Client Alerts

Action Items for Advisers prior to Marketing Rule Going Live

Client Alerts | October 12, 2022 | Hedge Funds | Investment Management | Private Equity Funds

The Securities and Exchange Commission (“SEC”) adopted sweeping amendments to the rules that govern advertising by investment advisers and payments to solicitors under the Investment Advisers Act of 1940, as amended (“Advisers Act”). These amendments combined the prior rules governing advertising and paid solicitation into a single revised Rule 206(4)-1 (the “Marketing Rule”).1 All investment advisers registered, or required to be registered, with the SEC (collectively, “Advisers”) must be in compliance with the Marketing Rule by no later than November 4, 2022 (the “Compliance Date”).2 This applies to all Advisers, including those who manage private funds of all types.

Although, with respect to Adviser created materials, the Marketing Rule generally does not depart in any material respect from current best practices in the industry and previous SEC guidance, it adds several new and detailed requirements, and generally represents a revamp of the rules governing every Adviser’s marketing activities.

At a high level, among other things, the Marketing Rule (i) includes a two-pronged definition of “advertisement” that generally captures an Adviser’s direct and indirect marketing communications, as well as the use of testimonials and endorsements (e.g., third-party marketers), (ii) includes a set of seven prohibited advertising practices, (iii) prohibits the use of testimonials and endorsements in an advertisement, unless the Adviser satisfies applicable disclosure, oversight and disqualification provisions, and (iv) includes detailed requirements regarding the use of performance information in advertisements. The SEC also adopted related amendments to Rule 204-2 under the Advisers Act (the “Books and Records Rule”) and Form ADV, Part 1A.

Recommended Actions

As soon as practicable before the Compliance Date, Advisers should complete the following steps and consider the following topics:

  • Take Inventory of Marketing Materials and Other External Communications – both Direct and Indirect – Conduct an inventory of all marketing materials and direct and indirect external communications that may be used for “advertisements,” “testimonials” and “endorsements” under the Marketing Rule. This exercise will help to inform the updates that will need to be made to marketing materials and to compliance policies and procedures (see next bullet). It will also aid in identifying particular compliance risk areas that should be addressed prior to the Compliance Date. Advertisements and other marketing materials should then be reviewed and updated, as needed, to comply with the Marketing Rule.
  • Update Compliance Program – Adopt and implement tailored compliance policies and procedures that are reasonably designed to comply with the Marketing Rule. This is not a one-size-fits-all approach, as different Advisers will have different risks depending on their business model. For example, Advisers who do not use hypothetical performance or third-party ratings will not necessarily need to develop policies and procedures to address those items.
  • Cap Intro and Third-Party Marketers – Advisers who use capital introduction providers (including prime brokers), placement agents, solicitors, finders and other third-party marketers should revisit those arrangements for compliance with the new disclosure, oversight and disqualification requirements that are applicable to endorsements and for potential “adoption” and “entanglement” issues under the Marketing Rule. Advisers should review and amend agreements with those parties, as needed, and may want to consider formally terminating dormant relationships.
  • Feeder Funds, Access Funds and Fund-of-Funds – An Adviser fund manager that provides information and materials to the managers of these types of conduits for marketing purposes generally would be responsible for the materials it prepared or authorized for distribution by the upper-tier conduit fund manager. In addition, the managers of these types of conduits could be considered compensated endorsers of an Adviser (g., if the underlying Adviser fund manager waives fees at its fund level to facilitate the extra layer of fees at the upper-tier conduit level). Advisers should review these arrangements for applicability of the Marketing Rule and take steps to bring such arrangements into compliance with the rule, as applicable. Advisers will need to undertake similar analyses with respect to any broker-dealer and private wealth platforms on which the Adviser’s services are offered.
  • Certain Sub-Adviser Relationships –An Adviser that serves as a sub-adviser may need to consider the hiring-adviser as a compensated endorser and comply with the Marketing Rule accordingly (g., if a hiring-adviser (1) charges an extra layer of fees and (2) explicitly or implicitly indicates approval or support of the sub-adviser).
  • Investment ConsultantsWhile the Adopting Release makes clear that investment consultants engaged by investors to identify Advisers for an allocation will usually not be compensated endorsers of the Adviser, each fact pattern should be analyzed on a case-by-case basis. For example, an Adviser that gets more involved in the creation or revision of materials that an investment consultant provides to its investor clients may have such third-party materials attributed to the Adviser under the “entanglement” theory of the Adopting Release.
  • Ordinary Course Investor Communications – Advisers should analyze whether any ordinary course investor communications and reports (such as investor letters and fund financial statements) that are provided to the Adviser’s prospective clients or investors are advertisements under the Marketing Rule. In addition, sending an investor letter that mentions the Adviser’s other products to existing investors could be an advertisement under the Marketing Rule.
  • Certain Performance Issues – The Marketing Rule’s detailed requirements around performance presentation may raise complex questions. For example, most performance attribution presentations appear to raise challenges when reconciling with the Marketing Rule, and clear answers are not readily apparent.
  • Investor References – While an ordinary course investor reference may not normally constitute a testimonial or otherwise be considered an advertisement under the Marketing Rule, Advisers that provide fee breaks to investors providing references and/or provide such investors with talking points for their reference calls, will need to analyze whether such factors elevate such investor references to an advertisement under the Marketing Rule.
  • Statements of Material Fact – Advisers should review all advertising material to identify where statements of opinion may be insufficiently designated as such in order to avoid the need to substantiate such statements if they are statements of material fact. For example, where an Adviser states that it selects “best in class” issuers for its portfolio, it will need to consider whether that statement is obviously a statement of its opinion, or if it would reasonably be considered to be a statement of fact. If the latter, the Adviser should consider modifying the statement to make it a statement of the Adviser’s opinion or belief.
  • New Recordkeeping Requirements – As mentioned above, in connection with the adoption of the Marketing Rule, the SEC added new detailed recordkeeping requirements to the Books and Records Rule. Advisers should be aware of these requirements and ensure that they are able to capture and retain all required records starting on the Compliance Date.

In anticipation of the Compliance Date, the SEC Division of Examinations issued a Risk Alert on September 19, 2022 that makes it clear that the EXAMS staff will be conducting sweep exams for compliance with the Marketing Rule, and all ordinary course exams will focus on the Marketing Rule in particular.

The above represents only a high level summary of the some of the action items and issues that Advisers should consider and address before the Compliance Date. Please contact the authors or your regular KKWC contact to discuss these and other issues related to the Marketing Rule.


The Marketing Rule adopting release can be found here (the “Adopting Release”). Prior to the adoption of the Marketing Rule, Rule 206(4)-1 governed advertising activities, and Rule 206(4)-3 governed paid solicitations (which has been rescinded in connection with the adoption of the Marketing Rule). In addition, several staff no-action letters that address the application of the old advertising and solicitation rules have been withdrawn (or will be withdrawn as of the Compliance Date (as defined below)).

The Marketing Rule does not apply to investment advisers that are not required to register with the SEC, such as exempt reporting advisers and state-registered advisers. Nevertheless, investment advisers who are not subject to the Marketing Rule remain subject to the general antifraud provisions under the Advisers Act and state law, and should consider the Marketing Rule to be instructive in designing their own advertising and solicitation practices.