WHO
- NASAA (North American Securities Administrators Association), via its Investment Adviser Regulatory Section Policy & Review Project Group, issued a Notice of Public Comment on proposed amendments to four model rules covering investment adviser advertising.
WHAT
- A proposal to amend NASAA’s model advertising and recordkeeping rules to align with the SEC’s 2020 Marketing Rule (Rule 206(4)-1) and related provisions.
- If adopted, states could allow activities previously prohibited, including:
- Testimonials and endorsements (regulated with strict disclosure compliance)
- Use of third‑party ratings/rankings (subject to due diligence and disclosures)
- Certain forms of performance advertising, including predecessor performance, with balanced, multi‑period, net‑and‑gross disclosures.
- Updates also impact definitions of “advertisement,” and revise recordkeeping requirements to match the SEC’s scope.
WHEN
- Proposal issued July 29, 2025, with public comment period ongoing now through August 28, 2025.
WHERE
- These are model rules that individual states may choose to adopt or incorporate by reference in whole or in part.
- Some states (26 so far) have already updated rules to match federal standards; many may soon follow.
WHY
- To eliminate disparities between SEC‑registered and state‑registered advisers; state‑registered advisers face restrictions that SEC‑registered firms do not, potentially putting them at a competitive disadvantage.
- NASAA emphasizes investor protection and uniformity in regulatory frameworks across jurisdictions.
HOW
The proposed model rule changes include:
- Revised definition of “advertisement” to include indirect or one‑to‑one communications involving hypothetical performance, testimonials, or endorsements, with limited exceptions (e.g. unsolicited queries, oral live communications).
- Endorsements/testimonials permitted but conditioned on:
- Prominent disclosure of (1) testimonial vs. endorsement status, (2) compensation, (3) material conflicts, plus summary of compensation terms.
- Written agreements between adviser and promoter (unless compensation is “de minimis,” optional per state choice).
- Disqualification prohibitions for certain criminal/investment‑related offenses.
- Third‑party ratings allowed if adviser performs due diligence on methodology, discloses source and compensation, and provides context around methodology.
- Performance advertising permitted under SEC‑style guardrails: balanced presentation of multiple performance periods, inclusion of net and gross results, meaningful disclosures, limitations on predecessor performance usage and audience definition.
- Recordkeeping enhancements, including retention of materials on endorsements/testimonials, third‑party rating questionnaires, performance calculations, and intended audience identification.
Implications for State‑Registered Advisers & CCOs
For State-Registered Advisers
- Enhanced flexibility: May be allowed to use testimonials, endorsements, ratings, and more robust performance marketing—bringing them closer to SEC‑registered peers.
- Competitive parity: Could level the playing field vis‑à‑vis federal advisers who already operate under these standards.
- Disclosures and documentation burdens: New compliance obligations for oversight, written agreements, detailed disclosures, methodology diligence, and recordkeeping.
What CCOs Should Do Now
- Review and comment: Consider participating in the public comment process by August 28, 2025, especially if your firm has state-registered clients or offices in multiple states.
- Conduct a gap analysis: Compare your current policies against both existing state rules and the proposed model rule to identify necessary changes.
- Begin assessing what areas of the business, policies and procedures, and advertising materials may be impacted by such changes, should they come into effect.
CRC-Oyster is following this issue and will provide updates and additional information as they become available.
