SEC Releases New Guidance on Marketing Rules: Important Points for Advisers
On March 19, 2025, the Securities and Exchange Commission (SEC) Division of Investment Management released updates to its Marketing Compliance Frequently Asked Questions (FAQ) to provide clarity for investment advisers dealing with the recent amendments to rule 206(4)-1 under the Investment Advisers Act of 1940, known as the Marketing Rule. This update aims to address the confusion experienced by many investment advisers, especially those advising private funds, when presenting extracted performance and portfolio characteristics and risk metrics. The new responses supersede previous SEC staff commentary on complying with the Marketing Rule.
Since its implementation in 2020, the new Marketing Rule has been a source of uncertainty for registered investment advisers. Initially introduced by former SEC chair Jay Clayton, the rule was intended to modernize the outdated advertising and cash solicitation regulations governing investment adviser promotions and payments to solicitors. Clayton highlighted the need for these updates to reflect advancements in financial markets and technology, emphasizing the importance of providing investors with high-quality information. However, the transition to the new rule proved challenging for many advisers, prompting the SEC to issue clarifications to address industry concerns.
Following Clayton’s departure, SEC Chair Gary Gensler released four FAQs on the Marketing Rule during his tenure, introducing additional guidelines that impacted fund managers. Of particular significance was the requirement for fund managers to disclose both net and gross performance figures, even for individual portfolio investments or groups of investments within private funds. The January 2023 guidance necessitated a comprehensive reporting approach, leading to increased demand for clarification, especially among registered private fund advisers.
The updated FAQs offer guidance to address previous issues related to the display of investment performance in advertising materials. One key aspect pertains to extracted performance, allowing advisers to showcase individual investment performance on a gross basis. To comply with the rule, both gross and net performance figures for the entire portfolio must be presented with equal prominence in the advertisement. Similarly, the updated guidance permits the inclusion of certain portfolio characteristics and risk metrics on a gross basis, provided that the total portfolio’s performance is also presented alongside these characteristics with equal prominence for comparison.
The FAQs clarify that the term “performance” encompasses a wide range of investment portfolio data, posing challenges for advisers to differentiate between performance-related characteristics and other attributes under the Marketing Rule. While the SEC staff refrains from defining specific characteristics as performance, they affirm that characteristics outside the scope of the Marketing Rule will not fall under the compliance requirements.
In conclusion, the updated guidance aims to streamline the interpretation and implementation of the Marketing Rule for investment advisers, particularly those managing private funds. By providing clear parameters for presenting investment performance and characteristics in advertisements, the SEC seeks to enhance transparency and ensure investors receive accurate and meaningful information from advisers.