Compliant Advertising –  Breaking It Down (Again) Part 5: Everything Else  (Third Party Ratings, ADV, B&R, No-Action Letters, Next Steps)

Compliant Advertising – Breaking It Down (Again) Part 5: Everything Else (Third Party Ratings, ADV, B&R, No-Action Letters, Next Steps)

10 January 2022

Main Contributor: Elizabeth Cope, CPA, CSCP, CIPM CEO & Lead Consultant


At this point we have covered The Definition of an Advertisement, where we summarize the amended Marketing Rule’s definitions of an advertisement; specifically the elements covered under Prong 1 and Prong 2 of the definition. We follow this with part two of our series, which focuses on the General Prohibitions and what they mean in practice for our registered investment adviser audience.  Every advertisement must fit within the realm of the General Prohibitions, and it is a necessary read in order to prepare for the impact they have on your marketing. Part 3 of our series addresses the use of Testimonials and Endorsements, which is the piece we find most advisers are excited about, and yet are most unaware of. To fully understand the requirements, please take the time to read that article. The fourth part to our series addresses the requirements when including Performance in your advertisements.

In this fifth and final article of the Marketing Rule we are going to cover:

  1. Third Party Rating Requirements
  2. New Questions on the ADV
  3. Books and Records Updates
  4. No-Action Letters
  5. Next Steps

1.     Third Party Rating Requirements

Advisers will be allowed to present third-party ratings, ONLY if the criteria below are met. A Third-party rating is defined as, “a rating or ranking of an investment adviser provided by a person who is not a related person (as defined in the ADV Glossary of Terms) and such person provides such rating or ranking in the ordinary course of business.”

  • You have a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses and is not designed or prepared to produce pre-determine results.

Phew…that was a mouth full, and like us, you probably aren’t quite sure how you can comply with this requirement. We think (and hope) the larger rating services, such as Envestnet will proactively provide documentation supporting this requirement. If that does not end up being the case, the SEC suggested getting a copy of the questionnaire (which you may have since you have to fill out) to use in your analysis. Your review would need to be documented to substantiate compliance with this requirement.

  • Clearly and prominently (meaning as prominent as the rating itself) disclose:
    1. The date on which the rating was given and the period of time upon which the rating was based,
    2. The identity of the third-party that created and tabulated the rating, and
    3. That compensation (cash and non-cash) was provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating.

2.     Updates to the ADV

The SEC has already updated the ADV to include new questions to Item 5.L. They are intended to provide the staff with additional information on the adviser’s advertising practices. The new questions are as follows:

  1. Do any of your advertisements include:
    • A: Performance results?
    • B: A reference to specific investment advice you provided?
    • C: Testimonials?
    • D: Endorsements?
    • E: Third Party Ratings?
  2. If you answer yes to Items c, d, or e, do you pay or otherwise provide cash or non-cash compensation, directly or indirectly, in connection with the use of testimonials, endorsements or third-party ratings?
  3. Do any of your advertisements include hypothetical performance?
  4. Do any of your advertisements include predecessor performance?

3.     Books and Records (B&R) Updates

The books and records Rule 204-2 has been updated to incorporate the additional record keeping requirements as a result of the new Marketing Rule. 

Currently, the books and records rule only requires investment advisers to maintain advertisements provided to more than 10 persons. With the revised rule, advisers will be required to obtain records of all advertisements. This may be a significant change for you, unless you are already retaining all of the advertisements you have disseminated.

Additionally, the rule requires advisers to make and keep a record of the intended audience of advertisement that include hypothetical performance and/or a model fee for the net return. With the removal of the solicitation rule, the books and records requirements will also remove old references to the solicitation rule and instead generally require retention of records necessary to substantiate compliance with testimonials and endorsements.

To assist you with your policy updates here is a summary of the updates by section of the Rule:

  • Section 204-2(a)(7) – record requirements for predecessor performance
  • Section 204-2(a)(11) – retention requirements for advertisements and questionnaires used in the preparation of third-party ratings
  • Section 204-2(a)(15) – retention of disclosures and compliance with the rule for testimonials, endorsements, and third-party ratings
  • Section 204-2(a)(19) – records on the intended audience of the advertisements

We recommend you review these sections and confirm that your policies and procedures address these new record keeping requirements.

4.     No-Action Letters

The SEC is withdrawing certain no-action letters in relation to the current Advertising and Cash Solicitation Rule. The withdrawal and modification of these no-action letters will be effective November 4, 2022. A complete list can be found here. We recommend you review your current policies and check back to this list to see if they reference any withdrawn no-action letters.

5.     Next Steps

Now that we have covered the basic elements of the new Marketing Rule under our 5-part series, it’s time to set some actionable motion towards compliance. You have until November 4, 2022, to comply, but you can always choose to comply with the rules at an earlier date. However, you must choose to comply with the rule in its entirety. Here are our recommendations for your firm as you navigate the new rule requirements:

  1. Update your policies and procedures
  2. Train your staff on the new requirements
  3. Make a list of your advertisements – review and update where needed
  4. Make a list of all compensated promoters/solicitors (remember compensation can be direct or indirect) – review and make updates to agreements and disclosures where needed
  5. Follow the SEC’s updates to FAQs on the Rule


We hope our five-part series on the new Marketing Rule serves as a beneficial starting point for you to dig into the rule and understand what will apply to your firm and how. While a brand new rule appears to be a massive overhaul, it’s actually more manageable the more time you spend reading through it and finding the similarities with the original rules and no-action letters. Our series highlights the major differences and helps prepare you for the biggest changes of which you should be aware. However, you can always reach out to us for more individualized assistance as you implement the new Marketing Rule!

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