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Blog > What Do the New Advertising Regulations Mean for RIAs?

What Do the New Advertising Regulations Mean for RIAs?

VComply Editorial Team
December 1, 2020
2 minutes

If the recent proposal for amending the RIA advertising rules becomes a reality, RIAs (Registered Investment Advisers) can start using testimonials and third-party ratings in their advertisements very soon! Just like how lawyers woo their prospects using their clients’ stories of million-dollar settlements in their favor, investment advisers can soon advertise testimonials of how their clients have benefitted through their services.

What are the significant changes on the horizon?

Let’s look at the background of the rule and the reforms proposed by the Securities and Exchange Commission.


The advertising rule was first adopted in 1961, and it has mostly been the same since then. The rule prohibits investment advisers from using testimonials or third-party endorsements. The rule also prohibits references to specific recommendations that the investment adviser has made in the past.

With the changes in technology and internet penetration, consumer behavior has also changed. Consumers would like to like know and evaluate vendors and their financial products before buying them. The SEC has recognized that technological advancements have changed how consumers interact with investment advisers and evaluate financial products. Today’s customers rely on information and reviews on the internet before buying any products. After analyzing the market changes, the SEC has proposed reforms and adopted a principle-based approach instead of prohibiting testimonials completely. In November 2019, the Securities Exchange Commission formally released a proposal for replacing it sage-old advertising rules.

New Advertising Regulations for RIAs

The New Proposal  

In the new proposal, the SEC has suggested broadening the definition advertisement as “any communication” disseminated by or on behalf of investment advisers to obtain or retain clients. However, the definition does not include-

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1) live oral communication that is not broadcast

2) responses to some unsolicited request for specific information

3) advertisements or sales literature about mutual funds covered by other SEC rules

4) information to be contained in statutory or regulatory notice or filing

The proposed rule would permit testimonials, endorsements, and third-party ratings subject to some restrictions and conditions in reverse from the current rule’s restriction on testimonials in advertisements.

The restrictions include:

  • Advertisements should not contain untrue statements.
  • Advertisements should not contain unsubstantiated claims.
  • Advertisements should not give rise to materially untrue implications.
  • Any implication of the benefits of the advertisement’s services should be accompanied by discussions on associated risks and limitations.
  • References to past investment picks and or investment performances should be portrayed “fair” and “balanced” in advertisements.
  • Advertisements should not be materially misleading.

Regarding the advertisements showing retail and non-retail persons, SEC has distinguished between “retail” and “non-retail persons”, and advertisements for “retail persons” will be subject to heightened requirements.

The new rule proposal was subject to the 60 days “comment” process where the public could register their comments about the proposed amendments. The public comment period ended on 03 January 2020; SEC is reviewing the comments. It is expected that SEC will announce the updated versions of the rule sometime before this year’s end.

Closing Note

The proposed reforms are beneficial to investment advisers and customers alike. Using testimonials in advertisements can help future clients understand what type of clients the investment advisers have worked with and their experiences. The business becomes competitive, and both individual advisers and firms can leverage these reforms and advertise for growing their business. They might have to incur some additional costs and, chances are there that this can turn out to be more beneficial for big investment adviser firms.

Another perspective on there form is that the principle-based approach to advertising rule makes it open to more than one interpretation. If the rules are too broad, then the same standards may not be followed by all. The proposal’s wordings and statements’ ambiguity make it difficult for compliance officers and lawyers to make clear decisions and advise companies on any legal impact. And they hope that when rules become a reality, SEC comes up with more precise standards, definitions, and descriptions.

While the new rule might help clients pick up an investment adviser from a google search review result, it might create a new burden for compliance officers as they might need to review each advertisement for its due diligence. For more information on SEC’s recent proposed changes, read the complete proposal here.

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