The Investment Advisers Act of 1940 defines advertising as any letter, notice, circular or other written communication addressed to more than one person, as well as any notice in a publication or by radio or TV that contains the following:

  • Graphs, charts, formulas or other devices used to determine how to choose a security or when to buy or sell a security
  • Information that offers analysis, reports, or publications concerning securities or when to buy or sell a security
  • Any other investment advisory service that relates to securities

The following media have also been identified by the SEC as forms of advertising:

  • Form letters and other mass mailings
  • Press releases
  • Newsletters
  • Marketing brochures
  • Telemarketing scripts
  • Slides or audio/videotapes used in marketing presentations
  • E-mail messages sent to more than one person

Advertising standards
IA advertising is not permitted to:

  • refer (directly or indirectly) to testimonials about the advisor.

  • refer to specific past recommendations that were profitable. However, an IA may advertise a list of all recommendations made within the immediate past year (or longer), as long as all pertinent information is included (date of recommendations, market price at time of buy, sell, and current), along with a disclaimer on the first page stating: "It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list."

  • advertise that any report, analysis or other service is free of charge if that is not completely true - there must be no obligation or condition of any kind.

  • represent that a graph, chart, formula or other device can (by itself) be used to determine which securities to buy or sell, without disclosing the limitations in doing so.

Performance advertising
In a guidance statement called the Clover Capital letter, the SEC clarified that advertising of actual performance data would be prohibited if the advertising:

  • included results that didn't reflect the impact of brokerage commissions, advisory fees and other client-paid expenses.

  • failed to disclose the effect that market or economic conditions had on the results.

  • failed to disclose whether or not the results shown reflected reinvestment of dividends and capital gains.

  • made claims about the future potential for profit without also mentioning the possibility of loss.

  • failed to disclose (if applicable) that performance results related only to a select group of the IA's clients.

  • compared results to an index without disclosing all material facts relevant to the comparison.

  • failed to disclose any material conditions, objectives or investment strategies used to obtain the results.


Exam Tips and Tricks
One question you can expect to see involves performance advertising. In particular, one type of answer that appears to be correct is "IAs cannot use performance advertising that promotes results received by only a small group of the portfolios under management." But the requirements listed above state that it is only prohibited to not disclose that only a small group was used, so the answer above is actually incorrect.



Solicitation

Related Articles
  1. Small Business

    Bye, Mad Men: How the Net Is Changing Advertising (FB, TWTR)

    The Internet and digital media are changing the way companies advertise and market themselves. More targeted, varied and faster advertising is possible.
  2. Small Business

    How is Programmatic Advertising Changing Media?

    Understand what programmatic advertising is as well as the technology that drives it. Learn about the top four ways programmatic advertising is changing media.
  3. Small Business

    Trends And Growth In The Digital Advertising Industry

    The rapidly expanding digital advertising industry is leading a shift towards content and demanding forced innovation.
  4. Small Business

    How The Internet Web Ad Industry Works

    Over the past 10 years, advertising strategies have evolved as a result of technological development as the internet has provided new channels for advertisers to reach a larger audience.
  5. Investing

    Why Facebook Is Free to Use (FB)

    Learn why Facebook is free to users, and understand how the company makes more money by charging advertisers than it would if it charged users.
  6. Insights

    How the TV Advertising Industry Works

    Things have definitely changed since the early days of “Mad Men,” when one TV ad could change the world—or at least change a company’s sales numbers.
  7. Insights

    YouTube Advertisers Ask For Discounts

    Advertisers on video distribution platform YouTube are demanding Google to make targeted advertising a standard offering.
  8. Investing

    Online Advertising Takes The Lead

    Advertisers are now spending more on online ads than ever before. For investors, that means the time could be right to bet on digital advertising players.
  9. Investing

    Google and Facebook Run 57% of All Digital Advertising Worldwide

    What does this mean for investors and the rest of the pitiful digital ads ecosystem?
  10. Small Business

    The (High) Cost of Advertising in Times Square

    Advertising on a Times Square billboard costs more per impression than similar forms of advertising, but that doesn't mean it's not worth it.
Frequently Asked Questions
  1. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ...
  2. Which socially responsible retailers appeal most to ethical investors?

    Learn why ethical investors have many options in the retail sector, and discover which retail companies are most popular ...
  3. What are Some Examples of Free Market Economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement, ...
  4. Who Decides When to Print money in India?

    Find out the role of the Reserve Bank of India, or RBI, and the amount of authority given to the government. Learn who is ...
Trading Center