Advertising & Anti-Fraud Rules

Overview

Securities regulators closely monitor the communications that registered persons share with investors, especially retail investors. In today’s digital environment, a single social media post or online ad can reach a large audience quickly. That reach creates a clear risk: if a message includes untrue or fraudulent information, many investors could be misled at once.

The Uniform Securities Act (USA) sets broad standards for these communications. The North American Securities Administrators Association (NASAA) has also issued numerous orders and rules that reinforce and expand on those standards.

In general, public communications fall into two categories: correspondence and advertising. Federal securities laws define these terms very specifically, while the USA discusses them more generally.

🔑 Definitions — communication categories

USA general anti-fraud rules

The USA includes general anti-fraud rules that apply whenever someone engages investors, and these principles also apply to public communications. 🔑 Rule language:

It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:

• To employ any device, scheme, or artifice to defraud, or
• To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or
• To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person

In other words, you can’t lie to, mislead, or manipulate an investor when discussing securities. You also must disclose material facts when they’re necessary to keep a communication from being misleading.

🔑 Definitions — Material fact

⚠️ Material fact omission — consequences

NASAA rule divisions

NASAA rules on correspondence and advertising are further divided into rules for:

• Broker-dealers and agents
• Investment advisers and investment adviser representatives (IARs)
• Social media communications

Broker-dealer & agent communications rules

🔑 NASAA rules state the following regarding communications with the public:

[It’s unethical and unlawful to use] any advertising or sales presentation in such a fashion as to be deceptive or misleading. An example of such practice would be a distribution of any nonfactual data, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in any brochure, flyer, or display by words, pictures, graphs or otherwise designed to supplement, detract from, supersede or defeat the purpose or effect of any prospectus or disclosure

• A prospectus is an issuer-created document that discloses material information about an investment and its inherent risks (for example, AirBnB’s prospectus for its initial public offering in December 2020). Discussing information that contradicts a prospectus (or any other disclosure document) would be unlawful.
• Broker-dealers and agents may not lie to or mislead an investor. However, the standards applied to them are generally less stringent than those applied to investment advisers and IARs. The key difference is fiduciary duty.

🔑 Definitions — Fiduciary duty

⚠️ Unsolicited transactions and fiduciary duty

• A transaction is unsolicited when the investor makes the decision without influence from a financial professional. Many broker-dealer transactions are not the result of an agent’s recommendation, so fiduciary rules often don’t apply.
• Practically, this means broker-dealers and agents generally don’t have to be as cautious in their communications as investment advisers and IARs.
• Because fiduciary duty is absent in many broker-dealer situations, broker-dealers and agents can advertise transaction-related services and execute trades without discussing all material facts.
• In addition, the state administrator is less likely to enforce suitability standards against these registered persons. If an investor makes an unsolicited purchase that turns out to be too aggressive, broker-dealers and agents typically aren’t held liable.
• ⚠️ Fiduciary duties do apply, however, when a recommendation is made.

Suitability standards relate to pursuing punitive actions against registered persons for making unsuitable recommendations.

Investment adviser and IAR communications rules

Most of the communication rules that apply to broker-dealers and agents also apply to investment advisers and IARs. Advisers and IARs are subject to additional restrictions because they always owe a fiduciary duty to their clients.

🔑 Prohibited/restricted in an IA’s or IAR’s public communication (NASAA)

Each is a discrete prohibited practice:

1. Untrue statements of material fact, or omitting a material fact needed to keep a statement from being misleading
2. Material statements of fact the adviser has no reasonable basis to substantiate if the administrator demands it
3. Information likely to cause an untrue or misleading implication or inference about a material fact
4. Discussing potential benefits without fair and balanced treatment of the associated material risks or limitations
5. Referencing specific investment advice that isn’t presented in a fair and balanced manner
6. Including or excluding performance results, or presenting performance time periods, in a way that isn’t fair and balanced
7. Testimonials or endorsements that don’t meet the rule’s disclosure, agreement, and eligibility conditions
8. Third-party ratings that don’t meet the rule’s questionnaire and disclosure conditions
9. Anything else that is materially misleading

Testimonials and endorsements (NASAA Model Rule 102(a)(4)-1)

🔑 Definitions

Under NASAA’s amended Model Rule 102(a)(4)-1 (adopted May 4, 2026), state-registered investment advisers and IARs may use testimonials and endorsements in public communications, but only if the adviser:

1. Clearly and prominently discloses whether the person is a client or investor (testimonial) or not (endorsement), whether cash or non-cash compensation was provided, and a brief description of material conflicts of interest arising from the relationship
2. Discloses the material terms of any compensation arrangement
3. Has a reasonable basis for believing the testimonial or endorsement complies with the rule, and has a written agreement with the person describing the scope of the arrangement and its compensation terms
4. Does not compensate, directly or indirectly, anyone it knows — or should know — is an “ineligible person”

⚠️ Two exceptions that narrow these requirements

• ⚠️ Broker-dealers and agents were never subject to a NASAA prohibition on testimonials or endorsements.

Sidenote: New SEC Marketing Rules

In 2020, the SEC finalized a new rule that changes how investment advisers regulated by the Investment Advisers Act of 1940 can market their services.

• ⚠️ The SEC’s new rule applies only to federal-covered advisers. State-registered advisers and IARs follow a separate framework — NASAA’s amended Model Rule 102(a)(4)-1, covered above — so don’t conflate the two sets of requirements.

The SEC rule updates two broad areas:

• The definition of advertising
• When investment advisers may publish endorsements and/or testimonials

🔑 SEC’s updated definition of advertising

Any direct or indirect communication an investment adviser makes to more than one person that:

• Offers the investment adviser’s investment advisory services with regard to securities to prospective clients, current clients, or private fund investors
• Includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly

SEC conditions to use an endorsement or testimonial

In summary, federal-covered advisers must follow three general rules when publishing endorsements or testimonials:

1. Disclose compensation (cash and non-cash). Non-cash compensation is anything of value not directly denominated in cash (for example, free advisory services in return for an endorsement).
2. Supervise endorsement/testimonial activity and use a written agreement when the promoter receives more than $1,000 in cash or non-cash compensation.
3. Do not use promoters who are subject to statutory disqualifications (for example, a felony conviction in the last 10 years).

🔑 SEC marketing rule — general prohibitions

Each is a discrete prohibited practice:

1. Making an untrue statement of a material fact, or omitting a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading
2. Making a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the [SEC]
3. Including information that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning a material fact relating to the adviser
4. Discussing any potential benefits without providing fair and balanced treatment of any associated material risks or limitations
5. Referencing specific investment advice provided by the adviser that is not presented in a fair and balanced manner
6. Including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced
7. Including information that is otherwise materially misleading

SEC rule — third-party rating systems (for example, Trustpilot)

The rule prohibits the use of third-party ratings in an advertisement, unless the adviser provides disclosures and satisfies certain criteria pertaining to the preparation of the rating.

Generally speaking, the “certain criteria” requires the adviser to have a reasonable basis to believe the third-party rating system is fair and not set up to receive a specific result. The adviser must also disclose the identity of the third-party ratings service/agency and any compensation paid to the third party.

🔑 SEC marketing rule — prohibited performance-related statements in advertisements

Each is a discrete prohibited practice:

1. Posting gross performance, unless the advertisement also presents net performance
2. Any performance results, unless they are provided for specific time periods in most circumstances
3. Any statement that the [SEC] has approved or reviewed any calculation or presentation of performance results
4. Highlighting accounts or assets with superb performance that are not consistent with the general returns of products and/or services offered
5. Hypothetical performance (which does not include performance generated by interactive analysis tools), unless the adviser adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience and the adviser provides certain information underlying the hypothetical performance
6. Predecessor performance, unless there is an appropriate similarity with regard to the personnel and accounts at the predecessor adviser and the personnel and accounts at the advertising adviser

Gross performance is overall performance without factoring in the costs of investment advice.

Predecessor performance relates to the performance of another form of the company. For example, assume ABC Advisers Company is bought out by XYZ Strategies. XYZ Strategies could not publish the performance of accounts previously managed by ABC Advisers unless XYZ offered relatively similar products and/or services.

⚠️ Bottom line — two frameworks

The two frameworks share the same broad goals — disclosure, oversight, and barring bad actors — but differ in some details.

Fair and balanced presentation

The amended rule traded NASAA’s old list of flat advertising bans for a single governing idea: an adviser may discuss what it likes, so long as the presentation is fair and balanced.

Three general prohibitions that carry the standard

• Charts, graphs, and formulas sit under the same standard. Presenting a tool as though it can decide what to buy or sell, or when, without disclosing its limitations means discussing a benefit without fair and balanced treatment of the limitations — still prohibited, just under the general standard rather than a rule of its own.

Sidenote: What the 2026 amendment removed

⚠️ Older study material lists four flat prohibitions that no longer appear anywhere in Model Rule 102(a)(4)-1:

1. Any testimonial of any kind
2. Reference to past specific recommendations that were or would have been profitable, subject to an exception for furnishing a list of all recommendations over a period of at least one year with a disclaimer legend
3. Representing that a graph, chart, formula, or other device can by itself determine what or when to buy or sell, without prominently disclosing its limitations
4. Representing that a report, analysis, or service is “free” when it isn’t

• 🔑 All four were deleted on May 4, 2026, along with the old definition of “advertisement.” The advertising subsection also moved from (l) to (m) in the renumbering.
• ⚠️ None of that makes the underlying conduct safe. A false “free” claim is an untrue statement of material fact. Cherry-picked winners aren’t fair and balanced. An oversold formula discusses a benefit without disclosing its limitations. The conduct is still reachable — through the general standards above instead of a dedicated prohibition.

Performance presentation (state-registered advisers)

When a state-registered adviser advertises performance, the amended rule adds specific requirements:

Third-party ratings

An adviser may include a third-party rating, such as a review-site score, only if it reasonably believes the questionnaire or survey behind the rating made favorable and unfavorable responses equally easy to give and wasn’t designed to produce a predetermined result.

The adviser must also disclose, or reasonably believe the rating discloses:

• The date of the rating and the period it covers
• Who created and tabulated it
• Any compensation the adviser provided in connection with obtaining or using it

False information

This rule is straightforward: don’t include false information in advertisements, correspondence, or any client interaction.

• ⚠️ Although it appears in the investment adviser and IAR section, it applies to all registered persons and issuers.

Social media communications

Social media is now a major channel for client engagement and marketing in the financial industry. Investors share information widely through posts, comments, message boards, and direct messages. Because of that, securities regulators have issued guidelines that apply to social media activity.

🔑 General treatment

• Financial professionals may not make false, misleading, or exaggerated statements, and they may not omit material facts.
• ⚠️ The medium doesn’t change the standard — whether it’s paper, a billboard, or Twitter, the same anti-fraud principles apply.
• Actions such as “likes” or endorsements on social media are treated as endorsements or testimonials, so the same disclosure, agreement, and ineligible-person conditions covered above apply to them.

Supervision requirements

• Firms must maintain a strong supervisory system for business-related social media activity. Representatives often use internet platforms to communicate with current and prospective clients, and firms are responsible for supervising those communications to ensure compliance.
• 🔑 Before a representative uses a social media platform for business, the platform must be vetted and reviewed by a registered principal (supervisor). The purpose of the review is to confirm that the platform allows the firm to follow applicable rules and guidelines.
• Most major platforms — Twitter, Facebook, Instagram, TikTok, and YouTube — have already been reviewed by many firms. If a representative wants to use a new platform, principal approval is required before using it.

🔑 Static content vs. interactive communications

🔑 Third-party content: adoption & entanglement

Firms and representatives sometimes repost third-party content or link to third-party websites — for example, a brokerage firm tweeting a link to a Yahoo Finance article about market activity. Regulators address this by focusing on whether the firm has effectively made the third-party content its own. If a firm adopts or becomes entangled with third-party content, the communication is treated as if the firm created it.

• ⚠️ Whether a firm adopts or entangles itself with third-party content, the shared material must be vetted, reviewed, and treated essentially as if it were created by the firm.

Personal vs. business social media use

• A registered person’s personal social media is not regulated under the same set of rules. Firms don’t need to keep records of purely personal posts (for example, photos of children or pets).
• ⚠️ However, a personal account can become a business use of social media — for example, if a representative posts TikToks discussing the firm’s products and services.
• To clarify the boundary between personal and business activity, firms must provide ongoing education (typically training modules or videos).
• If the state administrator determines that a registered representative’s personal social media has crossed into business use, both the representative and the firm may face punitive actions.

Key points

Public Communications Overview

• Two categories: correspondence (direct, one-to-one or one-to-many client communication) vs. advertising (broad audience)
• USA anti-fraud rule applies to all: no fraud/deceit, no untrue statements, no omitting material facts
• Material fact: any fact that could entice a securities transaction; must be disclosed if omission would mislead

Material Fact Violations

• Accidental omission = civil liability/penalties
• Willful omission = possible criminal penalties
• Non-material facts don’t require disclosure

Broker-Dealer & Agent Communication Rules

• Cannot use deceptive/misleading ads or presentations that contradict a prospectus
• Not held to fiduciary standard for unsolicited transactions (investor-initiated, no recommendation)
• Less stringent suitability enforcement than advisers; fiduciary duty applies only when a recommendation is made

Investment Adviser & IAR Communication Rules

• Always owe fiduciary duty → stricter standards than BDs/agents
• Prohibited: untrue/misleading statements, unsubstantiated material claims, unfair/unbalanced treatment of benefits vs. risks, misleading performance presentation, non-compliant testimonials/endorsements/ratings

Testimonials & Endorsements (NASAA Model Rule 102(a)(4)-1, 2026)

• Testimonial = statement by current client/investor; Endorsement = statement by non-client (including referrals)
• Must disclose: relationship status, compensation (cash/non-cash), material conflicts of interest
• Must disclose compensation terms; must have reasonable basis + written agreement
• Cannot compensate “ineligible persons” (disqualifying event, e.g., securities felony within 10 years)
• Exceptions: no compensation → skip compensation/agreement disclosures; adviser’s own partners/employees/affiliates → skip identity/compensation disclosure (ineligible-person bar still applies)
• BDs/agents never had a NASAA testimonial prohibition

SEC Marketing Rule (Federal-Covered Advisers Only)

• Applies only to federal-covered advisers (not state-registered, which follow NASAA rule above)
• Advertising definition expanded to include compensated endorsements/testimonials
• Requirements: disclosure of compensation/conflicts, oversight + written agreement (unless affiliate or de minimis ≤$1,000 compensation), bar on disqualified “bad actor” promoters
• General prohibitions mirror NASAA (no untrue statements, unsubstantiated claims, unfair/unbalanced risk-benefit or performance presentation)
• Third-party ratings allowed only with disclosures + reasonable basis rating is fair/unbiased
• Performance rules: must show net performance alongside gross; must show specific time periods; no implied SEC approval; restrictions on cherry-picked accounts, hypothetical performance, and predecessor performance

Fair and Balanced Presentation Standard (Replaces Old Flat Bans)

• Single governing principle: discuss benefits only with fair and balanced treatment of risks/limitations
• Applies to: benefits/risks, specific investment advice references, performance results
• Charts/graphs/formulas: cannot imply they alone determine buy/sell decisions without disclosing limitations

What the 2026 Amendment Removed

• Eliminated flat bans on: testimonials, past specific recommendation references, standalone chart/formula claims, false “free” claims
• Conduct still prohibited but now reachable only via general fair-and-balanced/anti-fraud standards, not dedicated rules

Performance Presentation Requirements (State-Registered Advisers)

• Gross performance must be shown with net performance at least as prominently, same period/methodology
• Must show 1-, 5-, and 10-year periods (or portfolio life if shorter), equal prominence, ending at recent year-end
• No stating/implying administrator approved performance calculations
• Hypothetical/predecessor performance allowed only under specific conditions (relevance to audience; continuity of personnel/accounts)

Third-Party Ratings

• Adviser must reasonably believe rating survey was unbiased (equal ease for favorable/unfavorable responses)
• Must disclose (or believe disclosed): rating date/period, creator/tabulator, and any compensation paid

False Information Rule

• Applies broadly to all registered persons and issuers, not just advisers
• No false information in ads, correspondence, or client interactions

Social Media Communications

• Public posts = advertising; private messages/DMs = correspondence
• Same anti-fraud standards apply regardless of medium
• “Likes”/endorsements on social media treated as endorsements/testimonials (same disclosure rules apply)
• Firms must vet/approve new platforms via registered principal before business use

Static vs. Interactive Content

• Static content (blogs, profiles): longer-term, treated like advertising
• Interactive communications (DMs, tweets, chat rooms, comments): real-time, treated like correspondence

Third-Party Content: Adoption & Entanglement

• Adoption: firm endorses/approves third-party content (e.g., retweet with commentary)
• Entanglement: firm involved in preparing third-party content (e.g., sharing paid review)
• Both treated as if firm created the content itself — must be vetted/reviewed

Personal vs. Business Social Media Use

• Purely personal posts (family/pets) not regulated or required to be recorded
• Personal accounts become “business use” if discussing firm’s products/services
• Firms must provide training to clarify boundary; crossing the line risks punitive action for both rep and firm

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.