Correspondence and Advertising

The state Administrator's general authority under the Uniform Securities Act (USA) lets the Administrator require the filing of advertising and sales literature, and a separate provision prohibits false or misleading statements in any communication.

The Securities and Exchange Commission (SEC) Marketing Rule is the primary federal rule governing adviser advertising; it absorbed the prior cash-solicitation rule into a single framework.

The SEC's books-and-records rule requires firms to keep records of advertisements and communications for at least five years from the end of the fiscal year in which the adviser last published or disseminated them. Other adviser records, including client correspondence, are kept for at least five years from the end of the fiscal year of the last entry.

Either way, the first two years must be in an appropriate office of the adviser.

What Is the Definition of "Advertisement" for Investment Advisers (IAs)?

Under the SEC Marketing Rule, an advertisement is any direct or indirect communication that offers advisory services to prospective or current clients.

What counts as an advertisement:

• Emails, text messages, social media posts
• Websites, podcasts, videos, blogs
• Brochures, radio/TV, presentations

What is excluded:

• One-on-one communications are not considered advertisements under the first prong of the definition
• Extemporaneous, live, oral communications: an adviser speaking off the cuff on a call or in person, with no script or pre-prepared materials

Think of it this way: If it goes to more than one person and talks about the adviser's services or results, it's an advertisement. Even a single social media post visible to the public qualifies because it reaches more than one person.

Exam Tip: Gotchas

• One-on-one communications are generally excluded from the advertisement definition; they are considered correspondence, not advertising.
• Social media posts are advertisements. A post on LinkedIn about your firm's performance is subject to advertising rules.
• Emails to multiple recipients = advertisement. A mass email about your services triggers all the advertising rules.

What Are the Seven General Prohibitions of the Marketing Rule?

All advertisements by investment advisers must NOT:

1. Include any untrue statement of a material fact, or omit a material fact necessary to make the statement not misleading
2. Include a material statement of fact the adviser has no reasonable basis for believing it can substantiate if the Administrator or SEC demands proof
3. Include information reasonably likely to cause an untrue or misleading implication or inference about a material fact
4. Discuss potential benefits without providing fair and balanced treatment of associated material risks or limitations
5. Reference specific investment advice that is not presented in a fair and balanced manner
6. Include or exclude performance results or present performance time periods in a manner that is not fair and balanced
7. Be otherwise materially misleading

Are Testimonials and Endorsements Permitted?

• Testimonial = a statement from a current client about their experience; endorsement = a statement from a non-client third party. The disclosure must state which one it is (client vs. non-client) and whether the person was paid.

The SEC Marketing Rule permits testimonials and endorsements for SEC-registered IAs, subject to these requirements:

How Does the Current NASAA Model Rule Compare to the SEC Rule?

The current NASAA model rule on unethical practices takes the same approach as the SEC Marketing Rule: testimonials and endorsements are conditionally permitted for state-registered advisers too, once the adviser makes the required identity, compensation, and conflict-of-interest disclosures, has a reasonable basis for believing the arrangement complies, and uses a written agreement with a compensated promoter.

Exam Tip: Gotchas

• Don't answer "prohibited" by reflex. Older prep material and an adviser's own state may still reflect a stale, pre-2021 categorical ban, but the current NASAA Model Rule question answer is that testimonials and endorsements are conditionally permitted, mirroring the SEC's conditions. State adoption timing matters for what actually governs a specific adviser in a specific state, but it does not change what the current model rule itself says.

What Are the Rules for Third-Party Ratings?

Third-party ratings are permitted only from a neutral, independent source, with three required disclosures:

• The date the rating was given and the period it covers
• The identity of the third party that created and tabulated it
• Any compensation the adviser paid to obtain or use it

Separately, the adviser must have a reasonable basis for believing the questionnaire or survey behind the rating was structured so a participant could as easily give an unfavorable response as a favorable one, and was not designed to produce a predetermined result.

Exam Tip: Gotchas

• Methodology is NOT on the disclosure list. Whether the survey was fairly structured is a due-diligence condition the adviser must satisfy before using the rating at all, not something the advertisement itself has to spell out.

What Are the Rules for Performance Advertising?

• Net performance must be shown alongside gross performance with equal prominence
• Must include returns for 1-, 5-, and 10-year periods (or since inception if shorter)
• Hypothetical performance is permitted only if the adviser does all three: adopts policies reasonably designed to ensure the performance is relevant to the intended audience, discloses the criteria and assumptions used, and discloses the risks and limitations of relying on it
• Predecessor performance may be shown only if all four hold: the personnel responsible are now at the advertising adviser, the accounts are sufficiently similar, all substantially similar accounts are shown (no cherry-picking the best), and the advertisement clearly and prominently discloses that the performance came from another entity
• Related performance (performance of other, related portfolios or composites) must include all related portfolios, unless the excluded ones would not make the advertised performance materially higher and their exclusion does not change the required time periods
• Extracted performance (a single investment or subset pulled from a larger portfolio) is permitted only if the advertisement offers to provide, promptly on request, the performance of the full portfolio it was drawn from

Exam Tip: Gotchas

• Cannot state the Administrator has approved or reviewed any advertised performance.

Why Are Registration Abbreviations Not Professional Designations?

RIA (Registered Investment Adviser) and IAR (Investment Adviser Representative) describe a registration status, not an earned credential. Presenting either abbreviation on a business card, letterhead, or advertisement as if it were a professional designation is prohibited, even if the person genuinely holds that registration.

Genuine professional designations such as CFA (Chartered Financial Analyst) and CFP (Certified Financial Planner) are earned by meeting an independent certifying body's exam, ethics, and experience requirements. Because they reflect a real qualification process rather than a state filing, they are permitted in advertising.

Think of it this way: Registration tells you someone filed the right paperwork. A designation tells you they passed an independent body's exam and met its ongoing standards. Advertising a registration as if it were the second thing is the violation.

Exam Tip: Gotchas

• "RIA" or "IAR" on a business card is always prohibited, no matter how accurate. These are registration categories, not designations, so using them the way you'd use a credential is misleading.
• Earned designations (CFA, CFP, and similar) remain permitted because they represent a real, independently verified qualification, unlike a registration status.

What Rules Apply to Social Media?

• Social media posts that offer advisory services to more than one person are advertisements subject to the Marketing Rule
• Advisers must have written policies and procedures for social media use
• Third-party posts shared or adopted by the adviser become the adviser's own communication
• Record-keeping: All social media communications related to the advisory business must be retained under the SEC's adviser books-and-records requirements

What Rules Apply to Email and Digital Messaging?

• Business-related emails and digital messages are records that must be retained
• Mass emails offering advisory services are advertisements under the Marketing Rule
• Individual email responses to client questions are generally not advertisements (one-on-one communications)
• Advisers must archive and supervise electronic communications

What Rules Apply to Website and Internet Communications?

• An adviser's website is an advertisement under the Marketing Rule
• Must comply with all seven general prohibitions
• Performance information on websites must follow performance advertising rules
• Websites accessible to the general public are treated as communications with retail clients
• Content must be kept current and accurate

What Is the Administrator's Authority Over Communications?

The state Administrator has broad authority over adviser communications under the USA:

• May require filing of advertising materials before or after use
• May require specific disclosures in advertisements
• May require that certain types of communications be pre-approved
• May issue stop orders against misleading advertising
• The Administrator's authority extends to all persons registered or required to be registered in the state

What Should You Check on Exam Day?

• One-on-one communications are excluded from the advertisement definition; social media posts and mass emails are not
• The seven general prohibitions bar untrue/misleading statements or omissions, unsubstantiated material claims, misleading implications, unbalanced benefit/risk discussion, unbalanced specific advice, unbalanced performance results, and anything otherwise materially misleading
• Both the SEC Marketing Rule and the current NASAA Model Rule conditionally permit testimonials and endorsements with the required disclosures
• A written agreement is required for any compensated promoter receiving more than $1,000 in a 12-month period
• Net performance must be shown alongside gross performance with equal prominence, covering 1-, 5-, and 10-year periods; related and extracted performance carry their own safeguards
• Advertising and communication records must be retained for at least five years, with the first two years in an appropriate office
• RIA and IAR describe registration status, not earned credentials, and cannot be advertised like a designation such as CFA or CFP
• The Administrator may require filing, disclosures, or pre-approval of advertising and may issue stop orders against misleading advertising