact; (iv) description of benefits without a “fair and balanced” discussion of risk; (v) “unfair or unbalanced” reference to specific advice; (vi) “unfair and unbalanced” performance (or time periods); and (vii) otherwise misleading statements. Ms. Davis noted that while many of these prohibitions are prescriptive, the final one is a catchall giving the SEC wide potential enforcement latitude.

Advertising Performance

A second slide offers a simple approach to analyze advertising performance. This part describes what requirements must be met when communicating performance, e.g., using metrics—gross and net numbers and 1-, 5- and 10-year time intervals—of same prominence. The tool also delineates the different types of performance that a firm may use (i.e., related, extracted, hypothetical and predecessor) and the compliance requirements that apply to each. These requirements are intended to ensure full and balanced disclosure to investors. The consultants again emphasized that the SEC will be looking to ensure that performance does not trigger any of the prohibitions and is not misleading. 

Testimonials and Endorsements

A third slide is a flowchart which focuses on marketing rule compliance regarding testimonials and endorsements. Testimonials are given by a current client or investor, endorsements are given by a party who is not a current client or investor (e.g., service provider or family member). Ms. Davis raised the issue of conflicts for paid endorsers, particularly when payment involves waiving fees or other compensation, and how that must be prominently disclosed by explaining what the compensation terms are and what conflicts exist, if any. Ms. Davis also discussed restrictions on ineligible persons as endorsers.

Ms. Shirkey noted that significant training will be required to ensure that advisers know their obligations to gather testimonials or endorsements by service providers or outside parties, and to understand the rules around direct and indirect compensation for those providing them. As to testimonials and endorsements given by broker-dealers, the presenters stated that broker-dealers must disclose any compensation arrangement and material conflicts of interest but would otherwise be subject to the standards under Regulation Best Interest.

Third-Party Rankings

Disclosures and satisfaction of set criteria are required under the marketing rule before third-party rankings can be used in an advertisement. A fourth slide focuses on third-party rankings with the primary concern being the use of a fair and balanced methodology and the ability to substantiate any claims. On the latter point, required disclosures include the date of the rating, the period covered, the identity of the third party that created and tabulated the ranking, and if an advisor paid directly or indirectly to participate.

Intermediary and Third-Party Materials

The consultants emphasized that intermediary and third-party material is considered advertising under the marketing rule when an adviser takes affirmative actions concerning its content. Affirmative actions by advisers include providing the material to intermediaries for distribution, participating in its creation, using the material in a firm’s communications, and highlighting, prioritizing, or deleting portions of the material. It is not considered advertising if modifications to the material were made by third parties, if unedited commentary was merely posted on an adviser’s website, or if procedures prohibiting employees to conduct business via social media are in place. Ms. Davis cautioned that advisers have to “have training with their employees about what they’re allowed to do and how they’re allowed to do it. … You’ve got to actually go validate that for those employees that have social media accounts, that they’re not using them inappropriately.”


The new marketing rule imposes significant oversight, recordkeeping and disclosure requirements on investment advisers which will require substantial modifications to compliance programs. Ms. Shirkey says that despite the November 4, 2022, implementation deadline, “it will be difficult. It means getting the business people, the marketing people and advisers all in sync on what they want to do and then how to do it. It may mean significant changes to your website, it may mean doing significant workflows in your systems, so the IT department is going to have to get involved as there is significant recordkeeping….It’s a really heavy lift.” The SEC expects advisers will review their current advertising and solicitation policies, adjust their performance presentations and disclosures, and set in place new policies and procedures for testimonials and endorsements. Bates will continue to keep you apprised.

How Bates Helps

Bates supports firms navigating and implementing the SEC’s New Marketing Rule. We work with your firm to address investment adviser concerns and to support efforts to conform oversight, recordkeeping and disclosure requirements under the new rule. Our compliance team includes senior compliance staff and former regulators with expertise in the development of policies, procedures, supervisory and compliance processes, and best practices to enhance compliance and supervisory systems. Visit Bates Compliance to learn more.

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.