The SEC’s updated Marketing Rule has reshaped how investment advisers communicate with the market. While the rule aims to modernize outdated standards, it also introduces new complexity, especially around performance advertising and the use of testimonials. The March 2025 FAQ update offers long-awaited clarity, but not without caveats.
This article breaks down what’s changed, what’s clarified, and what fund professionals need to do to stay compliant.
What’s the Marketing Rule Trying to Solve?
The original advertising rule, dating back to 1961, was built for a world of brochures and cold calls. It banned testimonials outright and offered little guidance on performance advertising. Fast forward to today, and advisers are marketing through podcasts, social media, and influencer-style endorsements. The SEC’s 2020 overhaul, codified under Rule 206(4)-1, was designed to bring the rule into the digital age.
The rule became fully enforceable in November 2022. Since then, enforcement actions have made it clear: the SEC is watching closely, especially when it comes to performance claims and client endorsements.
Performance Advertising: What You Can (and Can’t) Do
The 2025 FAQ update zeroes in on two of the most misunderstood areas: extracted performance and portfolio characteristics.
1. Extracted Performance
Extracted performance refers to the returns of a subset of a portfolio, like a strategy sleeve or a group of deals. Historically, firms avoided using it because calculating net returns at that level was operationally difficult and risky from a compliance standpoint.
The new guidance offers a path forward:
Gross-only extracted performance is allowed if:
It’s clearly labeled as gross.
The total portfolio’s gross and net performance is shown alongside it.
The time periods match.
The presentation is equally prominent and easy to compare.
This is a meaningful shift. It allows firms to highlight strategy-specific insights without needing to net fees at the sub-portfolio level, so long as the full context is provided.
2. Portfolio Characteristics
Metrics like Sharpe ratios, volatility, or sector attribution aren’t always considered “performance,” but they influence investor perception. The SEC now allows these to be shown gross-only if:
They’re clearly disclosed as not net of fees.
They’re presented alongside total portfolio gross and net returns.
The methodology is explained.
The presentation is balanced and time-aligned.
This clarification helps firms use risk-adjusted metrics and attribution data more confidently, but only with proper framing.
Testimonials and Endorsements: Still a Minefield
The Marketing Rule permits the use of testimonials and endorsements, but only under strict conditions:
Disclosure is key: Advisers must disclose whether the person giving the testimonial is a client, whether they were compensated, and any material conflicts of interest.
Oversight is required: Advisers must have a reasonable basis to believe the testimonial is not misleading.
Third-party ratings are allowed, but only if the adviser provides clear disclosure about the rating methodology and ensures it’s not cherry-picked.
The rule doesn’t prohibit modern marketing tactics, it just demands that they be transparent, fair, and substantiated.
What Fund Professionals Should Do Now
To stay ahead of compliance risk, firms should:
Re-audit all marketing materials for extracted performance or performance-related characteristics.
Update templates to ensure total portfolio performance is always included when required.
Train teams on the difference between performance and characteristics, and how to present each.
Document internal policies on when and how gross-only data can be used.
Embed compliance checks into pitch decks and fact sheets to reduce manual oversight.
Bottom Line
The SEC’s 2025 FAQ update doesn’t loosen the rules, it sharpens them. Advisers now have clearer outlines for what’s acceptable, but the burden of compliance remains high. For firms that want to market effectively without crossing regulatory lines, the message is clear: context, clarity, and consistency are non-negotiable.