RIA Compliance Blog
On July 29, the North American Securities Administrators Association (“NASAA”) proposed amendments to four model investment adviser rules and requested comments, with the comment period ending August 28, 2025. NASAA’s model rules are not binding until formally adopted by the individual state securities administrator.
With this proposal, NASAA intends to “more closely align” state rules with the SEC’s investment adviser advertising rules. In 2020, the SEC amended Rule 206(4)-1, its investment adviser marketing rule, to, among other things, allow testimonials, endorsements, third-party ratings, and performance advertising so long as certain restrictions and/or conditions are met. NASAA’s proposal mirrors the SEC marketing rule by permitting the following marketing activities:
- Testimonials and endorsements. Currently, NASAA Investment Advisers Model Rule USA 2002 502(b) Section (o)(1) prohibits testimonials or endorsements “of any kind.” The proposed changes would permit testimonials so long as they prominently disclose (1) whether the testimonial was given by a current client or investor, (2) whether compensation was provided for the testimonial, and (3) any material conflicts of interest the person providing the testimonial has. Like the SEC marketing rule, the NASAA proposal creates a de minimis rule allowing for compensation up to $1,000 per year without disclosure. Testimonials made by “ineligible persons” convicted of investment-related violations in the past 10 years remain prohibited.
- Third-party ratings. Currently, NASAA Investment Advisers Model Rule USA 2002 502(b) makes no allowance for the advertising of third-party ratings. The proposed changes would permit third-party ratings if the adviser has done due diligence on the rating methodology; reasonably believes the survey used in the rating is structured to fairly yield accurate results; and “clearly and prominently” discloses the dates, identity of the third-party rater, and whether the third-party rater was compensated for the rating.
- Performance advertising. Currently, NASAA Investment Advisers Model Rule USA 2002 502(b) makes no allowance for performance advertising. The proposed changes would permit performance advertising with several restrictions. Generally, performance advertising must clearly distinguish between net returns and gross returns and must include specific time period disclosures.
- Hypothetical performance advertising would require an adviser to (1) adopt policies ensuring that the hypothetical performance is relevant to the audience’s financial circumstance, (2) provide sufficient information for the audience to understand the criteria and assumptions of the hypothetical performance’s calculations, and (3) provide sufficient information enabling the audience to understand the risks and limitations of the hypothetical performance’s use in making investment decisions.
- Predecessor performance advertising would only be permitted when (1) the person(s) “primarily responsible” for the predecessor’s performance being advertised manage(s) adviser accounts, (2) the accounts in the predecessor performance being advertised are sufficiently similar to the adviser’s current accounts, (3) no substantially similar accounts that would materially alter the predecessor performance results are excluded, and (4) the advertisement contains all relevant disclosures “clearly and prominently.”
Like the SEC marketing rule, NASAA’s proposal also includes explicit language applying its rules to social media and digital content.
NASAA’s proposal includes amendments to NASAA Recordkeeping Requirements for Investment Advisers Model Rule 203(a)-2 and USA 2002 411(c)-1. These amendments would incorporate “various SEC recordkeeping changes made” in conjunction with the SEC marketing rule. Specifically, the amendments would require advisers to maintain records regarding predecessor performance, written materials relating to oral advertisements, and the surveys used in third-party ratings. The amendments would also require maintenance of any disclosures made to clients not incorporated into their advertisements; documentation substantiating the adviser’s reasonable belief that their advertisements comply with the marketing rule; and record of all the adviser’s partners, officers, directors, employees, and persons under the adviser’s control.
NASAA has stated explicitly that this proposal is aimed at creating a model advertising rule, mimicking the SEC’s, available for all states to adopt. This would be a huge first step in creating uniformity among state regulators. However, as mentioned above, even if NASAA does finalize its proposed amendments, each state would have to independently adopt the model rules to reach uniformity across all states. Therefore, discrepancies among state regulators’ advertising rules will remain. Such discrepancies highlight the importance of consulting experienced counsel before making any changes to your marketing practices.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.