What the rule requires
The rule's seven general prohibitions include untrue statements, unsubstantiated claims and benefits discussed without fair treatment of the risks. Gross performance must be shown with net performance, most portfolios' results must cover 1-, 5- and 10-year periods and hypothetical performance needs policies ensuring it suits its audience. Testimonials, endorsements and third-party ratings are allowed with the required disclosures and oversight.
What counts as an advertisement
An advertisement is broadly any communication offering the adviser's services to more than one person, such as a website, social media post or newsletter, plus any testimonial or endorsement the adviser pays for. One-on-one communications are generally excluded unless they include hypothetical performance.
Where the work is
The SEC has brought a series of enforcement actions under the rule, many over performance advertising and testimonials. Each advertisement has to be kept on file, and most firms' policies require it to be reviewed first, which a small compliance team struggles to do carefully at volume.
Where automation helps
Automation reads each piece against the rule and the firm's policy and lists every issue with its passage and a suggested change, keeping a record of the review. The compliance officer decides on that prepared review rather than reading from scratch.