SEC Wants the Truth and Nothing but the Truth in AdvertisingTell the truth, the whole truth, and nothing but the truth: that’s the message to registered investment advisors from the Office of Compliance Inspections and Examinations (OCIE) in a recent risk alert about the SEC’s Advertising Rule (Rule 206(4)-1).

The rule prohibits advisors from making untrue statements of material fact and from otherwise including misleading material in advertisements. The rule covers a broad array of communications, including communications that offer “(1) any analysis, report, or publication concerning securities, or which is to be used making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security.”

Lessons from the OCIE Risk Alert:

  • Don’t present misleading performance results. 
    Setting forth performance results without deducting advisory fees or failing to acknowledge limitations in benchmark comparisons is a no-no.
  • Don’t cherry-pick profitable stock selections. 
    Advertisers who include only profitable stock selections in their marketing materials are reminded that the Advertising Rule imposes conditions on such one-sided presentations.
  • If you include past specific investment recommendations, you should include them all. 
    An illustration of particular investment strategy may be misleading if it does not include all recommendations.
  • Tell prospective clients the truth about fees and expenses. 
    It’s not ok to advertise performance results, even in one-on-one presentations, unless you show performance results after deducting advisory fees and other expenses.

Investment advisors should review the full scope of their advertising and marketing materials and consider whether those materials are consistent with the Advertising Rule. Remember, the SEC wants you to tell the truth, the whole truth, and nothing but the truth in your advertising and marketing materials.

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Photo of Jeffrey R. Blackwood Jeffrey R. Blackwood

Jeffrey Blackwood has practiced in the Jackson office for over 22 years and has handled a variety of complex commercial litigation matters. He recently represented a private equity firm in a breach of contract matter during the pandemic that involved numerous hearings and…

Jeffrey Blackwood has practiced in the Jackson office for over 22 years and has handled a variety of complex commercial litigation matters. He recently represented a private equity firm in a breach of contract matter during the pandemic that involved numerous hearings and over 25 depositions, all conducted remotely. He is actively representing broker-dealers and registered investment advisors in FINRA arbitrations and investigations before the Mississippi Secretary of State Securities Division. Jeffrey has successfully tried a case in Delaware Chancery Court representing a trust in litigation involving investment LLCs, where the client prevailed and was awarded attorneys’ fees, and he recently obtained dismissal of a putative class action in federal court in Mississippi representing a healthcare client. He routinely speaks and writes on topics related to securities regulatory and enforcement matters. He also has significant experience in representing life insurance companies and brokers in a variety of matters, including sales practice litigation, regulatory actions and professional negligence actions.

Photo of Dylan C. Black Dylan C. Black

Dylan Black focuses his practice on complex civil litigation in state and federal courts, with particular emphasis on class actions, state and federal securities fraud cases, professional liability matters, and insurance coverage litigation. His recent class action experience includes the successful defense of…

Dylan Black focuses his practice on complex civil litigation in state and federal courts, with particular emphasis on class actions, state and federal securities fraud cases, professional liability matters, and insurance coverage litigation. His recent class action experience includes the successful defense of clients facing putative nationwide classes in cases alleging violations of consumer protection statutes such as the Telephone Consumer Protection Act and the Fair and Accurate Credit Transactions Act.