Newsletter
Interpreting the Marketing Rule: SEC FAQs and What Exams Are Revealing
Morgan McKay | 2 March 2026
Rule 206(4)-1, the Adviser Marketing Rule, can, in practice, leave firms navigating gray areas, making judgment calls, and seeking clearer signals about regulatory expectations. To help advisers apply the rule, the Securities and Exchange Commission (SEC) periodically publishes responses to frequently asked questions (FAQs) and issues Risk Alerts that highlight themes and deficiencies observed during examinations. This article provides a brief summary of the FAQ answers and Risk Alerts published from 2025 through January 2026 on the Adviser Marketing Rule.
On December 16, 2025, the SEC published a Risk Alert highlighting issues observed by the staff during examinations related to the use of 1. Testimonials and Endorsements and 2. Third-Party Ratings. Party Ratings.
SEC exam staff observed advisers using testimonials and endorsements without consistently meeting the Marketing Rule’s conditions. Common issues included required disclosures that were missing or not “clear and prominent” (often buried or less noticeable than the endorsement itself); incomplete disclosure of material conflicts and compensation (or overly generic descriptions that omitted key terms); and weak promoter oversight. Staff also noted that many advisers lacked required written agreements for paid promoters, misunderstood the de minimis compensation concept, and in some cases used or compensated ineligible persons or failed to make affiliated promoter relationships appropriately apparent.
SEC exam staff observed recurring gaps in how advisers use third-party ratings in advertising. Deficiencies included insufficient diligence to form a reasonable basis that the rating process (questionnaire/survey and methodology) was fair and not designed to produce predetermined favorable results, and inadequate policies and procedures to support that diligence. Staff also saw frequent disclosure failures, such as advisers not clearly and prominently disclosing the rating’s date and time period, who created or tabulated the rating, and whether any direct or indirect compensation was paid in connection with obtaining or using the rating (including logo reprint or enhanced placement arrangements).
On January 15, 2026, the SEC provided commentary in response to an FAQ regarding the use of Model Fees. SEC staff cautioned that “net” performance in an advertisement can be misleading if it reflects only the actual historical fees paid, when the advertisement’s intended audience is expected to pay higher fees. In those circumstances, advisers should generally use a model fee that reflects the anticipated fee level (or otherwise clearly illustrate the impact of the higher fees) to avoid overstating net returns. Staff emphasized that compliance is facts-and-circumstance driven, with disclosures and presentation playing a key role.
On March 19, 2025, the SEC provided a response to a frequently asked question regarding the presentation of performance with respect to Extracted Performance. Generally, the Adviser Marketing Rule requires an adviser to show both the gross and net performance of an extract in an advertisement. The FAQ response now clarifies that an adviser may display the gross performance of an extract in an advertisement without including corresponding net performance of the extract, if four specific conditions are met. This may be particularly helpful for fund managers that would like to show gross performance at the underlying investment level along with the fund-level net performance.
On March 19, 2025, the SEC provided a response to a frequently asked question regarding the definition of “performance.” Advisers may be unsure whether certain characteristics (e.g., yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, the Sharpe ratio, the Sortino ratio, and other similar metrics) are “performance.” The FAQ response clarifies ways in which advisers may compliantly display gross portfolio characteristics without corresponding net performance for those specific characteristics.
While these FAQs and Risk Alerts can be a valuable reference point, it’s important to remember they are not SEC rules or regulations, but guidelines. If you’d like help assessing how these updates apply to your firm’s specific marketing practices, please reach out to us.
Adviser Marketing Rule Risk Alert
On December 16, 2025, the SEC published a Risk Alert highlighting issues observed by the staff during examinations related to the use of 1. Testimonials and Endorsements and 2. Third-Party Ratings. Party Ratings.
Testimonials and Endorsements
SEC exam staff observed advisers using testimonials and endorsements without consistently meeting the Marketing Rule’s conditions. Common issues included required disclosures that were missing or not “clear and prominent” (often buried or less noticeable than the endorsement itself); incomplete disclosure of material conflicts and compensation (or overly generic descriptions that omitted key terms); and weak promoter oversight. Staff also noted that many advisers lacked required written agreements for paid promoters, misunderstood the de minimis compensation concept, and in some cases used or compensated ineligible persons or failed to make affiliated promoter relationships appropriately apparent.
Third-Party Ratings
SEC exam staff observed recurring gaps in how advisers use third-party ratings in advertising. Deficiencies included insufficient diligence to form a reasonable basis that the rating process (questionnaire/survey and methodology) was fair and not designed to produce predetermined favorable results, and inadequate policies and procedures to support that diligence. Staff also saw frequent disclosure failures, such as advisers not clearly and prominently disclosing the rating’s date and time period, who created or tabulated the rating, and whether any direct or indirect compensation was paid in connection with obtaining or using the rating (including logo reprint or enhanced placement arrangements).
Use of Model Fees FAQ
On January 15, 2026, the SEC provided commentary in response to an FAQ regarding the use of Model Fees. SEC staff cautioned that “net” performance in an advertisement can be misleading if it reflects only the actual historical fees paid, when the advertisement’s intended audience is expected to pay higher fees. In those circumstances, advisers should generally use a model fee that reflects the anticipated fee level (or otherwise clearly illustrate the impact of the higher fees) to avoid overstating net returns. Staff emphasized that compliance is facts-and-circumstance driven, with disclosures and presentation playing a key role.
Extracted Performance FAQ
On March 19, 2025, the SEC provided a response to a frequently asked question regarding the presentation of performance with respect to Extracted Performance. Generally, the Adviser Marketing Rule requires an adviser to show both the gross and net performance of an extract in an advertisement. The FAQ response now clarifies that an adviser may display the gross performance of an extract in an advertisement without including corresponding net performance of the extract, if four specific conditions are met. This may be particularly helpful for fund managers that would like to show gross performance at the underlying investment level along with the fund-level net performance.
Portfolio or Investment Characteristics FAQ
On March 19, 2025, the SEC provided a response to a frequently asked question regarding the definition of “performance.” Advisers may be unsure whether certain characteristics (e.g., yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analyses, the Sharpe ratio, the Sortino ratio, and other similar metrics) are “performance.” The FAQ response clarifies ways in which advisers may compliantly display gross portfolio characteristics without corresponding net performance for those specific characteristics.
Conclusion
While these FAQs and Risk Alerts can be a valuable reference point, it’s important to remember they are not SEC rules or regulations, but guidelines. If you’d like help assessing how these updates apply to your firm’s specific marketing practices, please reach out to us.