In December 2020, the Securities and Exchange Commission (SEC) officially adopted “New Marketing Rule,” which replaced Rules 206(4)-1 and 206(4)-3 with a more modernized rule to reflect the current market.
Since its adoption and its November 4, 2022 compliance date, the SEC has brought multiple actions alleging marketing violations, emphasizing the agency’s focus on comprehensive compliance with all requirements of the rule.
The trouble, however, remained that many found aspects of the rule ambiguous, making compliance that much more difficult.
The good news? The SEC saw this confusion and has provided the industry with resources to answer critical questions aimed at facilitating compliance by all firms.
In this blog, we’ll dig into the SEC’s Marketing Rule FAQs (which were updated as recently as March 2025) and provide insights on the SEC Marketing Rule Risk Alerts.
The SEC’s Marketing Rule FAQs
The Question: Can a firm comply with only certain aspects of the New Marketing Rule?
The Answer: Firms must comply with all aspects of the new Marketing Rule.
This means that adoption of only certain aspects of the New Marketing Rule (e.g., use of testimonials) will not suffice. Firms are reminded that the SEC expects documented policies and procedures designed to prevent violations of the and it should be clear when/if any policies are updated.
The Question: Can a firm use interim performance for 1-, 5-, or 10-year performance following the end of a calendar year?
The Answer: A firm can use interim performance; however, the SEC notes that “a reasonable period of time to calculate performance results based on the most recent calendar year-end generally would not exceed one month. The interim performance information remains subject to the other provisions of the marketing rule, including the general prohibitions.” This means that firms using interim performance should promptly update to year-end figures once available.
The Question: There is a lack of clarity regarding whether certain characteristics are considered performance. Would the SEC recommend enforcement in a situation where these characteristics are presented without the inclusion of fees and expenses?
The Answer: In short, no. The SEC recognizes the difficulty in calculating out such fees and expenses from certain characteristics, and as long as the gross and net performance of the portfolio are included along with “appropriate accompanying information about the characteristic and how it is calculated,” the SEC sees little risk (see below).
The staff would not recommend enforcement action to the Commission under rule 206(4)-1(d)(1) if an adviser chooses to present in an advertisement one or more gross characteristics of a portfolio or investment, even if it does not include the corresponding net characteristic(s), if:
- the gross characteristic is clearly identified as being calculated without the deduction of fees and expenses;
- the characteristic is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the rule;
- the total portfolio’s gross and net performance is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the gross characteristic; and
- the gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the characteristic is calculated.
The Question: Should gross and net performance be calculated using the same methodology and timeline?
The Answer: Yes, gross and net performance must be calculated using the same methodology and timeline. Additionally, both must be presented in a way to allow for easy comparison. Specifically, regarding the internal rate of return (IRR) for performance marketing:
“when an adviser advertises its private fund’s performance in terms of Gross IRR and Net IRR, presenting Gross IRR that is calculated without the impact of fund-level subscription facilities compared only to Net IRR that is calculated with the impact of fund-level subscription facilities would violate the marketing rule. The staff believes that such a presentation would result in IRR calculations being made across different time periods.”
The Question: When an adviser displays the gross performance of one investment or a group of investments from a private fund or other portfolio, must the adviser show the net performance of such single investment or group of investments?
The Answer: No, because with this type of extracted performance, the SEC deems there to be less risk of misleading an investor when both gross and net performance of the total portfolio is prominently displayed.
Specifically, the staff would not recommend enforcement action to the Commission under rule 206(4)-1(d)(1) if an adviser displays the gross performance of an extract in an advertisement without including corresponding net performance of the extract, if:
- the extracted performance is clearly identified as gross performance;
- the extracted performance is accompanied by a presentation of the total portfolio’s gross and net performance consistent with the requirements of the rule;
- the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner designed to facilitate comparison with, the extracted performance; and
- the gross and net performance of the total portfolio is calculated over a period that includes the entire period over which the extracted performance is calculated.
Note: This is an overview of the Marketing Rule FAQs and may not include all information from the SEC. For full details, visit sec.gov.
The SEC Marketing Rule Risk Alerts
June 2023 Risk Alert: Examinations Focused on Additional Areas of the Adviser Marketing Rule
This risk alert provided the industry with a look at areas of note that the SEC Division of Examinations would be focused on with regard to the New Marketing Rule during exams, which included:
Ongoing Focus
- Policies and procedures
- Substantiation requirement
- Performance advertising requirements
- Books and records
General Prohibitions
- Including an untrue statement of a material fact, or omitting a material fact
- Unsubstantiated claims/claims the adviser does not believe they would be able to substantiate
- Including information that would reasonably be likely to cause an untrue or misleading implication or inference
- Discussing any potential benefits without associated risks
- Referencing specific investment advice provided by the adviser in a manner that is not fair and balanced;
- Including or excluding performance results
- Including information that is otherwise materially misleading
Additional Focus Areas
- Testimonials and Endorsements
- Third-Party Ratings
- Form ADV
April 2024 Risk Alert: Initial Observations Regarding Advisers Act Marketing Rule Compliance
This risk alert shared initial observations from examinations covering the New Marketing Rule, providing the industry with findings to help firms bolster compliance with the rule.
Compliance Rule findings: “advisers’ policies and procedures were not reasonably designed or implemented to address compliance with the Marketing Rule, which resulted in gaps for preventing violations of the Marketing Rule, Books and Records Rule, or both.”
Books and Records Rule findings:
- Advisers completed questionnaires or surveys used in the preparation of a third-party rating but did not maintain a copy of such questionnaires.
- Advisers did not maintain copies of information posted to social media.
- Advisers did not maintain documentation to support performance claims included in advertisements.
Form ADV findings: “the staff also observed Marketing Rule-related deficiencies on Form ADV, such as advisers that inaccurately reported on Form ADV, Part 1A, that their advertisements did not include:
- Third-party ratings, when their websites included third-party ratings or social media posts that touted the firms as being ranked in certain third-party ratings.
- Performance results, when performance results were included in their marketing materials.
- Hypothetical performance, when hypothetical performance was included in advertisements.
The staff also observed advisers using outdated language in their Form ADVs referencing provisions of the prior Cash Solicitation Rule (Advisers Act Rule 206(4)-3), inaccurately indicating that no referral arrangements existed, and omitting material terms and compensation of referral arrangements on Form ADV, Part 2A, Item 14.”
The 2024 Risk Alert also noted significant findings related to the general prohibitions listed in the 2023 Risk Alert. Findings included, but were not limited to:
- Untrue statements of material fact and unsubstantiated statements of material fact
- Omission of material facts or misleading inference
- Fair and balanced treatment of material risks or limitations
As the SEC continues to release new information, answer additional questions, and provide the industry with clarity, firms will be better equipped to fully utilize marketing avenues to reach new customers and growth their business.
Still have questions? Schedule time to speak with one of our regulatory experts.