Introduction

Welcome to Communication with Clients and Prospects: the rules governing what investment professionals can and cannot say to clients, how advisory contracts must be structured, and what disclosures are required.

Exam Weight: Part of 45 questions (45% of the exam)

What You'll Learn

In this unit, you'll cover:

• Disclosures: What material information must be shared with clients and when
• Unlawful Representations: Why registration never equals endorsement or approval
• Performance Guarantees: Why guaranteeing returns or protecting against loss is always prohibited
• Client Contracts: Required provisions in advisory agreements, performance fee rules, and contract assignment
• Correspondence and Advertising: The SEC Marketing Rule, testimonials, endorsements, social media, and recordkeeping

Why This Matters

This is one of the highest-weighted topics within the Laws section. The exam tests your ability to distinguish between what advisers and agents are permitted to say versus what crosses the line into fraud or misrepresentation. This unit covers the specific contract provisions required by law, the narrow exceptions for performance fees, and the modern rules around advertising, including the SEC's Marketing Rule that now permits testimonials and endorsements with conditions.

Let's start with the disclosure obligations that form the foundation of all client communication.