New SEC Risk Alert Modernizes Investment Adviser Marketing Rules

By Patrick Warch, Baker Tilly

The SEC issued a risk alert relating to the amended Advisers Act Rule 206(4)-1 (“Marketing Rule”) on September 19, 2022. The rule was adopted in December 2020, became effective on May 4, 2021, and included an 18-month transition period requiring compliance by November 4, 2022. This rule modernized rules that govern investment adviser advertisements and payments to solicitors and allows for marketing via new channels that previously had not been included. Previously, rules had been patchworked since the initial adoption in 1961 through an assortment of cases, no-action letters and SEC staff guidance.

In particular, this Marketing Rule replaces the previous four specific prohibitions with seven new general prohibitions. Advisers may not disseminate any advertisement that:

  1. Includes untrue statements and omissions
  2. Includes unsubstantiated material statements of facts
  3. Includes untrue or misleading implications or inferences
  4. Fails to provide fair and balances treatment of material risks or material limitations
  5. Fails to present specific investment advice in a fair and balances manner
  6. Cherry-picks performance results or otherwise presents performance in a manner that is not fair and balanced, and
  7. Is materially misleading. The result of these being less specific and more general places a higher burden of proof on advisers, requiring them to maintain evidence of any claims made within advertisements.