As RIA compliance consultants, we get questions every day related to registered investment adviser (RIA) advertising. Sometimes the question is as simple as, “is this considered ‘advertising’?” This umbrella term covers obvious advertising such as marketing flyers or radio and television commercials, but also some less obvious channels, such as Facebook and Twitter posts. Even email signatures and business cards have to follow advertising regulations.
Close to 20% of the inquiries we receive from our clients relate to advertising in some form. Often, the rules are clear, but still surprising, particularly to advisers new to the industry. For example, advertisements must generally spell out the words “Registered Investment Adviser” (RIA) and “Investment Adviser Representative” (IAR), rather than use the abbreviations.
On the other hand, though, how the advertising regulations apply to a particular piece can be a matter of judgment. For example, advertisements from investment advisory firms are specifically prohibited from misleading clients through “exaggerations.” While obvious exaggerations can easily be avoided, it can sometimes be difficult to judge with certainty when the language in an RIA advertisement might be perceived as an exaggeration (“area of expertise” may sound innocuous to an adviser, but it may not to a regulator). In general, it is important to substantiate claims with specific facts (i.e. it’s better to say that a firm has the “seventh largest total assets under management (AUM) for firms located in a given state” than it is to say it’s “one of the most popular RIAs in a given state”). As a best practice, advisory firms should generally avoid any "gray areas" when possible. However, when deemed unavoidable, it's vital to include additional disclosures as it relates to any ambiguous area.
One common area of confusion relates to social media and testimonials, since RIA firms may not use testimonials in their advertising. A Facebook “like”, for example, in some circumstances may not be considered a testimonial. However, a post on an advisory firm's Facebook page –even an unsolicited one—that commends the firm’s advisory services would, however, almost for certain be considered a testimonial and the RIA should prohibit and delete such posts. LinkedIn endorsements and recommendations are almost certainly considered testimonials and investment advisers should deactivate and not accept them.
Performance advertising is another source of many compliance questions and as a best practice should generally be avoided whenever possible. Advertising investment performance requires compliance with a complex set of regulations and is a major focus of regulators. RIAs making past specific recommendations or presenting the results of back tested models need to be particularly careful. Sometimes the issues raised by an RIA client’s advertisement can be unexpected—including model recommendations in a newsletter may create front-running issues, for example. Other times an advisory firm's client may not even realize its content may be considered “performance advertising”—such as including client case studies on a website.
As the multitude of our compliance clients' inquiries suggest, the rules governing investment adviser advertising are often confusing, even to firms with a history in the industry. When it comes to complying with advertising regulations, the answers are not always clear-cut and caution should always be exercised.