Compliant Advertising: Breaking it Down – Part 1:  The Foundation

Compliant Advertising: Breaking it Down – Part 1: The Foundation

29 April 2019

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


The topic of Advertising is one of the most challenging areas for CCOs.  The challenge begins with the SEC’s definition of “advertisement.”  It’s confusing and outdated.

The way that the rule is written makes you feel like you have to run through a flow chart of questions every time you write something, meet with someone, or send an email, just to figure out if it’s an advertisement.

Then, to make matters worse, the rules you have to adhere to—if it is an advertisement—and the exceptions to such are not all in one spot!  There are a variety of SEC documents that provide rules, regulations, and guidance around advertising.  Just wait… you’ll see.

And to top it off, CCOs often have to reel in marketing folks who like to use fancy words and creative methods to gain the attention of investors…which is the polar opposite of the CCOs job—to make everything clear and compliant.

My goal with this article is to help you easily:

  1. Understand the regulations around advertising,
  2. Determine whether something is an advertisement,
  3. Apply the rules in a simple, practical way, and
  4. Implement processes that reduce the risk of having non-compliant advertisements inadvertently used.

Advertising is a huge topic, and there is much to cover.  So, I am going to break it down over a series of articles.  Stick with us as we tackle it together.

Part 1: The Foundation

Let’s go back to basics.  This first article is meant to help you fully understand:

  1. the definitions of key terms,
  2. how the requirements are applied, based on those definitions
  3. where the requirements come from, and
  4. what is prohibited in advertising.


Understanding Key Terms

What is an Advertisement?

Per the Advisers Act, an Advertisement is “Any written communication addressed to more than one person that offers investment advisory services related to securities.”

As you can see, to determine whether something is considered an advertisement by the SEC, you have to contemplate many factors.  Let’s break this down.

“…written communication…”

Although the Advisers Act specifically says “written communication,” keep in mind these rules are from 1940.  Times have changed.  Back then, firms didn’t have access to emails, websites, social media, or podcasts, and they probably didn’t even have ease of access to radio or television commercials.  So, even though the Advisers Act states, “written communication,” the SEC does take into consideration all printed, electronic, and broadcast advertisements, since we’re in the 21st century.  You should too.

“…more than one person…”

This clause is also unclear.  Let us clarify.

It doesn’t just mean more than one person at once, like a group presentation.  That is only one example.  It could mean sending a presentation out through a mass mailing.  It could also be referencing a standard marketing piece that you give to a potential client during a one-on-one meeting.  Even though you only gave it to one person at that time, maybe you gave that same marketing piece to another person last week or you will next week.  In which case, you’ve now given that presentation to “more than one person.”


If it’s standardized communication designed to solicit additional business from existing clients or prospective ones, whether it’s presented one-on-one or to the masses, it’s an advertisement.

What is a “One-on-One”?

A one-on-one is when materials are offered to a prospective client through a communication or presentation that is of a private and confidential nature and that is not made to the public through any print, electronic, or other medium.  One-on-ones are typically in a setting that provides prospects the opportunity to discuss with the adviser the types of fees that might be paid.

Is a one-on-one considered “Advertising?”

It depends…  Are you using customized or standardized materials?

A “one-on-one” using customized materials is NOT advertising.

A “one-on-one” using standardized materials IS advertising.

Mistakenly, advisers often think that a “one-on-one” is not advertising because it’s not provided to more than “one” person.  Don’t fall into that trap.

Determining whether or not something is an advertisement is not only about whether the material is presented “one-on-one” or to “more than one person.”  You must consider whether or not the material is standardized or customized.  If using standardized materials, the SEC does view it as advertising.

I err on the side of caution.  It has always been my approach and recommendation that if you are using material to solicit additional business (even if you intend it to be for only one person, used only one time), treat it as advertising, and follow the requirements that apply.

What is NOT an Advertisement?

  • Client reporting and statements, as long as you are not soliciting additional business.
  • A response to an unsolicited request.
  • An RFP that has customized Be careful here.  If you use standardized material, the SEC may consider it to be an advertisement.

Why does it matter what is an Advertisement and what is not?

It matters because, if the particular material you are distributing is considered an Advertisement, then Rule 206(4)-1 of the Advisers Act applies.  Please keep in mind that the general anti-fraud provisions in Section 206 of the Advisers Act (more on this below) apply to ALL materials, regardless of whether they are considered an advertisement.  These documents should be reviewed by compliance or a designee to ensure they are not false or misleading.

Finding the Requirements

Remember when I said that the Advertising rules and guidelines are not all in one spot?  I wasn’t joking.  The requirements for Advertising can be found in many different sources.  Now you have a master list.  Don’t get overwhelmed.

  1. Investment Advisers Act of 1940
    1. Section 206, Anti-Fraud Provisions
    2. Rule 206(4)-1
  2. SEC No-Action Letters
    1. Clover Capital Management, Inc., Oct. 28, 1986
    2. Investment Company Institute, July 24, 1987
    3. Kurtz Capital Management, Dec. 18, 1987
    4. Investment Company Institute, Sept. 23, 1988
    5. Denver Investment Advisors, Inc., July 30, 1993
    6. Stalker Advisory Services, Feb. 14, 1994
    7. P. Morgan Investment Management, Inc., May 7, 1996
    8. Association for Investment Management and Research (AIMR), Dec. 18, 1996
    9. Horizon Asset Management, LLC, Sept. 13, 1996
    10. Cambiar Investors, Inc., February 10, 1997
    11. DALBAR, Inc., Mar. 24, 1998
    12. Franklin Management, Inc., Dec. 10, 1998
    13. Investment Adviser Association, Dec. 2, 2005
    14. TCW Group, Inc., Nov. 7, 2008

I’m not diving into these right now.  For now, I will simply explain what the Advisers Act prohibits and what exactly a “no-action letter” is.

Investment Advisers Act

Section 206, Anti-Fraud Provisions

Section 206 of the Investment Adviser Act outlines prohibited transactions of an investment adviser.  The general anti-fraud provisions in Section 206 apply to ALL materials, regardless of whether they are considered an advertisement.

As it relates to any advertising or client reporting, an adviser is prohibited from misstatements or misleading omissions of material fact and other fraudulent acts and practices.

You have an affirmative obligation:

  • of utmost good faith
  • full and fair disclosure of ALL material facts to your clients, and
  • a duty to avoid misleading them.
Superlative Statements

One common area that falls under this category is the use of “superlative statements.”  Superlative statements include words such as “superior,” “exceptional,” “best,” “proven,” “unmatched,” “enviable,” “industry leading,” and other hyped or positive words used to describe performance or other firm attributes.  Advisers should avoid them, as they may be false or misleading due to their nature or lack of further definition.  Such words can mean different things to different people.  While one prospective client may deem performance (or other firm attributes) to be substantial or significant, another may not.  If you are going to use these words, the marketing materials you are incorporating them in better include a clear definition or support as appropriate as to what you mean by it.

Rule 206(4)-1, Advertisements by Investment Advisers

Rule 206(4)-1 of the Investment Advisers Act indicates what an adviser is prohibited from doing in advertising.  As an adviser, you must not:

  • Use testimonials
  • Discuss past-specific recommendations (with certain exceptions)
  • Note that a graph, chart, formula or device in and of itself was used to determine the securities to buy and sell, without disclosing the limitations
  • State something is free when it is not
  • Make an untrue statement of a material fact

In upcoming articles, I will discuss each topic of the prohibited items and the “No-Action Letters” that provide relief from them.

No-Action Letters

What is a no-action letter?  No-action letters can provide relief from the prohibited items within the Adviser Act.

When a person or entity is not certain whether a particular action would be a violation of the securities laws, they write a letter to the SEC that includes their specific facts and circumstances, requesting relief from the rule.  The SEC reviews the letter to determine whether they would recommend enforcement under such circumstances.  If the SEC would not recommend enforcement, a no-action letter is made public for other advisers to rely on.

This can be tricky.  You need to realize that the SEC determined to not recommend enforcement based on the specific facts and circumstances of that person or entity.  You may rely on it, but if your circumstances are slightly different, you are taking the risk that the SEC might not share your same viewpoint.  This is where compliance in Advertising gets grey.  Certain things are very much up to interpretation.


As you develop materials to share with clients and prospective clients (including emails), remember to consider these questions:

  • Is it offering advisory services related to securities?
  • Is it print, electronic, or broadcast?
  • Is it offered to an existing client to solicit new business?
  • Is it offered to a potential new client to solicit new business?
  • Is it offered (or will it be offered) to more than one person?
  • Is it standardized?

These are the key elements in determining whether correspondence would be considered Advertising by the SEC.

In upcoming articles, I will further discuss what is prohibited, what the exceptions are, and provide real life examples of what—in my experience—has been acceptable and what has not.  I will address required disclosures for when performance is presented and discuss testimonials and past specific recommendations.  Stay tuned!