Last month the SEC’s Division of Investment Management updated the Marketing Compliance Frequently Asked Questions (FAQ) on its website. The latest information focused on the use of model fees in composites and the use of promoters with disciplinary histories.
The new FAQs are discussed below, in summary.
FAQ on Model Fees
Many advisers seem to be questioning how to show the use of model fees in marketing materials. The adopting release to the Marketing Rule states that when actual fees are lower than possible anticipated future fees for a product, then the adviser must show performance with the deduction of the anticipated fees (the higher fee). However, this has been challenging for firms since often those anticipated fees never materialize and then serve to impact performance only negatively and perhaps even in a misleading way in marketing materials.
The SEC has responded to state that a firm may choose between the use of actual or anticipated fees in performance advertising. However, disclosures must show how any actual fees shown could change (be higher) due to anticipated future fees. For example, a firm has been offering a product strategy to institutional investors only (actual fee) and intends to offer the same product to retail investors (anticipated fee). The product will be offered at a higher fee to the retail investors. The firm may use the same actual fee composite in performance advertising for both types of clients as long as this difference is well described in marketing disclosures. How the fee difference is disclosed is the determining factor as to whether or not the SEC will find the firm in violation of the general prohibitions under the Rule.
It may also depend upon Staff/examiner’s interpretation of this FAQ as to how a firm’s use of model fees is viewed within its compliance with the Marketing Rule.
FAQ on Compensation to Promoters with Disciplinary History
The use of testimonials or endorsements made by anyone with a disciplinary history has often caused compliance challenges. This is especially an issue when the promoter is compensated for the testimonial or endorsement. This particular FAQ item addresses those promoters with a disciplinary history under a final order by a self-regulatory organization of the type described in section 203(e)(9) of the Advisers Act within the prior 10 years and that person has not been barred or otherwise suspended from acting in any capacity under the rules of that self-regulatory organization.
The relief provided by this Staff interpretation is specific to the facts stated above, and it is crucial that the promoter has not been barred or suspended. So, a compensated testimonial or endorsement is allowed for a disciplined person, as follows:
- The sole reason the person is an ineligible person (as defined in the marketing rule) is the self-regulatory organization’s final order;
- The self-regulatory organization did not expel or suspend the person from membership, bar or suspend the person from association with other members, or prohibit the person from acting in any capacity;
- The person is in compliance with the terms of the self-regulatory organization’s final order, including, but not limited to, paying disgorgement, prejudgment interest, civil or administrative penalties, and fines; and
- For a period of 10 years following the date of such final order, any advertisement containing the testimonial or endorsement discloses that the person providing the testimonial or endorsement is subject to a self-regulatory organization order, and includes the order or a link to the order on the self-regulatory organization’s website or other public disclosure system, if available.
Compliance with Items 1 and 2 above is rather straightforward and easy to determine by compliance staff. However, Items 3 and 4 require more discovery by compliance and more disclosures. Determining compliance with an order will depend upon information provided by the disciplined person, so their willingness to share information is paramount. Then, disclosures will need to be added to any testimonial or endorsement created in order to comply with Item 4, and a link to the order must also be included.
Firms may choose not to utilize disciplined persons as promoters due to the requirements of Item 3 and Item 4. Compliance with those items may detract from the benefits of the testimonial or endorsement itself.
View “Marketing Compliance – Frequently Asked Questions,” Updated January 15, 2026
