The investment advisory industry is extremely competitive. And while robo-advisory firms often are able to set themselves apart from the industry as a whole, attracting clients still remains a foundational aspect of their business.

Last time, Josh discussed building a strong referral base. This week, I want to kick off a series of posts on direct advertising and what to keep in mind when organizing your marketing efforts.

As you might imagine, due to the conflict inherent in communications designed to both inform and attract clients, the SEC has a particular interest in the content of investment adviser advertising. The SEC routinely scrutinizes marketing materials during examinations, and just a couple years ago, the agency published a risk alert highlighting specific areas in which they continue to find deficiencies. This means that for robo-advisers that conduct a significant portion of their operations and marketing online, installing tight controls around advertising should be a priority.

The principal rule governing the content of adviser advertising is Advisers Act Rule 206(4)-1 (the “Advertising Rule”), and as regulations go, the text of the rule is relatively short. But don’t mistake brevity for simplicity. Applying the Advertising Rule to the myriad of potential marketing methods is no easy task, and you have to take into consideration a number of SEC no-action letters and other guidance to get it right. Our goal over the next series of posts is to help you do just that.

Let’s start with the basics. Under the letter of the Advertising Rule, advertisements may not:

  1. Mention past specific recommendations that would have been profitable, unless the advertisement is accompanied by a list of all recommendations made by the adviser within the past year (or an offer to provide that list);
  2. Refer to testimonials about the adviser’s services;
  3. State that any graph, chart, formula or other device being offered can be used to make investment decisions;
  4. Indicate that a report or other service will be furnished for free unless it is or will actually be furnished for free without any additional obligation; or
  5. Contain an untrue statement of a material fact or otherwise be false or misleading.

Not too complicated, right? Only five prohibitions – how hard could it be? Well, you might be right if you’re just talking about prohibitions 3 and 4. The others, however, require some serious unpacking, and are, of course, the ones that come into play most frequently.

To start the unpacking process, in our next post, Josh will help us better understand the restrictions on past specific recommendations. Because one of the most effective ways advisers seek to advertise an offered strategy is by describing the securities used to execute that strategy, it’s critical that advisers understand how to do it properly. Stay tuned, and thanks for reading!

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