The SEC marketing rule, explained for financial professionals

The rule covers any direct or indirect communication an adviser makes to more than one person that offers its advisory services to prospective clients or investors. A communication to even one person is covered if it includes hypothetical performance. The rule carves out extemporaneous, live, oral communications and information in required regulatory filings and notices.

For outreach, the “more than one person” part matters most: a message you send to a list of prospects is the kind of communication the rule was written for. Whether a particular one-to-one message falls outside the definition is a judgment your compliance team should make, and the general antifraud duties apply either way.

An advertisement may not:

1. Include an untrue statement of a material fact, or omit a material fact needed to keep it from being misleading.
2. Include a material statement of fact that you do not have a reasonable basis to believe you can substantiate on demand by the SEC.
3. Include information reasonably likely to cause an untrue or misleading implication about the adviser.
4. Discuss potential benefits without fair and balanced treatment of material risks or limitations.
5. Reference specific investment advice in a way that is not fair and balanced.
6. Include or exclude performance results, or present time periods, in a way that is not fair and balanced.
7. Otherwise be materially misleading.

Number two is the one cold outreach trips over most. Every factual claim in a prospecting message, from “we specialize in physicians” to “we have helped dozens of families,” should be something you could document if asked.

Testimonials (from current clients) and endorsements (from people who are not clients) are allowed, but only when the rule's conditions are met:

• Disclosures at the time it is shared: whether the person is a client or not, whether they were compensated, the material terms of any compensation, and any material conflicts of interest.
• Oversight: a reasonable basis for believing the testimonial or endorsement complies with the rule, and a written agreement with any compensated promoter, with exceptions for de minimis compensation of $1,000 or less in the preceding 12 months.
• Disqualification: you cannot compensate a person you know, or should know, is ineligible under the rule.

Third-party ratings and any performance presentation carry their own conditions as well.

The simplest compliant prospecting message describes who you work with and how you help, and invites a conversation. It does not need performance figures, client quotes, or rankings, and leaving them out keeps the message clear of the rule's most detailed conditions. If you want to use any of them, clear the exact wording and disclosures with your compliance team first.

• Quoting a client in a follow-up. A kind word from a client, pasted into a prospecting email, is a testimonial and brings the disclosure and oversight conditions with it.
• Mentioning an award in passing. A ranking or award is a third-party rating with its own conditions, even in a one-line signature.
• One great case study. Highlighting a single standout result without context can present results in a way that is not fair and balanced.
• Claims nobody wrote down a basis for. If a statement of fact cannot be backed up with something on file, it is a problem under the substantiation prohibition.

The books-and-records rule, Rule 204-2, requires advisers to keep a copy of each advertisement they disseminate, directly or indirectly (204-2(a)(11)), along with certain written communications they send and receive (204-2(a)(7)). Those records must be kept in an easily accessible place for at least five years, the first two in an appropriate office of the adviser (204-2(e)(1)). In practice, that means keeping the exact version of each prospecting template and when it was used, not just the final draft.