SEC Rule 206 - 4-1

By consolidating advertising and solicitation regulation into a single principles-based framework that permits testimonials, endorsements, and a broader range of performance presentations subject to specified conditions and the overarching prohibition on misleading communications, the Marketing Rule represents the Commission's most consequential modernisation of investment adviser disclosure standards in the post-Dodd-Frank era.

Overview and Regulatory Purpose

The prior advertising framework that the Marketing Rule replaced was designed for a world of print advertisements, direct mail campaigns, and in-person client solicitation — a world in which the primary advertising concerns were the use of misleading performance composites, the deployment of paid promoters who failed to disclose their compensation, and the selective presentation of track records that omitted unfavourable periods.

By the time of the Marketing Rule's adoption, the advertising environment for registered investment advisers had been transformed by digital marketing, social media, influencer partnerships, online client referral networks, and the proliferation of third-party ratings platforms that publish quantitative assessments of adviser performance and service quality.

The prior rules' categorical prohibition on testimonials, applied to the modern marketing environment, prevented investment advisers from responding to or incorporating client reviews on platforms like Google, Yelp, or Facebook — creating a regulatory environment that had become increasingly difficult to administer consistently and that placed registered advisers at a significant competitive disadvantage relative to unregistered financial content creators and social media influencers who faced no equivalent restrictions.

The Marketing Rule's regulatory purpose is to replace the prior rules' categorical prohibitions with a principles-based framework that focuses on the core investor protection objective — preventing misleading advertising — rather than the specific practices that were most commonly associated with misleading advertising in the 1961 regulatory environment. 

By permitting testimonials, endorsements, and a broader range of performance presentations subject to specific conditions designed to ensure transparency and prevent manipulation, the Marketing Rule acknowledges that these marketing practices can serve legitimate investor interests when conducted transparently, while maintaining robust protections against the specific deceptive techniques — cherry-picking, omission of material risks, and undisclosed compensation — that have historically harmed investors in the investment adviser context.

Statutory Authority and Rulemaking History

Rule 206(4)-1 derives its statutory authority from Section 206(4) of the Investment Advisers Act of 1940, which makes it unlawful for any investment adviser to engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative, and authorises the Commission to define and prescribe means reasonably designed to prevent such acts, practices, or courses of business. 

Section 206(4)'s broad anti-fraud and anti-manipulation authority — combined with the Commission's authority to define the specific practices that constitute fraud in the investment adviser marketing context — is the foundational statutory basis for the Marketing Rule's comprehensive advertising framework.

The original Rule 206(4)-1 — the Advertising Rule — was adopted November 1, 1961, published at 26 FR 10548, establishing the categorical prohibitions on testimonials and past specific investment advice references that remained the core of investment adviser advertising regulation for six decades. 

The Cash Solicitation Rule — Rule 206(4)-3 — was adopted February 2, 1979, establishing the disclosure and written agreement requirements for paid solicitation arrangements. Both rules were adopted under Section 206(4)'s authority, and both were replaced by the 2020 Marketing Rule rulemaking, which simultaneously rescinded Rule 206(4)-3 and comprehensively revised Rule 206(4)-1.

The Marketing Rule was adopted December 22, 2020 — Advisers Act Release No. IA-5653, published at 86 FR 13024, March 5, 2021 — following a proposal published December 10, 2019, and a comprehensive comment process that generated hundreds of comment letters from investment advisers, trade associations, investor advocates, and the legal and compliance community. 

The rule was technically amended April 14, 2022 — 87 FR 22447 — with corrections that did not alter the rule's substantive provisions. Full compliance was required by November 4, 2022 — the conclusion of the transition period during which advisers could comply with either the prior rules or the new Marketing Rule. 

No substantive amendments to the Marketing Rule have been adopted since April 2022, though the Division of Investment Management's evolving FAQ guidance and the Division of Examinations' April 2024 and December 2025 Risk Alerts have significantly shaped the rule's practical interpretation and enforcement.

Key Provisions and Operative Requirements

Rule 206(4)-1 begins with a foundational definitional framework. 

The term advertisement is defined in two prongs that together determine the scope of the rule's application. The first prong covers any direct or indirect communication an investment adviser makes to more than one person — or to one or more persons if the communication is distributed or intended to be distributed to more than one person — that offers the investment adviser's investment advisory services with regard to securities to prospective clients or investors in a private fund advised by the investment adviser, or that offers new investment advisory services with regard to securities to current clients or investors in a private fund advised by the investment adviser. 

The first prong covers traditional advertising communications — website content, email campaigns, brochures, presentations, social media posts, and any other communication directed at multiple potential recipients promoting the adviser's services. 

The first prong explicitly excludes one-on-one communications that do not represent an offer of the adviser's services, information contained in statutory or regulatory filings, responses to publicly disseminated requests for proposals, and certain extemporaneous live oral communications.

The second prong — which directly replaced the Cash Solicitation Rule's solicitation framework — covers any testimonial or endorsement for which the investment adviser provides compensation, directly or indirectly. This second prong captures compensated testimonials and endorsements regardless of the number of recipients — a single compensated testimonial or endorsement directed to one person is an advertisement under the Marketing Rule, in contrast to the first prong's threshold of more than one recipient. 

The distinction between testimonials — statements by current clients or investors about their experience with the adviser — and endorsements — statements by persons who are not current clients or investors — is one of the Marketing Rule's most practically significant definitional distinctions, because the applicable disclosure conditions and oversight requirements differ for each category.

Rule 206(4)-1(a) establishes the seven general prohibitions applicable to all advertisements. These prohibitions reflect the Commission's identification of the specific deceptive practices most likely to mislead investors in the investment adviser advertising context.

The first prohibition bars any untrue statement of a material fact or any omission of a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading. This foundational antifraud standard imports the materiality and misleading-omission framework from the broader securities antifraud provisions — including Section 206(2) of the Advisers Act — directly into the advertising context, applying it to every communication within the advertisement definition.

The second prohibition bars any statement that a reasonable person would find materially misleading — an objective standard calibrated to the reasonable investor rather than to subjective intent. This prohibition captures misleading presentations that are technically accurate in their individual statements but create a false overall impression through the combination of what is said and what is omitted, the manner of presentation, or the emphasis given to selective information.

The third prohibition addresses material performance claims — barring any advertisement that includes a reference to specific investment advice provided by the investment adviser that was not profitable, unless the advertisement includes all profitable and unprofitable advice or, if less than all advice, the advice included is selected on a basis not biased toward profitable advice. 

This anti-cherry-picking prohibition directly addresses one of the most persistent forms of misleading investment adviser advertising — the selective presentation of successful recommendations while omitting unsuccessful ones to create a misleadingly favourable impression of the adviser's forecasting ability or investment skill.

The fourth prohibition bars advertisements that include or exclude performance results, or present performance time periods, in a manner that is not fair and balanced. This provision addresses the temporal cherry-picking problem — the selective presentation of performance periods that contain strong returns while omitting periods of poor performance, or the use of non-standard time periods that flatter the adviser's record by avoiding market downturns.

The fifth prohibition addresses performance presentation specifically — barring any advertisement that fails to provide, or offers to provide upon request, any material information necessary to avoid any statement in the advertisement being materially misleading. 

This provision reinforces the general antifraud standard in the performance context, requiring that advertisements provide the contextual information necessary to give performance figures their accurate meaning — including information about the investment strategy, the market environment during the presented period, the applicable fees and expenses, and any material risks that affected performance.

The sixth prohibition bars advertisements that include information that would reasonably be likely to cause an untrue or misleading impression about the investment adviser or about the investment results achievable by the investment adviser. 

This provision captures forward-looking misleading implications — presentations that, while technically accurate about historical results, create a misleading impression about the adviser's likely future performance or the investment results that clients can expect to achieve.

The seventh prohibition is the catch-all — barring any advertisement that otherwise would be materially misleading. This open-ended provision prevents the enumerated prohibitions from being construed as an exhaustive list, ensuring that novel forms of misleading advertising that do not fall within one of the specific prohibitions remain subject to the rule's general antifraud framework.

Rule 206(4)-1(b) establishes the conditions for advertisements including testimonials and endorsements. An advertisement may not include any testimonial or endorsement, and an adviser may not provide compensation for a testimonial or endorsement, unless the investment adviser satisfies three conditions subject to specified exemptions.

The first condition is a required disclosures obligation. The investment adviser must disclose, or reasonably believe that the person giving the testimonial or endorsement discloses, at the time the testimonial or endorsement is disseminated: that the testimonial was given by a current client or investor, or the endorsement by a person other than a current client or investor, as applicable; that cash or non-cash compensation was provided, if applicable; and a brief statement of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment adviser's relationship with such person.

Additionally, where the testimonial or endorsement is compensated and disseminated in connection with seeking prospective clients or investors, the adviser must provide: the material terms of any compensation arrangement and a description of any material conflicts of interest.

The second condition is the adviser oversight and compliance requirement. 

The investment adviser must have a reasonable basis for believing that the testimonial or endorsement complies with the requirements of the Marketing Rule, and must have a written agreement with any person giving a compensated testimonial or endorsement describing the scope of the agreed-upon activities and the terms of compensation. The reasonable basis requirement imposes an ongoing supervisory obligation on advisers — they cannot simply take compensated promoters' representations of compliance at face value but must actively assess and periodically monitor whether the testimonials and endorsements being disseminated on their behalf satisfy the rule's conditions.

The third condition is the disqualified persons prohibition. An investment adviser may not compensate any person for a testimonial or endorsement where the adviser knows, or in the exercise of reasonable care should know, that the person is an ineligible person — meaning a person subject to a disqualifying event within the prior ten years. 

Disqualifying events include SEC enforcement orders, court injunctions and restraining orders related to investment-related activity, criminal convictions, regulatory orders from banking and financial regulators, FINRA bars and suspensions, and certain other specified adverse legal and regulatory outcomes. A January 15, 2026 FAQ update from the Division of Investment Management addressed the application of the disqualifying event analysis where a FINRA final order did not bar or suspend the person from association with members, confirming that such a person may serve as a compensated promoter subject to specified disclosure conditions.

Rule 206(4)-1(c) establishes the conditions for advertisements including third-party ratings. An advertisement may not include any third-party rating unless the investment adviser discloses, or reasonably believes that the third-party rater discloses, the date on which the rating was given and the period of time upon which the rating was based; the identity of the third party that created and tabulated the rating; and if applicable, that the investment adviser purchased the rating or provided cash or non-cash compensation to obtain or promote the rating. 

The third-party ratings provisions acknowledge the growing significance of online ratings platforms — where advisers seek ratings from Barron's, Forbes, Five Star Professional, and similar raters — as a marketing tool while ensuring that investors receive the context necessary to assess the independence and methodology of the ratings being presented to them.

Rule 206(4)-1(d) establishes the performance advertising requirements — the most technically complex and commercially consequential provisions in the Marketing Rule for investment advisers managing securities portfolios. The performance requirements address four categories of performance presentation.

For all performance presentations, Rule 206(4)-1(d)(1) requires that any gross performance — performance calculated without the deduction of advisory fees — must be presented with equal prominence to net performance calculated using the same methodology, over the same time period, and reflecting the deduction of all fees and expenses the client would pay. 

This gross-net presentation requirement ensures that investors comparing advisers on the basis of advertised performance can assess returns on a fee-adjusted basis — the return they would actually receive — rather than on a gross basis that overstates performance by excluding the advisory fees and expenses that reduce investor returns. 

A March 2025 FAQ update and a January 2026 FAQ update further clarified the gross-net presentation requirements, confirming that certain portfolio characteristics presented alongside gross and net performance may be presented without a corresponding net characteristic under specified conditions.

For presentations of performance returns to retail investors — defined as persons who do not qualify as qualified clients under Rule 205-3 of the Advisers Act — Rule 206(4)-1(d)(2) requires that any advertisement include performance for the period since the account's inception and for one, five, and ten-year periods, calculated as of the most recent calendar year-end. 

This prescribed time period requirement prevents advisers from presenting performance for cherry-picked periods that omit market downturns or unfavourable performance periods, instead requiring a complete picture of the adviser's track record across standardised measurement periods.

Rule 206(4)-1(d)(6) addresses hypothetical performance — performance that was not actually achieved in an investor's account, including backtested performance, model performance, targeted or projected returns, and similar presentations. Hypothetical performance may only be presented in an advertisement if the investment adviser adopts and implements policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience, and provides certain information underlying the hypothetical performance sufficient to enable the audience to understand the assumptions underlying the calculation. 

For advisers whose intended audience includes retail investors, hypothetical performance is subject to particularly stringent conditions reflecting the Commission's concern that retail investors may not have the sophistication to understand the limitations and assumptions embedded in backtested performance figures.

Scope of Application

Rule 206(4)-1 applies to every investment adviser registered or required to be registered with the Commission under Section 203 of the Advisers Act — the universe of SEC-registered investment advisers including separately managed account advisers, private fund advisers, robo-advisers, and multi-family office advisers. 

The rule applies to all advertisements regardless of the medium — digital, print, broadcast, social media, podcast, email, and any other communication channel — and regardless of the intended audience. Advisers that manage private funds — hedge funds, private equity funds, venture capital funds, and other pooled investment vehicles — are subject to the Marketing Rule in the same manner as advisers managing separately managed accounts, with limited modifications to certain performance presentation requirements reflecting the different reporting conventions of the private fund industry, including the presentation of internal rate of return calculations for private equity funds.

Relationship to Related Rules and Regulations

Rule 206(4)-1 is integrated with Rule 204-2's recordkeeping framework through the performance records requirement of Rule 204-2(a)(10), which requires that advisers maintain records necessary to form the basis for or demonstrate the calculation of performance figures presented in advertising materials. 

The Marketing Rule and the recordkeeping rule are operationally inseparable — every performance figure presented in a Marketing Rule-compliant advertisement must be supportable through records maintained pursuant to Rule 204-2, and the absence of adequate records to substantiate advertised performance simultaneously constitutes a Marketing Rule violation for an unsubstantiated performance claim and a Rule 204-2 violation for inadequate recordkeeping.

Rule 206(4)-7 — the Compliance Policies and Procedures Rule — requires every registered investment adviser to adopt written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules. 

A comprehensive Marketing Rule compliance programme — including pre-dissemination review of advertisements for compliance with the seven general prohibitions, the testimonials and endorsements conditions, and the performance advertising requirements — is a required component of the Rule 206(4)-7 compliance infrastructure for every registered adviser with marketing activity. 

Form ADV Part 1A, Section 5.L requires advisers to disclose whether their advertisements include performance results, testimonials, endorsements, third-party ratings, references to specific investment advice, hypothetical performance, or predecessor performance — with those disclosures serving as a roadmap that the Division of Examinations uses to focus examination resources on the specific marketing practices each adviser has disclosed.

The Marketing Rule's treatment of compensated endorsements — which constitute advertisements under the rule's second-prong definition — directly implicates Rule 38a-1 of the Investment Company Act where a registered investment adviser serves as the investment adviser to one or more registered mutual funds or ETFs. Registered fund advertising is subject to both the Marketing Rule and the Investment Company Act's advertising provisions, creating a dual compliance framework that advisers to registered funds must navigate carefully when designing advertising campaigns that address both separately managed account and registered fund clients.

Amendment History and Regulatory Evolution

The Marketing Rule's most significant post-adoption regulatory developments have occurred through the Division of Investment Management's FAQ guidance and the Division of Examinations' Risk Alerts rather than through formal rule amendments. 

The Division of Investment Management has published seven Marketing Compliance FAQs since the rule's adoption, addressing: the compliance date methodology; performance time period calculation; private fund internal rate of return and multiple-of-invested-capital presentations; extracted performance — the presentation of performance of a subset of investments held in a portfolio; portfolio characteristics when presented alongside gross and net performance; model fees versus actual fees in net performance calculation; and SRO-related disqualification considerations. 

The January 15, 2026 FAQ addressing model fees and actual fees was the most recent substantive interpretive guidance issued as of June 2026 and clarified a question that had generated significant industry uncertainty about whether footnote 590 of the Adopting Release categorically required the use of model fees whenever anticipated fees exceed actual fees charged.

The Division of Examinations' April 17, 2024 Risk Alert — the first published observations from post-compliance-date Marketing Rule examinations — identified four primary deficiency categories: untrue or unsubstantiated statements of material fact; testimonial and endorsement disclosure failures; performance presentation defects; and Form ADV Section 5.L misalignment with actual marketing activity. 

The December 16, 2025 follow-up Risk Alert addressed the same deficiency categories at greater depth, with particular attention to disclosure prominence failures — where required disclosures were present but insufficient in size, placement, or clarity to satisfy the rule's requirement that material disclosures be given adequate prominence — and oversight failures for compensated endorsement programmes.

Enforcement Context and SEC Action Patterns

Marketing Rule enforcement has progressed through two phases. The first phase — from the November 2022 compliance date through the April 2024 Risk Alert — consisted primarily of examination findings rather than formal enforcement actions, with the Division of Examinations identifying deficiencies and requiring advisers to correct marketing materials and enhance compliance programmes as conditions of examination resolution. 

The second phase — following the April 2024 Risk Alert — has seen the Commission bring formal enforcement actions against advisers for Marketing Rule violations in cases where deficiencies were widespread, involved material misrepresentations to investors, or reflected deliberate avoidance of the rule's requirements rather than good-faith compliance failures.

The most common enforcement and examination findings involve performance advertising — specifically the failure to present net performance with equal prominence to gross performance, the use of cherry-picked performance periods that exclude unfavourable market periods, and the presentation of hypothetical performance without the policies, procedures, and audience-appropriateness assessments that the rule requires. Form ADV Section 5.L misalignment — where an adviser answers that it does not use testimonials in advertising but then uses testimonials without the required disclosures — has been cited in enforcement actions as evidence of systemic compliance failures rather than isolated errors.

Examination Relevance and Key Takeaways

Rule 206(4)-1 is examined at the Series 65 and Series 66 levels as the primary advertising standard governing registered investment advisers. 

The two-prong definition of advertisement — the first prong covering communications to more than one person offering advisory services, and the second prong covering compensated testimonials and endorsements regardless of recipient count — is the foundational examination concept. 

The distinction between testimonials, which are statements by current clients or investors, and endorsements, which are statements by persons other than current clients or investors, determines the applicable disclosure language and is consistently examined.

The seven general prohibitions — particularly the antifraud standard, the anti-cherry-picking provision for past specific investment advice, and the fair and balanced performance time period requirement — define the outer boundaries of permissible advertising practice and are examined in the context of what types of presentation constitute misleading advertising. 

The gross-net performance presentation requirement — requiring that any gross performance be presented with equal prominence to net performance calculated using the same methodology and time period — is among the most practically significant and most frequently examined Marketing Rule provisions, reflecting both its commercial importance to the private equity and hedge fund industry and the frequency with which it has appeared in examination findings.

The key points to retain are these. Rule 206(4)-1 is the Marketing Rule governing all advertising by SEC-registered investment advisers, replacing the prior Advertising Rule and Cash Solicitation Rule with a single principles-based framework effective November 4, 2022. Advertisement is defined in two prongs — communications to more than one person offering advisory services, and compensated testimonials and endorsements regardless of recipient count. 

Seven general prohibitions apply to all advertisements, including the antifraud standard, the anti-cherry-picking provision, the fair and balanced performance time period requirement, and the catch-all misleading communications prohibition. Testimonials by current clients and endorsements by others may be used subject to required disclosures of client or investor status, compensation, and material conflicts of interest, a written agreement with the promoter, and a disqualifying person screening requirement with a ten-year lookback. 

Third-party ratings may be presented with appropriate date, period, identity, and compensation disclosures. Gross performance must always be accompanied by net performance of equal prominence calculated using the same methodology and time period. Hypothetical performance is subject to enhanced conditions including policies and procedures and audience appropriateness assessment. 

Rule 206(4)-1 was adopted December 22, 2020, effective May 4, 2021, with full compliance required November 4, 2022; the Division of Investment Management issued FAQ updates through January 2026 addressing model fees and endorsement disqualification; the Division of Examinations published Risk Alerts in April 2024 and December 2025 identifying recurring compliance deficiencies.