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SEC Eases Marketing Rules for Investment Advisers

Investment advisers reviewing new SEC marketing rules

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News Summary

The SEC has released updated FAQs on Rule 206(4)-1, providing investment advisers with increased flexibility in marketing practices. This change allows advisers to present gross performance information in advertisements without the immediate requirement of including net-of-fee information, aiding in clearer communication about performance data. This update simplifies compliance and encourages effective marketing strategies.

SEC Eases Marketing Rules for Investment Advisers

Welcome back to our investing news! We have some exciting developments from the Securities and Exchange Commission (SEC) that are sure to catch the attention of investment advisers everywhere. On March 19, 2025, the SEC staff rolled out updated FAQs that bring some much-needed clarity and flexibility to the marketing practices of investment advisers under Rule 206(4)-1, also known as the Marketing Rule.

What’s New in the Marketing Rule?

The latest updates allow investment advisers to use a more relaxed approach regarding how they present performance information in their advertisements. This means that advisers can now showcase extracted performance data and certain performance-related characteristics, all on a gross basis, without the immediate need to display corresponding net-of-fee information, provided they follow specific conditions.

Why is this important? Well, in the past, investment advisers faced some challenges and frustrations when it came to presenting performance data. The Marketing Rule, which was adopted back in 2021, mandated that both gross and net-of-fee performances be presented with equal emphasis for the same time period. But there was quite a bit of uncertainty about what counted as “performance”, and that left many advisers scratching their heads.

Clearing the Confusion

Under the previous guidelines, advisers were required to include net performance alongside extracted performance, which added another layer of complexity to their advertising materials. The newly updated FAQs clarify exactly when advisers can celebrate performance-related characteristics—things like yield, coupon rates, and volatility—on a gross-of-fees basis. This is a great step forward that streamlines the marketing of individual investment performances.

With the new updates, the SEC emphasizes that investment advisers need to ensure that their advertisements comply with the fresh conditions laid out in the updated FAQs. But importantly, this is not just a theoretical change; these updates became effective immediately! So advisers will need to act quickly to align their advertising practices with the new SEC guidance.

Flexibility in Advertising

One of the key takeaways from these changes is that the SEC is introducing a new sense of flexibility to investment advisers. The term “equal prominence” doesn’t necessarily mean that gross and net performances have to be presented side by side. Instead, it opens the door to a better comparison, likely achieved by putting composite performance numbers at the forefront of materials, with extracted performance information following.

New Definitions and Wider Scope

The SEC also broadened the definitions around portfolio or investment characteristics to ease the distinction between what counts as performance versus non-performance. Gone are the rigid classifications that caused so much confusion! This shift is meant to simplify compliance for advisers and help them navigate the marketing landscape more easily.

Industry Support and Next Steps

Responses from within the industry have been largely positive. The changes are viewed as a win-win—supporting both investors’ needs and the practicalities faced by advisers. Compliance consultancy firms like Iron Road Partners suggest that many advisers will have to make some adjustments in their marketing materials to leverage these new performance metrics effectively.

It’s also worth noting that the SEC staff made it clear that they would not take enforcement actions against advisers who present gross performance separately, as long as they include proper overall net performance disclosures. This assurance alleviates some stress for advisers navigating these new waters.

In summary, these updated FAQs from the SEC represent a significant step in the right direction for investment advisers. By clarifying the rules around performance data presentation, it offers them a path toward more flexible and effective marketing strategies. If you’re an investment adviser, now is the time to take advantage of these changes. Make sure your advertising policies and disclosures are up to date and compliant—your clients and your bottom line will thank you!