SEC Staff Warns Against Misleading Investment Adviser Advertisements

The SEC Office of Investor Education and Advocacy ("OIEA") outlined its expectations for an investment adviser advertising its offered products or services.

In an investor bulletin, OIEA said that investment advisers must adhere to strict rules regarding the content of advertisements. Adviser advertisements must deliver investment-related information in a "fair and balanced manner"; an adviser cannot solely advertise the benefits of an investment without including the downside risks. OIEA said that advisers cannot exclude facts necessary to confirm a statement's validity, and must be able to provide reasonable justification for statements made in an advertisement. Specifically, OIEA warned that investors should thoroughly research performance claims made by advisers - especially claims that appear to be "too good to be true" - emphasizing that past performance is not always indicative of future performance (see previous coverage).

Additionally, OIEA urged investors to exercise caution when engaging with social media advertisements including testimonials and endorsements. OIEA said that advisers are required to disclose any compensation arrangement for endorsements and potential conflicts of interest, and that similar restrictions apply to advisers that use third-party ratings companies in advertisements.

OIEA concluded that it is "important to understand the information presented, including on social media/online reviews, and to consider carefully how it should influence your investment decision."