Investment Advisers Should Make Sure They Can Back-Up Statements and Claims Made in Advertising

June 13, 2012

Investment advisers must be cautious when it comes to the statements and claims used in advertising and marketing materials and this does not just pertain to performance claims. Investment advisers must avoid all statements or claims that are unsubstantiated or that cannot be proven with material facts.  Investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) must ensure that all advertising and marketing material complies with Rule 206(4)-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). Many state investment adviser regulations follow similar regulatory guidelines as those outlined in Rule 206(4)-1. Under SEC Rule 206(4)-1(a)(5), investment advisers are expressly prohibited from publishing, circulating and distributing any advertisement, “which contains any untrue statement of a material fact, or which is otherwise false or misleading

When preparing marketing materials, the investment adviser must make sure that the materials will not violate the prohibitions of Rule 206(4)-1 by containing any statements that are or can be interpreted as:

  • Promissory;
  • Misleading or false;
  • Contains untrue statements of material facts;
  • Implies inferences arising from the context;
  • Is overly sophisticated for the prospective or intended client.

The following are some examples of statements made in marketing materials that could be considered a violation of SEC Rule 206(4)-1:

Example 1: We take a unique approach to working with each of our clients.

Example 2: We are a premier “fee-only” financial planning and investment advisory firm.

Example 3: Our strategy is an innovative approach to financial success.

While many investment advisers may believe that the services they provide are unique or superior to those provided by other investment advisers, this could be extremely difficult if not impossible to prove.  Investment advisers making those types of claims must be able to provide substantiated evidence and factual data that would support the fact that when compared to all other investment advisers, their services are different or better than any other or even most other investment advisers.

Example 4: Call us today to find out how we can help you to achieve financial security in an uncertain economy.

Example 5: Begin your relationship with us today so that we can help you to secure your retirement while meeting your current obligations.

Example 6: By working with us, we will help you reach your financial dreams.

Investment advisers must also avoid statements that could be considered promissory in nature.  While most investment advisers view their role as someone to help its clients meet their financial goals and objectives, there is no guarantee that this can be done.  Therefore, statements should not be made in advertising and marketing materials by investment advisers to imply that they can. Generally, it is best for investment advisers to avoid terms that imply any form of guarantee in advertising and marketing. Additional safeguards may be to include disclosures within the advertising or marketing piece, such as “Every investment strategy has the potential for profit or loss.”

As part of an investment adviser’s on-going compliance program, an investment adviser’s chief compliance officer (CCO) or designated party should review an investment adviser’s advertisements and marketing materials before publication to ensure the materials are compliant with rules under the Investment Advisers Act or similar state regulations. An investment adviser should have in place written policies and procedures that include safeguards to ensure that and investment adviser’s advertising and marketing materials used remain compliance with the SEC or similar state regulations.

If your investment adviser would like additional information on approving marketing materials used by investment advisers, register for our upcoming webinar “Approving Marketing Materials.” This webinar will be hosted Thursday, June 14, 2012, at 12:00 pm CDT. To register for this webinar, click here. RIA Compliance Consultants can help your investment adviser with the review of advertising and marketing materials.  For more information on how RIA Compliance Consultants can assist you with your marketing review or other ongoing compliance needs,  contact your consultant if you are an existing client or new clients can click here to schedule a time to speak to one of our senior compliance consultants.

Posted by Bryan Hill
Labels: Advertising, Compliance Program, Marketing, SEC