Like many other companies throughout the United States, Registered Investment Advisers (RIAs) understand the limitations of poor marketing strategies – and the untold benefits of successful campaigns. As creative marketing professionals utilize artistic and technical prowess to turn leads into customers, it is all too easy to lose sight of regulatory requirements regarding an RIA’s promotion of services. Regulatory defense attorneys who understand that the intersection of advertising standards and trademark rights can pose unique challenges for RIAs in the United States can play an important role in helping RIA firms ensure that their marketing campaigns maintain compliance with state and federal regulations. To schedule a consultation to discuss the regulatory compliance of your RIA’s marketing strategy and materials, call the Altitude Securities Law Office at (405) 534-4914 today. 

Who Regulates Advertising Standards for RIAs?

In addition to maintaining compliance with the advertising standards established by the federal Securities and Exchange Commission (SEC) or state-level regulators, RIAs must remember to bear in mind the ethical obligations of their profession in developing their marketing strategies. Understanding clients’ expectations and communicating in line with those expectations, as set by industry-wide norms, can play a role in helping RIAs to determine the type and presentation of information they wish to provide in promotional materials when no specific regulation applies.  

Financial Industry Regulatory Authority Advertising Rules for RIAs

Unlike many other advisers offering services in the financial sector, RIAs are not directly regulated by FINRA. However, the position FINRA occupies in the United States securities and investment landscape, in combination with the norms and expectations for the promotion of advisory services set by FINRA’s regulatory oversight of non-RIA advisers, can mean that RIAs will likely want to bear the advertising requirements FINRA sets forth under Section 2210 of its rulebook, entitled “Communications with the Public,” in mind when developing their promotional materials and marketing plans. 

For the purposes of Section 2210, “the public” includes not only the public “at large,” but existing clients of any firm registered with FINRA; in other words, the guidance applies not only to mass market advertising but to offers and other communications directed to a firm’s current clientele. Some of the requirements FINRA places on communications from a member firm to its clients or to other parties include:

  • FINRA must approve all retail communications before publishing
  • FINRA members must keep records of all retail and institutional communications
  • FINRA members must provide supporting information for any charts, graphs, or illustrations used in these communications
  • All communications must be fair, balanced, and factual
  • All communications must be made in good faith
  • No false or exaggerated claims may be made
  • Communications cannot predict future performance
  • Any comparisons with other investments or services must disclose all material differences
  • All communications must include the name of the firm
  • FINRA members must clearly explain references to “tax-free” or “tax-exempt” features
  • FINRA members must disclose fees in communications
  • FINRA members must reveal whether they have any connection of conflicts of interest with recommended investments
  • FINRA members must provide hyperlinks to BrokerCheck on any web content that contains a professional profile of a person registered with the firm
  • Members cannot suggest that their FINRA membership represents an endorsement or guarantee from FINRA

Securities and Exchange Commission Marketing Rules

Adherence to SEC rules or to the broadly similar requirements imposed by state-level regulators is mandatory for all RIAs. In 2020, the SEC adopted a new set of rules for investment advisor marketing. Here are some of the most notable SEC marketing rules:

  • Advertisements must contain true, substantiated statements
  • Advertisements cannot imply materially untrue things
  • Advertisements must contain disclosures about the risks associated with investments
  • Past performance should be expressed in a fair and balanced manner
  • Advertisements should detail net performance, taking into account fees and expenses
  • Results should show 1, 5, and 10-year periods if possible
  • Advertisements must clearly identify hypothetical performance projections

Trademark Considerations for RIA Marketing Campaigns

RIAs may encounter trademark issues when using third-party trademarks in their marketing campaigns. Comparative advertising is common in the investment world, as investors often measure performance against “benchmarks” such as the S&P 500. For example, an RIA might advertise that their customers’ portfolios” routinely outperform the S&P 500.” Virtually all marks associated with major indices – including the S&P 500 – are trademarked. Generally speaking, comparing investments to benchmark indices is an example of “nominative use,” and is allowed under United States trademark law. However, RIAs will also wish to keep various regulatory compliance considerations in mind when comparing their services to other investment options. 

FINRA Section 2210 Regarding Communications With the Public

FINRA does not directly prohibit comparisons in marketing copy. However, entities registered with FINRA are subject to the organization’s requirement that any advertising that proposes a comparison must also disclose any “material differences” between the investments or services compared. Because both the SEC and state regulators hold RIAs to high ethical standards in their solicitation of, and representations to, clients, RIAs considering nominative use of trademarks in their promotional materials may find it helpful to take industry advertising norms set by Section 2210 as a starting point as they develop in-house procedures for ensuring the regulatory compliance of their advertising communications 

Controversial Uses of Third Party Trademarks

Many companies today choose to use the trademarks of their competitors as keywords in their web content. Proponents of this strategy believe that it can help RIAs “steal” customers from their rivals. With this approach, a customer specifically searching for one firm might instead find its competitor occupying the top spot of the search results. 

This strategy is highly controversial, and it may lead to trademark disputes, as competitor firms have substantial incentive to argue that such uses infringe on their trademark rights. However, companies in the United States have successfully argued that this is acceptable “use in commerce” under trademark law. To determine whether it is advisable to use a third-party trademark in advertising, get advice from an RIA regulatory defense law firm such as Altitude Securities Law Office. 

Can RIAs Have Testimonials?

FINRA and SEC handle the subject of testimonials slightly differently, while state regulators may set their own advertising standards. RIAs registered with the SEC will need to comply with the limitations the SEC sets on testimonials in investment adviser communications; RIAs registered with one or more states will wish to ensure regulatory compliance with the appropriate authorities at the state level. Both types of RIA will likely find it useful to consider the industry norms set by FINRA guidelines as they assess whether, and how, to incorporate client testimonials in their communication strategy. 

FINRA Regulations on Testimonials

According to FINRA, testimonials are only permitted in communications to the public under certain circumstances. The person who makes the testimonial must be knowledgeable and experienced enough to have a legitimate opinion about the adviser. In addition, the advertising adviser must provide various disclosures along with each testimonial. They must warn that the person’s testimonial may not be indicative of the experience of others and that it does not guarantee future success. Finally, any paid testimonial for which the compensation exceeds $100 must be accompanied by a disclosure to that effect.

SEC Regulations on Testimonials

The updated “marketing rule” adopted by the SEC in 2020 established or adapted a number of requirements on the advertisement of services by investment advisers. The 2020 adoption expanded the definition of advertising from the previous decades-old guidance, and attempted to standardize recordkeeping and reporting requirements associated with marketing efforts. Under current guidelines, RIAs must keep meticulous records of any processes for collecting testimonials, including invitations sent to various customers. In addition, RIAs must identify any potential conflicts of interest and, as part of the updated requirements, include any non-cash compensation in its disclosures of payments made in exchange for testimonials. RIAs seeking to incorporate testimonials or endorsements in their marketing strategy may wish to consult with an experienced regulatory defense attorney to make sure that their promotional materials adhere to the SEC’s advertising standards. 

Contact an RIA Regulatory Defense Attorney Today

For more guidance on the intersection of advertising standards and trademark rights, consider contacting a regulatory defense attorney. Altitude Securities Law Office has been assisting RIAs for many years with up-to-date knowledge of FINRA and SEC marketing rules. While creativity and technology are both important aspects of marketing, RIAs must also consider legal implications before publishing their advertisements. Call (405) 534-4914 to ensure regulatory compliance before launching the next marketing campaign.